<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TALARIAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 33-0323810
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
333 DISTEL CIRCLE
LOS ALTOS, CALIFORNIA 94022
(650) 965-8050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PAUL A. LARSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TALARIAN CORPORATION
333 DISTEL CIRCLE
LOS ALTOS, CALIFORNIA 94022
(650) 965-8050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C> <C>
LAIRD H. SIMONS III, ESQ. MICHAEL D. NATHAN, ESQ. MICHAEL A. MORGAN
BARRY J. KRAMER, ESQ. SIMPSON THACHER & BARTLETT CHIEF FINANCIAL OFFICER
DOROTHY L. HINES, ESQ. 425 LEXINGTON AVENUE TALARIAN CORPORATION
JOSHUA N. SUN, ESQ. NEW YORK, NEW YORK 10017-3954 333 DISTEL CIRCLE
JOHN M. SHIELDS, ESQ. (212) 455-2000 LOS ALTOS, CALIFORNIA 94022
FENWICK & WEST LLP (650) 965-8050
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per share.................... $69,000,000 $18,216
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 13, 2000
PROSPECTUS
SHARES
[TALARIAN LOGO]
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our common
stock.
We propose to list the shares on the Nasdaq National Market under the
symbol "TALR." We expect the public offering price to be between $ and
$ per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 9.
<TABLE>
<CAPTION>
Per
Share Total
----------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Talarian........................................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock at the public offering price
less the underwriting discount to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about ,
2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
SG COWEN
WIT SOUNDVIEW
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL
SERVICES CORPORATION
, 2000
<PAGE> 3
[ARTWORK]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus summary.................. 4
Risk factors........................ 9
Forward-looking statements.......... 21
Use of proceeds..................... 22
Dividend policy..................... 22
Capitalization...................... 23
Dilution............................ 25
Selected consolidated financial
data.............................. 26
Management's discussion and analysis
of financial condition and results
of operations..................... 28
Business............................ 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management.......................... 58
Related party transactions.......... 70
Principal stockholders.............. 71
Description of capital stock........ 73
Shares eligible for future sale..... 76
Underwriting........................ 79
Legal matters....................... 81
Experts............................. 81
Change in accountants............... 82
Where you may find additional
information....................... 82
Index to financial statements....... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with information that is
different from that contained in this prospectus. We are not making an offer to
sell common stock in any jurisdiction where the offer or sale is not permitted.
The information contained in this prospectus is accurate only as of the date on
the front cover of this prospectus regardless of the time of delivery of this
prospectus or of any sale of shares of our common stock. Our business, financial
condition, results of operations and prospects may have changed since that date.
Talarian, the Talarian logo, SmartSockets, RMTP-II, PGM, RTmonitor,
MQadmin, MQexpress, GlobalCast, and WhiteBarn are our trademarks. All other
trademarks or trade names appearing elsewhere in this prospectus are the
property of their respective owners.
Until , 2000, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary contains basic information about our business and
this offering. It may not contain all of the information that is important to
you. You should read the entire prospectus, including "Risk Factors" and the
financial statements and related notes, before making an investment decision.
Except as otherwise indicated, all information in this prospectus assumes the
conversion of all outstanding shares of preferred stock into common stock, no
exercise of the underwriters' over-allotment option and our reincorporation in
Delaware.
TALARIAN CORPORATION
We are a leading provider of infrastructure software that enables
businesses to exchange information reliably and securely in real-time, both
internally and with their partners, suppliers, and customers. Our products and
services allow software applications to communicate across local or wide area
networks, including private networks and the Internet. Our flagship software
product, SmartSockets, provides businesses with a robust, easy-to-use, scalable
method of distributing relevant, time-critical information. We also offer
professional services that assist our customers in systems planning,
architecture and design, custom development and systems integration for the
rapid deployment of our products.
Our products are designed for and implemented in demanding,
mission-critical environments with high volumes of users and data. Our products
have been deployed by over 300 companies in a variety of markets such as
financial services, aerospace, telecommunications, high-tech manufacturing,
transportation, energy, and e-business. Our customers include the Chicago Board
Options Exchange, Cisco Systems, Lockheed Martin, MCI WorldCom, Micron
Technology, MindSpring, Nortel Networks, the Philadelphia Stock Exchange, SIAC
(the New York Stock Exchange) and Southwest Airlines. Our products are also
embedded in commercial software products of companies such as BMC Software,
Platinum Technology (now part of Computer Associates) and Novell.
We were incorporated in 1988 and originally offered software products used
primarily in connection with mission-critical command and control operations in
industries such as aerospace. In 1997, leveraging the existing technology, we
refocused our business strategy to provide infrastructure software for
applications relying heavily upon the use of real-time communications over
distributed systems.
Today's business environment, fueled by the growth of enterprise networks
and the Internet, allows organizations to communicate and conduct business more
rapidly than ever before. In order to function and compete effectively,
organizations must exchange increasing volumes of information between expanding
numbers of users, efficiently and continuously in real-time. To provide
real-time connectivity, organizations must be able to distribute information
residing in disparate sets of software applications, computing platforms and
networks. Rather than keeping information only on centralized servers or
mainframes, today's businesses have begun to utilize extensive internal and
external networks, including the Internet, to access and exchange information
throughout their organizations as well as with partners, suppliers and
customers. This new computing paradigm is creating a global build-out of
networking hardware to facilitate this connectivity. However, we believe that
the software infrastructure to support this shift, often developed in-house, has
not been developed rapidly enough to meet the performance and scalability
requirements of the market. This infrastructure software must be robust and
comprehensive, connecting disparate applications running across a variety of
heterogeneous and often unpredictable public and private networks.
Our SmartSockets infrastructure software facilitates selective information
delivery through the use of high-performance publish-subscribe technology. This
technology enables messages to be
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<PAGE> 6
delivered automatically to interested applications rather than requiring that
users request this information on a case by case basis. Our products use both
TCP/IP, the standard Internet protocol for one-to-one communication, or unicast,
as well as multicast protocols for one-to-many communication. Multicast allows
information requested by multiple applications to be sent only once, rather than
as multiple separate messages to each application, thereby providing information
simultaneously to multiple applications and using the existing bandwidth of the
network more efficiently. We also offer implementations of multicast protocols
for mission-critical environments that contain enhanced error recovery
mechanisms, known as "reliable multicast," and delivery services for the
implementation of these protocols.
We believe that our products meet the needs of the market by providing our
customers with the following benefits:
- High Performance. We believe that SmartSockets is one of the highest
performing infrastructure software solutions available, capable of
delivering over 20,000 200-byte messages per second.
- High Scalability. SmartSockets is highly scalable in terms of transaction
volumes, number of users, and geographic location of users and
applications. It enables businesses to add new clients, servers and
applications easily without having to rewrite software.
- Ease of Use and Implementation. SmartSockets is easy to use and can be
quickly deployed by businesses without extensive use of system
integrators, thereby reducing the overall cost of ownership for the
customer. Furthermore, SmartSockets is a modular product that can be
deployed on a limited basis and expanded in the future.
- Efficient Network Utilization. Our technology allows our products to make
efficient use of available network bandwidth while scaling with the
expanding capabilities of the network. The multicast technology we use
reduces the complexity and cost of distributing information over the
network.
- Reliability and Fault Tolerance. Our SmartSockets software is built upon
technology that we initially developed for very demanding aerospace
industry applications. This technology has now been deployed in other
very demanding environments such as e-commerce sites, financial exchanges
and large-scale transportation systems.
- Active Model of Information Distribution. Our implementation of
publish-subscribe communication technology enables information to be
automatically delivered only to those applications that have previously
expressed an interest in receiving that information when it becomes
available.
Our objective is to be the leading provider of infrastructure software that
enables businesses to communicate and collaborate in real-time within and
between organizations. The key elements of our strategy include:
- Strengthen Our Technology Leadership Position. We plan to continue to
invest substantial resources in research and development, make strategic
acquisitions and participate in the development of industry standards
relevant to our business;
- Proliferate Our Technology. We intend to continue to strengthen our
strategic relationships with Nortel Networks and Novell and develop new
relationships with other key industry players;
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<PAGE> 7
- Expand Our Presence in Key Vertical Markets. We plan to continue to
target markets such as financial services and telecommunications and to
establish a similar presence in other key markets, both domestically and
internationally;
- Expand Our Presence in the Internet Infrastructure Market. We plan to
continue to invest in research and development to provide our products
with the enhanced capabilities required for the Internet infrastructure
market and to focus additional sales and marketing resources on that
market;
- Expand Our Distribution Channels. We intend to create re-seller
relationships with leading systems and business-to-business integration
companies, professional services organizations and enterprise application
integration vendors; and
- Promote Awareness of Our Company and Our Products. We plan to increase
investments in our marketing infrastructure.
Our operating history with our current business strategy is limited. We
incurred net losses of $3.3 million for the fiscal year ended September 30, 1999
and $1.4 million for the three months ended December 31, 1999. As of December
31, 1999, we had an accumulated deficit of approximately $14.3 million. We
expect to continue to incur significant product development, sales and marketing
and administrative expenses over the next several years as we continue to expand
our business.
We operate in a highly competitive market characterized by rapid
technological change. Our future success is subject to risks and uncertainties.
The market for real-time infrastructure products is in an early stage of
development and these products, including our SmartSockets software, may not
achieve market acceptance. In addition, several of our competitors have broader
product offerings than ours and many have significantly greater resources than
we do.
We incorporated in Maryland in November 1988 and reincorporated in
California in May 1991. We intend to reincorporate in Delaware prior to the
closing of this offering. Our principal executive offices are located at 333
Distel Circle, Los Altos, California 94022, and our telephone number is (650)
965-8050. Our Internet address is www.talarian.com. The information on our Web
site is not a part of this prospectus.
6
<PAGE> 8
THE OFFERING
Common stock offered by Talarian........ shares
Common stock to be outstanding after
this offering........................... shares
Use of proceeds......................... We estimate that we will receive
net proceeds from this offering of
$ , or $ if the
underwriters exercise their
over-allotment option in full. We
expect to use the net proceeds for
general corporate purposes,
including working capital, sales
and marketing, research and
development capital expenditures
and, if appropriate opportunities
arise, acquiring, or investing in,
businesses, products or
technologies or establishing joint
ventures. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. TALR
The number of shares of our common stock that will be outstanding after
this offering is based on the number outstanding on March 15, 2000 and assumes
the conversion of our outstanding preferred stock into 8,810,882 shares of
common stock immediately prior to this offering;
The number of shares of our common stock that will be outstanding after
this offering excludes:
- 1,805,521 shares subject to outstanding options and warrants at March 15,
2000 at a weighted average exercise price of $1.46 per share; and
- 4,474,835 additional shares currently available for issuance under our
stock purchase and option plans.
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated financial data and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the
related notes included elsewhere in this prospectus. The unaudited pro forma
information in the consolidated statement of operations data gives effect to our
acquisition of substantially all the assets of GlobalCast Communications, Inc.
in September 1999 and our acquisition of WhiteBarn, Inc. in March 2000, as if
the acquisitions had occurred on October 1, 1998, and does not assume the
conversion of the shares of our outstanding preferred stock into common stock
upon the closing of this offering.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
THREE MONTHS THREE
ENDED MONTHS
YEAR ENDED SEPTEMBER 30, DECEMBER 31, YEAR ENDED ENDED
-------------------------------------------- ---------------- SEPTEMBER 30, DECEMBER 31,
1995 1996 1997 1998 1999 1998 1999 1999 1999
------ ------ ------ ------- ------- ------ ------- ------------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
License...................... $2,821 $3,560 $4,209 $ 5,100 $ 5,912 $1,436 $ 1,829 $ 5,912 $ 1,829
Maintenance.................. 780 1,255 1,426 1,873 2,488 473 718 2,488 718
Professional services........ 503 733 807 540 640 110 247 2,233 612
------ ------ ------ ------- ------- ------ ------- ------- -------
Total revenue.............. 4,104 5,548 6,442 7,513 9,040 2,019 2,794 10,633 3,159
Gross profit................... 3,515 5,148 5,230 6,448 7,923 1,791 2,470 8,507 2,507
Income (loss) from
operations................... (185) 48 (889) (1,718) (3,312) (678) (1,372) (7,128) (1,835)
Net income (loss).............. $ (181) $ 118 $ (894) $(1,728) $(3,329) $ (659) $(1,397) $(7,499) $(1,857)
====== ====== ====== ======= ======= ====== ======= ======= =======
Basic and diluted net loss per
share attributable to common
stockholders................. $(0.28) $(0.18) $(0.57) $ (0.80) $ (1.23) $(0.27) $ (0.40) $ (1.85) $ (0.39)
------ ------ ------ ------- ------- ------ ------- ------- -------
Basic and diluted common shares
used in computation.......... 2,073 2,139 2,434 2,781 3,099 2,906 3,815 4,052 4,768
------ ------ ------ ------- ------- ------ ------- ------- -------
</TABLE>
The unaudited pro forma columns of the consolidated balance sheet data are
based on the number of shares outstanding on December 31, 1999 and assume the
following occurred as of such date:
- the purchase of 1,571,055 shares of our preferred stock by Nortel
Networks Inc. in February 2000;
- the exercise of employee stock options to purchase a total of 1,824,398
shares of our common stock from January 1, 2000 through March 15, 2000;
and
- our acquisition of WhiteBarn, Inc. in March 2000, including the issuance
of 348,215 shares of our common stock.
The pro forma as adjusted column of the consolidated balance sheet data
reflects the conversion of our outstanding preferred stock into 8,810,882 shares
of common stock immediately prior to this offering and the sale of
shares of our common stock at an assumed initial public offering
price of $ per share, after deducting the estimated underwriting discount
and offering expenses payable by us.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,917 $12,283
Working capital (deficit)................................... (1,217) 9,218
Total assets................................................ 5,972 19,191
Debt, less current portion.................................. 21 21
Redeemable convertible preferred stock...................... 8,768 18,768
Stockholders' equity (deficit).............................. (10,068) (6,985)
</TABLE>
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<PAGE> 10
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following factors, as well as other information contained
in this prospectus, before deciding to invest in shares of our common stock. If
any of the following risks actually occurs, our business, financial condition
and results of operations would suffer. In this case, the trading price of our
common stock could decline and you might lose all or part of your investment in
our common stock.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES, AND WE MAY NEVER ACHIEVE
OR MAINTAIN PROFITABILITY.
We have a history of losses, we expect future losses, and we do not expect
to achieve profitability in the near future. We incurred net losses of $1.7
million in fiscal 1998, $3.3 million in fiscal 1999, and $1.4 million in the
first quarter of fiscal 2000. As of December 31, 1999, we had an accumulated
deficit of approximately $14.3 million. We cannot assure you that our revenue
will grow or that we will achieve or maintain profitability in the future. We
intend to significantly increase our future product development, sales and
marketing, and administrative expenses. Accordingly, we will need to increase
our revenue significantly to achieve and maintain profitability, which we may
not be able to do.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY SINCE THE IMPLEMENTATION OF OUR CURRENT BUSINESS STRATEGY.
In 1997, we implemented a new business strategy and introduced our
SmartSockets real-time infrastructure software. Prior to 1997, we derived a
substantial majority of our revenue from a suite of software products used
primarily in connection with mission-critical command and control operations in
industries such as aerospace. In 1997, we re-focused our business strategy on
providing infrastructure software for applications relying heavily upon the use
of real-time, distributed systems. Utilizing the existing technology developed
for mission-critical command and control operations, we launched the
SmartSockets product line and directed our sales and marketing efforts at the
finance and telecommunications markets. In addition, through our acquisition of
substantially all the assets of GlobalCast Communications, Inc. in 1999 and our
acquisition of WhiteBarn, Inc. in 2000, we added reliable multicast capabilities
to our product line. We also expanded our business strategy in 1999 to include
providing software infrastructure products to the market for Internet-related
applications. We have a limited operating history with our current software
product line and business strategy. If our current business strategy is not
successful, our business will suffer.
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ARE DIFFICULT TO PREDICT IN
ADVANCE, AND A FAILURE TO MEET THE REVENUE EXPECTATIONS OF SECURITIES ANALYSTS
OR INVESTORS MIGHT RESULT IN A DECLINE IN OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the past
and may vary significantly in the future. If our operating results are below the
expectations of securities analysts or investors, our stock price is likely to
decline.
Our revenue and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, we
have had little backlog and our revenue in any quarter has been substantially
dependent upon orders booked in that quarter. In addition, a substantial portion
of our revenue in a given quarter has often been recorded in the third month of
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<PAGE> 11
that quarter, with a concentration of this revenue in the last two weeks of the
third month. Furthermore, a significant portion of our revenue for a given
quarter has often been derived from a limited number of orders. We expect these
trends to continue and, therefore, any failure or delay in the closing of orders
could have a material adverse effect on our quarterly operating results. Since
our operating expenses are based on anticipated revenue and because a high
percentage of these expenses are relatively fixed, a shortfall in anticipated
revenue could have a significant negative impact on our operating results.
Other factors that may cause our revenue or operating results to fall short
of expectations include:
- the amount and timing of sales and marketing expenses and other operating
costs and capital expenditures relating to our business;
- changes in prices of, and the adoption of different pricing strategies
for, our products and those of our competitors;
- changes in the demand for our products due to the announcement or
introduction of new or enhanced products or services by us or our
competitors;
- the capital and expense budgeting decisions of our customers;
- changes in the demand for our products due to the fact that many of our
future customers are expected to be concentrated in early-stage
industries, such as the Internet industry, and these customers are often
capital constrained and have rapidly changing needs; and
- the impact of possible acquisitions both on our operations and on our
reported operating results due to associated accounting charges.
VARIATIONS IN THE TIME IT TAKES US TO SELL OUR PRODUCTS MAY CAUSE FLUCTUATIONS
IN OUR OPERATING RESULTS.
Variations in the length of our sales cycles could cause our revenue to
fluctuate widely from period to period. The period between our initial contact
with a customer and the time when we recognize revenue from that customer varies
widely in length. Our sales cycles typically range from three to nine months.
For larger opportunities with new customers, these cycles can be longer.
Additionally, due to the mission-critical nature of many deployments of our
products, our customers may take a long time to evaluate our products, and many
individuals may be involved in the evaluation process. In addition, many of our
customers purchase our real-time infrastructure software as part of a
large-scale information technology project, which includes the purchase of many
products from a number of vendors. Changes in the scheduling of these projects,
or delays or problems caused by other vendors or their products, may cause
unexpected delays in our sales cycles.
THE REAL-TIME INFRASTRUCTURE SOFTWARE PRODUCTS MARKET IS IN AN EARLY STAGE OF
DEVELOPMENT, AND THESE PRODUCTS, INCLUDING OUR SMARTSOCKETS SOFTWARE AND RELATED
PRODUCTS, MAY NOT ACHIEVE MARKET ACCEPTANCE.
The market for real-time infrastructure software products is relatively new
and rapidly evolving, and there are a variety of infrastructure methods
available. We do not know if customers in our target markets will widely adopt
and deploy real-time infrastructure software products such as our SmartSockets
software and related products. If real-time infrastructure software products
such as our SmartSockets software are not widely adopted by customers in our
target markets, our business will suffer.
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<PAGE> 12
Due to the evolving nature of our market, we may have to devote substantial
resources to educate prospective customers about the benefits of infrastructure
software in general and our SmartSockets software and related products in
particular. Our efforts to educate potential customers may not result in our
products achieving market acceptance. In addition, many of these prospective
customers have made significant investments in internally developed or custom
systems and may incur significant costs in switching to third-party products
such as ours. Our target customers may not choose our products for technical,
cost, support or other reasons. If the market for our products fails to grow or
grows more slowly than we anticipate, our business could suffer.
WE DERIVE SUBSTANTIALLY ALL OF OUR REVENUE FROM OUR SMARTSOCKETS PRODUCT LINE
AND IF DEMAND FOR SMARTSOCKETS DECREASES OR DOES NOT INCREASE, OUR BUSINESS
WOULD BE HARMED.
We currently derive substantially all of our revenue from licensing our
SmartSockets software product line and providing related consulting and
maintenance services. We expect to continue to derive a substantial portion of
our revenue from these sources for the foreseeable future. Accordingly, our
future operating results will depend on the demand for SmartSockets by future
customers. If our competitors release products that are superior to SmartSockets
in performance or price, SmartSockets is not widely accepted by the market, or
we fail to enhance SmartSockets and introduce new versions in a timely manner,
demand for our product may decline. A decline in the demand for SmartSockets as
a result of competition, technological change or other factors would adversely
affect our business, financial condition and operating results.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE OR INDUSTRY STANDARDS, OUR
PRODUCTS MAY NOT BE COMPETITIVE AND OUR OPERATING RESULTS MAY SUFFER.
Our industry is characterized by rapid technological change, frequent new
product introductions and enhancements, and evolving customer demands and
industry standards. Our products may not be competitive if we fail to introduce
new products or product enhancements that meet new customer demands, support new
standards, or integrate with new or upgraded versions of packaged applications.
The development of new products is complex, and there can be no assurance that
we will be able to complete development in a timely manner, or at all. There are
currently no widely accepted standards in various technical areas of importance
to us, including the areas of reliable multicast and business-quality messaging.
We are involved in various standard setting bodies and have attempted to design
our products in a manner that will permit them to be compatible with the major
proposed standards alternatives, but there can be no assurance that the
standards we support will prevail or be widely adopted. We believe that we will
need to continue to enhance our products and develop new products to keep pace
with competitive and technological developments and evolving industry standards,
and our failure to do so on a timely basis, or to achieve market acceptance for
our products, would harm our business prospects.
FAILURE TO DEVELOP KEY STRATEGIC RELATIONSHIPS COULD LIMIT OUR GROWTH.
We believe that our success in penetrating our target markets depends in
part upon our ability to develop and maintain strategic relationships with
certain key original equipment manufacturers, systems integrators, distributors
and independent software vendors. Relationships with these parties are also
important because they often influence a customer's decision on which
infrastructure software will be used for a project. We believe these
relationships will introduce our products to potential customers and provide us
with insights into new technologies to which we may not otherwise have access.
For example, a system integrator that is responsible for reengineering a network
may be heavily involved in analyzing and ultimately selecting the infrastructure
software to be used in the network. To date, we have only informal relationships
with a limited number of system integrators.
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Some of our competitors have developed more strategic relationships than we
have. We cannot be certain that we will be able to establish relationships with
additional companies on a timely basis, or at all, or that these companies will
devote adequate resources to embedding, promoting or selling our products.
Additionally, in connection with Nortel Networks' equity investment in us in
February 2000, we entered into a preferred marketing arrangement with Nortel
Networks which, among other things, restricts our ability to enter into
marketing partnerships with specified third parties until February 2001.
Potential conflicts between our direct sales force and third-party reselling
efforts could also limit our ability to develop additional key strategic
relationships. If we fail to develop these strategic relationships, or if any of
our current relationships with these types of organizations is terminated, we
might lose important opportunities, our growth might be limited, and our
business might suffer.
COMPETITION IN THE REAL-TIME INFRASTRUCTURE SOFTWARE MARKET IS INTENSE; MANY OF
OUR COMPETITORS AND POTENTIAL COMPETITORS ARE MUCH LARGER THAN WE ARE AND HAVE
SIGNIFICANTLY GREATER RESOURCES; WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The market for our products is intensely competitive, relatively new,
rapidly evolving and subject to rapid technological change. We believe that
competition will become more intense in the future and may cause price
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenue. We most often compete against
Tibco Software, a provider of infrastructure software products and services.
Other current and potential competitors include:
EAI Vendors. We currently face competition from various enterprise
application integration, or EAI, vendors that offer some of the features of our
products in their technology. These EAI vendors include Active Software and
Vitria.
Infrastructure Software Providers. We face potential competition from
various infrastructure software providers including IBM, Microsoft and BEA.
Currently, their products do not generally offer the performance and scalability
of our infrastructure software and therefore do not directly compete with our
products. In the future, infrastructure software providers may add functionality
to their products that would enable them to compete directly with us.
Operating System Software Vendors. Vendors of widely used operating system
software, including Microsoft and Sun Microsystems, may integrate real-time
infrastructure functionality into future versions of their operating system
software or introduce directly competing infrastructure functionality. Microsoft
has announced its intention to introduce products that may compete with some
aspects of our product. If Microsoft or other vendors are able to incorporate
infrastructure functionality successfully into future versions of their
operating system software or introduce competing products, we may not be able to
compete effectively and may not be able to obtain or may lose market share.
IT Departments. We currently face competition from the information
technology departments of potential customers which have developed or may
develop systems that provide for some or all of the functionality of our
SmartSockets software and related products. It is often difficult for us to sell
our product to a potential customer that has already invested heavily in a
system that our product is intended to replace.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Historically, our expenditures on research and development have been limited
due to resource constraints and we will need to substantially increase our
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investment in research and development in the future. Our competitors may be
able to develop products comparable or superior to those we offer, adapt more
quickly than we do to new technologies, evolving industry trends or customer
requirements, or devote greater resources to the development, promotion and sale
of their products than we do. Many of our competitors may also have
well-established relationships with our existing and prospective customers.
Negotiating and maintaining favorable customer and strategic relationships is
critical to our business, and our competitors may be able to negotiate strategic
relationships on more favorable terms than we are able to negotiate.
Furthermore, a number of these competitors may merge or form strategic
relationships that would enable them to offer, or bring to market earlier,
products or services that are superior to our own in terms of features, quality,
pricing or other factors. We expect additional competition from other
established and emerging companies. We may not be able to compete effectively
against current and potential competitors, especially those with significantly
greater resources.
SOME OF OUR COMPETITORS HAVE SIGNIFICANTLY BROADER PRODUCT OFFERINGS, AND WE MAY
NEED TO PARTNER WITH THIRD PARTIES TO PROVIDE BROADER SOLUTIONS.
Our customers often purchase our real-time infrastructure software as part
of a large-scale information technology project requiring many products from
many vendors. Many of our competitors offer extended product lines, and some
customers may prefer to purchase products from vendors that are able to offer
broader functionality than can be provided by SmartSockets alone as part of the
customers' overall information technology project. In order to compete more
effectively, we may need to expand the breadth of our product offerings by
partnering with companies offering complementary products. We may not be able to
enter into relationships of this type, on reasonable terms or at all, and our
failure to do so could adversely affect our business, operating results and
financial condition.
IF WE FAIL TO PENETRATE KEY TARGET MARKETS, SUCH AS THE BUSINESS-TO-BUSINESS
E-COMMERCE MARKET, OR IF THESE MARKETS FAIL TO GROW AS ANTICIPATED, OUR BUSINESS
MAY SUFFER.
Historically, we have directed our sales and marketing efforts toward
companies in the financial services, telecommunications and aerospace
industries. We have recently devoted substantial resources to penetrating new
target markets, including the market for Internet infrastructure software.
However, to date only a small percentage of our customers are in that market.
The Internet infrastructure software market is new and rapidly changing.
Customers in this market and other potential markets are likely to have
different requirements than our current customers, and may require us to change
our product design or features, sales methods, support capabilities or pricing
policies. The costs of addressing these requirements could be substantial and
could adversely affect our operating results. In addition, if we fail to address
the needs of these new markets, our business could suffer.
Furthermore, because we have expended and will continue to allocate
substantial resources toward providing Internet-based solutions, the growth of
our business depends on the increased acceptance and use of the Internet as a
medium for conducting e-commerce and demand for our products in Internet-based
applications. The rapid growth of the Internet as a means for conducting
business is a recent occurrence and may not continue at historical rates. If the
use of the Internet and e-commerce does not grow as anticipated, our business
could suffer.
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WE PLAN TO EXPAND OUR INTERNATIONAL OPERATIONS, AND THE SUCCESS OF ANY
INTERNATIONAL EXPANSION IS SUBJECT TO SIGNIFICANT UNCERTAINTIES.
We believe that we must expand our international sales and distribution
operations to be successful. Revenue from the sale of our products and services
outside the United States accounted for $1.1 million and $2.3 million, or 14%
and 25% of our total revenue, in fiscal 1998 and 1999, respectively. Most of our
international revenue was generated through a limited number of distributors and
our five-person sales office in London, England. We have recently opened a sales
office in Frankfurt, Germany and plan to further expand our direct and indirect
sales and distribution organization outside of the United States. We are exposed
to various risks inherent in attempting to conduct and expand business
internationally, including:
- difficulties and costs of staffing and managing international operations;
- fluctuations in currency exchange rates;
- unexpected changes in regulatory requirements, including imposition of
currency exchange controls, applicable to our business or to the
Internet;
- difficulties and additional costs of tailoring our products to meet the
demands of foreign markets;
- political and economic instability; and
- reduced protection for intellectual property rights in certain countries.
Any of these factors could adversely affect our international operations
and, consequently, our operating results.
WE HAVE MADE AND MAY CONTINUE TO MAKE ACQUISITIONS, WHICH COULD DECREASE OUR
PROFITABILITY, PUT A STRAIN ON OUR RESOURCES AND CAUSE DILUTION TO OUR
STOCKHOLDERS.
We have made and may continue to make acquisitions of other companies in
order to expand our business and services. For example, in September 1999 we
acquired the assets of GlobalCast, a provider of reliable multicast products and
services. In addition, in March 2000, we acquired WhiteBarn, a provider of
reliable multicast-related consulting services and developer of multicast
technology. Integrating newly acquired organizations and technologies into our
company could be expensive and time-consuming and may strain our resources. The
integration of WhiteBarn into our company has not yet been completed and is made
more challenging because its headquarters, near Chicago, Illinois, is
geographically distant from our own. We may not be successful in integrating
acquired businesses or technologies and may not achieve anticipated revenue and
cost benefits. In addition, future acquisitions could result in potentially
dilutive issuances of equity securities or the incurrence of debt, contingent
liabilities or amortization expenses related to goodwill and other intangible
assets, any of which could harm our business. For example, in connection with
the acquisition of substantially all of the assets of GlobalCast, we recorded
approximately $1.7 million in goodwill and other intangibles, which will be
amortized over a period of three to four years and, in connection with the
acquisition of WhiteBarn, we recorded approximately $2.6 million in goodwill and
other intangibles, which will be amortized over a period of two to three years.
Moreover, we cannot make any assurances that we will be able to identify future
suitable acquisition candidates or, if we are able to identify suitable
candidates, that we will be able to make such acquisitions on commercially
reasonable terms or at all.
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THE RAPID GROWTH OF OUR OPERATIONS COULD STRAIN OUR RESOURCES AND CAUSE OUR
BUSINESS TO SUFFER.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We plan to increase the scope of our operations and the size
of our direct sales force domestically and internationally, and we have recently
increased our headcount substantially. Our growth may place a significant strain
on our management systems, infrastructure and resources. We expect that we will
need to continue to improve our financial and managerial controls, reporting
systems and procedures. We will also need to expand, train and manage our
workforce worldwide. Furthermore, we expect that we will be required to manage
an increasing number of relationships with various customers and other third
parties. If we do not manage our growth efficiently and effectively, it could
adversely affect our business, operating results and financial condition.
WE RELY UPON THE CONTRIBUTIONS OF KEY MANAGEMENT PERSONNEL, WHOSE KNOWLEDGE,
LEADERSHIP AND TECHNICAL EXPERTISE WOULD BE EXTREMELY DIFFICULT TO REPLACE.
Our success depends heavily upon the continued contributions of our key
management personnel, whose knowledge, leadership and technical expertise would
be difficult to replace. In particular, we rely upon the leadership of Paul A.
Larson, our President and Chief Executive Officer, and Thomas J. Laffey, our
Chief Technical Officer. All of our executive officers and key personnel are
employees at-will. If we were to lose the services of any of our key personnel,
our business would suffer.
IF WE ARE UNABLE TO HIRE, TRAIN AND RETAIN ADDITIONAL SALES, MARKETING,
ENGINEERING AND FINANCE PERSONNEL OUR BUSINESS WILL SUFFER.
In order to grow our business successfully and maintain a high level of
quality and service, we will need to recruit, retain and motivate additional
highly-skilled sales, marketing, engineering and finance personnel. In
particular, we will need to expand our sales and marketing organizations in
order to increase market awareness of our SmartSockets software and related
products and to generate increased revenue. In addition, as a company focused on
the development of complex software products, we will need to hire additional
software developers and engineers, systems architects and project managers of
various experience levels in order to keep pace with technological change and
develop products that meet the needs of rapidly evolving markets.
Competition for skilled employees, particularly in the San Francisco Bay
Area, is intense. We may have greater difficulty recruiting potential employees
after this offering if they perceive the equity component of our compensation
package to be less valuable after this offering than prior to this offering.
Furthermore, new employees require training, take time to achieve full
productivity and, in light of the high rate of turnover for these employees, may
be difficult to retain. If we are not able to hire, train and retain a
sufficient number of qualified employees, our business, operating results and
financial condition could suffer.
MANY OF OUR EXECUTIVES AND OTHER EMPLOYEES HAVE JOINED US ONLY RECENTLY, AND IF
THEY ARE UNABLE TO WORK TOGETHER EFFECTIVELY, WE MAY NOT BE ABLE TO MANAGE OUR
GROWTH AND OPERATIONS.
Many of our executives and other employees joined us only recently and have
had only a limited time to work together. For example, Brian D. Whetten, our
Chief Scientist, joined us in March 1999, Carl R. Schulenburg, our Vice
President, Sales, joined us in June 1999, Michael A. Morgan, our Vice President,
Finance and Administration and Chief Financial Officer, joined us in August
1999, and Steven M. Gimnicher, our Vice President, Product Development, and Mark
G. Mahowald, our
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Vice President, Multicast and Networking Technologies, both joined us in March
2000. Joseph Addiego, our Senior Vice President, Sales and Marketing, joined us
in April 2000. In addition, many of the senior engineers involved in developing
our multicast technology have only recently joined us as part of our
acquisitions of GlobalCast and WhiteBarn. We cannot assure you that they will be
able to work effectively together to develop our technology and manage our
growth and continuing operations.
OUR SOFTWARE PRODUCTS MAY HAVE UNKNOWN DEFECTS THAT COULD HARM OUR REPUTATION,
DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS, CAUSE US TO LOSE CUSTOMERS OR
REVENUE, OR RESULT IN LIABILITY TO US.
Our products were created using highly complex software, both internally
developed and licensed from third parties. Highly complex software may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Although we conduct extensive testing, we may not
discover software defects that affect our current or new products or
enhancements until after they are sold. Any interruptions caused by unknown
defects in our products could cause substantial damage to our customers'
businesses and could damage our reputation, cause our customers to initiate
product liability suits against us, increase our product development costs,
divert our product development resources, cause us to lose revenue or delay
market acceptance of our products.
WE COULD SUFFER NEGATIVE PUBLICITY AND INJURY TO OUR REPUTATION IF WELL-KNOWN
CUSTOMERS SUFFER SERVICE INTERRUPTIONS.
Many of our customers, including financial exchanges, telecommunications
companies and large-scale e-businesses, rely upon our infrastructure software to
provide widely used and highly publicized services. If any of these customers
suffers a service interruption, we could suffer negative publicity and injury to
our reputation, and the degree of this injury could be grossly disproportionate
to the actual contribution of our products to the service interruption. In
addition, we could suffer negative publicity and injury to our reputation even
if these interruptions were wholly unrelated to the performance of our products.
OUR CUSTOMERS WILL NOT BE ABLE TO REALIZE THE FULL EFFICIENCY BENEFITS OF OUR
INFRASTRUCTURE SOFTWARE UNLESS THE INTERNET IS MULTICAST ENABLED.
As the volume of data transmitted across networks, particularly the
Internet, increases, it may be increasingly important for infrastructure
software to make efficient use of available network bandwidth. One of the
potential competitive advantages of our infrastructure software is that it
enables more efficient use of available network bandwidth. Our software achieves
this benefit through an efficient implementation of publish-subscribe
architecture and is capable of even greater efficiency using multicast
technology. However, our customers will not be able to realize the full
efficiency benefits of our multicast capabilities over the Internet unless the
Internet is multicast enabled. Although we believe that the Internet will become
multicast enabled in the future, there can be no assurance that it will be.
OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY
CAUSE US TO INCUR UNEXPECTED COSTS OR PREVENT US FROM SELLING OUR PRODUCTS.
We cannot be certain that our products do not and will not infringe issued
patents or other intellectual property rights of others. Historically, patent
applications in the United States have not been publicly disclosed until the
patent is issued, and we may not be aware of filed patent applications that
relate to our products or technology. If patents later issue on these
applications, we
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may be liable for infringement. We may also be subject to legal proceedings and
claims in the ordinary course of our business, including claims of alleged
infringement of the patents, trademarks and other intellectual property rights
of third parties by us or our licensees in connection with their use of our
products. Intellectual property litigation is expensive and time-consuming, and
could divert our management's attention away from operating our business. If we
discovered that our products infringe the intellectual property rights of
others, we would need to obtain licenses from these parties or substantially
reengineer our products in order to avoid infringement. We might not be able to
obtain the necessary licenses on acceptable terms or at all, or to reengineer
our products successfully. Moreover, if we are sued for infringement and lose
the suit, we could be required to pay substantial damages or enjoined from
licensing or using the infringing products or technology. Any of the foregoing
could cause us to incur significant costs and prevent us from selling our
products.
OUR INTELLECTUAL PROPERTY COULD BE USED BY OTHERS WITHOUT OUR CONSENT.
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect our
proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property will not prevent third parties from
independently developing technology that is similar to or competes with our own.
Moreover, despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that we
regard as proprietary. In addition, other parties may breach confidentiality
agreements or other protective contracts into which we have entered, and we may
not be able to enforce our rights in the event of these breaches. Furthermore,
we expect that we will increase our international operations in the future, and
the laws of many foreign countries do not protect our intellectual property
rights to the same extent as the laws of the United States. For more information
regarding our intellectual property, see "Business -- Intellectual Property and
Other Proprietary Rights."
POTENTIAL YEAR 2000 RISKS ARE DIFFICULT TO ASSESS AND COULD RESULT IN DELAY OR
LOSS OF REVENUE, DIVERSION OF DEVELOPMENT RESOURCES, DAMAGE TO OUR REPUTATION OR
INCREASED SERVICE, WARRANTY OR LITIGATION COSTS.
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant or
any unknown year 2000 defects in our software could impede the ability of our
infrastructure software products to function as intended. As of the date of this
prospectus, there has been no material adverse effect on our business due to
year 2000 problems. However, if these problems do exist, they could result in
delay or loss of revenue, diversion of development resources, damage to our
reputation or increased service, warranty or litigation costs.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR STOCK, THE MARKET FOR STOCKS OF
TECHNOLOGY COMPANIES HAS EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS, AND
ACCORDINGLY OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD ADVERSELY AFFECT YOUR
INVESTMENT.
Prior to this offering, there has been no public market for our common
stock. The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. An active public market
for our common stock may not develop or be sustained after this offering. If you
purchase shares of common stock in this offering, you will pay a price that was
not established in a competitive market. Rather, you will pay the price that we
negotiated with the
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representatives of the underwriters. Many factors could cause the market price
of our common stock to rise and fall, including:
- variations in our quarterly results;
- announcements of technological innovations by us or by our competitors;
- introductions of new products or new pricing policies by us or by our
competitors;
- acquisitions or strategic alliances by us or by our competitors;
- recruitment or departure of key personnel;
- the gain or loss of significant orders or customers;
- changes in the estimates of our operating performance or changes in
recommendations by securities analysts; and
- market conditions in the industry and the economy as a whole.
In addition, the market for stocks of technology and Internet-related
companies has experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to these companies' operating performance.
Public announcements by companies in our industry concerning, among other
things, their performance, accounting practices or legal problems could cause
fluctuations in the market for stocks of these companies. These fluctuations
could lower the market price of our common stock regardless of our actual
operating performance.
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS.
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our outstanding common stock following the completion of this
offering. These stockholders, acting together, would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors. These actions might be taken even if they are opposed by
other stockholders, including those who purchase shares in this offering. This
concentration of ownership may also have the effect of delaying or preventing a
change of control of our company, which could have a material adverse effect on
our stock price.
MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING, HAS
NO SPECIFIC PLANS FOR THOSE PROCEEDS AND COULD SPEND OR INVEST THOSE PROCEEDS IN
WAYS WITH WHICH YOU MIGHT NOT AGREE.
We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering. Accordingly, our management will have broad
discretion with respect to the use of the net proceeds from this offering, and
you will be relying on the judgment of our management regarding the application
of these proceeds. Some of the uses we currently anticipate include working
capital and general corporate purposes, including increased spending on sales
and marketing, professional services, research and development and expansion of
our operational and administrative infrastructure.
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In addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, product lines or products. These
investments may not yield a favorable return.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT MARKET PRICES FOR OUR
COMMON STOCK.
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock in the market after this offering
or the perception that common stock sales could occur. After this offering, we
will have outstanding shares of our common stock, or shares if the
underwriters' over-allotment option is exercised in full. Of these shares, the
common stock sold in this offering will be freely tradeable except for any
shares purchased by our "affiliates" as defined in Rule 144 under the Securities
Act of 1933. Of the remaining shares of common stock held by our existing
shareholders, shares will be subject to 180-day "lock-up" agreements with
the underwriters or with us. Lehman Brothers may, in its sole discretion,
release any portion of the securities subject to such lock-up agreements. After
the 180-day lock-up period, these shares may be sold in the public market,
subject to prior registration or qualification for an exemption from
registration and, in the case of shares held by affiliates, to compliance with
applicable volume restrictions. After the lock-up period, pursuant to Rule 144,
of these shares will be immediately subject to sale in the public market
without registration subject, in certain cases, to volume limitations. The
remaining shares held by our existing stockholders will become available for
sale pursuant to Rule 144 at varying times following the end of the 180-day
period. Stockholders owning 9,193,831 shares are entitled, pursuant to
contractual provisions providing for registration rights, to require us to
register our securities owned by them for public sale. In addition, after this
offering, we also will have 1,805,521 shares issuable under outstanding options
and warrants, 349,945 of which are currently exercisable. We intend to file a
registration statement to register for resale, subject to the terms of the
lock-up agreements, shares issuable upon the exercise of outstanding stock
options and shares reserved for future issuance under our stock option and stock
purchase plans.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE SHARES YOU PURCHASE AND UPON THE EXERCISE OF OPTIONS OUTSTANDING OR
TO BE ISSUED UNDER OUR STOCK PURCHASE AND OPTION PLANS.
If you purchase shares of common stock in this offering, you will
experience immediate and substantial dilution of $ per share, based on an
assumed initial public offering price of $ per share. This dilution arises
because our earlier investors paid substantially less than the public offering
price when they purchased their shares of common stock. You will experience
additional dilution upon the exercise of outstanding stock options or warrants
to purchase our common stock. We currently have options and warrants outstanding
to purchase 1,805,521 shares of common stock. We also have 4,474,835 additional
shares available for issuance under our stock purchase and option plans. The
number of shares available under our stock purchase and option plans
automatically increase annually by 1% and 5%, respectively, of our outstanding
shares of common stock.
OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE OR PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our Amended and Restated Certificate of Incorporation and
Bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
- establishment of a classified board of directors requiring that not all
members of the board may be elected at one time;
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
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- limitations on the ability of stockholders to call special meetings of
stockholders;
- prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- establishing advance notice requirements for nominations, election to the
board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control.
IF WE NEED ADDITIONAL FINANCING, WE MAY NOT BE ABLE TO RAISE FURTHER FINANCING
ON TERMS FAVORABLE TO US OR AT ALL.
We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies, which may include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing products and services;
- enhance our operating infrastructure;
- hire additional personnel;
- respond to competitive pressures; or
- acquire complementary businesses or technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders would
be reduced, and these newly issued securities might have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our products and services or otherwise respond to competitive pressures would be
significantly limited.
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FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and in other sections of this prospectus
that are forward-looking statements. In some cases, you can identify these
statements by forward-looking words such as "may," "might," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue," the negative of these terms and other comparable
terminology. These forward-looking statements, which are subject to risks,
uncertainties and assumptions about us, may include, among other things,
projections of our future financial performance, our anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or implied by
the forward-looking statements, including those factors discussed under the
caption entitled "Risk Factors." You should specifically consider the numerous
risks outlined under "Risks Factors."
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this prospectus to conform our
prior statements to actual results or revised expectations.
21
<PAGE> 23
USE OF PROCEEDS
We estimate that the net proceeds from the offering will be approximately
$ million, or $ million if the underwriters exercise their
over-allotment option in full, at an assumed initial public offering price of
$ per share after deducting the estimated underwriting discount and
offering expenses payable by us. The principal purposes of this offering are to:
- obtain additional working capital;
- establish a public market for our common stock; and
- facilitate our future access to public capital markets.
We currently expect to use the net proceeds from this offering for working
capital and other general corporate purposes, including sales and marketing,
research and development, and capital expenditures. We may also use a portion of
the net proceeds to acquire or invest in complementary businesses, technologies,
products or services or joint ventures. We have no present commitments or
agreements with respect to any acquisition or investment. Pending these uses, we
intend to invest the net proceeds in short-term, investment-grade,
interest-bearing securities. The amount we actually spend for these purposes has
not yet been determined and may vary significantly and will depend on a number
of factors, including our future revenue and cash generated by operations and
the other factors described in "Risk Factors." Therefore we will have broad
discretion in the way we use the net proceeds.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate declaring or paying
cash dividends on our common stock in the foreseeable future.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
Our capitalization is presented:
- on an actual basis;
- on a pro forma basis to reflect:
- the exercise of employee stock options to purchase a total of
1,824,398 shares of our common stock through March 15, 2000,
- the purchase by Nortel Networks Inc. of 1,571,055 shares of our
preferred stock in February 2000, and
- our acquisition of WhiteBarn, Inc. in March 2000, including the
issuance of 348,215 shares of our common stock; and
- on a pro forma as adjusted basis to reflect the conversion of our
outstanding preferred stock into 8,810,882 shares of common stock
immediately prior to the completion of this offering, the related
cancellation of accrued preferred dividends, and the sale of the shares
of common stock offered by us at an assumed initial public offering price
of $ per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations............. $ 1,196 $ 1,196 $ 1,196
======== ======== =======
Debt, less current portion........................... $ 21 $ 21 $ 21
-------- -------- -------
Redeemable convertible preferred stock, $0.001 par
value, 8,449,915 shares authorized, 7,181,441
shares issued and outstanding, actual; 8,920,970
authorized and 8,752,496 shares issued and
outstanding, pro forma; and 8,920,970 authorized,
no shares issued and outstanding pro forma as
adjusted........................................... 8,768 18,768 --
-------- -------- -------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, no shares
authorized, issued, or outstanding, actual and
pro forma; 5,000,000 shares authorized, none
issued and outstanding, pro forma as adjusted... -- -- --
Common stock, $0.001 par value, 15,000,000 shares
authorized, 3,816,864 shares issued and
outstanding, actual; 20,000,000 shares
authorized, 5,989,477 shares issued and
outstanding, pro forma; 60,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted.............. 4 6
Additional paid-in capital......................... 10,379 14,946
Deferred stock-based compensation.................. (6,119) (7,605) (7,605)
Accumulated deficit................................ (14,332) (14,332)
-------- -------- -------
Total stockholders' equity.................... (10,068) (6,985)
-------- -------- -------
Total capitalization.......................... ($ 1,279) $ 11,804 $
======== ======== =======
</TABLE>
23
<PAGE> 25
The table excludes the following:
- 2,851,177 shares of our common stock subject to options outstanding as of
December 31, 1999 at a weighted average exercise price of $0.50 per
share, actual; and 1,123,779 shares of our common stock subject to
options outstanding as of December 31, 1999 that had not been exercised
as of March 15, 2000, at a weighted average exercise price of $0.80 per
share pro forma and pro forma as adjusted;
- 131,502 shares of our common stock subject to warrants outstanding as of
December 31, 1999 at a weighted average exercise price of $0.71 per
share;
- 300,000 additional shares of our common stock that have been reserved for
issuance under our stock purchase plan, which number will be increased
annually by 1% of our outstanding shares of common stock; and
- 3,000,000 additional shares of our common stock that have been reserved
for future grants of options under our option plan, which will be
increased annually by 5% of our outstanding shares of common stock.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements included in this prospectus.
24
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ million, or $ per share of common stock. Our
pro forma net tangible book value per share represents our total tangible assets
less total liabilities divided by the number of shares of our common stock
outstanding on December 31, 1999 and assumes the following: the conversion of
our outstanding preferred stock into 8,810,882 shares of common stock
immediately prior to the completion of this offering; the exercise of employee
stock options to purchase a total of 1,824,398 shares of our common stock
through March 15, 2000; the purchase by Nortel Networks, Inc. of 1,571,055
shares of our preferred stock in February 2000; and the issuance of 348,215
shares of our common stock in connection with our acquisition of WhiteBarn, Inc.
in March 2000.
Without taking into account any changes in pro forma net tangible book
value after December 31, 1999, other than to give effect to the sale of the
shares of common stock offered by us at an assumed initial public offering price
of $ per share, after deducting the estimated underwriting discount and
offering expenses payable by us, our pro forma net tangible book value as of
December 31, 1999 would have been approximately $ million or
$ per share of common stock. This amount represents an immediate
increase in pro forma net tangible book value of $ per share to the
existing stockholders and an immediate dilution in pro forma net tangible book
value of $ per share to new investors purchasing shares in this
offering. The following table illustrates the dilution in pro forma net tangible
book value per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
offering..................................................
-------- --------
Dilution in pro forma net tangible book value per share to
new investors............................................. $
========
</TABLE>
The following table summarizes, as of December 31, 1999 on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid to us by
existing stockholders and to be paid by new investors purchasing shares of
common stock in this offering at an assumed initial public offering price of
$ per share, before deducting the estimated underwriting discount
and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 14,800,359 % $ % $
New public investors............. $
----------- --- -------- ---
Total............................ 100% $ 100%
=========== === ======== ===
</TABLE>
The above information assumes no exercise of the underwriters'
over-allotment option and excludes exercises of stock options or warrants after
March 15, 2000. As of March 15, 2000, we had reserved 1,805,521 shares of our
common stock for issuance upon exercise of outstanding options and warrants at a
weighted average exercise price of 1.46 per share. To the extent any of these
options or warrants are exercised, there will be further dilution to new
investors.
25
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes to our financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consolidated statement of operations data for the three years ended September
30, 1999, and the balance sheet data as of September 30, 1998 and 1999, are
derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this prospectus, which have been audited by
KPMG LLP, independent auditors. The selected consolidated balance sheet data as
of September 30, 1995, 1996 and 1997 and the selected consolidated statement of
operations data for the years ended September 30, 1995 and 1996 are derived from
audited financial statements not included in this prospectus. The unaudited
statement of operations data for the three months ended December 31, 1998 and
December 31, 1999 is derived from unaudited financial statements included
elsewhere in this prospectus. We have prepared the unaudited information on the
same basis as the audited consolidated financial statements and have included
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of our financial position and
operating results for these periods.
The historical results are not necessarily indicative of results to be
expected in any future period and results for the three months ended December
31, 1999 are not necessarily indicative of results to be expected for the full
fiscal year.
The unaudited pro forma combined condensed statement of operations data
presents our consolidated statement of operations for the fiscal year ended
September 30, 1999, combined with the statement of operations of GlobalCast
Communications, Inc. for the year ended June 30, 1999 and the statement of
operations of WhiteBarn, Inc. for the year ended December 31, 1999, and our
condensed statement of operations for the three months ended December 1999,
combined with the statement of operations for WhiteBarn for the three months
ended December 31, 1999 giving effect to our acquisition of substantially all of
the assets of GlobalCast and our acquisition of WhiteBarn as if they had
occurred on October 1, 1998. The unaudited pro forma combined condensed balance
sheet data gives effect to the acquisition of WhiteBarn as if the transaction
occurred on December 31, 1999, and combines our consolidated balance sheet as of
December 31, 1999, with the balance sheet of WhiteBarn as of December 31, 1999
and gives effect to the sale of our Series D preferred stock and exercise of
1,824,398 stock options, through March 15, 2000 as if the sale and exercise had
occurred on December 31, 1999. The unaudited pro forma combined condensed
statement of operations and balance sheet data should be read in conjunction
with, and are qualified by reference to, the pro forma combined condensed
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or financial position of the combined companies.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements.
26
<PAGE> 28
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ----------------------------
ENDED YEAR THREE MONTHS
YEAR ENDED SEPTEMBER 30, DECEMBER 31, ENDED ENDED
-------------------------------------------- --------------- SEPTEMBER 30, DECEMBER 31,
1995 1996 1997 1998 1999 1998 1999 1999 1999
------ ------ ------ ------- ------- ------ ------ ------------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
License......................... $2,821 $3,560 $4,209 $ 5,100 $ 5,912 $1,436 $1,829 $ 5,912 $ 1,829
Maintenance..................... 780 1,255 1,426 1,873 2,488 473 718 2,488 718
Professional services........... 503 733 807 540 640 110 247 2,233 612
------ ------ ------ ------- ------- ------ ------ -------- -------
Total revenue................. 4,104 5,548 6,442 7,513 9,040 2,019 2,794 10,633 3,159
------ ------ ------ ------- ------- ------ ------ -------- -------
Cost of revenue:
License......................... 288 71 141 59 164 8 60 164 60
Maintenance..................... 117 188 222 577 595 151 177 595 177
Professional services........... 184 141 849 429 358 69 87 1,367 415
------ ------ ------ ------- ------- ------ ------ -------- -------
Total cost of revenue......... 589 400 1,212 1,065 1,117 228 324 2,126 652
------ ------ ------ ------- ------- ------ ------ -------- -------
Gross profit...................... 3,515 5,148 5,230 6,448 7,923 1,791 2,470 8,507 2,507
Operating expenses:
Sales and marketing............. 2,170 2,822 2,923 4,237 5,321 1,298 1,425 5,805 1,425
Research and development........ 990 1,521 2,076 2,363 3,214 752 824 3,865 824
General and administrative...... 540 757 1,120 1,566 1,656 414 505 2,798 628
Amortization of deferred stock
compensation.................. -- -- -- -- 744 5 950 1,516 1,098
Acquired in-process research and
development................... -- -- -- -- 300 -- -- -- --
Amortization of goodwill and
intangible assets............. -- -- -- -- -- -- 138 1,471 367
------ ------ ------ ------- ------- ------ ------ -------- -------
Total operating expenses...... 3,700 5,100 6,119 8,166 11,235 2,469 3,842 15,635 4,342
------ ------ ------ ------- ------- ------ ------ -------- -------
Income (loss) from operations..... (185) 48 (889) (1,718) (3,312) (678) (1,372) (7,128) (1,835)
Interest expense and other, net... (4) (70) 5 10 17 (19) 25 (371) (22)
------ ------ ------ ------- ------- ------ ------ -------- -------
Net income (loss)................. $ (181) $ 118 $ (894) $(1,728) $(3,329) $ (659) $(1,397) $ (7,499) $(1,857)
====== ====== ====== ======= ======= ====== ====== ======== =======
Basic and diluted net loss per
share attributable to common
stockholders.................... $(0.28) $(0.18) $(0.57) $ (0.80) $ (1.23) $(0.27) $(0.40) $ (1.85) $ (0.39)
====== ====== ====== ======= ======= ====== ====== ======== =======
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders.................... 2,073 2,139 2,434 2,781 3,099 2,906 3,815 4,052 4,768
====== ====== ====== ======= ======= ====== ====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, AS OF
----------------------------------------------- DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999 1999 1999
------- ------- ------- ------- ------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,131 $ 1,783 $ 901 $ 3,204 $ 1,820 $ 1,917 $12,283
Working capital (deficit).......... 690 1,813 728 853 (1,240) (1,217) 9,218
Total assets....................... 2,357 3,764 3,346 4,985 6,784 5,972 19,191
Debt, less current portion......... -- 278 289 225 83 21 21
Redeemable convertible preferred
stock............................ 5,666 7,150 7,648 8,146 8,644 8,768 18,768
Stockholders' deficit.............. (4,976) (5,337) (6,671) (8,877) (9,498) (10,068) (6,985)
</TABLE>
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto and other financial
information appearing elsewhere in this prospectus.
OVERVIEW
We are a leading provider of infrastructure software that enables
businesses to exchange information reliably and securely in real-time, both
internally and with their partners, suppliers and customers. Our products and
services allow software applications to communicate across local or wide area
networks, including private networks and the Internet.
We were incorporated in November 1988. From inception through 1996, we
derived a substantial majority of our revenue from a suite of software products
used primarily in connection with mission-critical command and control
operations in industries such as aerospace. In 1997, leveraging our technology
developed for mission-critical command and control operations, we refocused our
business strategy to provide infrastructure software for applications relying
heavily upon the use of real-time, distributed systems. Our operating activities
during 1997 and 1998 related primarily to the development of our SmartSockets
messaging infrastructure product line. We also directed our sales and marketing
efforts to increase market awareness of our SmartSockets product in industries
such as finance, telecommunications and computer hardware and services. In 1999,
we launched MQexpress, a message queuing product that provides complementary
storage, backup and audit capabilities to SmartSockets. We also added Internet
related applications and industries, such as business-to-business e-commerce, to
our sales and marketing focus and began a concerted effort to market our product
to third party partners such as OEMs and value added resellers. Additionally in
1999, we began incorporating reliable multicast capabilities into our
SmartSockets product line. As part of our overall multicast initiative, we
acquired substantially all of the assets of GlobalCast Communications, Inc. in
September 1999, and acquired WhiteBarn, Inc. in March 2000.
Our revenue consists principally of license fees generated from our
SmartSockets product line and, to a lesser extent, revenue from maintenance,
support and professional services related to our SmartSockets product line. We
license our products to end-users to deploy in their networks and, to a lesser
extent, to software applications providers to embed in their products. For
end-user licenses, we typically ship products with a shrink wrap license
agreement and recognize revenue from software license fees upon delivery of the
software to the customer, provided that the fees are fixed and determinable and
that collection is probable. Increasingly, we are entering into signed license
agreements with our end-user customers. All of our OEM and value added reseller
customers enter into signed agreements with us. For customers using a signed
license agreement, revenue is recognized after all conditions above have been
met, and upon receipt of the signed agreement. We recognize software license
revenue over the term of the license if the license requires us to deliver
unspecified software products during its term.
Maintenance and support revenue consists of fees for providing software
updates and technical support for software products. Revenue from maintenance
and support fees is recognized ratably over the period of the maintenance and
support agreement, typically twelve months. Payments for maintenance and support
are typically paid in advance and are nonrefundable.
Professional service revenue consists primarily of revenue for performing
product development, implementation of software solutions, on-site support,
consulting and training. Revenue from professional services is generally
recognized as the services are performed.
28
<PAGE> 30
Payments received in advance of revenue recognition are recorded as
deferred revenue and as of December 31, 1999, we had $4.9 million of deferred
revenue. Of this amount, $2.1 million was classified as long-term deferred
revenue, primarily relating to software licenses that require us to deliver
software over an extended period.
We market our products primarily through our direct sales force and, to a
lesser extent, through indirect channels. Recently, we have begun to derive
increasing amounts of revenue through indirect channel relationships with
distributors, OEMs, value added resellers and systems integrators. Our third
party relationships have typically been with companies that embed our product
within their product, for which we receive a license fee and, in some cases,
future royalties based on our reseller's product revenue. During 1998, we
expanded our international presence by opening a sales and support office in
London, England, augmented by a sales office in Frankfurt, Germany in 1999.
Currently, our international revenue is primarily generated through
distributors. We plan to aggressively expand our sales force and the market
awareness of our company and our products. As a result, we expect to incur
substantial expenditures related to programs designed to achieve those goals.
In September 1999, we acquired substantially all of the assets of
GlobalCast, a provider of reliable multicast protocols, for common stock with an
aggregate value of $2.4 million. The acquisition was accounted for using the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16 ("APB 16"), and $300,000 of the purchase price of $2.4 million
was allocated to in-process research and development and expensed at the time of
acquisition. Also, in connection with the GlobalCast acquisition, we recorded
intangible assets of $1.7 million, which we are amortizing over a three to four
year period.
In March 2000, we acquired WhiteBarn, a professional services and software
development company focused on reliable multicast and network protocols with
cash, stock and options to purchase our common stock with an aggregate value of
$3.0 million. The transaction was accounted for as a purchase. In this
acquisition, the acquired technology included existing technology, but not
in-process research and development. For the year ended December 31, 1999,
WhiteBarn had revenue of $1.5 million, primarily consisting of professional
services revenue, and net income of $47,000. We are maintaining WhiteBarn's
facility in Illinois and thirteen WhiteBarn employees joined us in connection
with the acquisition, including Mark Mahowald, the Chief Executive Officer of
WhiteBarn, as our Vice President, Multicast and Networking Technologies. In
connection with the WhiteBarn acquisition, we expect to record intangible assets
of $2.6 million, which we expect to amortize over a two to three year period.
We have a limited operating history since the implementation of our current
business strategy. We have incurred significant losses recently as we have spent
significant amounts to develop and enhance our products and have invested
heavily in our sales and marketing organizations. We believe our success is
dependent upon our ability to rapidly expand our customer base and enhance our
technology. We intend to continue making significant investments in sales and
marketing and research and development, and expect to incur operating losses for
the foreseeable future.
In connection with the granting of stock options to our employees through
December 31, 1999, we recorded deferred stock-based compensation totaling
approximately $7.8 million. This amount represents the difference between the
exercise price and the deemed fair value of our common stock for accounting
purposes on the date these stock options were granted. This amount is included
as a component of stockholders' equity and is being amortized on an accelerated
basis by charges to operations over the vesting period of the options consistent
with the method described in Financial Accounting Standards Board Interpretation
No. 28. The stock options, or restricted stock purchased pursuant to such
options, generally vest at a rate of 12.5% upon the six-month anniversary of the
option grant date and 2.083% each month thereafter for the next 42 months.
Amortization of the
29
<PAGE> 31
December 31, 1999 balance of deferred stock-based compensation will result in
charges to operations of $3.0 million, $1.9 million, $1.0 million, $287,000 and
$6,000 for the nine months ending September 30, 2000 and for fiscal years 2001,
2002, 2003 and the three months ended December 31, 2003, respectively. We expect
to record substantial additional substantial stock-based compensation for stock
options granted subsequent to December 31, 1999.
We have recorded no provision for federal or state income taxes for any
period since our inception as we have incurred losses in each period. As of
September 30, 1999, the Company had net operating loss carryforwards for federal
and California income tax purposes of approximately $5.9 million and $1.7
million, respectively, available to offset income in future years. The federal
net operating loss carryforwards expire from 2007 through 2019. The California
net operating loss carryforwards expire from 2000 through 2004.
RESULTS OF OPERATIONS
The following table sets forth statement of income data, expressed as a
percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
License................................................. 65% 68% 65% 71% 65%
Maintenance............................................. 22 25 28 24 26
Professional services................................... 13 7 7 5 9
--- --- --- --- ---
Total revenue........................................ 100 100 100 100 100
--- --- --- --- ---
Cost of revenue:
License................................................. 2 1 2 -- 2
Maintenance............................................. 4 8 7 8 7
Professional services................................... 13 5 4 3 3
--- --- --- --- ---
Total cost of revenue................................ 19 14 13 11 12
--- --- --- --- ---
Gross profit margin....................................... 81 86 87 89 88
Operating expenses:
Sales and marketing..................................... 46 56 59 64 51
Research and development................................ 32 32 36 37 29
General and administrative.............................. 17 21 18 21 18
Amortization of deferred stock compensation............. -- -- 8 -- 34
Acquired in-process research and development............ -- -- 3 -- --
Amortization of goodwill and intangible assets.......... -- -- -- -- 5
--- --- --- --- ---
Total operating expenses............................. 95 109 124 122 137
--- --- --- --- ---
Net loss from operations.................................. (14) (23) (37) (33) (49)
Interest expense and other, net........................... -- -- -- 1 (1)
--- --- --- --- ---
Net loss.................................................. (14)% (23)% (37)% (32)% (50)%
=== === === === ===
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
REVENUE
Total revenue increased by $775,000, or 38%, to $2.8 million for the three
months ended December 31, 1999, from $2.0 million for the three months ended
December 31, 1998. The increase
30
<PAGE> 32
in total revenue was primarily due to the increase in software licenses, and
associated maintenance revenue, to new and existing customers.
License. License revenue increased by $393,000, or 27%, to $1.8 million for
the three months ended December 31, 1999, from $1.4 million for the three months
ended December 31, 1998. The increase in license revenue was primarily due to
the increase in software licenses to new and existing customers as a result of
the expansion of our sales force and growing acceptance for our infrastructure
product line. As a percentage of total revenue, license revenue represented 65%
and 71% in the three months ended December 31, 1999 and 1998, respectively.
Maintenance. Maintenance revenue increased by $245,000, or 52%, to $718,000
for the three months ended December 31, 1999, from $473,000 for the three months
ended December 31, 1998. The increase in maintenance revenue was due to growth
associated with license agreements entered into in earlier periods. As a
percentage of total revenue, maintenance revenue represented 26% and 24% in the
three months ended December 31, 1999 and 1998, respectively.
Professional services. Professional services revenue increased by $137,000,
or 125%, to $247,000 for the three months ended December 31, 1999, from $110,000
for the three months ended December 31, 1998. The increase in professional
services revenue was attributable to increased license activity discussed above
and an increase in training and architectural service associated with the
increase in customer installations. Recently, a much higher percentage of our
license sales include architectural services and training in order to increase
customer efficiencies related to the use of our products. In addition, this
increase was attributable to an increase in the average rate per hour billed for
our professional services technicians as they were increasingly engaged in
senior level architectural design work as opposed to implementation services and
training. As a percentage of total revenue, professional services revenue
represented 9% and 5% in the three months ended December 31, 1999 and 1998,
respectively.
COST OF REVENUE
Cost of revenue increased by $96,000, or 42%, to $324,000 for the three
months ended December 31, 1999, from $228,000 for the year three months ended
December 31, 1998. The increase in cost of revenue was attributable to an
increase in royalties to third parties and increased costs related to our
growing maintenance and professional services. As a percentage of total revenue,
cost of revenue represented 12% and 11% in the three months ended December 31,
1999 and 1998, respectively. With the addition of professional services
personnel in connection with the WhiteBarn acquisition, we expect cost of
revenue to increase as a percentage of total revenue.
License. Cost of license revenue consists primarily of royalties paid to
third parties, product packaging and documentation and software media. Cost of
license revenue increased by $52,000, or 650%, to $60,000 for the three months
ended December 31, 1999, from $8,000 for the three months ended December 31,
1998. The increase in cost of license revenue is attributable to increased
royalties paid to a third party in connection with our licensing of RMTP-II. We
anticipate that the cost of license revenue will increase in absolute dollars
due to an increasing use of third party software incorporated into our product
line.
Maintenance. Cost of maintenance revenue consists of compensation and
related expenses for our technical support organization. Cost of maintenance
revenue increased by $26,000, or 17%, to $177,000 for the three months ended
December 31, 1999, from $151,000 for the three months ended December 31, 1998.
The increase in cost of maintenance revenue was primarily due to increased
personnel hired in order to provide support to our growing installed base of
customers. As a percentage of maintenance revenue, the cost of maintenance
represented 25% and 32% for the three
31
<PAGE> 33
months ended December 31, 1999 and 1998, respectively. The cost of maintenance
as a percentage of maintenance revenue decreased from 32% to 25% as a result of
increased leverage of our maintenance personnel over a larger installed base. As
a percentage of total revenue, cost of maintenance revenue represented 7% and 8%
in the three months ended December 31, 1999 and 1998, respectively. We
anticipate that our cost of maintenance revenue will continue to grow in
absolute dollars as we expect to expand our customer base and provide increasing
levels of support for our customers.
Professional services. Cost of professional services revenue consists of
compensation and related overhead expense for personnel and third party
contractors we use in performing consulting and training services for our
customers. Cost of professional services revenue increased by $18,000, or 26%,
to $87,000 for the three months ended December 31, 1999, from $69,000 for the
three months ended December 31, 1998. The increase in cost of professional
services revenue was a result of additional personnel deployed on our
professional services engagements. The cost of professional services did not
increase at the same rate as professional services revenue due to the increase
in billing rates described above. As a percentage of professional services
revenue, the cost of professional services revenue represented 35% and 63% for
the three months ended December 31, 1999 and 1998, respectively. As a percentage
of total revenue, cost of professional services revenue represented 3% for the
three months ended December 31, 1999 and 1998. We anticipate that the cost of
professional services will continue to increase in absolute dollars as we
continue to expand our service offerings. With the acquisition of WhiteBarn, our
cost of professional services may increase as a percentage of professional
services revenue due to the lower average billing rate for the WhiteBarn
consulting organization.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses include costs of sales
and marketing personnel and related overhead, commissions, field office
expenses, advertising and promotion expenses, travel and entertainment and other
selling and marketing costs. Sales and marketing expenses increased by $127,000,
or 10%, to $1.4 million for the three months ended December 31, 1999, from $1.3
million for the three months ended December 31, 1998. The increase in sales and
marketing expenses was due to expansion of our sales and marketing department
personnel and locations and, to a lesser extent, increased promotional programs.
As a percentage of total revenue, sales and marketing expenses represented 51%
and 64% in the three months ended December 31, 1999 and 1998, respectively. We
plan to aggressively expand our sales force and the market awareness of our
company and our products. As a result, we will incur substantial expenditures
related to programs designed to achieve those goals. Therefore, we expect
expenditures in sales and marketing to increase both in terms of absolute
dollars and as a percentage of revenue for the foreseeable future.
Research and development. Research and development expenses consist of
personnel expenses and associated overhead, and costs of short-term independent
contractors required in connection with our development of new products,
enhancements to existing products, technical documentation, and quality
assurance. Costs incurred in research and development are expensed as incurred
until technological feasibility is established. We believe under our current
engineering processes that the establishment of technological feasibility and
general release substantially coincide. As a result, no software development
costs have been capitalized to date. Research and development expenses increased
by $72,000, or 10%, to $824,000 for the three months ended December 31, 1999,
from $752,000 for the three months ended December 31, 1998. The increase in
research and development expenses was due to an increase in personnel and
consultants in our software development, quality assurance, and documentation
departments. As a percentage of total revenue, research and development expenses
represented 29% and 37% in the three months ended December 31, 1999 and 1998,
respectively. We believe that our product development activities are critical to
attaining our
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<PAGE> 34
strategic objectives and expect our investment in research and development to
increase both in terms of absolute dollars and as a percentage of revenue for
the foreseeable future.
General and administrative. General and administrative expenses include
personnel costs for finance, administration, information systems, and general
management, as well as professional fees, legal expenses, and other general
corporate expenses. General and administrative expenses increased by $91,000, or
22%, to $505,000 for the three months ended December 31, 1999, from $414,000 for
the three months ended December 31, 1998. The increase in general and
administrative expenses was due to increased personnel expenses. As a percentage
of total revenue, general and administrative expenses represented 18% and 21% in
the three months ended December 31, 1999 and 1998, respectively. We expect
general and administrative expenses to increase in terms of absolute dollars for
the foreseeable future as we continue to build the necessary corporate
infrastructure associated with being a public company.
Amortization of deferred stock compensation. During the three months ended
December 31, 1999, we recorded approximately $950,000 of stock-based
compensation amortization expense, representing $23,000 cost of revenue,
$246,000 research and development, $312,000 sales and marketing and $369,000
general and administrative expenses. During the three month period ended
December 31, 1998, we recorded $5,000 of stock-based amortization expense.
Amortization of goodwill and intangible assets Amortization of goodwill and
intangible assets was $138,000 for the three months ended December 31, 1999.
This amount represents the amortization of goodwill and other intangible assets
acquired in connection with our acquisition of GlobalCast in September 1999. We
had no such expenses in any prior period.
INTEREST EXPENSE AND OTHER, NET
Interest expense and other, net consists primarily of interest expense on
our accounts receivable line of credit, offset by interest income on our cash
reserves. Foreign currency differences are also included in other expenses.
Interest expense and other, net resulted in an expense of $25,000 for the three
months ended December 31, 1999, compared to a net income of $19,000 for the
three months ended December 31, 1998. The resulting change of $44,000 was
attributable to lower interest income and higher interest expense for the
respective three month periods. Our average cash reserves in interest-bearing
accounts were lower, and the outstanding balance on our line of credit was
higher, during the three months ended December 31, 1999, compared to the same
period in the prior year.
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
REVENUE
Total revenue increased by $1.5 million, or 20%, to $9.0 million for the
year ended September 30, 1999, from $7.5 million for the year ended September
30, 1998. The increase in total revenue is primarily due to the increase in
software licenses, and associated maintenance revenue, to new and existing
customers. During each of our fiscal years 1999 and 1998, Lockheed Martin
represented 12% and 13% of our total revenue, respectively. No other customer
accounted for more than 10% of our revenue during those years.
License. License revenue increased by $812,000, or 16%, to $5.9 million for
the year ended September 30, 1999, from $5.1 million for the year ended
September 30, 1998. The increase in license revenue was primarily due to
additional software licenses to existing customers and software licenses to new
customers, including a significant license with a software application provider.
As a percentage of total revenue, license revenue represented 65% and 68% in the
years ended September 30, 1999 and 1998.
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<PAGE> 35
Maintenance. Maintenance revenue increased by $615,000, or 33%, to $2.5
million for the year ended September 30, 1999, from $1.9 million for the year
ended September 30, 1998. The increase in maintenance revenue was due to the
increase in license revenue for the period as well as to growth in our customer
base. As a percentage of total revenue, maintenance revenue represented 28% and
24% in the years ended September 30, 1999 and 1998.
Professional services. Professional services revenue increased by $100,000,
or 19%, to $640,000 for the year ended September 30, 1999, from $540,000 for the
year ended September 30, 1998. The increase in professional services revenue was
attributable to increased license activity, an increase in architectural
services associated with the increase in customer installations and higher
average billing rates for professional services personnel. Additionally, as a
percentage of total revenue, professional services revenue represented 7% in
each of the years ended September 30, 1999 and 1998. Our consulting service
organization restructured during 1998 temporarily resulting in a reduction in
staff. The reduction in staff, however, was offset by an higher average billing
rate for professional services personnel, which resulted in increased
professional services revenue.
COST OF REVENUE
Cost of revenues remained relatively constant at $1.1 million for the
fiscal years ended September 30, 1998 and 1999. As a percentage of total
revenue, cost of revenue represented 13% and 14% in the twelve months ended
September 30, 1999 and 1998 respectively.
License. Cost of license revenue increased by $105,000, or 178%, to
$164,000 for the year ended September 30, 1999, from $59,000 for the year ended
September 30, 1998. The increase in cost of license revenue was attributable to
the increase in software licenses resulting in increased costs related to media,
documentation, and third-party royalty expense. As a percentage of total
revenue, cost of license revenue represented 2% and 1% in the years ended
September 30, 1999 and 1998, respectively.
Maintenance. Cost of maintenance revenue increased by $18,000, or 3%, to
$595,000 for the year ended September 30, 1999, from $577,000 for the year ended
September 30, 1998. The increase in cost of maintenance revenue was primarily
due to increased personnel. As a percentage of maintenance revenue, the cost of
maintenance represented 24% and 32% for the three months ended December 31, 1999
and 1998, respectively. The cost of maintenance as a percentage of maintenance
revenue decreased from 32% to 24% as a result of increased leverage of our
maintenance personnel over a larger installed base. As a percentage of total
revenue, cost of maintenance revenue represented 7% and 8% in the years ended
September 30, 1999 and 1998, respectively.
Professional services. Cost of professional services revenue decreased by
$71,000, or 17%, to $358,000 for the year ended September 30, 1999, from
$429,000 for the year ended September 30, 1998. The decrease in cost of
professional services revenue was a result of a decrease in personnel deployed
on our professional services engagements. Our consulting service organization
was restructured during 1998 which temporarily reduced the size of our staff. As
a percentage of professional services revenue, the cost of professional services
represented 56% and 79% for the years ended September 30, 1999 and 1998,
respectively. As a percentage of total revenue, cost of professional services
revenue represented 4% and 5% in the years ended September 30, 1999 and 1998,
respectively.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses increased by $1.1
million, or 26%, to $5.3 million for the year ended September 30, 1999, from
$4.2 million for the year ended
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<PAGE> 36
September 30, 1998. The increase in sales and marketing expenses was due to
expansion of our sales and marketing department personnel and locations and, to
a lesser extent, increased promotional programs. As a percentage of total
revenue, sales and marketing expenses represented 59% and 56% in the years ended
September 30, 1999 and 1998, respectively.
Research and development. Research and development expenses increased by
$851,000, or 36%, to $3.2 million for the year ended September 30, 1999, from
$2.4 million for the year ended September 30, 1998. The increase in research and
development expenses was due to an increase in personnel and consultants in our
software development, quality assurance, and documentation departments. As a
percentage of total revenue, research and development expenses represented 36%
and 32% in the years ended September 30, 1999 and 1998, respectively.
General and administrative. General and administrative expenses increased
by $90,000, or 6%, to $1.7 million for the year ended September 30, 1999, from
$1.6 million for the year ended September 30, 1998. The increase in general and
administrative expenses was due to increased personnel expenses. As a percentage
of total revenue, general and administrative expenses represented 18% and 21% in
the years ended September 30, 1999 and 1998, respectively.
Acquired in-process research and development. As a result of the GlobalCast
acquisition, we recorded $300,000 of acquired in process research and
development expenses. We had no such expenses in any prior period.
Amortization of deferred stock compensation. During the twelve month period
ended September 30, 1999, we recorded approximately $744,000 of stock-based
compensation amortization expense, representing $19,000 cost of revenues,
$264,000 research and development, $284,000 sales and marketing and $177,000
general and administrative expenses. During the year ended September 30, 1998 we
recorded no stock-based amortization compensation.
INTEREST EXPENSE AND OTHER, NET
Interest expense and other, net increased by $7,000 primarily due to a
decrease in interest income. Our average cash reserves in interest-bearing
accounts was less during the year ended September 30, 1999, compared to the
prior year.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
REVENUE
Total revenue increased by $1.1 million, or 17%, to $7.5 million for the
year ended September 30, 1998, from $6.4 million for the year ended September
30, 1997. The increase in total revenue was primarily due to the increase in
software licenses and associated maintenance revenue, to new customers,
partially offset by a decrease in professional services revenue. During our
fiscal years 1998 and 1997, Lockheed Martin represented 13% and 20% of our total
revenue, respectively. No other customer accounted for more than 10% of our
revenue during those years.
License. License revenue increased by $891,000, or 21%, to $5.1 million for
the year ended September 30, 1998, from $4.2 million for the year ended
September 30, 1997. The increase in license revenue was primarily due to
continued licenses to existing customers and licenses to new customers
especially in the financial services industry. As a percentage of total revenue,
license revenue represented 68% and 65% in the years ended September 30, 1998
and 1997, respectively.
Maintenance. Maintenance revenue increased by $447,000, or 31%, to $1.9
million for the year ended September 30, 1998, from $1.4 million for the year
ended September 30, 1997. The increase in
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<PAGE> 37
maintenance revenue was due to the increase in license revenue. As a percentage
of total revenue, maintenance revenue represented 25% and 22% in the years ended
September 30, 1998 and 1997, respectively.
Professional services. Professional services revenue decreased by $267,000,
or 33%, to $540,000 for the year ended September 30, 1998, from $807,000 for the
year ended September 30, 1997. The decrease in professional services revenue was
attributable to two large consulting projects delivered in 1997 that represented
more than 50% of that year's professional services revenue. There were no
comparable large consulting projects in 1998. As a percentage of total revenue,
professional services revenue represented 7% and 13% in the years ended
September 30, 1998 and 1997, respectively.
COST OF REVENUE
Cost of revenue decreased by $147,000, or 12%, to $1.1 million for the year
ended September 30, 1998, from $1.2 million for the year ended September 30,
1997. The decrease in cost of revenue was primarily attributable to the decrease
in the cost of software licenses and professional services. As a percentage of
total revenue, cost of revenue represented 14% and 19% in the years ended
September 30, 1998 and 1997, respectively.
License. Cost of license revenue decreased by $82,000, or 58%, to $59,000
for the year ended September 30, 1998, from $141,000 for the year ended
September 30, 1997. The decrease in cost of license revenue was attributable to
a decrease in third party royalty rates associated with software embedded in our
product line. As a percentage of total revenue, cost of license revenue
represented 1% and 2% in the years ended September 30, 1998 and 1997,
respectively.
Maintenance. Cost of maintenance revenue increased by $355,000, or 160%, to
$577,000 for the year ended September 30, 1998, from $222,000 for the year ended
September 30, 1997. The increase in cost of maintenance revenue was primarily
due to increased personnel hired as we established a formal customer support
organization in order to provide a higher level of support to our growing
installed base of customers. As a percentage of maintenance revenue, the cost of
maintenance represented 31% and 16% for the year ended September 30, 1998 and
1997, respectively. The cost of maintenance as a percentage of maintenance
revenue increased from 16% to 31% as a result of increased staffing in
anticipation of an increase of our installed base. As a percentage of total
revenue, cost of maintenance revenue represented 8% and 4% in the years ended
September 30, 1998 and 1997, respectively.
Professional services. Cost of professional services revenue decreased by
$420,000, or 49%, to $429,000 for the year ended September 30, 1998, from
$849,000 for the year ended September 30, 1997. The decrease in cost of
professional services revenue was a result of additional personnel hired in 1997
and deployed on two large consulting projects in that year. After the completion
of those projects at the beginning of 1998, consulting personnel and contractors
were either re-deployed or terminated. As a percentage of professional services
revenue, the cost of professional services represented 79% and 105% for the
years ended September 30, 1998 and 1997, respectively. As a percentage of total
revenue, cost of professional services revenue represented 5% and 13% in the
years ended September 30, 1998 and 1997, respectively.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses increased by $1.3
million, or 45%, to $4.2 million for the year ended September 30, 1998, from
$2.9 million for the year ended September 30, 1997. The increase in sales and
marketing expenses was due to expansion and replacement of our sales and
marketing department personnel as we changed focus from our legacy product line
to our new infrastructure software products and associated marketing and
promotional programs. As a percentage of total revenue, sales and marketing
expenses represented 56% and 46% in the years ended September 30, 1998 and 1997,
respectively.
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Research and development. Research and development expenses increased by
$287,000, or 14%, to $2.4 million for the year ended September 30, 1998, from
$2.1 million for the year ended September 30, 1997. The increase in research and
development expenses was due to an increase in personnel and consultants, some
of whom were re-deployed from consulting services as discussed above. As a
percentage of total revenue, research and development expenses represented 32%
in both the years ended September 30, 1998 and 1997.
General and administrative. General and administrative expenses increased
by $446,000, or 40%, to $1.6 million for the year ended September 30, 1998, from
$1.1 million for the year ended September 30, 1997. The increase in general and
administrative expenses was due to increased personnel expenses associated with
executive management and systems administration, or MIS. We established our MIS
department at the end of fiscal 1997. As a percentage of total revenue, general
and administrative expenses represented 21% and 17% in the years ended September
30, 1998 and 1997, respectively.
INTEREST EXPENSE AND OTHER, NET
Interest expense and other, net increased by $5,000 primarily due to an
increase in losses from foreign currency translation. Our average cash reserves
in interest-bearing accounts was less during the year ended September 30, 1998,
compared to the prior year.
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QUARTERLY RESULTS OF OPERATIONS
The following table includes our unaudited quarterly results of operations
data for each of the five quarters ended December 31, 1999, as well as this
information expressed as a percentage of total revenue for the same periods. We
believe that this information has been prepared on the same basis as our audited
consolidated financial statements and that all necessary adjustments, consisting
only of normal recurring adjustments, have been included to present fairly the
selected quarterly information when read in conjunction with our audited
consolidated financial statements and the notes to those statements included
elsewhere in this prospectus. You should read this information in conjunction
with our annual audited consolidated financial statements and related notes
contained elsewhere in this prospectus. Our quarterly results of operations for
these periods are not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1999 1999 1999 1999
------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
License........................ $1,436 $1,502 $1,428 $ 1,545 $ 1,829
Maintenance.................... 473 612 736 667 718
Professional services.......... 110 53 241 236 247
------ ------ ------ ------- -------
Total revenue............... 2,019 2,167 2,405 2,448 2,794
------ ------ ------ ------- -------
Cost of revenue:
License........................ 8 62 31 63 60
Maintenance.................... 151 152 134 158 177
Professional services.......... 69 64 128 97 87
------ ------ ------ ------- -------
Total cost of revenue....... 228 278 293 318 324
------ ------ ------ ------- -------
Gross profit..................... 1,791 1,889 2,112 2,130 2,470
------ ------ ------ ------- -------
Operating expenses:
Sales and marketing............ 1,298 1,133 1,318 1,573 1,425
Research and development....... 752 798 792 871 824
General and administrative..... 414 417 396 430 505
Amortization of deferred stock
compensation................ 5 108 170 460 950
Acquired in-process research
and development............. -- -- -- 300 --
Amortization of goodwill and
intangible assets........... -- -- -- -- 138
------ ------ ------ ------- -------
Total operating expenses.... 2,469 2,456 2,676 3,634 3,842
------ ------ ------ ------- -------
Loss from operations............. (678) (567) (564) (1,504) (1,372)
Interest expense and other,
net............................ (19) 4 7 24 25
------ ------ ------ ------- -------
Net loss......................... $ (659) $ (571) $ (571) $(1,528) $(1,397)
====== ====== ====== ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1999 1999 1999 1999
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUE:
Revenue:
License........................ 71% 69% 59% 63% 65%
Maintenance.................... 23 28 31 27 26
Professional services.......... 6 3 10 10 9
---- ---- ---- ---- ----
Total revenue............... 100 100 100 100 100
---- ---- ---- ---- ----
Cost of revenue:
License........................ -- 3 1 3 2
Maintenance.................... 8 7 6 6 7
Professional services.......... 3 3 5 4 3
---- ---- ---- ---- ----
Total cost of revenue....... 11 13 12 13 12
---- ---- ---- ---- ----
Gross profit..................... 89 87 88 87 88
---- ---- ---- ---- ----
Operating expenses:
Sales and marketing............ 64 52 55 64 51
Research and development....... 37 37 33 36 29
General and administrative..... 21 19 17 17 18
Amortization of deferred stock
compensation................ -- 5 7 19 34
Acquired in-process research
and development............. -- -- -- 12 --
Amortization of goodwill and
intangible assets........... -- -- -- -- 5
---- ---- ---- ---- ----
Total operating expenses.... 122 113 112 148 137
Loss from operations............. (33) (26) (24) (61) (49)
Interest expense and other,
net............................ 1 -- -- (1) (1)
---- ---- ---- ---- ----
Net loss......................... (32)% (26)% (24)% (62)% (50)%
==== ==== ==== ==== ====
</TABLE>
Our total revenue has increased moderately in each quarter since December
1998. Our quarterly increase was primarily due to growth in the number of
customers, expansion of our sales organization and an increase in professional
services and maintenance revenue that reflects the growth in the installed base
of product licenses. Our cost of revenue has increased each quarter in
conjunction with our increases in total revenue and an increase in third party
royalty payments.
Our operating expenses have increased moderately in absolute dollars each
quarter primarily due to increased staffing in sales and marketing, research and
development and general and administrative functions. For the period described
above, we internally funded our operations and, as a result, we were limited in
our ability to invest in product development and sales and marketing.
Fluctuations in some categories of operating expenses between quarters are
attributable to transitions in staffing and variations in the level of
commissions. Generally, sales and marketing expenses have increased due to
increases in marketing programs, sales commissions, and sales office expenses.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. Quarterly
sales and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast and control. In
addition, a substantial portion of our revenue in a given quarter has often been
recorded in the third month of that quarter, with a concentration of this
revenue in the last two weeks of the third month. Furthermore, a significant
portion of our revenue for a given quarter has often been
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<PAGE> 41
derived from a limited number of orders. A delay in the recognition of revenue
from one or more license transactions could cause significant variations in
operating results from quarter to quarter and could result in losses greater
than anticipated. Our expense levels are based in part on our expectations with
regard to future revenue. We may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Any of these factors may
have a material adverse effect on our business, results of operations and
financial condition. See "Risk Factors" for a further description of these and
other factors that could adversely affect our business, results of operations
and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
From inception through 1995, we financed our operations through private
sales of redeemable, convertible preferred stock, resulting in net proceeds of
$5.4 million, and internally generated cash. From January 1996 through January
2000, we funded our operations internally and, to a lesser extent, through our
credit facilities, under which $1.2 million was outstanding as of December 31,
1999. In February 2000, we raised $10.0 million through a private sale of
redeemable convertible preferred stock. As of December 31, 1999, we had
approximately $1.9 million in cash, cash equivalents, and short-term
investments, and a working capital deficit of $1.2 million.
Net cash used in operating activities was $2.2 million in fiscal 1999. Net
cash provided by operating activities was $2.7 million in fiscal 1998. Net cash
provided by operating activities was $193,000 in the three months ended December
31, 1999. For fiscal 1999, cash used in operating activities was attributable to
our net loss of $3.3 million, which included $1.5 million in non-cash charges,
and an increase in accounts receivable of $1.7 million, offset in part by an
increase in deferred revenue of $1.3 million. For fiscal 1998, cash provided by
operating activities was primarily attributable to an increase in deferred
revenue of $2.7 million, which was largely attributable to a license agreement
with a software application provider, and a decrease in accounts receivable of
$867,000, offset in part by a net loss of $1.7 million. For the three months
ended December 31, 1999, cash provided by operating activities was primarily
attributable to a decrease in accounts receivable of $665,000, partially offset
by decreases in accounts payable and other accruals of $256,000.
Net cash provided by investing activities was $59,000 in fiscal 1999. The
cash provided was attributable to the cash acquired in connection with the
GlobalCast acquisition, partially offset by cash used in purchases of property
and equipment. Net cash used in investing activities was $486,000 and $17,000 in
fiscal 1998 and the three months ended December 31, 1999, respectively. Cash
used in investing activities was attributable to purchases of property and
equipment in each of these periods. We expect that our capital expenditures will
increase in the future. We estimate our capital expenditures from March through
September 2000 will be $1.6 million.
Net cash provided by financing activities was $717,000 and $41,000 in
fiscal 1999 and 1998, respectively. Net cash used by financing activities was
$79,000 in the three months ended December 31, 1999. In 1999 and 1998, cash
provided by financing activities was primarily attributable to amounts drawn
under our line of credit, partially offset by principal payments, and proceeds
received from the exercise of employee stock options. For the three months ended
December 31, 1999, net cash used by financing activities was attributable to
principal payments on our line of credit. Through January 2000, our line of
credit bore interest at the bank's prime rate plus 1.0%. As of March 2000, our
line of credit bears interest at the bank's prime rate plus 0.25% and expires
February 2002. Our line of credit is collateralized by our accounts receivable
and certain other assets. Under the line of credit, we may borrow up to the
lesser of $2.0 million or 80% of eligible accounts receivable.
As of December 31, 1999, our commitments consisted primarily of amounts
outstanding under the line of credit and operating leases. We have no material
commitments for capital expenditures,
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<PAGE> 42
however, we expect that both capital expenditures and operating lease
commitments will increase as we significantly expand our operations and
personnel worldwide. We anticipate material increases in operating expenses,
particularly sales and marketing and research and development expenses, in order
to execute on our business plan and strategic objectives. Additionally, we may
use cash resources to fund acquisitions or investments in complementary
businesses or technologies. We believe that the net proceeds from this offering,
together with our current cash, cash equivalents, and short-term investments,
will be sufficient to meet our working capital and operating resource
requirements for at least the next twelve months. Thereafter, we may find it
necessary to obtain additional debt or equity financing. In the event we require
additional financing, we may not be able to obtain it on reasonable terms or at
all.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS
We develop products in the United States and market our products globally.
As a result, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. Substantially all of our sales are currently made in U.S. dollars, and
a strengthening of the dollar could make our products less competitive in
foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our investments
are in short-term instruments. Due to the short-term nature of our investments,
we believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We do not expect that the
adoption of SFAS No. 133 will have a material impact on our financial
statements. The Company will be required to adopt SFAS No. 133 for the year
ended September 30, 2001, in accordance with SFAS No. 137, which delayed
implementation of SFAS No. 133.
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<PAGE> 43
BUSINESS
We are a leading provider of infrastructure software that enables
businesses to exchange information reliably and securely in real-time, both
internally and with their partners, suppliers and customers. Our products and
services allow software applications to communicate across local or wide area
networks, including private networks and the Internet. Our flagship product,
SmartSockets, facilitates the real-time distribution of information across
virtually any type of network. SmartSockets also enables real-time, two-way
communications between distributed computer networks and mobile information
devices such as hand-held computers. SmartSockets uses both a publish-subscribe
model of communication to deliver information to those applications that need it
automatically as it becomes available, and a queuing model of communication to
store the information and deliver it at a later time if the application cannot
currently be reached. SmartSockets provides businesses and software companies
with a robust and scalable method of distributing relevant, time-critical
information across and beyond the enterprise.
SmartSockets is designed for and implemented in demanding, mission-critical
environments with high volumes of users and/or data. SmartSockets has been
deployed by over 300 companies in a variety of markets such as financial
services, aerospace, telecommunications, high-tech manufacturing,
transportation, energy, and e-business. Users of our products and services
include British Telecom, California ISO, the Chicago Board Options Exchange,
Cisco Systems, Lockheed Martin, Lucent Technologies, MCI WorldCom, Micron
Technology, MindSpring, Nortel Networks, the Philadelphia Stock Exchange,
Raytheon Systems, SIAC (the New York Stock Exchange) and Sprint. In addition to
the end-user customers described above, our products are also embedded in a
diverse set of commercial software products to provide those products with a
real-time and scalable infrastructure. Companies that embed our software include
Aspect Communications, BMC Software, Platinum Technology (now part of Computer
Associates), Micromuse and Novell.
INDUSTRY BACKGROUND
Today's business environment, fueled by the growth of enterprise networks
and the Internet, allows organizations to communicate and conduct business more
rapidly than ever before. In order to function and compete effectively,
organizations must exchange increasing volumes of information continuously in
real time, in an efficient and reliable manner. Real-time communication among
multiple producers and consumers of information occurs both internally
throughout the enterprise and externally among the enterprise and its customers,
suppliers and partners. The increased exchange of real-time information enables
organizations to accelerate their business cycles, improve internal processes,
create operational efficiencies and facilitate closer integration with partners.
To provide real-time connectivity, organizations must be able to efficiently
distribute information residing in a disparate set of applications, platforms
and networks. As businesses increasingly trust critical business processes to
these networks, a reliable and robust infrastructure is essential.
Historically, organizations stored data on mainframe computers and accessed
this information through dumb terminals. The next wave of computing involved
storing information on centralized servers and in databases hosted on
centralized servers, and accessing this information through PCs and other
intelligent remote devices. More recently, organizations have begun to utilize
extensive internal and external networks, including the Internet, to access and
exchange information. Rather than keeping information only on centralized
servers or mainframes, organizations now distribute information throughout their
enterprise as well as with partners, suppliers and customers.
This new computing paradigm is creating a global build-out of networking
hardware in order to facilitate connectivity within and across enterprises.
International Data Corporation forecasts that the market for data networking
equipment will increase from $8.7 billion in 1998 to $21.0 billion in 2002,
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as service providers increase their network bandwidth and the availability of
public servers. However, we believe the infrastructure software needed to
support this computing shift has not been developed rapidly enough to meet
market needs. Infrastructure software has traditionally been developed in-house
and is often inadequate for the performance and scalability demands of today's
business environment. This problem is exacerbated by rapidly growing numbers of
users and volumes of data; the proliferation of diverse computing devices, such
as mainframes, UNIX and NT servers, PCs and handheld and wireless devices; and
increasingly demanding performance and reliability requirements. A real-time
infrastructure must connect applications running across a variety of private and
public networks, including the Internet. Most existing solutions were designed
assuming a local area network or other small, well controlled, homogenous
network. Today's applications need to operate in unpredictable and heterogeneous
wide area networks, including the Internet.
We believe that a market has developed for robust, comprehensive software
infrastructure products that interconnect disparate applications, platforms and
networks, so that they can distribute and share information in today's
real-time, Internet-driven business environment. We believe that this market is
demanding solutions that address the following limitations:
- Poor Performance. Many existing systems do not adequately support the
required volume of messages, and the transmission time for these messages
is too long. For example, systems using a request-reply model, which
requires specific requests to be made before information can be
distributed, are slow because they must poll regularly for new data, and
must block the receipt of incoming data and wait for a reply even if
other data are arriving. In addition, most solutions in the marketplace
use a point-to-point communication model and do not perform well in
one-to-many or many-to-many communication.
- Limited Scalability. Many existing solutions do not adequately scale in
terms of transaction volumes, number of users and geographic diversity,
often because they are based on either:
- A "brute force" method, whereby information is "broadcast" to all
machines, whether or not they have requested the information. This can
often result in a flooding of information to the network; or
- An oversimplified "hub and spoke" model that forces all transactions
through one central server.
- Difficult to Implement. Existing solutions are often difficult to
implement and configure. In addition, they frequently require significant
customization and system integration in order to meet customer needs.
- Inefficient Network Utilization. Many solutions require a separate copy
of a given message to be sent to each recipient, resulting in increased
network utilization.
- Lack of Robustness and Reliability. Existing solutions were generally not
designed to run in 24x7 environments. Most solutions can be shut down by
the failure of a single network or computer. In addition, changes or
upgrades to a system often require it to be restarted.
- A Passive Model of Information Distribution. Traditional solutions employ
a request-reply model of information dissemination. This means an
application cannot ask for the information unless it knows that it exists
and where that information is located.
We believe that traditional database, queuing and middleware vendors, as
well as application integration vendors and business-to-business suppliers, have
failed to address all these limitations adequately. We believe that there is a
significant market opportunity for an infrastructure product
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that addresses all these limitations and enables companies to distribute and
share information in today's real-time, Internet-driven business environment.
OUR SOLUTION
We deliver infrastructure software products that allow our customers to
distribute and share information in real-time within and across organizations.
Our products enable distributed computer applications to communicate quickly,
reliably and securely across any type of network, including the Internet. Our
flagship product, SmartSockets, is able to run on a wide variety of platforms
and systems including Windows, UNIX, Linux, OpenVMS, IBM mainframes (MVS) and
real-time operating systems (VxWorks). SmartSockets also offers programming
interfaces for most major programming models, including C, C++, Java and ActiveX
(Microsoft). SmartSockets provides our customers with all the following
benefits:
- High Performance. We believe that we offer one of the highest performing
infrastructure software solutions available, as measured by the volume of
messages delivered and the time taken to distribute each message. For
example, SmartSockets is capable of delivering over 20,000 200-byte
messages per second and is currently deployed in environments where the
distribution of thousands of messages per second is essential.
- High Scalability. SmartSockets is highly scalable in terms of transaction
volumes, number of users, and geographic location of users and
applications. It enables businesses to add new clients, servers and
applications easily without having to rewrite software. By using many of
the techniques that have made the Internet scalable, including the recent
development of reliable multicast, SmartSockets provides our customers
with a software infrastructure that allows them to take advantage of the
rapid expansion of distributed networks.
- Ease of Use and Implementation. SmartSockets is easy to use and can be
quickly deployed by businesses without extensive use of system
integrators. We believe that SmartSockets' ease of use reduces the
overall cost to our customers of implementing their software
infrastructure. Furthermore, SmartSockets is a modular product that can
be deployed on a limited basis and expanded in the future. This enables
our customers to benefit from our products without a large up-front
investment and without requiring them to overhaul their existing
information technology systems.
- Efficient Network Utilization. Our technology allows our products to make
efficient use of available network bandwidth while scaling with the
expanding capabilities of the network. Our products achieve greater
bandwidth efficiency through an efficient implementation of publish-
subscribe architecture and are capable of even greater efficiency using
multicast technology. This enables multiple subscribers to receive the
content they need simultaneously with a single message, reducing the
complexity and cost of distributing information across the network.
- Reliability and Fault Tolerance. Our SmartSockets software is built upon
technology that we initially developed for use in demanding high
performance environments that place a premium upon reliability and fault
tolerance. Examples include satellite operations, launch control systems
and other command and control applications in the aerospace industry. Our
infrastructure software has now also been deployed by large e-commerce
sites, financial exchanges, telecommunications companies, large-scale
transportation systems and energy companies.
- Active Model of Information Distribution. SmartSockets uses a
publish-subscribe model of communication to deliver data automatically as
it becomes available only to those applications that have previously
expressed an interest in receiving that information.
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OUR STRATEGY
Our objective is to be the leading provider of infrastructure software that
enables businesses to communicate and collaborate in real-time within and across
organizations. Key elements of our strategy to achieve this objective include:
Strengthen Our Technology Leadership Position. Our technology was
originally designed for technically demanding environments and has been refined
over the last ten years. Our products are currently deployed in some of the
world's most demanding applications, which require high levels of scalability,
performance and fault tolerance. To strengthen our position as a technology
leader, we intend to continue to invest substantial resources in research and
development, including in the developing field of reliable multicast technology,
make additional strategic acquisitions and participate in the development of
industry standards relevant to our business. Recently, we acquired GlobalCast
and WhiteBarn, leaders in reliable multicast services and technologies, which we
believe will improve the performance of networks. In addition, we are actively
engaged in the specification of the Internet Engineering Task Force, or IETF,
standards in reliable multicast communication.
Proliferate Our Technology. We seek to strengthen and expand our strategic
relationships with key technology vendors that we believe will allow us to
proliferate our technology, thereby introducing the benefits of our technology
to a wider audience. We are currently working with Nortel Networks to allow them
to enhance their high-end networking equipment with our technology. We are also
working with Novell to embed SmartSockets into their product lines, including an
upcoming version of Novell Directory Service. Novell also intends to offer a
"lite version" of SmartSockets to their developer community. We are also
targeting systems management software vendors and have entered into agreements
with Aspect Communications, Platinum Technology (now part of Computer
Associates), BMC Software and Micromuse.
Expand Our Presence in Key Vertical Markets. We intend to leverage our
expertise and our experience in key vertical markets such as financial services
and telecommunications, in order to generate additional sales to new customers
in these markets. As we have developed experience in specific industries, we
have been able to enhance our SmartSockets technology to meet the critical
requirements for companies in those industries. We believe that our expertise
enables us to reduce implementation times in order to satisfy the time-to-market
requirements of our customers and also to expand our penetration of these
industries. We intend to continue to expand our presence in these and other key
vertical markets, both domestically and internationally.
Expand Our Presence in the Internet Infrastructure Market. To date, most of
our customers are using our products to provide data distribution either behind
their own firewall or over a secure virtual private network. We believe the
market for real-time infrastructure software will expand to the general Internet
in the future, and we intend to become a leading provider of software for this
purpose. We are investing in research and development to provide our products
with enhanced capabilities to meet the security and scalability challenges of
distributing data over the Internet for applications such as video streaming,
distance learning, financial market data distribution and software distribution.
We are also focusing additional sales and marketing resources on the Internet
infrastructure software market.
Expand Our Distribution Channels. We intend to augment our direct sales
effort by creating reseller relationships with leading systems and
business-to-business integration companies, professional services organizations
and enterprise application integration vendors. We believe that these companies
will provide us additional customer relationships, offer us domain expertise in
vertical markets, and act as indirect sales channels for our products.
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Promote Market Awareness of Our Company and Our Products. We plan to
significantly increase our investments in expanding our marketing organization
and building greater awareness of our brand. We intend to invest in a focused
marketing program, which includes educational seminars, advertising, direct
mail, public relations activities and trade shows, in order to promote overall
awareness of our company and our products.
TECHNOLOGY
Our technology was originally created more than a decade ago and has been
further developed over the past ten years. It originally served as the real-time
infrastructure for a number of demanding, high-performance aerospace
applications, including network management, satellite operations, launch control
systems, large-scale integration and test, and other command and control
applications. Almost all of these systems were mission or life-critical,
requiring the highest levels of performance and reliability. Today, our
technology is used in a variety of demanding, high-performance environments,
including financial exchanges, telecommunications and e-commerce applications.
Our infrastructure software enables organizations to communicate and
deliver mission-critical information reliably across extended computer networks
in real-time. Using software "engines," or small, efficient software processes
that can be embedded on computers, our infrastructure software can be used to
create what is known in the industry as a "virtual cloud," or network of
computers embedded with our software engines. Any application operating within a
virtual cloud is able to deliver information quickly, reliably and efficiently
to any other application within this cloud. Our software engines are designed to
route and deliver information automatically to any application within a cloud
that has subscribed to this information, even if the application requesting the
information uses a different platform or protocol than the application sending
the information. In the event of a system or network failure, our software
engines are designed to route information dynamically around failures or blocked
paths, minimizing service interruptions or delays. If an application is unable
to receive requested information when it is initially delivered, our engines are
able to store the requested information and deliver it at a later time.
Furthermore, our infrastructure software is highly scalable because it is built
upon an architecture and global naming scheme similar to that used by the
Internet. Our software automatically partitions workload among the various
engines that are present in a cloud and allows organizations to expand an
existing cloud simply by adding additional engines. In addition, our software
can be used to connect multiple clouds and form larger clouds, facilitating
reliable, real-time information exchange across local area networks and wide
area networks, including the Internet.
Our technology resides in the following three layers of software:
- Messaging. Our messaging software enables reliable, real-time delivery of
information between applications on a network.
- Protocols. In addition to operating with industry standard protocols such
as TCP/IP, our implementation of reliable multicast protocols enables
information to be delivered to applications throughout a network in a
highly efficient and reliable manner.
- Monitoring and Management. Our monitoring and management tools allow
organizations to manage applications across an extended network and
ensure reliable operations.
Messaging. Our messaging technology is the core of our infrastructure
software and the layer most visible to customers. It enables organizations to
integrate diverse computer applications by connecting each application to a
network through a single interface, instead of directly linking each application
to all other applications. Applications operating within such a network
communicate by exchanging messages, or "packets" of data, which can contain many
different forms of information,
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including audio, video, file, HTML, XML, database records, text, numbers and
structures. Our technology supports many different types of messages, including
self-describing messages. A self-describing message enables applications to
communicate independently of the structure of the message, which facilitates
real-time information exchange between heterogeneous applications. The messages
are routed through our software engines located throughout the network and
reliably delivered to the appropriate applications. Our messaging technology
also supports a wide range of communication models used in the enterprise for
delivery of the messages, including:
- Publish-subscribe, where information is automatically delivered to
applications that have previously expressed an interest in that type of
information when it becomes available;
- Queuing, where information is placed in persistent storage until an
application, or another queue, is ready to accept the information;
- Peer-to-peer, where a message is passed directly between two
applications; and
- Request-reply, where information is requested and a result is returned.
Protocols. A network protocol determines how applications communicate with
each other across a computer network. The performance of a computer network
depends in part upon the protocols used by the network. We use TCP/IP, the
standard Internet protocol for one-to-one, or unicast, communication. We provide
reliable multicast protocols that enable networks to manage and use existing
bandwidth more efficiently. Multicast allows information requested by several
applications to be sent only once, rather than as separate messages to each
application, reducing the complexity and cost of information distribution within
an organization. In addition, our multicast protocols can improve reliability of
the multicast capabilities embedded in certain network routers and switches.
Monitoring and Management. Using intuitive graphical user interfaces, our
technology can be configured to monitor system and application parameters in
local or wide area networks, including the Internet. This technology enables
users to monitor, configure, administer and operate large-scale systems built
upon our infrastructure software and ensure reliable operation.
PRODUCTS
Our three layers of technology are embodied in our software products, which
include the following.
Messaging Infrastructure Products
We currently offer two messaging infrastructure products.
- SmartSockets, our flagship product, facilitates selective information
delivery by enabling messages to be delivered automatically only to
interested applications, also called "subscribers." SmartSockets supports
publish-subscribe, request-reply and peer-to-peer messaging. SmartSockets
uses both the networking protocols of the Internet and reliable multicast
to provide highly efficient one-to-one, one-to-many and many-to-many
communications. SmartSockets can operate over virtually any network type,
including the Internet and wireless networks. This product also offers a
variety of services that complement the messaging function, such as fault
tolerance, guaranteed message delivery, data encryption, authentication,
load balancing and data translation. SmartSockets provides efficient
networking and high scalability, and can be embedded in the products of
independent software vendors as well as an enterprise's existing
information system.
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- MQexpress is a message queuing product that provides complementary
functionality to SmartSockets. MQexpress enables a system to store
messages and facilitates backup and audit capabilities. This product is
designed for use in applications where transactions, in addition to being
processed in real time, must be available to be processed if a system
fails, and be subject to verification and audit. MQexpress is tightly
integrated with SmartSockets and thus facilitates a seamless integration
of the queuing and publish-subscribe communication models. It can also
interoperate with IBM's MQSeries message queuing product, allowing
companies to leverage their investment in legacy systems.
Our messaging infrastructure products use both unicast and multicast
protocols. Our messaging products can be accessed through a variety of
platforms, programming interfaces such as C, C++, Java or ActiveX, and operating
systems such as Windows, UNIX, Linux, IBM mainframes, OpenVMS, VxWorks and MVS.
This cross platform support allows for intercommunication among all of these
platforms. For example, the following three processes would be able to
communicate directly: a Java process on Linux, an ActiveX process on Windows NT,
and an MVS process written in C.
Protocols
We currently offer two implementations of leading reliable multicast
protocols.
- RMTP-II, the Reliable Multicast Transport Protocol II is a real-time,
reliable multicast protocol derived from work initially done at Bell
Laboratories and later refined by GlobalCast Communications. RMTP-II
reliably and efficiently sends data from a few senders to large groups of
simultaneous recipients. Similar to TCP, it provides real-time, streaming
delivery of information, with confirmation when the information has been
delivered to all recipients. It can be deployed in a wide range of
network types, including satellite, wireless, Internet and enterprise
networks. It achieves scalability through the use of server software,
which can be deployed on a small number of hosts in the network.
- PGM is a real-time, reliable multicast protocol that was originally
specified by Cisco Systems. PGM is a simpler protocol than RMTP-II and
requires less configuration. PGM is intended as a solution for multicast
applications with more basic reliability requirements, as well as
situations where control load or infrastructure adjustments may be issues
that make RMTP-II less desirable. PGM may be deployed in the same range
of network types as RMTP-II and is targeted primarily at satellite and
enterprise networks. PGM is an automatically configuring protocol that
achieves high scalability through the use of PGM assisting software
installed in the routers in a network.
Monitoring and Management Tools
We offer two different products to monitor and manage networked
applications utilizing our messaging infrastructure products.
- RTmonitor facilitates the monitoring and management of applications
utilizing SmartSockets. Through an easy-to-use graphical interface,
RTmonitor can be configured to monitor system and application parameters
across both local and wide area networks. System events are viewed
through a display application that can operate anywhere on the network
and in multiple locations simultaneously without any change in system
configuration.
- MQadmin is a Web-based graphical tool for administering and managing
MQexpress. MQadmin allows users to observe and manage all the deployed
message queues from a
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centralized location. Users can create, browse, configure, back up and
restore queues from any machine in the network capable of running a Web
browser.
MAINTENANCE AND SUPPORT
We offer an array of software maintenance and support services to our
customers. Our support organization provides services seven days a week,
twenty-four hours a day. We have a worldwide support organization with key
operations centers in Los Altos, California and London, England. These centers
provide the infrastructure for our around-the-clock call centers and hotline
support. As of March 15, 2000, we had 10 employees involved in our support and
maintenance services, some of whom are also employed in our engineering and
professional services groups.
We offer a range of maintenance support packages that allow our customers
to choose the level of support to fit the needs and budgets of their
organizations. Our maintenance programs entitle our customers to receive updates
and new versions of our software. Customers also have access to on-site support
that is charged on a time and materials basis. In addition, customers are able
to receive support online over the Internet, including entering and tracking
inquiries, downloading new versions of our software and accessing our online
knowledge base.
PROFESSIONAL SERVICES AND TRAINING
Our professional services organization offers a wide range of consulting
services, including systems planning, architecture and design, custom
development and systems integration for the rapid deployment of our SmartSockets
products. We offer professional services with the initial deployment of our
products, as well as on an ongoing basis to address the continuing needs of our
customers. Our professional services staff is located in five offices in the
United States and an office in London, England, enabling us to perform
installations and respond to customer demands rapidly across the Americas and
Europe. As of March 15, 2000, our professional services group consisted of 22
employees, 11 of whom joined us in connection with our acquisition of WhiteBarn.
These individuals have expertise in the e-business, financial services and
telecommunications industries. Many of our professional service employees have
advanced degrees and/or substantial industry expertise in network architecture
and design, as well as in networking protocols, including TCP/IP and reliable
multicast.
We provide training for customer personnel at our main office as well as at
customer locations. We develop custom education programs to address the specific
needs of individual customers and partners.
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CUSTOMERS
As of March 15, 2000, we had licensed our software to over 300 customers.
Our customers include medium to large-sized businesses from a variety of
industries, including financial services, telecommunications, high-technology
manufacturing, e-business and transportation, as well as independent software
vendors. The following is a partial list of our customers and end users, each of
which have accounted for at least $100,000 of total revenue since October 1,
1997, the beginning of the first full fiscal year following the strategic
decision to focus on our infrastructure software product line.
<TABLE>
<S> <C>
AEROSPACE INDEPENDENT SOFTWARE VENDORS
Daimler Benz Aspect Communications
Lockheed Martin BMC Software
Raytheon Systems Micromuse
Storm Control/L3 NetGravity/DoubleClick
U.S. Air Force Novell
FINANCIAL/ENERGY EXCHANGES Platinum Technology/Computer Associates
California ISO NETWORKING
Chicago Board Option Exchange Cisco Systems
LIMITrader Securities Lucent Technologies
Philadelphia Stock Exchange Nortel Networks
Primex Trading Tekelec
SIAC (New York Stock Exchange) OTHER
FINANCIAL SERVICES KMT Semiconductor
Credit Suisse First Boston Micron Technology
D.E. Shaw and Company MindSpring
Jardine Fleming Siemens
QV Trading Systems
USAA
GLOBAL COMMUNICATIONS
British Telecom
Hewlett-Packard
MCI WorldCom
Motorola
Sprint
</TABLE>
CUSTOMER CASE STUDIES
The following case studies illustrate how some of our customers are using
our real-time software infrastructure:
MCI WorldCom: Monitoring Over 150 Million Telephone Calls per Day
MCI WorldCom is a global communications company with operations in more
than 65 countries. MCI WorldCom provides facilities-based and fully-integrated
local, long distance, international and Internet services.
Challenge. To minimize the cost of fraudulent calling, MCI WorldCom needed
to create automated systems to detect fraud in real time. Reducing fraud meant
identifying fraudulent call patterns and responding to potentially fraudulent
calls as quickly as possible. MCI WorldCom needed
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a system that could monitor large volumes of calls in real time and operate
24x7. Given the size and complexity of this problem, the solution needed to run
on multiple servers over MCI WorldCom's large private network.
Solution. MCI WorldCom selected SmartSockets as the real-time
infrastructure for SHERIFF, its sophisticated fraud detection system. SHERIFF
provides continuous monitoring capabilities across three countries and multiple
service offerings, including cellular, credit card and long distance calling. By
exploiting the high performance and high throughput characteristics of the
SmartSockets infrastructure, SHERIFF efficiently monitors over 150 million call
records each day in real time and detects potentially fraudulent calling
patterns, resulting in a substantially lower percentage of fraudulent calls. In
addition, SmartSockets' load balancing feature enables SHERIFF to be deployed
across multiple servers so that it can scale as volume increases.
Philadelphia Stock Exchange (PHLX): Processing Over 10,000 Messages per Second
PHLX was founded in 1790 and is the oldest securities exchange in the
United States. More than 950 equity options and 11 sectors index options are
traded on PHLX.
Challenge. Like other financial exchanges, PHLX is experiencing rapid
growth in the number of financial instruments traded, the volume of trades and
the number of traders. In addition, it expects the adoption of decimalization
and a potential increase in the length of the trading day to cause a significant
increase in the volume of trading data. To support this growth, PHLX determined
a need for a platform-independent infrastructure enabling it to take advantage
of the latest advances in hardware and software.
Solution. PHLX selected SmartSockets as its real-time infrastructure
software. Today, PHLX can handle over 10,000 messages per second using our
infrastructure products. Every options order, trade and quote on the exchange
flows through our infrastructure. PHLX expects that the volume of trading data
it needs to process will increase significantly over the next 18 months and
SmartSockets provides a scalable platform on which to build.
LIMITrader Securities: Internet Bond Trading
LIMITrader Securities is a fully automated online trading and execution
system for corporate bonds. The system currently is available to qualified
institutional investors and offers enhanced price discovery, increased anonymity
and lower transaction costs.
Challenge. LIMITrader wanted to rapidly deploy its electronic trading
system to completely automate the trading conventions of the bond market,
including the ability to trade anonymously online in real time. Furthermore,
because of the high dollar value of institutional transactions, LIMITrader's
system needed to be highly reliable and secure.
Solution. LIMITrader is using SmartSockets as its software infrastructure
to link its trading partners together in real time, as well as to provide a
platform for processing multi-million dollar bond trades over the Internet.
SmartSockets enabled LIMITrader to implement its system in a short time, while
providing room to scale as the volume of users increases.
STRATEGIC RELATIONSHIPS
We have entered into strategic relationships that we expect to be integral
to proliferating our software infrastructure, implementing our solutions and
developing our products. The establishment of
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additional strategic relationships is an important part of our strategy. Our
strategic relationships include the following:
Nortel Networks
Nortel Networks is a leading global supplier of telephone, data, e-business
and wireless solutions for the Internet. Nortel Networks had revenues of $21.3
billion in 1999 and serves carrier, service provider and enterprise customers
globally.
In February 2000, we entered into agreements with Nortel Networks that
included the following strategic arrangements:
- Investment. Nortel Networks made an equity investment of $10.0 million in
us. After this offering, Nortel Networks will own approximately % of
our common stock.
- Board participation. Paul Callahan, a Vice President of Nortel Networks,
was appointed to our board of directors.
- Development. We agreed to negotiate joint development projects with
Nortel Networks that would involve optimization of our software
infrastructure, including reliable multicast protocols, on Nortel
Networks networking equipment. There can be no assurance that we will be
able to reach agreement with Nortel Networks on these development
projects. We also agreed to restrictions on our ability to collaborate
with specified third parties in research and development efforts until
February 2001.
- Marketing. We and Nortel Networks agreed to engage in specified joint
marketing of our product lines with a focus on promotion within the
financial industry. The agreement includes a preferred marketing
arrangement that limits the ability of each of us to enter into marketing
arrangements with specified third parties for a 12-month period.
We believe our relationship with Nortel Networks will further proliferate
our technology and enable further penetration into the financial,
telecommunication and e-business markets.
Novell
Novell is a leading provider of directory service software that secures and
manages all major types of networks, including the Internet, intranets and
extranets, across leading operating systems. Novell had fiscal year 1999
revenues of $1.3 billion and serves small, medium and large businesses.
In September 1999, we entered into a license agreement with Novell. The
major provisions of the license agreement are as follows:
- Product license. We granted Novell a non-exclusive, perpetual,
world-wide, fully-paid license to use and sublicense SmartSockets and any
upgrades in connection with embedding SmartSockets in any existing or new
Novell products.
- Development license. We granted Novell a non-exclusive, perpetual
world-wide, fully-paid license to distribute a limited version of the
SmartSockets development kit to their development community.
- Marketing. We and Novell agreed to undertake specified joint marketing
activities.
In consideration for the license we granted to Novell, they paid us a one-time
license fee, and agreed to buy a minimum of two years of maintenance on the
licensed products. We are not entitled to ongoing royalties.
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We believe that embedding our messaging products within Novell's products
will help to proliferate the use of our technology. For example, Novell has
announced its intention to embed our messaging products within the next version
of Novell Directory Service, the current version of which we believe is deployed
on 65 million desktops worldwide. We also believe that the development kit
license which Novell may make available to its development community will result
in wider use of our technology and additional licenses of our complete
development kit to this community.
ACQUISITIONS
We have recently completed two strategic acquisitions that have augmented
our technology and provided us with additional consulting and development
personnel in the reliable multicast area. We expect to continue to evaluate and
pursue other acquisition opportunities in the future. Our acquisitions are as
follows:
GlobalCast Communications
We acquired substantially all of the assets of GlobalCast Communications,
Inc., a Fremont, California-based company, in September 1999. GlobalCast was a
provider of reliable multicast technology. Prior to our acquisition of
GlobalCast, we had licensed a significant portion of GlobalCast's technology and
had embedded it in our SmartSockets product. We believe that at the time of
acquisition GlobalCast was the only company to have commercially implemented
both RMTP-II and PGM protocols and was a leader in the development of multicast
technology. GlobalCast was also involved in the IETF reliable multicast
standards process. As part of the GlobalCast acquisition, Brian D. Whetten,
GlobalCast's Chief Technology Officer, joined us as our Chief Scientist.
GlobalCast's primary product was based on RMTP-II technology. RMTP-II adds
reliability and scalability to multicast. RMTP-II was developed by GlobalCast
over a three-year period in conjunction with Lucent Technologies and academic
experts, and was first sold by GlobalCast in 1998. GlobalCast had licensed some
of the core algorithms of RMTP-II from Lucent, which has a patent on the
technology. The license was assigned to us as a part of the acquisition of
GlobalCast, and is exclusive until the earlier of July 25, 2000 or the
acceptance of the RMTP-II protocol or a derivative thereof as a standard by the
IETF.
We are using the RMTP-II technology to further increase the scalability and
efficiency of SmartSockets. We are also working with Lucent and Nortel to make
RMTP-II based technology an IETF standard.
WhiteBarn
We acquired WhiteBarn, Inc., a Warrenville, Illinois-based company, in
March 2000. WhiteBarn is a software consulting and development company focused
on reliable multicast and network protocols. The principals of WhiteBarn had
been involved in the design and development of large scale trading systems and
real-time data distribution since 1985. Prior to the acquisition, WhiteBarn was
primarily engaged in consulting activities related to the implementation of
reliable multicast. WhiteBarn had also developed a commercial implementation of
PGM.
We have maintained WhiteBarn's facility in Illinois and 13 WhiteBarn
employees have joined us in connection with the acquisition. Mark G. Mahowald,
the Chief Executive Officer of WhiteBarn, was appointed our Vice President,
Multicast and Networking Technologies. We are using former WhiteBarn personnel
primarily in consulting and product development activities related to reliable
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multicast, and we expect to enhance WhiteBarn's PGM implementation and embed
this technology in our SmartSockets product.
SALES AND MARKETING
We promote and license our software and sell our services primarily through
a direct sales organization, and also indirectly through system integrators,
foreign distributors, OEMs and other resellers. As of March 15, 2000, we
employed 25 sales and marketing personnel located in seven U.S. cities and in
the United Kingdom and Germany. We plan to aggressively expand the size of our
sales and marketing organizations, adding personnel focused on both direct and
indirect sales channels.
Our sales strategy targets industries, and organizations within those
industries, that require high-speed, highly scalable messaging infrastructure
for internal use or to integrate with their customers' and business partners'
applications efficiently. Our sales team, which typically includes sales people,
technical sales engineers and professional services personnel, works together
with our customers' personnel to understand the needs and goals of the
customer's particular application and its development and deployment
environments. Customers are also allowed to use a full working copy of our
products on a limited-time basis in order to evaluate our products in their
environment. The level of customer analysis, both technically and financially,
results in a sales cycle that ranges between three and nine months. For larger
opportunities with new customers, these cycles can be longer.
We focus our marketing efforts on programs intended to attract potential
customers and to increase awareness of and promote Talarian and its products and
the benefits they provide. We use a variety of targeted marketing vehicles
including industry analyst updates and communications, market data research,
print advertising, trade shows and speaking engagements targeted toward the
industries we serve, press relations, electronic customer newsletters and our
Web site. We have developed collateral material for use by our direct and
indirect sales organizations, including white papers, data sheets, customer case
studies, and press releases and coverage. We plan to significantly expand our
sales force and the market awareness of our company and our products.
RESEARCH AND DEVELOPMENT
The computer software industry is characterized by rapid technological
change and is highly competitive in regard to timely product innovation.
Accordingly, we believe that our future success depends on our ability to
enhance current products that meet a wide range of customer needs and to develop
new products rapidly to attract new customers and provide additional solutions
to existing customers. In particular, we believe we must continue to respond
quickly to users' needs for high-speed, scalable, easy-to-implement
infrastructure software to meet the increasing demands of applications being
deployed in business-to-business e-commerce solutions.
We address the needs of current users through regularly scheduled
maintenance and enhancement releases. Our product development organization is
focused on enhancing the scalability, performance and ease-of-use of our
products. The majority of the work performed by our research and development
organization consists of adding new functionality and enhanced performance
capabilities to our existing product line.
In addition to our internal proprietary research and development, we from
time to time license technologies from third parties to embed into our
technology. Additionally, we are active participants in the IETF standards
initiative for reliable Internet Protocol multicast. We are also contributing
members of the International Middleware Association, Object Management Group,
Securities Industry Middleware Council, Internet Protocol Multicast Initiative
and Business Quality Messaging Forum.
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We have made, and will continue to make, substantial investments in
research and development. Research and development expenses were $2.1 million,
$2.4 million, $3.2 million and $824,000 in fiscal 1997, 1998 and 1999 and in the
three months ended December 31, 1999, respectively. As of March 15, 2000, we had
22 employees divided into five groups: client, server, security and other
service, quality assurance and documentation. We plan to continue increasing our
investment in research and development for the foreseeable future. All of our
software development costs have been expensed as incurred. While we have
licensed externally-developed technology for integration into our products, most
of our products and enhancements to those products have been developed
internally. Additionally, we have in the past augmented our research and
development efforts through the acquisitions of GlobalCast and WhiteBarn.
COMPETITION
The market for our products is intensely competitive, relatively new,
rapidly evolving and subject to rapid technological change. We believe that
competition will become more intense in the future and may cause price
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenue. We most often compete against
Tibco Software, a provider of infrastructure software products and services.
Other current and potential competitors include:
EAI Vendors. We currently face competition from various enterprise
application integration, or EAI, vendors, which offer some of the features of
our products in their technology. These EAI vendors include Active Software and
Vitria.
Infrastructure Software Providers. We face potential competition from
various infrastructure software providers including IBM, Microsoft and BEA.
Currently, their products do not generally offer the performance and scalability
of our infrastructure software and therefore do not directly compete with our
products. In the future, infrastructure software providers may add functionality
to their products that would enable them to compete directly with us.
Operating System Software Vendors. Vendors of widely used operating system
software, including Microsoft and Sun Microsystems, may integrate real-time
infrastructure functionality into future versions of their operating system
software or introduce directly competing infrastructure functionality. Microsoft
has announced its intention to introduce products that may compete with some
aspects of our product. If Microsoft or other vendors are able to incorporate
infrastructure functionality successfully into future versions of their
operating system software or introduce competing products, we may not be able to
compete effectively and may lose market share.
IT Departments. We currently face competition from the information
technology departments of potential customers, which have developed or may
develop systems that provide for some or all of the functionality of our
SmartSockets software and related products. It is often difficult for us to sell
our product to a potential customer that has already invested heavily in a
system that our product is intended to replace.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success is highly dependent upon our proprietary software technology,
our trademarks and brand names, and the goodwill associated them. We rely
primarily on a combination of copyright, trademark, patent and trade secret
laws, contractual provisions, confidentiality agreements with employees and
third parties, and other similar measures to protect our proprietary information
and intellectual property. Although we have three pending patent applications,
we do not currently own any issued patents. We enter into confidentiality
agreements with our employees, consultants,
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<PAGE> 57
distributors, partners and customers, and limit access to our software,
documentation and other proprietary information. Additionally each customer,
partner and/or distributor enters into a license agreement, in the form of a
signed license agreement or a shrink-wrap form of agreement embedded within our
software, with respect to our software, documentation and other intellectual
property. A small number of our license agreements contain provisions allowing
access to our source code under certain circumstances. Despite our efforts to
protect our intellectual property, unauthorized third parties may attempt to
copy or obtain the use of our technology. The unauthorized reproduction or
misappropriation of our intellectual property could allow third parties to
benefit from our technology without remuneration to us. In addition, as we
intend to expand our operations internationally, effective copyright and trade
secret protection may not be available, or may be limited, in certain foreign
countries. If we fail to protect our intellectual property and other proprietary
rights, our business could be adversely affected.
We do not believe that our products, trademarks or other proprietary rights
infringe the proprietary rights of third parties. However, from time to time, we
receive notices from third parties asserting that we have infringed their
patents or other intellectual property rights. In addition, we may initiate
claims or litigation against third parties for infringement of our proprietary
rights or to establish the validity of our proprietary rights. Any claims of
these types could be time-consuming, result in costly litigation, cause product
shipment delays or lead us to enter into royalty or licensing agreements rather
than disputing the merits of such claims. As the number of software products in
the industry increases and the functionality of these products further overlaps,
we believe that software developers may become increasingly subject to
infringement claims. Any claims of these types, with or without merit, could be
time-consuming and expensive to defend. An adverse outcome in litigation or
similar proceedings could subject us to significant liabilities to third
parties, require expenditure of significant resources to develop non-infringing
technology, require disputed rights to be licensed from others, or require us to
cease the marketing or use of certain products, any of which could have a
material adverse effect on our business, operating results and financial
condition.
In 1989, we licensed technology from Lockheed that served as the basis for
many of our products. This license is fully paid and irrevocable.
As part of our acquisition of GlobalCast, we acquired a license to a patent
and other technology owned by Lucent Technologies related to RMTP multicast
protocols. See "Business -- Acquisitions -- GlobalCast Communications." The
license provides us with the right to use the licensed technology to create
derivative works of the RMTP protocol, to incorporate the RMTP protocol or its
derivatives into our products, and to distribute the RMTP protocol and/or its
derivatives as stand-alone products or as bundled products. The licensed
technology is currently used in our RMTP-II product.
The Lucent license is exclusive until the earlier of July 25, 2000 or the
acceptance of the RMTP protocol or a derivative thereof as a standard by the
IETF. In consideration for the license, we issued Lucent 52,400 shares of our
common stock and agreed to pay Lucent a royalty on any license of the RMTP
protocol or its derivatives on a stand-alone basis. In addition, we have agreed
to license to Lucent any derivatives of the RMTP protocol that we develop that
provide multicast transport layer delivery of information as a primary function,
at no charge until July 25, 2001, and at a significant discount from standard
pricing after July 25, 2001. We have also agreed to license Lucent any of our
products for internal use at a best-end user price. We may generally assign the
Lucent license in connection with an acquisition, unless we are acquired by
specified companies, in which case the license is not assignable.
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EMPLOYEES
As of March 15, 2000, we employed 81 people in Los Altos, California, in
seven cities across the United States, and in London, England and Frankfurt,
Germany. Of these employees:
- 22 were engaged in research and development;
- 25 in sales and marketing;
- 22 in professional services and technical support; and
- 12 in finance and other administrative departments.
Six of our employees are located in Europe. None of our employees is
subject to any collective bargaining agreements. We believe our employee
relations are good.
LEGAL PROCEEDINGS
From time to time, we have been subject to legal proceedings and claims in
the ordinary course of business. We are not now involved in any material legal
proceedings.
FACILITIES
We lease approximately 16,000 square feet in a single office building
located in Los Altos, California. The current lease for our Los Altos facilities
expires in May 2000. We lease a total of approximately 5,000 square feet in a
single office building in Warrenville, Illinois under a lease that expires in
May 2005. We also lease office space in London, England and in various cities in
the United States and internationally to support our sales and marketing
personnel worldwide. These facilities are generally leased on a month-to-month
basis or have terms that end in 12 months or less. We intend to expand our
operations significantly and therefore may require additional facilities in the
future.
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MANAGEMENT
The following table presents information concerning our executive officers,
directors and a key employee:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Paul A. Larson...................... 48 President, Chief Executive Officer and
Director
Michael A. Morgan................... 37 Vice President, Finance and Administration and
Chief Financial Officer
Thomas J. Laffey.................... 44 Vice President, Chief Technical Officer,
Secretary and Director
Joseph Addiego...................... 44 Senior Vice President, Sales and Marketing
Rodney S. Arbaugh................... 43 Vice President, Professional Services
Steven M. Gimnicher................. 45 Vice President, Product Development
Mark G. Mahowald.................... 41 Vice President, Multicast and Networking
Technologies
Carl R. Schulenburg................. 44 Vice President, Sales
Paul D. Callahan.................... 51 Director
David I. Caplan..................... 70 Director
David E. Gold....................... 56 Director
Brian T. Horey...................... 40 Director
Richard A. Nortz.................... 55 Director
KEY EMPLOYEE:
Brian D. Whetten.................... 29 Chief Scientist
</TABLE>
PAUL A. LARSON has served as our President and Chief Executive Officer and
as a member of our board of directors since January 1997. From November 1992 to
January 1997, Mr. Larson was our Vice President, Sales. From August 1985 to
October 1992, he held various sales and marketing positions, including European
sales manager and North American sales manager, with Integrated Systems, Inc., a
design automation company. From February 1977 to July 1985, Mr. Larson held
various field sales and technical positions with Scientific Atlanta, Inc., a
cable TV equipment supplier. Mr. Larson holds a B.S. degree in electrical
engineering from the University of Minnesota.
MICHAEL A. MORGAN has served as our Vice President, Finance and
Administration and Chief Financial Officer since August 1999. From May 1991 to
July 1999, Mr. Morgan served as Vice President, Finance and Administration,
Chief Financial Officer and Secretary of Enlighten Software Solutions, Inc., a
systems management software company. From October 1987 to April 1991, Mr. Morgan
served in various positions at KPMG LLP, a public accounting firm. Mr. Morgan
currently serves as a director of Enlighten Software Solutions, a position he
has held since October 1991. Mr. Morgan holds a B.S. degree in business
administration and accounting from San Jose State University and is a certified
public accountant in California.
THOMAS J. LAFFEY was a Co-Founder of Talarian and has served as our Vice
President and Chief Technical Officer since October 1997 and as a member of our
board of directors since February 1989. From February 1989 to September 1997,
Mr. Laffey served as our Vice President, Engineering. From September 1982 to
January 1989, Mr. Laffey was a research scientist with Lockheed Palo Alto
Research Laboratories, where he was principal investigator of a project on
real-time distributed systems. From 1977 to 1980, he was a senior programmer
with General Motors Research Labs, where he performed research and development
in artificial intelligence, computer graphics and simulation.
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Mr. Laffey holds a B.S. degree in mathematics from the University of Michigan
and an M.S. degree in computer science from Virginia Polytechnic University.
JOSEPH ADDIEGO has served as our Senior Vice President, Sales and Marketing
since April 2000. From April 1986 to March 2000, Mr. Addiego held various sales,
marketing and general management positions with Integrated Systems Inc. and Wind
River Systems (Integrated Systems Inc., a publicly traded embedded systems
software supplier, was acquired by Wind River Systems in February 2000). His
positions included Vice President of Worldwide Sales and Services, Vice
President of International Sales and Operations, Vice President of Marketing,
and President of TakeFive Software, an ISI subsidiary. Mr. Addiego has also held
sales and engineering positions with AT&T and Hewlett-Packard. Mr. Addiego holds
a B.Sc. degree in business administration from San Francisco State University.
RODNEY S. ARBAUGH has served as our Vice President, Professional Services
since April 2000. From February 1998 to March 2000, Mr. Arbaugh was our Vice
President of Engineering. From May 1993 to January 1998, Mr. Arbaugh was Western
Regional Consulting Manager at Mentor Graphics Corporation, a provider of
electronic design automation software for systems and semiconductor companies.
From October 1992 to April 1993, he was a Senior Software Consultant with
Rational Software Corporation, a supplier of software development tools. From
January 1981 to September 1992, he was a software development program manager
with ESL Incorporated, a subsidiary of TRW, where he was responsible for the
development of distributed, real-time command and control systems. Mr. Arbaugh
holds a B.S. degree in electrical engineering from Seattle University and an
M.S. degree in electrical engineering from Santa Clara University.
STEVEN M. GIMNICHER has served as our Vice President, Product Development
since March 2000. From August 1992 to February 2000, Mr. Gimnicher served in a
variety of Vice President roles in the areas of marketing, engineering, customer
service and professional services for Apertus Technologies and, since October
1997, Computer Network Technologies (after its October 1997 acquisition of
Apertus), both publicly traded software companies. From 1988 to 1992, Mr.
Gimnicher served as Vice President, Engineering for Interlink Computer Sciences.
From 1985 to 1988, Mr. Gimnicher served in a variety of positions in a company
he co-founded. From 1976 to 1985, Mr. Gimnicher served in several programming
and programming management positions for Tymshare, Incorporated. Mr. Gimnicher
holds a B.S. degree in computer science from the University of San Francisco.
MARK G. MAHOWALD has served as our Vice President, Multicast and Networking
Technologies since March 2000. From October 1995 to February 2000, Mr. Mahowald
was President and Chief Executive Officer of WhiteBarn, Inc., a software
development and network consulting company that we acquired in March 2000. From
October 1998 to September 1995, he served in a variety of senior management
positions including Vice President and Executive Vice President/General Manager
at Lachman Technology Group (acquired by Legent Corporation), Lachman Technology
Inc. and Lachman Associates, all software and networking protocol companies.
From April 1985 to October 1988, he was Vice President of Advanced Development
with Rich, Inc. and with Reuters (an acquirer of Rich, Inc.), a financial
trading company. From June 1981 to March 1985 he was a member of the technical
staff at Bell Laboratories, a telecommunications equipment supplier. Mr.
Mahowald holds a B.S. degree in computer engineering from the University of
Illinois and an M.S. degree in electrical and computer engineering from the
University of Michigan.
CARL R. SCHULENBURG has served as our Vice President, Sales since March
2000. From June 1999 to February 2000, Mr. Schulenburg was our Vice President of
Sales and Marketing. From June 1998 to June 1999, he was Senior Vice President
of Sales and Marketing at iNetra Technologies, an enterprise software company.
From September 1983 to June 1998, he was North American Sales
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Manager with Hewlett-Packard Company. Mr. Schulenburg holds a B.S. degree in
aeronautical engineering and an M.B.A. degree from Purdue University.
PAUL D. CALLAHAN has served as a member of our board of directors since
February 2000. Mr. Callahan has been Vice President, Strategy and Technology of
Nortel Networks Inc., a network equipment manufacturer, since September 1998.
From October 1997 to September 1998, he was Vice President, Strategy of Bay
Networks, Inc., a network equipment company and subsidiary of Nortel Networks
Inc. From January 1992 to October 1997, he was Group Director, Research of
Forrester Research, Inc., an independent market research company. Mr. Callahan
holds a B.A. degree in liberal arts from Hampshire College.
DAVID I. CAPLAN has served as a member of our board of directors since
October 1998. Mr. Caplan has been Chairman of Objectivity, Inc., a software
company, since June 1992 and its President and Chief Executive Officer from June
1992 to October 1996 and from October 1997 to the present. Mr. Caplan holds B.S.
and M.S. degrees in mathematics from M.I.T. and an M.S. degree in electrical
engineering from the University of Pennsylvania.
DAVID E. GOLD has served as a member of our board of directors since March
1994. Mr. Gold has been a general partner of Indosuez Ventures, a venture
capital firm, since its founding in 1985. Indosuez Ventures manages STF II,
L.P., one of our principal stockholders. Mr. Gold serves on the boards of
directors of several private companies. Mr. Gold holds a B.S. degree in
electrical engineering and M.S. and Ph.D. degrees in computer science from the
University of Illinois.
BRIAN T. HOREY has served as a member of our board of directors since March
1992. Mr. Horey has been President of Equity Growth Management LLC, an
investment management firm, since January 1999, a general partner of Allegra
Partners III, L.P., a venture capital firm, since May 1995 and a general partner
of LTOS II Partners, a venture capital firm, since July 1990. He was also a
general partner of Tontine Associates LLC, an investment management firm, from
January 1998 to December 1998. He is also a co-founder and director of the New
York New Media Association. Mr. Horey holds a B.A. degree in economics from
Colgate University and an M.B.A. degree from Harvard University Graduate School
of Business Administration.
RICHARD A. NORTZ has served as a member of our board of directors since
March 2000. Mr. Nortz has been Senior Vice President of Customer Services at
Novell, Inc., a network services software company, since October 1995. From
August 1991 to September 1995, Mr. Nortz was Senior Vice President for the
Worldwide Customer Service Business of Wang Laboratories, a computer hardware
manufacturer, and from 1973 to 1991 he was employed by Digital Equipment
Corporation, where his last position was Vice President of the 11,000 person
U.S. Customer Service Business. He also serves on the board of directors of the
Computing Technology Industry Association. Mr. Nortz has attended the Harvard
University Advanced Management Program as well as the University of Pittsburgh
Executive Management Program.
BRIAN D. WHETTEN has served as our Chief Scientist since February 1999.
From June 1996 to February 1999, Mr. Whetten was with GlobalCast Communications,
a privately held supplier of multicast software products, where he held
positions including President, Founder and Chief Technical Officer, and
Director, Mr. Whetten holds an M.S. degree in Computer Science and a B.S. degree
in Computer Science Engineering, both from the University of Illinois at
Urbana-Champaign.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of seven
persons. All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. Our current
directors were elected pursuant to a voting agreement between us
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and some of our principal stockholders. The holders of our Series A preferred
stock and our common stock, voting together, elected Messrs. Larson and Laffey.
The holders of our Series B preferred stock elected Mr. Horey to our board. The
holders of our Series C preferred stock elected Mr. Gold to our board. The
holders of our Series D preferred stock elected Mr. Callahan to our board. The
holders of our common stock and our Series A preferred stock, Series B preferred
stock and Series C preferred stock, voting together, elected Messrs. Caplan and
Nortz to our board. Mr. Nortz was designated for election by GlobalCast
Communications, Inc., a holder of 552,600 shares of our common stock, pursuant
to the Asset Purchase Agreement dated September 30, 1999 between GlobalCast and
us. Upon the closing of this offering, these board representation rights will
terminate and no stockholders will have any special rights with respect to board
representation.
Following this offering, our Board of Directors will consist of seven
directors divided into three classes, Class I, Class II and Class III, with
staggered three-year terms. The Class I directors, initially ,
and , will stand for re-election or election at the
2001 annual meeting of stockholders. The Class II directors, initially
and , will stand for re-election or election at the
2002 annual meeting of stockholders. The Class III directors, initially
and , will stand for re-election or election at the
2003 annual meeting of stockholders. This classification of the board of
directors may have the effect of delaying or preventing changes in our control
or management. See "Description of Capital Stock--Anti-Takeover Effects of
Delaware Law and our Certificate of Incorporation and Bylaws."
Each officer serves at the discretion of our board of directors. Each of
our officers and directors, other than nonemployee directors, devotes his or her
full time to our affairs. Our nonemployee directors devote the amount of time
necessary to discharge their duties to us. There are no family relationships
among any of our directors or officers.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
The audit committee makes recommendations to the board of directors
regarding the selection of independent accountants, reviews the results and
scope of the audit provided by our independent accountants and reviews and
evaluates our financial reporting process and systems of internal control.
Members of the audit committee are elected by the board and serve for one-year
terms. The audit committee currently consists of Messrs. Horey, Caplan and Gold.
The compensation committee reviews and makes recommendations regarding the
compensation and benefits of all of our management. The committee also
administers our 1991 Stock Option Plan, 1998 Equity Incentive Plan, 2000 Equity
Incentive Plan and 2000 Employee Stock Purchase Plan. Members of our
compensation committee are appointed by the board of directors and serve a one-
year term. The compensation committee currently consists of Messrs. Horey, Gold,
Laffey and Larson.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
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DIRECTOR COMPENSATION
Other than reimbursement for travel expenses related to board meeting
attendance and the grant of stock options, our directors are not compensated for
their services as directors. Directors have been eligible to participate in our
1991 Stock Option Plan and our 1998 Equity Incentive Plan.
In October 1998, we granted Mr. Caplan a nonqualified option to purchase
120,000 shares of our common stock at an exercise price of $0.15 per share. In
March 1999, Mr. Caplan exercised this option in full. This option vests over a
four-year period. As of March 15, 2000, 75,000 of the shares issued to Mr.
Caplan were unvested and subject to repurchase by us upon termination of Mr.
Caplan's board service. In March 2000, we granted Mr. Nortz an option to
purchase 25,000 shares of our common stock at an exercise price of $3.18 per
share. These options vest over a four-year period. The options to Messrs. Caplan
and Nortz automatically vest as to an additional 50% if we are acquired.
Each director will be eligible to participate in our 2000 Equity Incentive
Plan. Under this plan, the option grants to directors who are not our employees,
or an employee of a parent, subsidiary or affiliate of ours, are automatic and
non-discretionary. Each non-employee director who became a member of our board
of directors before the date of this offering and who did not receive a prior
option grant will receive an option to purchase 20,000 shares of our common
stock effective upon the offering. Each non-employee director who becomes a
member of our board of directors on or after the date of this offering will be
granted an option to purchase 20,000 shares of our common stock as of the date
such director joins the board. Immediately after each annual meeting of our
stockholders, each non-employee director will automatically be granted an
additional option to purchase 10,000 shares of our common stock; provided,
however, if less than ten months has passed since the last option granted to
such director, then the number of shares subject to the option granted after the
annual meeting will be pro rated based on the number of days passed since the
last option grant to such director divided by 365 days.
Each option will have an exercise price equal to the fair market value of
our common stock on the date of grant. The options will have ten-year terms and
will terminate three months after the date the director ceases to be a director
or consultant or 12 months if the termination is due to death or disability. All
options granted to non-employee directors will vest over a four-year period at a
rate of 25% of the total shares granted on the first anniversary of the date of
grant, and 2.083% of the total shares granted at the end of each full succeeding
month thereafter, so long as the non-employee director continuously remains our
director or consultant. In the event of our dissolution or liquidation or a
"change in control" transaction, options granted to our non-employee directors
under the plan will become 100% vested and exercisable in full.
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EXECUTIVE COMPENSATION
The following table shows all compensation awarded to, earned by or paid
for services rendered to Talarian in all capacities during our fiscal year ended
September 30, 1999 by our Chief Executive Officer and each other executive
officer whose salary and bonus for fiscal 1999 equaled or exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
AWARDS
ANNUAL ----------------
COMPENSATION SHARES OF COMMON
-------------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ----------------
<S> <C> <C> <C>
Paul A. Larson....................................... $150,000 $22,758 --
President and Chief Executive Officer
Thomas J. Laffey..................................... $139,000 $12,123 --
Vice President and
Chief Technical Officer
Rodney S. Arbaugh.................................... $136,587 $36,567 50,000
Vice President, Engineering
</TABLE>
Carl R. Schulenburg, our Vice President, Sales was hired in June 1999 and,
had he been employed for the entire year, would have earned a salary of
$185,000. During the year ended September 30, 1999, Mr. Schulenburg was granted
options to purchase an aggregate of 240,000 shares of common stock at an
exercise price of $0.20 per share. Michael A. Morgan, our Vice President,
Finance and Administration and Chief Financial Officer, was hired in August 1999
and, had he been employed for the entire year, would have earned a salary of
$130,000. During the year ended September 30, 1999, Mr. Morgan was granted
options to purchase an aggregate of 270,000 shares of common stock at an
exercise price of $0.20 per share. Mark G. Mahowald, our Vice President,
Multicast and Networking Technologies was hired in March 2000 at an annual base
salary of $157,500. Steven M. Gimnicher, our Vice President, Product
Development, was hired in March 2000 at an annual base salary of $170,000. Joe
Addiego, our Senior Vice President, Sales and Marketing, was hired in April 2000
at an annual base salary of $225,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information about grants of stock options
under our 1998 Equity Incentive Plan to the executive officers listed in the
above Summary Compensation Table during the fiscal year ended September 30,
1999.
Options granted under the 1998 Equity Incentive Plan are either incentive
stock options or nonqualified stock options and generally vest and become
exercisable with respect to 12.5% of the shares subject to the option on the
six-month anniversary of the date of grant and with respect to an additional
2.083% of these shares each month thereafter, subject to acceleration in some
instances upon certain changes in our control. Options expire ten years from the
date of grant. Options are granted at an exercise price equal to the fair market
value of our common stock, as determined by our board of directors on the date
of grant.
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Potential realizable values are calculated by:
- Multiplying the number of shares of common stock subject to a given
option by $ , which is the assumed initial public offering
price;
- Assuming that the amount derived from that calculation compounds at the
annual 5% or 10% rates shown in the table for the entire ten-year term of
the option; and
- Subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are required by
the rules of the Securities and Exchange Commission and do not reflect our
estimate or projections of future stock price growth.
The percentage of total options granted to employees in the last fiscal
year is based on options to purchase an aggregate of 1,080,500 shares of common
stock granted to employees under the 1998 Equity Incentive Plan during the year
ended September 30, 1999.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
---------------------------------------------------- AT ASSUMED
SHARES OF ANNUAL RATES OF
COMMON % OF TOTAL STOCK PRICE
STOCK OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Larson................ -- -- -- -- -- --
Thomas J. Laffey.............. -- -- -- -- -- --
Rodney S. Arbaugh............. 50,000 4.6% $0.20 5/14/09 $ $
</TABLE>
In addition, after the end of our 1999 fiscal year we granted stock options
outside of our 1998 Equity Incentive Plan to our executive officers as follows:
In December 1999, we granted Paul A. Larson, Thomas J. Laffey, Michael A.
Morgan, Rodney S. Arbaugh and Carl R. Schulenberg options to purchase 325,000,
125,000, 16,667, 66,666 and 16,667 shares of our common stock with an exercise
price of $1.00 per share, respectively. In February 2000, we granted Steven M.
Gimnicher an option to purchase 150,000 shares of our common stock, with an
exercise price of $3.18 per share. In March 2000, we granted Mark G. Mahowald,
Steven M. Gimnicher and Joe Addiego options to purchase 15,000 shares, 25,000
shares and 340,000 of our common stock, respectively, with an exercise price of
$3.18 per share. All of the foregoing options were granted on terms
substantially identical to options granted under our 1998 Equity Incentive Plan,
including vesting provisions. Also in March 2000, we assumed Mark Mahowald's
option to purchase shares of WhiteBarn common stock, granted pursuant to the
2000 WhiteBarn Equity Incentive Plan. This option was converted into an option
to purchase 50,000 shares of Talarian stock at an exercise price of $3.18 per
share. See "Business -- Strategy -- Acquisitions."
FISCAL YEAR END OPTION VALUES
No executive officer named in the Summary Compensation Table above
exercised an option during the year ended September 30, 1999. The following
table shows the number of shares of common stock subject to exercisable and
unexercisable stock options held as of September 30, 1999 by each of these
executive officers. Also presented are values of "in-the-money" options, which
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<PAGE> 66
represent the positive difference between the exercise price of each outstanding
stock option and an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul A. Larson.................... 259,124 71,876
Thomas J. Laffey.................. 48,791 5,209
Rodney S. Arbaugh................. 47,915 102,085
</TABLE>
In January 2000, Mr. Larson exercised options to purchase 331,000 shares of
common stock, of which 131,000 shares were at an exercise price of $0.11 per
share and 200,000 shares were at an exercise price of $0.15 per share; Mr.
Arbaugh exercised options to purchase 100,000 shares of common stock at an
exercise price of $0.15 per share; Mr. Morgan exercised options to purchase
210,000 shares of common stock at an exercise price of $0.20 per share; and Mr.
Schulenburg exercised options to purchase 210,000 shares of common stock at an
exercise price of $0.20 per share. As of March 15, 2000, 43,751 shares, 47,918
shares, 179,375 shares and 180,000 shares issued to Messrs. Larson, Arbaugh,
Morgan and Schulenburg, respectively, upon exercise of their stock options were
subject to repurchase by us upon termination of their employment.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
All of our executive officers are employed at-will. Our executive officers
may resign or we may terminate their employment at any time. Our executive
officers have entered into agreements with us providing for benefits if we are
acquired. The agreements provide that, in the event we are acquired, 50% of the
executive officer's unvested shares immediately vest. Further, if an executive
officer's employment is terminated by Talarian or its successor, other than for
cause, sixty (60) days prior to or twelve (12) months after we are acquired, or
if he terminates his employment because of an adverse and material change in
compensation or duties, any remaining unvested shares will immediately vest. The
agreements define "acquired" to mean a merger or consolidation of Talarian with
or into another company in which Talarian's shareholders own less than a
majority of the surviving corporation, a sale of substantially all of Talarian's
assets or a sale of the majority of the voting power in Talarian.
EMPLOYEE BENEFIT PLANS AND OPTION GRANTS
1991 STOCK OPTION PLAN
As of March 15, 2000, options to purchase 63,105 shares of our common stock
were outstanding under our 1991 Stock Option Plan with a weighted average
exercise price of $0.11 per share. No options have been granted under the 1991
plan since our 1998 Equity Incentive Plan became effective on September 29,
1998, and none will be granted under the 1991 Stock Option Plan in the future.
Options outstanding under our 1991 Stock Option Plan, however, will remain
outstanding and subject to our 1991 Stock Option Plan and related stock option
agreements until exercise or until they terminate or expire by their terms.
Options granted under our 1991 Stock Option Plan are subject to terms
substantially similar to those described below with respect to options granted
under our 2000 Equity Incentive Plan.
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<PAGE> 67
1998 EQUITY INCENTIVE PLAN
As of March 15, 2000, options to purchase 559,131 shares of our common
stock were outstanding under our 1998 Equity Incentive Plan and 1,174,835 shares
of our common stock remained available for future option grants. The options
outstanding as of March 15, 2000 had a weighted average exercise price of $0.84
per share. Our 2000 Equity Incentive Plan will become effective upon the date of
this prospectus. No options will be granted under our 1998 Equity Incentive Plan
after this offering. However, any outstanding options under our 1998 Equity
Incentive Plan will remain outstanding and subject to our 1998 Equity Incentive
Plan and related stock option agreements until exercise or until they terminate
or expire by their terms. Options granted under our 1998 Equity Incentive Plan
are subject to terms substantially similar to those described below with respect
to options granted under our 2000 Equity Incentive Plan except that the 2000
Equity Incentive Plan provides for partial option acceleration of employee
options if an employee is terminated in connection with an acquisition or other
change of control transaction.
NON PLAN GRANTS
From November 1999 through March 2000 we granted options to purchase a
total of 1,105,000 shares of our common stock to certain of our officers and
directors outside of any option plan. The terms of such grants are substantially
identical to grants under our 1998 Equity Incentive Plan.
ABILITY TO EXERCISE EARLY
In January 2000, we granted option holders the right to accelerate the
exercise of their options. Shares purchased upon exercise of those options are
restricted stock subject to a lapsing right to repurchase by us at their
original exercise price on the same vesting schedule as the options.
WHITEBARN STOCK OPTION AND EQUITY INCENTIVE PLANS
When we acquired WhiteBarn we assumed all outstanding options to purchase
shares under both the WhiteBarn Stock Option Plan and the 2000 WhiteBarn Equity
Incentive Plan. Under our merger agreement with WhiteBarn, the outstanding
options under the WhiteBarn Stock Option Plan were converted into options to
purchase 71,783 shares of our common stock with a weighted average exercise
price of $2.01 per share. The outstanding options under the 2000 WhiteBarn
Equity Incentive Plan were converted into options to purchase 280,000 shares of
our common stock with an exercise price of $3.18 per share. No additional
options have been or will be granted under either WhiteBarn plan. All options
granted under the WhiteBarn Stock Option Plan have vested. Options granted under
the 2000 WhiteBarn Equity Incentive Plan vest over four years and are subject to
terms substantially similar to those described below with respect to our 2000
Equity Incentive Plan.
2000 EQUITY INCENTIVE PLAN
In April 2000, our board of directors adopted the 2000 Equity Incentive
Plan, subject to stockholder approval. The 2000 Equity Incentive Plan will
become effective on the date of this prospectus and will serve as the successor
to our 1998 Equity Incentive Plan. The 2000 Equity Incentive Plan authorizes the
award of options, restricted stock and stock bonuses.
The 2000 Equity Incentive Plan will be administered by the compensation
committee of our board of directors, each of whom is an outside director as
defined under applicable federal tax laws. The compensation committee will have
the authority to interpret this plan and any agreement entered
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<PAGE> 68
into under the plan, grant awards and make all other determinations for the
administration of the plan.
Our 2000 Equity Incentive Plan provides for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. The incentive stock options may be granted only to
our employees or employees of any of our subsidiaries. The nonqualified stock
options, and all awards other than incentive stock options, may be granted to
our employees, officers, directors, consultants, independent contractors and
advisors and those of any of our subsidiaries. However, consultants, independent
contractors and advisors are only eligible to receive awards if they render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options granted to 10% stockholders
must be at least equal to 110% of the fair market value of our common stock on
the date of grant. The exercise price of nonqualified stock options must be at
least equal to 85% of the fair market value of our common stock on the date of
grant.
The maximum term of the options granted under our 2000 Equity Incentive
Plan is ten years. The awards granted under this plan may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the optionee only by the optionee. The
compensation committee may allow exceptions to this restriction for awards that
are not incentive stock options. Options granted under our 2000 Equity Incentive
Plan generally expire three months after the termination of the optionee's
service to us or to a parent or subsidiary of ours, or 12 months if the
termination is due to death or disability. In the event of a liquidation,
dissolution or change in control transaction, except for options granted to
non-employee directors, the vesting of all outstanding options may be assumed or
substituted by the successor company. Except for options granted to non-employee
directors, in the event an optionee is terminated within one year from the date
of the change in control transaction for any reason except for death, disability
or cause, then the vesting of all outstanding options for that optionee will
accelerate as to an additional 25% of the shares that are unvested on the date
of the termination.
We have reserved 3,000,000 shares of our common stock for issuance under
the 2000 Equity Incentive Plan. The number of shares reserved for issuance under
this plan will be increased by:
- the number of shares of our common stock reserved under our 1998 Equity
Incentive Plan and 1991 Stock Option Plan that are not issued or subject
to outstanding grants on the date of this prospectus;
- the number of shares of our common stock issued under our 1998 Equity
Incentive Plan or our 1991 Stock Option Plan that are repurchased by us
at the original purchase price; and
- the number of shares of our common stock issuable upon exercise of
options granted under our 1998 Equity Incentive Plan and 1991 Stock
Option Plan that expire or become unexercisable without having been
exercised in full at any time after this offering.
In addition, under the terms of the 2000 Equity Incentive Plan, the number
of shares of our common stock reserved for issuance under the plan will increase
automatically on January 1 of each year commencing in 2001, by an amount equal
to 5% of our total outstanding shares of common stock as of the immediately
preceding December 31. Our board of directors or compensation committee may
reduce the amount of the increase in any calendar year.
Shares available for grant and issuance under our 2000 Equity Incentive
Plan include:
- shares of our common stock issuable upon exercise of an option granted
under the plan that is terminated or cancelled before the option is
exercised;
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<PAGE> 69
- shares of our common stock issued upon exercise of any option granted
under this plan that we repurchase at the original purchase price;
- shares of our common stock subject to awards granted under this plan that
are forfeited or repurchased by us at the original issue price; and
- shares of our common stock subject to stock bonuses granted under this
plan that otherwise terminate without shares being issued.
During any calendar year, no person will be eligible to receive more than
1,000,000 shares, or 2,000,000 shares in the case of a new employee, under the
2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate in
March 2010, unless it is terminated earlier by our board of directors.
2000 EMPLOYEE STOCK PURCHASE PLAN
In April 2000, our board of directors adopted the 2000 Employee Stock
Purchase Plan, subject to stockholder approval. The 2000 Employee Stock Purchase
Plan will become effective on the first day on which price quotations are
available for our common stock on the Nasdaq National Market. The employee stock
purchase plan is designed to enable eligible employees to purchase shares of our
common stock at a discount on a periodic basis through payroll deductions.
Our compensation committee will administer the 2000 Employee Stock Purchase
Plan. Our employees generally will be eligible to participate in this plan if
they are employed by us, or a subsidiary of ours that we designate, for more
than 20 hours per week and more than five months in a calendar year. Our
employees are not eligible to participate in our 2000 Employee Stock Purchase
Plan if they are 5% stockholders or would become 5% stockholders as a result of
their participation in the plan. Under the 2000 Employee Stock Purchase Plan,
eligible employees may acquire shares of our common stock through payroll
deductions. Our eligible employees may select a rate of payroll deduction
between 1% and 15% of their cash compensation. An employee's participation in
this plan will end automatically upon termination of employment for any reason.
No participant will be able to purchase shares having a fair market value
of more than $25,000, determined as of the first day of the applicable offering
period, for each calendar year in which the employee participates in the 2000
Employee Stock Purchase Plan. Except for the first offering period, each
offering period will be for two years and will consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on the
Nasdaq National Market. The first purchase period may be more or less than six
months long. After that, the offering periods will begin on February 1 and
August 1. The purchase price for shares of our common stock purchased under the
2000 Employee Stock Purchase Plan will be 85% of the lesser of the fair market
value of our common stock on the first day of the applicable offering period or
the last day of each purchase period. Our compensation committee will have the
power to change the starting date of any later offering period, the purchase
date of a purchase period and the duration of any offering period or purchase
period without stockholder approval if this change is announced before the
relevant offering period or purchase period. Our 2000 Employee Stock Purchase
Plan is intended to qualify as an employee stock purchase plan under Section 423
of the Internal Revenue Code.
We have initially reserved 300,000 shares of our common stock for issuance
under the 2000 Employee Stock Purchase Plan. The number of shares reserved for
issuance under the plan will increase automatically on January 1 of each year,
commencing in 2001, by an amount equal to 1% of our total outstanding shares as
of the immediately preceding December 31. Our board of directors or compensation
committee may reduce the amount of the increase in any particular year. The 2000
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<PAGE> 70
Employee Stock Purchase Plan will terminate in March 2010, unless it is
terminated earlier by our board of directors.
401(K) PLAN
We sponsor a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code, or a 401(k) Plan. Employees who are at least
21 years old are generally eligible to participate and may enter the 401(k) Plan
as of the first day of any month. Participants may make pre-tax contributions to
the plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. We may make matching contributions on
a discretionary basis to the 401(k) Plan but have not done so as of March 2000.
Contributions by the participants or us to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Contributions by us, if any, are generally deductible by us when
made. Participant and our contributions are held in trust as required by law.
Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Our Certificate of Incorporation will provide that our directors will not
be liable to us or our stockholders for monetary damages for any breach of
fiduciary duty, except to the extent otherwise required by the Delaware General
Corporation Law. This provision does not prevent our stockholders from obtaining
injunctive or other relief against our directors nor does it shield our
directors from liability under federal or state securities laws.
Our Bylaws require us to indemnify our directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions. Our Bylaws also require us to advance expenses,
as incurred, to our directors and executive officers in connection with any
legal proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions. These rights are
not exclusive.
In addition to the indemnification provisions contained in our Bylaws,
before the completion of this offering, we intend to enter into indemnity
agreements with each of our current directors and officers. These agreements
will provide for the indemnification of our directors and officers for all
expenses and liabilities incurred in connection with any action or proceeding
brought against them because they are or were agents of Talarian. We also intend
to obtain directors' and officers' insurance to cover our directors, officers
and some of our employees for specific liabilities, including public securities
matters. We believe that these indemnification provisions and agreements and
this insurance are necessary to attract and retain qualified directors and
officers.
The limitation of liability and indemnification provisions in our
Certificate of Incorporation and Bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against directors and
officers as required by these indemnification provisions. At present, there is
no pending litigation or proceeding involving any of our directors, officers or
employees regarding which indemnification by Talarian is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
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RELATED PARTY TRANSACTIONS
Since October 1, 1996, we have not been a party to, and we have no plans to
be a party to, any transaction or series of similar transactions in which the
amount involved exceeded or will exceed $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock had or will have
an interest, other than as described where required under "Management" and the
transactions described below.
ASSET ACQUISITION OF GLOBALCAST COMMUNICATIONS, INC.
In September 1999, we acquired substantially all of the assets of
GlobalCast in exchange for 552,600 shares of our common stock. Pursuant to our
agreement with GlobalCast, Mr. Nortz was appointed to our board. Mr. Nortz is a
Senior Vice President of Novell. We believe that Novell owns approximately 23%
of the capital stock of GlobalCast. See "Business -- Acquisitions."
LICENSE AGREEMENT WITH NOVELL, INC.
Also in September 1999, in a separate transaction unrelated to the
GlobalCast acquisition, we entered into a license agreement with Novell. Mr.
Nortz, a member of our board of directors, is a Senior Vice President of Novell.
For additional information about our relationship with Novell, see
"Business -- Strategic Relationships."
TRANSACTIONS WITH NORTEL NETWORKS INC.
In February 2000, we sold 1,571,055 shares of our Series D convertible
redeemable preferred stock at $6.36 per share to Nortel Networks for an
aggregate purchase price of $10 million. In connection with that transaction
Paul D. Callahan, a Vice President of Nortel Networks, was appointed to our
board of directors. Each share of Series D preferred stock will convert
automatically into one share of common stock upon the consummation of this
offering.
In connection with Nortel Networks' investment in us, we also entered into
the following agreements:
- An Amended and Restated Investors' Rights Agreement with Nortel Networks
and the holders of our outstanding preferred stock, including Lawrence,
Tyrell, Ortale and Smith II, L.P. and STF II, L.P., each of which
beneficially owns more than five percent of our outstanding stock, among
others. This agreement provides registration rights to such persons as
described below in "Description of Capital Stock -- Registration Rights."
- An Agreement with Nortel Networks pursuant to which we and Nortel
Networks agreed to negotiate in good faith to enter into a joint
development agreement that would involve optimization of our software
infrastructure on Nortel Networks' networking equipment. In addition, we
and Nortel Networks agreed to engage in specified joint marketing of our
product lines, which arrangement includes a limit on the ability of each
of us to enter into certain marketing arrangements with specified third
parties until February 2001. We also agreed to a restriction on our
ability to collaborate with specified third parties in research and
development efforts until February 2001.
For additional information about our relationship with Nortel Networks, see
"Business -- Strategic Relationships."
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of March 15, 2000, and as adjusted to reflect the sale of
the shares in this offering, for:
- each person or entity known by us to own beneficially more than five
percent of our of common stock;
- each of the executive officers named in the Summary Compensation Table
above;
- each of our directors; and
- all executive officers and directors as a group.
The percentage of beneficial ownership for the following table is based on
14,800,359 shares of common stock outstanding as of March 15, 2000, assuming the
conversion of all outstanding shares of our preferred stock into our common
stock, and, as to the amounts in the "After Offering" column, shares
of our common stock issued in connection with this offering, assuming no
exercise of the underwriters' over-allotment option.
To our knowledge, except under applicable community property laws or as
otherwise noted, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. Unless
otherwise indicated, each entity or person listed below maintains a mailing
address of c/o Talarian Corporation, 333 Distel Circle, Los Altos, California
94022.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes those shares of common stock over which the stockholder has
sole or shared voting or investment power and any shares of common stock that
the stockholder has a right to acquire within 60 days after March 15, 2000
through the exercise of any option, warrant or other right. The percentage
ownership of the outstanding common stock, however, is based on the assumption,
expressly required by the rules of the Securities and Exchange Commission, that
only the person or entity whose ownership is being reported has converted
options or warrants into shares of our common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF SHARES OUTSTANDING
COMMON STOCK --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Brian T. Horey(1).................................. 2,455,727 16.6%
Lawrence, Tyrrell, Ortale and Smith II, L.P.
Paul D. Callahan(2)................................ 1,571,055 10.6
Nortel Networks Inc.
David E. Gold(3)................................... 1,562,500 10.6
STF II, L.P.
Kevin J. Kinsella(4)............................... 1,057,554 7.2
Avalon Ventures
John E. Egbert(5).................................. 754,337 5.1
Thomas J. Laffey(6)................................ 545,978 3.7
Paul A. Larson(7).................................. 364,854 2.5
Rodney S. Arbaugh(8)............................... 122,569 *
David I. Caplan(9)................................. 120,000 *
All executive officers and directors as a group (11
persons)(10).................................... 7,455,337 49.8
</TABLE>
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- -------------------------
(1) Represents shares owned by Lawrence, Tyrrell, Ortale & Smith II, L.P., over
which Mr. Horey has shared voting and dispositive power. Mr. Horey
disclaims any beneficial interest in these shares except to the extent of
any individual interest in these shares. The address of Lawrence, Tyrrell,
Ortale & Smith II, L.P. is 515 Madison Avenue, 29th Floor, New York, New
York 10022.
(2) Represents shares owned by Nortel Networks Inc., of which Mr. Callahan is
Vice President, Strategy and Technology Investments. Mr. Callahan disclaims
any beneficial interest in such shares except to the extent of any
individual interest in such shares. The address of Nortel Networks Inc. is
4401 Great America Parkway, Santa Clara, CA 95052. The address of Mr.
Callahan is Nortel Networks Inc., 600 Technology Park Drive, Billerica,
Massachusetts 01821.
(3) Represents shares owned by STF II, L.P., of which Mr. Gold is a general
partner. Mr. Gold disclaims any beneficial interest in these shares except
to the extent of any individual interest in these shares. The address of
STF II, L.P. is 2180 Sand Hill Road, Suite 450, Menlo Park, California
94025.
(4) Represents 787,996 shares held by Avalon Ventures IV, 23,200 shares held by
Avalon
Ventures III Profit Sharing and 246,358 shares owned by Kevin J. Kinsella,
as Trustee for the Kevin J. Kinsella Declaration of Trust dated November 2,
1994. Mr. Kinsella is affiliated with Avalon Ventures III Profit Sharing
and Avalon Ventures IV by virtue of his being a general partner of Avalon
Ventures. John T. Hendrick is also a general partner of Avalon Ventures
and, in addition, holds 67,389 shares. Messrs. Kinsella and Hendrick
disclaim any beneficial interest in these shares held by Avalon Ventures
except to the extent of any individual interest in these shares. The
address of Mr. Kinsella is 1735 Castellana Road, La Jolla, California
92037. The address of Avalon Ventures is 1020 Prospect Street, Suite 405,
La Jolla, California 92037. The address of Mr. Hendrick is 700 13th Street,
N.W., Suite 1160, Washington, D.C. 20005
(5) Represents shares held by John E. Egbert, as Trustee for the John E. Egbert
Trust dated September 28, 1989. The address of the Egbert Trust is 415
Cambridge Avenue, Suite 13, Palo Alto, California 94306.
(6) Includes 65,978 shares issuable upon the exercise of options exercisable
within 60 days of March 15, 2000.
(7) Represents 331,000 shares held jointly by Mr. Larson and his wife, of which
43,751 shares are subject to repurchase by us upon termination of
employment, and 33,854 shares stock issuable upon the exercise of options
exercisable within 60 days of March 15, 2000.
(8) Represents 100,000 shares held by Mr. Arbaugh, of which 47,918 shares are
subject to repurchase by us upon termination of employment, and 22,569
shares issuable upon the exercise of options exercisable within 60 days of
March 15, 2000.
(9) Represents shares held by David I. Caplan and Elinor R. Caplan, as Trustees
for the Caplan Family Trust, dated August 10, 1999. As of March 15, 2000,
75,000 of these shares are subject to a right of repurchase by us.
(10) Includes 526,044 shares that are subject to repurchase by us upon
termination of the employment of their owner and 122,901 shares issuable
upon the exercise of options exercisable within 60 days of March 15, 2000.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our restated certificate of incorporation, which will become effective
following our reincorporation in Delaware upon the closing of this offering,
authorizes the issuance of up to 50 million shares of common stock, par value
$0.001 per share, and 5 million shares of preferred stock, par value $0.001 per
share. As of March 15, 2000, we had outstanding 14,800,359 shares of common
stock, assuming the conversion of all preferred stock into common stock, which
will occur upon the completion of this offering. As of March 15, 2000, we had
176 stockholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders, and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock in this offering may be entitled, holders of common
stock will be entitled to receive ratably any dividends that may be declared
from time to time by the board of directors out of funds legally available for
that purpose. In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or conversion rights or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and the shares of
common stock offered by us in this offering, when issued and paid for, will be,
fully paid and nonassessable. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
issue in the future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue preferred stock in one or more series, each
series to have rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as may be
determined by the board of directors. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of holders of
any preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock.
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<PAGE> 75
WARRANTS
As of March 15, 2000, we had outstanding the following warrants to purchase
our preferred stock:
<TABLE>
<CAPTION>
TOTAL NUMBER
OF SHARES
SUBJECT TO EXERCISE PRICE
TYPE OF STOCK WARRANTS PER SHARE EXPIRATION DATE
------------- ------------ -------------- -----------------
<S> <C> <C> <C>
Series A Preferred Stock................. 16,768 $0.80 April 13, 2000
Series A Preferred Stock................. 80,000 $0.625 February 18, 2001
Series B Preferred Stock................. 16,667 $0.90 April 1, 2001
Series B Preferred Stock................. 16,667 $0.90 March 29, 2002
</TABLE>
Following completion of this offering, the warrants to purchase Series A
preferred stock will become exercisable for 96,768 shares of our common stock,
and the warrants to purchase Series B preferred stock will become exercisable
for 34,735 shares of our common stock.
REGISTRATION RIGHTS
Stockholders and warrant holders beneficially owning 9,193,831 shares of
our common stock after this offering are entitled to rights with respect to the
registration of their shares under the Securities Act, as described below.
Demand Registration Rights. At any time after six months following the
completion of this offering, the holders of at least a majority of the shares
having registration rights can request that we register all or a portion of
their shares so long as the total offering price of the shares to the public is
at least $4,000,000. We are required to file only one registration statement in
response to this demand registration right. We may postpone the filing of this
registration statement for up to 120 days if we determine that the filing would
be seriously detrimental to us and our stockholders, although we may only
exercise this right once in any 12-month period. The underwriters of any
underwritten offering will have the right to limit the number of shares to be
included in that registration statement.
Piggyback Registration Rights. If we register any securities for public
sale, the stockholders with registration rights will have the right to include
their shares in this registration, subject to specified exceptions. The
underwriters of any underwritten offering will have the right to limit the
number of shares registered by these holders to 25% of the total shares covered
by the registration statement.
Form S-3 Registration Statements. The holders of the shares having
registration rights can request that we register their shares if we are eligible
to file a registration statement on Form S-3 and if the total price of the
shares of common stock offered to the public is at least $1,000,000. These
holders may only require us to file two Form S-3 Registration Statements in any
12-month period. We may postpone the filing of any registration statement for up
to one hundred twenty (120) days if we determine that the filing would be
seriously detrimental to us and our stockholders, although we may exercise this
right only once in any 12-month period.
We will pay all expenses related to any demand or piggyback registration
and up to two registrations on Form S-3, except for underwriters' discounts and
commissions, which will be paid by the selling stockholders. The registration
rights described above will expire five years following the completion of this
offering.
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<PAGE> 76
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
Provisions of our restated certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. These
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. These provisions:
- divide our board of directors into three classes serving staggered
three-year terms;
- eliminate the right of stockholders to act by written consent without a
meeting;
- limit the right of stockholders to call special meetings;
- eliminate cumulative voting in the election of directors; and
- allow us to issue preferred stock without any vote or further action by
the stockholders.
The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deferring
hostile takeovers, delaying changes in our control or management, or making it
more difficult for stockholders to take certain corporate actions.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any "business combination" with any "interested
stockholder," unless:
- prior to the date of the proposed action, the board of directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date of the proposed action, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to Talarian and, accordingly, may discourage attempts to acquire us.
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<PAGE> 77
CALIFORNIA FOREIGN CORPORATION LAW
Section 2115 of the California Corporations Code provides that under some
circumstances several provisions of the California Corporations Code may be
applied to foreign corporations qualified to do business in California
notwithstanding the law of the jurisdiction where the corporation is
incorporated. These corporations are referred to in this prospectus as
"quasi-California" corporations. Section 2115 applies to foreign corporations
that have more than half of their voting stock held by stockholders residing in
California and more than half of their business deriving from California,
measured on or after the 135th day of the corporation's fiscal year. If we were
determined to be a quasi-California corporation, we would have to comply with
California law with respect to, among other things, elections of directors and
distributions to stockholders. Under the California Corporations Code, a
corporation is prohibited from paying dividends unless:
- the retained earnings of the corporation immediately prior to the
distribution equal or exceed the amount of the proposed distribution; or
- (a) the assets of the corporation, exclusive of specific non-tangible
assets, equal or exceed 1 1/4 times its liabilities, exclusive of
specific liabilities; and
- (b) the current assets of the corporation at least equal its current
liabilities. If the average pre-tax net earnings of the corporation
before interest expense for the two years preceding the distribution were
less than the average interest expense of the corporation for those
years, however, the current assets of the corporation must exceed 1 1/4
times its current liabilities.
Following this offering, we will be exempt from the application of Section
2115 until October 1, 2001, and thereafter we will be exempt if our voting stock
is held by more than 800 stockholders of record.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "TALR."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding options and warrants, in the public market after
this offering could cause the prevailing market price of our common stock to
fall or impair our ability to raise equity capital in the future.
Upon completion of this offering, shares of our common stock
will be outstanding, assuming that the underwriters do not exercise their
over-allotment option and there are no exercises of outstanding options or
warrants after March 15, 2000. Of these shares, all of the shares
sold in this offering will be freely tradable in the public market without
restriction or further registration under the Securities Act, unless these
shares are held by "affiliates," as that term is defined in Rule 144 under the
Securities Act. For purposes of Rule 144, an "affiliate" of an issuer is a
person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, the issuer.
Shares purchased by an affiliate may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including
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<PAGE> 78
an exemption under Rule 144 of the Securities Act. The remaining 14,800,359
shares of our common stock held by existing stockholders are "restricted
securities," as that term is defined in Rule 144 of the Securities Act. These
restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or 701 under the Securities Act. These rules are summarized below. Subject to
the lock-up agreements described below and the provisions of Rule 144 and Rule
701, additional shares will be available in the public market as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
--------- ----
<S> <C>
No shares.............................. On the date of this prospectus
12,831,089 shares...................... 180 days after the date of this
prospectus
1,969,270 shares....................... At various times beginning more than
180 days after the date of this
prospectus
</TABLE>
LOCK-UP AGREEMENTS
Holders, of a total of shares of common stock, warrants to
purchase a total of shares of common stock and options to purchase a
total of shares of common stock, including all of our officers and
directors, have agreed not to offer for sale, sell, pledge or otherwise dispose
of (or enter into any transaction or device that is designed, or could be
expected, to result in the disposition by any person at any time in the future
of) any shares of our common stock, including shares that may be issued upon
exercise of any option or warrant or securities convertible or exchangeable for
our common stock or enter into any swap or other derivatives transaction that
transfers any of the economic benefits or risks of ownership of our common stock
to another for a period of 180 days after the date of this prospectus without
the prior written consent of Lehman Brothers Inc. Lehman Brothers may, however,
in its sole discretion and without notice, release all or any portion of the
shares from the restriction in the lock-up agreements. In addition, all options
granted under our 1991 Stock Option Plan and our 1998 Equity Incentive Plan are
subject to similar lock-up arrangements pursuant to an agreement between the
optionees and us.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell, within any three-month period, a number of shares that is not
more than the greater of:
(1) 1% of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after this offering; or
(2) the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks before a notice of
the sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
RULE 144(k)
In addition, under Rule 144(k), a person who is not one of our affiliates
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at
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<PAGE> 79
least two years from the later of the date these shares of common stock were
acquired from us or from an affiliate of ours, including the holding period of
any prior owner other than an affiliate, is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted
pursuant to the lock-up agreements, those shares may be sold immediately upon
the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
subject to specified exceptions, our employees, consultants or advisors who
purchased shares from us in connection with a stock option plan can resell,
unless otherwise restricted pursuant to the lock-up agreements those shares 90
days after the date of this prospectus in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144.
FORM S-8
After this offering, we intend to file a registration statement on Form S-8
under the Securities Act covering 6,148,854 shares of our common stock subject
to options outstanding under our 1991 Stock Option Plan, 1998 Equity Incentive
Plan, the WhiteBarn Stock Option and Equity Incentive Plans, non-plan grants and
reserved for issuance under our 2000 Equity Incentive Plan and 2000 Employee
Stock Purchase Plan. This registration statement is expected to be filed as soon
as practicable after the closing of this offering.
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<PAGE> 80
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., SG Cowen Securities Corporation, Wit
SoundView Corporation, and Fidelity Capital Markets, a division of National
Financial Services Corporation, are acting as representatives, have each agreed
to purchase from us the respective number of shares of common stock shown
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc.........................................
SG Cowen Securities Corporation.............................
Wit SoundView Corporation ..................................
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that, if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, all of
the shares of common stock that the underwriters have agreed to purchase under
the underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
The following table summarizes the underwriting discounts and commissions
we will pay. The underwriting discounts and commissions are equal to the public
offering price per share less the amount paid to us per share. The underwriting
discounts and commissions are equal to % of the public offering price.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by us... $ $ $
</TABLE>
We estimate that the total expenses of the offering, including
registrations, filing and listing fees, printing fees and legal and accounting
expenses but excluding underwriting discounts and commissions, will be
approximately $ million.
We have granted to the underwriters an option to purchase up to
additional shares of our common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discount shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to
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<PAGE> 81
the underwriter's initial commitment as indicated in the table above and we will
be obligated, under the over-allotment option, to sell the shares of common
stock to the underwriters.
We have agreed that, without the prior written consent of Lehman Brothers,
we will not, directly or indirectly, offer, sell or otherwise dispose of any
shares of common stock or any securities that may be converted into or exchanged
for any shares of common stock for a period of 180 days from the date of this
prospectus, subject to specified exceptions. Stockholders holding 14,800,359
shares of our common stock, including all of our executive officers and
directors, have agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers, they will not, directly or indirectly, offer, sell
or otherwise dispose of any shares of common stock or any securities that may be
converted into or exchanged for any shares of common stock for a period of 180
days from the date of this prospectus. See "Shares Available for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price has been negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives considered, among other things and in addition
to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the above factors in relation to market valuations of companies in
related businesses.
We have applied to list our common stock has been approved for quotation on
the Nasdaq National Market under the symbol "TALR."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence
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<PAGE> 82
of these purchases. The imposition of a penalty bid might have an effect on the
price of a security to the extent that it were to discourage resales of the
security by purchasers in an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution through the Internet/intranet and other
proprietary electronic technology.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the initial public offering price listed
on the cover page of this prospectus.
The representatives have informed us that they do not intend to confirm the
sales of shares of common stock offered by this prospectus to any accounts over
which they exercise discretionary authority.
At our request, the underwriters have reserved up to shares
of the common stock offered by this prospectus for sale to our officers,
directors, employees and their family members and to our business associates at
the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation, an affiliate of Wit SoundView
Corporation. Other than the prospectus in electronic format, the information on
Wit Capital's Web site and any information contained on any other Web site
maintained by Wit Capital is not part of the prospectus or the registration
statement of which this prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in its capacity as underwriter and should not
be relied upon by investors.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the common stock that we are selling in this offering. Simpson Thacher &
Bartlett, New York, New York, will pass upon certain legal matters for the
underwriters. Fenwick & West LLP, an investment partnership comprised of
partners from Fenwick & West LLP and one or more partners or employees of
Fenwick & West hold an aggregate of 75,000 shares of our common stock.
EXPERTS
The consolidated balance sheets of Talarian Corporation and subsidiaries as
of September 30, 1998, and 1999, and the consolidated statements of operations,
stockholders' equity/(deficit), and cash flows for the three-year period ended
September 30, 1999, have been included herein and in the
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<PAGE> 83
registration statement in reliance upon the report of KPMG LLP, independent
auditors, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated balance sheets of GlobalCast Communications Inc. as of
June 30, 1998 and 1999, and the statements of operations, shareholders'
equity/(deficit), and cash flows for the years ended June 30, 1998 and 1999,
have been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
The balance sheets of WhiteBarn Inc., as of December 31, 1998 and 1999, and
the related statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1998 and 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
auditors, and upon the authority of said firm as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
PricewaterhouseCoopers LLP served as our independent auditors until their
dismissal effective August 1999. PricewaterhouseCoopers LLP performed audits of
our financial statements for the fiscal years ended September 30, 1995, 1996,
1997 and 1998. The reports of PricewaterhouseCoopers LLP on our financial
statements prepared in connection with these audits were unqualified.
Furthermore, in connection with these audits and during the subsequent interim
period prior to their dismissal, there were no disagreements between
PricewaterhouseCoopers LLP and us on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have
caused PricewaterhouseCoopers LLP to make reference to the subject matter of
such disagreements in connection with its report.
Effective August 1999, we engaged KPMG LLP as our principal accountants to
audit our financial statements. Talarian did not consult with KPMG LLP on any
accounting or financial reporting matters in the period before their
appointment. The change in accountants was approved by the board of directors.
As the prior year audits were performed by PricewaterhouseCoopers LLP, KPMG
LLP audited the financial statements for the fiscal years ended September 30,
1997 and 1998 for the purposes of inclusion in this prospectus.
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and a schedule, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedule. Any statements made in this prospectus regarding the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the registration statement, we refer you to the exhibit for a more
complete description of the matter involved, and each statement in this
prospectus will be deemed qualified in its entirety by this reference. You may
read and copy all or any portion of the
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<PAGE> 84
registration statement or any reports, statements or other information in the
files at the following public reference facilities of the Commission:
<TABLE>
<S> <C> <C>
Washington, D.C. New York, New York Chicago, Illinois
Room 1024, Judiciary Plaza Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Washington, D.C., 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You can request copies of these documents upon payment of a duplicating fee
by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms. Our filings,
including the registration statement, will also be available to you on the Web
site maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
consolidated financial statements audited by our independent auditors, and make
available to our stockholders quarterly reports for the first three quarters of
each year containing unaudited interim consolidated financial statements.
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<PAGE> 85
TALARIAN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TALARIAN CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL
STATEMENTS
Form of Independent Auditors' Report...................... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit).............................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
GLOBALCAST COMMUNICATIONS, INC.
Independent Auditors' Report.............................. F-24
Balance Sheets............................................ F-25
Statements of Operations.................................. F-26
Statements of Stockholders' Equity (Deficit).............. F-27
Statements of Cash Flows.................................. F-28
Notes to Financial Statements............................. F-29
WHITEBARN, INC. FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-36
Balance Sheets............................................ F-37
Statements of Operations.................................. F-38
Statements of Stockholders' Equity........................ F-39
Statements of Cash Flows.................................. F-40
Notes to Financial Statements............................. F-41
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements................................... F-46
Unaudited Pro Forma Combined Condensed Balance Sheet...... F-47
Unaudited Pro Forma Combined Condensed Statements of
Operations............................................. F-48
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements............................................. F-50
</TABLE>
F-1
<PAGE> 86
FORM OF INDEPENDENT AUDITORS' REPORT
When the event referred to in Note 10(e) to the consolidated financial
statements has been consummated, we will be in a position to render the
following report.
/s/ KPMG LLP
The Board of Directors
Talarian Corporation:
We have audited the accompanying consolidated balance sheets of Talarian
Corporation and subsidiary (the Company) as of September 30, 1998 and 1999, and
the related consolidated statements of operations, stockholders'
equity/(deficit), and cash flows for each of the years in the three-year period
ended September 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Talarian
Corporation and subsidiary as of September 30, 1998 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999, in conformity with generally accepted
accounting principles.
Mountain View, California
March 17, 2000, except as to note 10(e),
which is as of , 2000
F-2
<PAGE> 87
TALARIAN CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, AS OF
------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,204 $ 1,820 $ 1,917
Accounts receivable, net of allowance for doubtful
accounts of $185,000, and $245,000 as of September 30,
1998 and 1999, and $245,000 as of December 31, 1999..... 742 2,396 1,731
Prepaid expenses and other................................ 279 266 241
------- -------- --------
Total current assets.................................... 4,225 4,482 3,889
Deposits and other assets................................... 53 -- --
Property and equipment, net................................. 707 592 511
Goodwill and other intangible assets, net................... -- 1,710 1,572
------- -------- --------
Total assets............................................ $ 4,985 $ 6,784 $ 5,972
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Bank borrowings and current portion of debt............... $ 398 $ 1,213 $ 1,196
Accounts payable.......................................... 102 199 89
Accrued payroll and related expenses...................... 653 718 595
Other accrued expenses.................................... 608 444 421
Current portion of deferred revenue....................... 1,611 3,148 2,805
------- -------- --------
Total current liabilities............................... 3,372 5,722 5,106
Debt, less current portion.................................. 225 83 21
Deferred revenue, less current portion...................... 2,119 1,833 2,145
------- -------- --------
Total liabilities....................................... 5,716 7,638 7,272
------- -------- --------
Commitments
Redeemable convertible preferred stock, $0.001 par value;
actual -- 8,449,915 shares authorized as of September 30,
1998 and 1999 and December 31, 1999; 7,181,441 shares
issued and outstanding as of September 30, 1998 and 1999
and December 31, 1999; aggregate liquidation preference of
$8,262,375, $8,760,162 and $8,884,609 as of September 30,
1998 and 1999 and December 31, 1999; Pro forma -- no
shares issued and outstanding............................. 8,146 8,644 8,768 $ --
------- -------- -------- --------
Stockholders' deficit:
Preferred stock, $0.001 par value; actual -- no shares
authorized, issued or outstanding; pro
forma -- 5,000,000 shares authorized; no shares issued
or outstanding.......................................... -- -- -- --
Common stock, no par value; actual -- 15,000,000 shares
authorized as of September 30, 1998 and 1999 and
December 31, 1999; 2,902,857, 3,810,408 and 3,816,864
shares issued and outstanding as of September 30, 1998
and 1999 and December 31, 1999 respectively; pro
forma -- 20,000,000 shares authorized; 11,056,691 shares
issued and outstanding.................................. 3 4 4 11
Additional paid-in capital................................ 104 5,810 10,379 15,787
Deferred stock-based compensation......................... -- (2,501) (6,119) (6,119)
Accumulated deficit....................................... (8,984) (12,811) (14,332) (10,979)
------- -------- -------- --------
Total stockholders' deficit............................. (8,877) (9,498) (10,068) $ (1,300)
------- -------- -------- ========
Total liabilities, redeemable convertible preferred
stock and stockholders' deficit....................... $ 4,985 $ 6,784 $ 5,972
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 88
TALARIAN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------- -------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Licenses..................................... $ 4,209 $ 5,100 $ 5,912 $1,436 $ 1,829
Maintenance.................................. 1,426 1,873 2,488 473 718
Professional services........................ 807 540 640 110 247
------- ------- ------- ------ -------
Total revenue............................. 6,442 7,513 9,040 2,019 2,794
------- ------- ------- ------ -------
Cost of revenue:
Licenses..................................... 141 59 164 8 60
Maintenance.................................. 222 577 595 151 177
Professional services........................ 849 429 358 69 87
------- ------- ------- ------ -------
Total cost of revenue..................... 1,212 1,065 1,117 228 324
------- ------- ------- ------ -------
Gross profit.............................. 5,230 6,448 7,923 1,791 2,470
------- ------- ------- ------ -------
Operating expenses:
Sales and marketing.......................... 2,923 4,237 5,321 1,298 1,425
Research and development..................... 2,076 2,363 3,214 752 824
General and administrative................... 1,120 1,566 1,656 414 505
Amortization of deferred stock
compensation.............................. -- -- 744 5 950
Acquired in-process research and
development............................... -- -- 300 -- --
Amortization of goodwill and intangible
assets.................................... -- -- -- -- 138
------- ------- ------- ------ -------
Total operating expenses.................. 6,119 8,166 11,235 2,469 3,842
------- ------- ------- ------ -------
Loss from operations...................... (889) (1,718) (3,312) (678) (1,372)
Interest expense and other, net................ 5 10 17 (19) 25
------- ------- ------- ------ -------
Net loss.................................. (894) (1,728) (3,329) (659) (1,397)
Preferred stock dividends...................... (498) (497) (498) (124) (124)
------- ------- ------- ------ -------
Net loss attributable to common stockholders... $(1,392) $(2,225) $(3,827) $ (783) $(1,521)
======= ======= ======= ====== =======
Basic and diluted net loss per share........... $ (0.57) $ (0.80) $ (1.23) $(0.27) $ (0.40)
======= ======= ======= ====== =======
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders................................. 2,434 2,781 3,099 2,906 3,815
======= ======= ======= ====== =======
Pro forma basic and diluted net loss per share
attributable to common stockholders.......... $ (0.37) $ (0.14)
======= =======
Shares used in computing pro forma basic and
diluted net loss per share attributable to
common stockholders.......................... 10,339 11,005
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 89
TALARIAN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED SEPTEMBER 30, 1997, 1998, AND 1999, AND
UNAUDITED THREE MONTH PERIOD ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TOTAL
------------------ PAID-IN STOCK-BASED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1996.................................... 2,158,968 $ 2 $ 28 $ -- $ (5,367) $ (5,337)
Issuance of common stock in connection
with stock option exercises............. 552,838 1 57 -- -- 58
Accretion for dividends on redeemable
preferred stock......................... -- -- -- -- (498) (498)
Net loss.................................. -- -- -- -- (894) (894)
--------- --- ------- ------- -------- --------
Balances, September 30, 1997.............. 2,711,806 3 85 -- (6,759) (6,671)
Issuance of common stock in connection
with stock option exercises............. 191,051 -- 19 -- -- 19
Accretion for dividends on redeemable
preferred stock......................... -- -- -- -- (497) (497)
Net loss.................................. -- -- -- -- (1,728) (1,728)
--------- --- ------- ------- -------- --------
Balances, September 30, 1998.............. 2,902,857 3 104 -- (8,984) (8,877)
Issuance of common stock for acquisition
of Global Cost.......................... 605,000 1 2,419 -- -- 2,420
Issuance of common stock in connection
with stock option exercises............. 302,551 -- 43 -- -- 43
Accretion for dividends on redeemable
preferred stock......................... -- -- -- -- (498) (498)
Deferred stock compensation related to
stock option grants..................... -- -- 3,210 (3,210) -- --
Amortization of deferred stock
compensation............................ -- -- -- 709 -- 709
Nonemployee stock compensation............ -- -- 34 -- -- 34
Net loss.................................. -- -- -- -- (3,329) (3,329)
--------- --- ------- ------- -------- --------
Balances, September 30, 1999.............. 3,810,408 4 5,810 (2,501) (12,811) (9,498)
Issuance of common stock in connection
with stock option exercises
(unaudited)............................. 6,456 -- 1 -- -- 1
Accretion for dividends on redeemable
preferred stock (unaudited)............. -- -- -- -- (124) (124)
Deferred stock compensation related to
stock option grants (unaudited)......... -- 4,568 (4,568) -- --
Amortization of deferred stock
compensation (unaudited)................ -- -- -- 950 -- 950
Net loss (unaudited)...................... -- -- -- (1,397) (1,397)
--------- --- ------- ------- -------- --------
Balances, December 31, 1999
(unaudited)............................. 3,816,864 $ 4 $10,379 $(6,119) $(14,332) $(10,068)
========= === ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 90
TALARIAN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- -----------------
1997 1998 1999 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (894) $(1,728) $(3,329) $ (659) $(1,397)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 280 294 455 119 99
Acquired in-process research and development............ -- -- 300 -- --
Amortization of goodwill and other intangible assets.... -- -- -- -- 138
Amortization of deferred stock compensation............. -- -- 744 5 950
Changes in assets and liabilities:
Accounts receivable................................... (273) 867 (1,654) (1,042) 665
Prepaid expenses and other assets..................... (139) (10) 66 70 25
Accounts payable...................................... (19) 41 97 72 (110)
Accrued payroll and related expenses.................. (161) 342 75 188 (123)
Other accrued expenses................................ (44) 266 (164) (202) (23)
Deferred revenue...................................... 445 2,676 1,250 379 (31)
------ ------- ------- ------- -------
Net cash (used in) provided by operating
activities....................................... (805) 2,748 (2,160) (1,070) 193
------ ------- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (332) (486) (341) (190) (17)
Cash acquired as part of acquisition...................... -- -- 400 -- --
------ ------- ------- ------- -------
Net cash (used in) provided by investing
activities....................................... (332) (486) 59 (190) (17)
------ ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from sale of common stock........................ 58 19 43 -- 1
Proceeds from debt........................................ 330 336 1,353 -- --
Payments on debt.......................................... (89) (310) (679) (84) (80)
Principal payments on capital lease obligations........... (44) (4) -- (4) --
------ ------- ------- ------- -------
Net cash (used in) provided by financing
activities....................................... 255 41 717 (88) (79)
------ ------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (882) 2,303 (1,384) (1,348) 97
Cash and cash equivalents at beginning of year/period....... 1,783 901 3,204 3,204 1,820
------ ------- ------- ------- -------
Cash and cash equivalents at end of year/period............. $ 901 $ 3,204 $ 1,820 $ 1,856 $ 1,917
====== ======= ======= ======= =======
Supplemental disclosures of cash flow information...........
Cash paid during the year/period:
Interest................................................ $ 58 $ 49 $ 108 $ 15 $ 32
====== ======= ======= ======= =======
Noncash financing and investing activities:
Accretion for dividends on redeemable preferred stock... $ 498 $ 497 $ 498 $ 124 $ 124
====== ======= ======= ======= =======
Common stock issued for acquisition..................... $ -- $ -- $ 2,420 $ -- $ --
====== ======= ======= ======= =======
Deferred stock-based compensation....................... $ -- $ -- $ 3,210 $ 27 $ 4,568
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 91
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(1) NATURE OF OPERATIONS
Talarian Corporation (the Company) is a supplier of infrastructure software
that manages and distributes real-time data in a distributed environment. The
benefits of the Company's proprietary product SmartSockets are reduced
development effort, and reduced time to market and maintenance costs. The
Company markets and sells its software primarily through its direct sales
organization, value-added resellers, and OEMs in North America and the United
Kingdom and through distributors internationally outside of the United Kingdom.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Talarian Limited. All intercompany
transactions and balances have been eliminated in consolidation.
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with remaining maturities of less than 90 days at the date of purchase. The
Company is exposed to credit risk in the event of default by the financial
institutions or the issuers of these investments to the extent of the amounts
recorded on the balance sheet in excess of amounts that are insured by the FDIC.
As of September 30, 1999 and December 31, 1999, cash equivalents consisted
principally of money market accounts and commercial paper.
(d) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company classifies its investments in debt securities as
available-for-sale. Available-for-sale securities are carried at fair market
value, which approximates amortized cost. Any unrealized gains or losses are
recorded as a component of other comprehensive income (loss).
(e) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives of between three and five
years. Leasehold improvements and assets recorded under capital leases are
amortized on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset.
F-7
<PAGE> 92
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(f) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, primarily comprising acquired
technology, are being amortized on a straight-line basis over useful lives
ranging from two to four years.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(h) REVENUE RECOGNITION
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-9. SOP 97-2 as amended, generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair value of the elements.
The Company licenses its products to end user customers, original equipment
manufacturers (OEM) and value added resellers (VAR). Software license revenue is
generally recognized upon receipt of a signed contract or purchase order and
delivery of the software, provided the related fee is fixed and determinable and
collectibility of the fee is probable and vendor-specific objective evidence for
all undelivered elements has been established. The Company has established
sufficient vendor-specific objective evidence to ascribe a value to consulting
services and post-contract customer support based on the price charged when
these elements are sold separately. Accordingly, license revenue is recorded
under the residual method described in SOP 98-9 for arrangements in which
licenses are sold with consulting services, post-contract customer support or
both. However, the entire fee related to arrangements that require the Company
to deliver specified additional features or upgrades is deferred until delivery
of the feature and/or upgrade has occurred, unless the Company has sufficient
vendor-specific objective evidence of fair value to allocate revenue to the
various elements in such arrangements. Fees related to arrangements that require
the Company to deliver unspecified additional products are deferred and
recognized ratably over the term of the contract. All of the contract software
revenue related to arrangements involving consulting services that are essential
to the functionality of the software at the customer site is deferred and
recognized as the services are performed. Contract software revenue related to
arrangements to maintain the compatibility of the Company's software products
with the software products or platforms of the customer or other vendor is
recognized ratably over the term of the arrangement. License revenue from OEM
arrangements in which the Company earns a royalty based on a specified
percentage of OEM sales to end users incorporating the Company's software is
recognized upon delivery to the end user. Nonrefundable royalty fees received by
the Company from OEM customers is recognized as long as all other conditions of
SOP 97-2, as amended, have been satisfied.
F-8
<PAGE> 93
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
Professional services revenue consists of fees from services including
integration of software, application development, training and software
installation. The Company bills professional services fees either on a time and
materials basis or on a fixed-price schedule. The Company recognizes
professional services fees generally as the services are performed. Our
customers typically purchase maintenance agreements annually, and we price
maintenance based on a percentage of the product license fee. The Company
recognizes revenue from maintenance and support agreements ratably over the term
of the agreement, which is typically one year.
(i) COST OF SERVICES
Cost of professional services revenue includes salaries and related
expenses for consulting services, implementation and training services, and
costs of contracting with third parties to provide consulting services to
customers and an allocation of our facilities, communications and depreciation
expenses. Cost of license revenue includes royalties due to third parties for
integrated technology, the cost of manuals and product documentation and
production media used to deliver our products. Cost of maintenance revenue
primarily represents salaries and related expenses for technical support
operations.
(j) SOFTWARE DEVELOPMENT COSTS
Costs related to research, design and development of products are charged
to research and development expenses as incurred until technological feasibility
has been established. To date, the establishment of technological feasibility of
the Company's products and general release has coincided. As a result, the
Company has not capitalized any software development costs since such costs have
not been significant.
(k) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts to be recovered.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying amounts for cash and cash equivalents, accounts receivable,
and other financial instruments 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 long-term debt approximates fair
value.
F-9
<PAGE> 94
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
Financial instruments that potentially subject the Company to
concentrations of credit risk include cash and cash equivalents and accounts
receivable. As of September 30, 1998 and 1999, and December 31, 1999 the
Company's cash and cash equivalents, which consist of money market accounts and
commercial paper with an original maturity of less than three months, are on
deposit with a commercial bank. The Company sells its software products to large
well-established companies throughout the world, directly and through
distributors, and generally does not require collateral on accounts receivable.
To date the Company has had no write-offs of accounts receivable and maintains
an allowance for doubtful accounts receivable based upon the expected
collectibility. The Company increased its allowance $45,000, $60,000 and $60,000
in the years ended September 30, 1997, 1998 and 1999 respectively.
(m) STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method. Expense associated with stock-based compensation is
being amortized on an accelerated basis over the vesting period of the
individual award consistent with the method described in Financial Accounting
Standards Board (FASB) Interpretation No. 28. Pursuant to Statement of Financial
Accounting Standards (SFAS) No. 123, the Company discloses the pro forma effect
of using the fair value method of accounting for employee stock-based
compensation arrangements. See Note 7(d).
For nonemployees, the Company computes the fair value of the stock-based
compensation in accordance with SFAS No. 123.
(n) ADVERTISING EXPENSE
Advertising costs are expensed as incurred. In fiscal 1997, 1998, and 1999,
and for the three months ended December 31, 1998 and 1999, advertising expense
was $144,400, $97,485, $147,252, $40,040, and $112,340 respectively.
(o) FOREIGN CURRENCY TRANSACTIONS
The functional currency of the Company's foreign subsidiary is the U.S.
dollar. Accordingly, monetary assets and liabilities in this entity are
remeasured at exchange rates in effect as of each reporting date. Nonmonetary
items are remeasured at historical rates. Income and expense accounts are
remeasured at the average rates in effect during each such period. Remeasurement
adjustments and transaction gains and losses are recognized in the statement of
operations in the period of occurrence and have not been significant to date.
(p) COMPREHENSIVE INCOME
Other comprehensive income refers to revenues, expenses, gains and losses
that are not included in net income, but rather are recorded directly in
stockholders' equity. For the years ended September 30, 1997, 1998, and 1999,
and for the three months ended December 31, 1998 and 1999, the Company had no
items of other comprehensive income (loss) and, accordingly, comprehensive loss
is the same as the net loss.
F-10
<PAGE> 95
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(q) UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of the Company's financial position at December 31, 1999 and the results of its
operations and its cash flows for the three months ended December 30, 1998 and
1999. Results for the three months ended December 31, 1999 are not necessarily
indicative of future results of operations.
(r) NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share attributable to common stockholders is computed
using the weighted-average number of outstanding shares of common stock. Diluted
net loss per share attributable to common stockholders is computed using the
weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
"as-if-converted" basis. The following potential common share have been excluded
from the computation of diluted net loss per share for all periods presented
because the effect would have been antidilutive.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options............ 843,875 1,277,676 1,773,604 2,851,177 1,286,000
Shares issuable pursuant to warrants to
purchase convertible preferred stock......... 162,985 162,985 162,985 162,985 162,985
Shares of redeemable convertible preferred
stock on an "as-if-converted" basis.......... 7,239,830 7,239,830 7,239,830 7,239,830 7,239,830
</TABLE>
The weighted-average exercise price of stock options outstanding was $0.12,
$0.14 and $0.17 for the years ended September 30, 1997, 1998, and 1999 and $0.14
and $0.50 for the three months ended December 31, 1998 and 1999, respectively.
The weighted-average exercise price of warrants to purchase shares of
convertible preferred stock was $0.77 for all periods presented.
Pro forma basic and diluted net loss per share attributable to common
stockholders per share is presented for the year ended September 30, 1999, and
the three months ended December 31, 1999, to reflect per share data assuming the
conversion of all outstanding shares of mandatorily redeemable convertible
preferred stock into common stock on a 1-for-1 basis for Series A and C, and on
a 1-for-1.04204 basis for Series B, as if the conversion had taken place at the
beginning of fiscal 1999, or at the date of issuance if later, and the
cancellation of the accretion for dividends on redeemable preferred stock. This
data is unaudited.
F-11
<PAGE> 96
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(s) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because the Company does not currently hold any derivative financial
instruments and does not engage in hedging activities, the Company expects that
the adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations or cash flows. The Company will be required to
adopt SFAS No. 133 for the year ended September 30, 2001, in accordance with
SFAS No. 137, which delayed the implementation of SFAS No. 133.
(t) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
In fiscal 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC) that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). Following the closing
of the Company's IPO, the number of authorized shares of preferred stock and
common stock will be 5,000,000 and 60,000,000, respectively. If the offering is
consummated under the terms presently anticipated, all the then outstanding
shares of the Company's redeemable convertible preferred stock will
automatically convert into shares of common stock on a 1-for-1 basis for all
preferred stock except for Series B which converts on a 1-for-1.04204 basis upon
the closing of the IPO. The pro forma consolidated balance sheet information
reflects the conversion of all the mandatorily redeemable convertible preferred
stock and the related cancellation of the accretion for dividends on redeemable
preferred stock issued through December 31, 1999 as if it had occurred on
December 31, 1999.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1998 1999 1999
------ ------ ------------
<S> <C> <C> <C>
Computer equipment and software................. $1,658 $1,988 $2,005
Furniture and equipment......................... 322 322 322
Leasehold improvements.......................... 22 34 34
------ ------ ------
2,002 2,344 2,361
Less accumulated depreciation and
amortization.................................. 1,295 1,752 1,850
------ ------ ------
$ 707 $ 592 $ 511
====== ====== ======
</TABLE>
(4) ACQUISITION OF GLOBALCAST
In September 1999, the Company completed the acquisition of certain assets
of GlobalCast Communications, a privately held company, which developed
multicast networking software for the broadcast of data over the internet. The
Company issued 605,000 shares of its common stock as
F-12
<PAGE> 97
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
consideration for the purchase, including 52,400 shares to a third party in
connection with the assignment of a license agreement. The purchase price of
approximately $2,420,000 was allocated $210,000 to developed technology,
$300,000 to in-process research and development, $1,500,000 to goodwill, and
$400,000 to cash. Pro forma revenues, net loss and basic and diluted net loss
per share for the years ended September 1998 and 1999, are presented below. The
following pro forma financial information presents the combined results of
operations of the Company and GlobalCast, as if the acquisition had occurred on
October 1, 1997, after giving effect to certain adjustments including
amortization of goodwill and other intangibles, the elimination of non-recurring
items and related income tax effects. The pro forma financial information does
not necessarily reflect the consolidated results of operations that would have
occurred had the Company and GlobalCast constituted a single entity during such
periods (dollar amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------
1998 1999
------- -------
<S> <C> <C>
Revenue............................................. $ 7,624 $ 9,151
Net loss attributable to common stockholders........ (6,003) (6,354)
Basic and diluted net loss per share attributable to
common stockholders............................... $ (1.77) $ (1.72)
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
(a) LEASE COMMITMENTS
The Company leases its corporate and sales office facilities under
noncancelable operating leases. The corporate office facility lease expires in
May of 2000. The Company also has various sales office facilities with lease
terms of one year or less with renewal provisions. Future annual minimum lease
payments under noncancelable operating leases are $458,000 through the year
ended September 30, 2000. Rent expense charged to operations was $181,000,
$390,000, $531,000, $131,000, and $125,000 for the years ended September 30,
1997, 1998, and 1999, and the three months ended December 31, 1998 and 1999,
respectively.
(b) LEGAL ACTIONS
From time to time the Company has been subject to legal proceedings and
claims in the ordinary course of business. The Company is not currently engaged
in any material legal proceedings.
(6) BORROWINGS AND DEBT
As of September 30, 1999, the Company had credit facilities available from
a financial institution for working capital and for equipment financing,
collateralized by accounts receivable and the other assets of the Company. Under
the working capital facility the Company may borrow up to the lesser of
$1,500,000 or 75% of eligible accounts receivable. Borrowings bear interest at
the bank's prime rate plus 1.0% (9.75% at September 30, 1999). As of September
30, 1999, the Company had $924,000 in borrowings under this facility. Under the
facility, which expired on January 3, 2000, the
F-13
<PAGE> 98
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
Company must maintain certain financial ratios and may not have losses exceeding
certain quarterly amounts.
The facility was renegotiated on February 22, 2000 such that the Company
may borrow up to $2,000,000 under a credit line with a revolving maturity date
of February 22, 2001, at an interest rate of prime plus 0.25%. As part of the
renegotiation, the lender agreed to waive any defaults on certain financial
covenants under its prior loan agreement during the fiscal year ended September
30, 1999.
Under the equipment financing facility the Company has borrowed up to
$1,300,000 against eligible equipment during draw down periods. At the end of a
draw down period, borrowings are repaid in 24 equal monthly installments of
principal and interest. Borrowings bear interest at the bank's prime rate plus
rates ranging from 1.50 - 2.00% (10.25 - 10.75% as of September 30, 1999). As of
September 30, 1999, the Company had $373,000 outstanding under this facility.
In conjunction with the equipment loan, in January 1994, the Company issued
warrants to purchase 16,667 shares of the Company's Series B preferred stock at
an exercise price of $0.90 and expiration date of January 2001. The fair value
of the warrants issued, calculated using the Black-Scholes option pricing model,
using the following assumptions: 8% annual dividend rate; contractual life of 7
years; risk free interest rate of 6.91%; expected volatility of 75%, was not
material.
The aggregate annual maturities of borrowings under these financing
arrangements as of September 30, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
2000.............................................. $ 1,213
2001.............................................. 83
----------
$ 1,296
==========
</TABLE>
(7) STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
(a) COMMON STOCK
The Company has authorized 15,000,000 shares of common stock. Each share of
common stock has voting rights of one vote per share.
F-14
<PAGE> 99
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(b) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The mandatorily redeemable convertible preferred stock outstanding as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION AND
REDEMPTION VALUE
NUMBER -----------------------
NUMBER OF SHARES ORIGINAL ACCRUED
OF SHARES ISSUED AND ISSUE AND UNPAID
AUTHORIZED OUTSTANDING PRICE DIVIDENDS
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Series A..................................... 2,152,692 2,017,552 $1,260,970 1,025,234
Series B..................................... 1,422,223 1,388,889 1,250,000 846,222
Series C..................................... 4,875,000 3,775,000 3,020,000 1,357,736
--------- --------- ---------- ---------
8,449,915 7,181,441 $5,530,970 3,229,192
========= ========= ========== =========
</TABLE>
The rights, preferences, and privileges of the holders of Series A, B, and
C redeemable convertible preferred stock are as follows:
- Each share of Series A, B, and C preferred stock is convertible into
shares of common stock subject to certain antidilution provisions.
Conversion of the Series A and C preferred stock is on a 1:1 basis,
conversion of the Series B preferred stock is on a 1:1.04204 basis.
Conversion of the preferred stock is either at the option of the holder
or is automatic upon the effectiveness of a registration statement under
the Securities Act of 1933 which results in aggregate gross cash proceeds
to the Company of not less than $7,500,000 and at an offering price of at
least $4.00 per share. As of September 30, 1999, a total of 7,239,830
shares of common stock were reserved in the event of conversion. Upon
conversion of the preferred stock into common stock any accrued and
unpaid dividends will be cancelled.
- Preferred shareholders are entitled to the number of votes equal to the
number of shares of common stock into which the preferred shares are
convertible.
- Shareholders of the Series A, B, and C preferred stock accrue dividends
at the annual rate of $.05625, $.081 and $.072 per share, respectively.
These accrued dividends are payable when and as declared by the Board of
Directors in preference to cash dividends to common shareholders. As of
September 30, 1999, no dividends had been declared.
- The Series A, B, and C preferred shareholders have a liquidation
preference over common shareholders to the extent of $.625, $.90 and $.80
per share, respectively, plus all accrued and unpaid dividends.
- On issuance of the Series D preferred stock (Note 10(a)) by written
consent of the shareholders, the Articles of Incorporation were amended
to defer the initial date of mandatory redemption of the outstanding
Series A, B and C preferred stock to December 31, 2002. On this and on
each calendar year ending until December 31, 2004, the Company is
required to redeem at least one-third of the outstanding shares of Series
A, B, and C preferred stock per year at $.625, $.90 and $.80 per share,
respectively, plus accrued and unpaid dividends. This redemption is
required unless a majority of the outstanding preferred stock
F-15
<PAGE> 100
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
requests to forego such redemption. The periodic increase in the
redemption value from the date of issuance of Series A, B, and C
preferred stock has been reflected as accretion of preferred stock in the
accompanying financial statements.
(c) STOCK OPTION PLANS
In September 1998, the Company established the 1998 Equity Incentive Plan
(the Incentive Plan). The number of shares of common stock reserved for issuance
under the plan is 975,000. Under the Incentive Plan, the Board of Directors may
grant incentives options to selected employees, officers, directors, and
consultants of the Company at an exercise price of not less than 100% of the
fair market value of the shares on the date of grant, except that nonqualified
options may be granted at 85% of such fair market value and option grants to a
10% shareholder will not be less than 110% of such fair market value. Options
expire no later than 10 years from the date of grant and generally vest ratable
over four years. Unexercised options expire 90 days after termination of
employment from the Company.
In 1991, the Company established the 1991 Stock Option Plan (the Stock
Plan). The number of shares of common stock reserved for issuance under the plan
is 2,050,000. Under the Stock Plan, the Board of Directors may grant either
incentive or nonqualified stock options to key employees, consultants, directors
and officers to purchase common stock at an exercise price of not less than 100%
of the fair market value of the shares on the date of grant, except that
non-qualified options may be granted at 85% of such fair market value. Options
expire no later than 10 years from the date of grant and generally vest ratably
over 4 years. Unexercised options expire 90 days after termination of employment
from the Company.
F-16
<PAGE> 101
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
A summary of the status of the Company's options under the Incentive Plan
and Stock Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,175,000 $0.10 843,875 $0.12 1,277,676 $0.14
Granted..................... 434,000 0.15 768,500 0.15 1,080,500 0.20
Exercised................... (552,838) 0.11 (191,051) 0.10 (302,551) 0.14
Canceled.................... (212,287) 0.11 (143,648) 0.14 (282,021) 0.16
--------- --------- ---------
Outstanding at end of
year...................... 843,875 0.12 1,277,676 0.14 1,773,604 0.17
========= ========= =========
Options exercisable at end
of year................... 438,640 0.10 504,771 0.12 554,431 0.14
========= ========= =========
Weighted-average fair
value of options
granted during the year
with exercise prices
equal to fair value at
date of grant.......... 434,000 0.027 768,500 0.025
Weighted-average fair
value of options
granted during the year
with exercise prices
less than fair value at
date of grant.......... 1,080,500 2.95
</TABLE>
As of September 30, 1999 there were 29,841 additional shares available for
grant under the Plans.
(d) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any stock options granted because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as of
the grant date for each stock option, except for stock options granted from
October 1, 1998 to December 31, 1999. With respect to the stock options granted
in the period from October 1, 1998 to December 31, 1999, the Company recorded
deferred stock compensation of $7,777,900 for the difference at the grant or
issuance date between the exercise price of each stock option granted and the
fair value of the underlying common stock. This amount is being amortized on an
accelerated basis over the vesting period, generally 4 years, consistent with
the method described in FASB Interpretation No. 28. Amortization of the December
31, 1999 balance of deferred stock compensation for the nine months ended
September 30, 2000, and fiscal years ended 2001, 2002, 2003, and three months
ended December 31, 2003, is expected to approximate $2,971,000, $1,930,000,
$925,000, $287,000, and $6,000, respectively.
F-17
<PAGE> 102
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
The amortization of deferred employee stock-based compensation combined
with the expense associated with stock options granted to nonemployees, relates
to the following items in the accompanying consolidated statements of operations
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------ -------------
1997 1998 1999 1998 1999
----- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C>
Cost of revenues.................................... $-- $-- $ 19 $ 1 $ 23
Research and development............................ -- -- 264 -- 246
Sales and marketing................................. -- -- 284 3 312
General and administrative.......................... -- -- 177 1 369
--- --- ---- --- ----
Total.......................................... $-- $-- $744 $ 5 $950
=== === ==== === ====
</TABLE>
Had compensation costs been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss to common
stockholders attributable, and basic and diluted net loss per share would have
been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1997 1998 1999 1998 1999
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
stockholders (in thousands)
As reported.......................... $ (894) $(1,728) $(3,329) $ (659) $(1,397)
Pro forma............................ (898) (1,735) (3,344) (660) (1,420)
Basic and diluted net loss per share
attributable to common stockholders:
As reported.......................... $(0.57) $ (0.80) $ (1.23) $(0.27) $ (0.40)
Pro forma............................ $(0.57) $ (0.80) $ (1.24) $(0.27) $ (0.40)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the minimum value method with the following assumptions, no dividends and
the following interest rates and expected lives:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate................ 6.22% 5.31% 5.56%
Expected life.......................... 3.5 years 3.5 years 3.5 years
</TABLE>
The weighted-average expected life was calculated based on the vesting
period and the expected exercise behavior. The risk-free interest rate was
calculated in accordance with the grant date and expected life.
F-18
<PAGE> 103
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
The options outstanding and currently exercisable by exercise price at
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE NUMBER AVERAGE
NUMBER LIFE EXERCISE OF EXERCISE
EXERCISE PRICES OF SHARES (YEARS) PRICE SHARES PRICE
--------------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.0625 to $0.11............... 261,000 3.89 $0.105 247,829 $0.105
0.15...................... 488,000 7.96 0.15 242,490 0.15
0.20...................... 1,024,604 9.66 0.20 64,112 0.20
--------- -------
1,773,604 8.35 0.17 554,431 0.14
========= =======
</TABLE>
(e) WARRANTS
Prior to 1993 the Company granted warrants to purchase an aggregate of
124,140 and 33,334 shares of Series A and B preferred stock, respectively. The
Series A warrants are exercisable at prices of $.63 and $.80 per share and all
of the Series B warrants are exercisable at $.90 per share. The Series A and B
warrants are immediately exercisable and expire in the years 2000 through 2002.
The Company has reserved 124,140 and 33,334 shares of Series A and B preferred
stock, respectively, for issuance of the warrants and 162,175 shares of common
stock for issuance upon the conversion of the preferred stock. The values of
these warrants, computed using the Black-Scholes option pricing model, were not
significant.
(8) SEGMENT INFORMATION
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, for the year ended September 30, 1999. SFAS
No. 131 establishes standards for the reporting by public business enterprises
of information about operating segments, products and services, geographic
areas, and major customers. The method for determining what information to
report is based on the way that management organizes the operating segments
within the Company for making operational decisions and assessments of financial
performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer (CEO). The CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
consolidated statements of operations and the Company has no significant foreign
operations.
F-19
<PAGE> 104
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
Therefore, the Company has determined that it operates in a single
operating segment: real time infrastructure software. Disaggregated information
on its products and services is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------- ------------------------
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
License............... $ 4,209 $ 5,100 $ 5,912 $ 1,436 $ 1,829
Maintenance........... 1,426 1,873 2,488 473 718
Professional
services........... 807 540 640 110 247
---------- ---------- ---------- ---------- ----------
Total.............. $ 6,442 $ 7,513 $ 9,040 $ 2,019 $ 2,794
========== ========== ========== ========== ==========
Origin:
United States......... 87% 86% 75% 66% 81%
Europe................ 11 13 22 32 18
Other................. 2 1 3 2 1
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE PERCENTAGE
-------------------------------------------- OF TOTAL
THREE MONTHS ACCOUNTS
ENDED RECEIVABLE
YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------
-------------------------- -------------- DECEMBER 31,
1997 1998 1999 1998 1999 1999
------ ------ ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Customer A........................ 20% 13% 12% 7% 9% 33%
Customer B........................ 7 4 7 11 10 15
</TABLE>
F-20
<PAGE> 105
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(9) INCOME TAXES
As of September 30, 1998 and September 30, 1999, the types of temporary
differences that give rise to significant portions of the Company's deferred tax
assets and liabilities are set out below:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Depreciation....................................... $ 33,000 $ 33,000
Intangibles........................................ -- 126,000
Accrued liabilities................................ 176,000 147,000
Allowance for doubtful accounts.................... 74,000 103,000
Net operating loss carryforwards................... 1,278,000 2,274,000
Research and development and other credits......... 508,000 677,000
Deferred revenues.................................. -- 770,000
Amortization of capitalized deferred research and
development expenses............................ 9,000 --
----------- -----------
Gross deferred tax assets............................ 2,078,000 4,130,000
Valuation allowance.................................. (2,078,000) (4,130,000)
----------- -----------
Total deferred assets................................ $ -- $ --
=========== ===========
</TABLE>
Management has established a valuation allowance for the portion of
deferred tax assets for which realization is uncertain. The change in the
valuation allowance for deferred tax assets as of September 30, 1998 and
September 30, 1999 was a decrease of $54,000 and an increase of $2,052,000.
As of September 30, 1999, the Company had net operating loss carryforwards
for federal and California income tax purposes of approximately $5,912,000 and
$1,653,000, respectively, available to offset income in future years. The
federal net operating loss carryforwards expire from 2007 through 2019. The
California net operating loss carryforwards expire from 2000 through 2004.
As of September 30, 1999, the Company has research and experimentation
credit carryforwards for federal and California income tax purposes of
approximately $391,000 and $275,000 available to reduce future income taxes. The
federal research credit carryforwards expire in various years beginning 2005
through 2019. The California research credit carries forward indefinitely until
utilized. In addition the Company had $7,000 and $4,000 of tax credit
carryforwards related to the AMT tax for federal and state purposes,
respectively. The federal and state AMT credit carries forward indefinitely
until utilized.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss and credit carryforwards in the event of an
"ownership change" for tax purposes, as defined in Section 382 of the Internal
Revenue Code.
F-21
<PAGE> 106
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(10) SUBSEQUENT EVENTS
(a) ISSUANCE OF SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK
On February 2, 2000, the Company issued 1,571,055 shares of Series D
mandatorily redeemable convertible preferred stock at $6.36 per share for net
proceeds of approximately $10 million. The rights, preferences, and privileges
of Series D mandatorily redeemable convertible preferred stock are the same as
the Series A and C mandatorily redeemable convertible preferred stock, except
that the liquidation preference is $6.36 per share, the dividend rate is $0.57
per share, and the redemption rate is $6.36 per share.
(b) ACQUISITION OF WHITEBARN, INC.
On March 13, 2000, the Company acquired WhiteBarn, Inc. (WhiteBarn), a
privately held company in Chicago, Illinois. WhiteBarn is a software consulting
and development company. The Company issued 348,215 shares of its common stock,
and cash of approximately $500,000 for all outstanding WhiteBarn stock, and
issued 71,783 fully vested and 280,000 unvested stock options for all
outstanding options of WhiteBarn. An escrow has been established for 59,490 of
the issued shares which will be released contingent upon the continued
employment of one of WhiteBarn's officers. The transaction is to be accounted
for as a purchase. The purchase price of approximately $3.0 million, will be
allocated to acquired net tangible assets of $420,000 and intangible assets
including goodwill of $2.6 million.
(c) 2000 EQUITY INCENTIVE PLAN
In March 2000, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Equity Incentive Plan (2000 Plan). The Company
has reserved 3,000,000 shares of common stock for issuance under the 2000 Plan.
The number of shares reserved under the Plan will automatically be increased on
January 1 of each year between 2001 and 2005, in an amount equal to 5% of the
shares outstanding as of the immediately preceding December 31. If not
terminated earlier, the 2000 Plan will terminate in March 2010.
Under the 2000 Plan, the exercise price of all incentive stock options is
at least 100% of the stock's fair market value on the date of grant for
employees owning 10% or less of the voting power of all classes of stock and at
least 110% of the fair market value on the date of grant for employees owning
more than 10% of the voting power of all classes of stock.
Under the 2000 Plan, options generally expire after 10 years. However, the
term of the options may be limited to 5 years in the case of an incentive stock
option granted to an option holder representing more than 10% of the voting
power of all classes of stock.
Options granted under the 2000 Plan, generally become exercisable at the
rate of 12.5% of the total number of shares subject to the options on the date
six months from the grant date, and 2.083% of the total number of shares subject
to the options each month thereafter.
F-22
<PAGE> 107
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1998, AND 1999
(INFORMATION FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS
UNAUDITED.)
(d) 2000 EMPLOYEE STOCK PURCHASE PLAN
In March 2000, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Employee Stock Purchase Plan (the Purchase Plan)
and reserved a total of 300,000 shares of common stock for issuance under the
Purchase Plan. The number of shares reserved for issuance under the 2000
Employee Stock Purchase Plan will automatically increase on January 1 of each of
the fiscal years between 2000, and 2004, by an amount equal to 1% of the total
shares outstanding on the immediately preceding December 31.
Generally, the offering period is 24 months in length. The Purchase Plan
permits eligible employees to purchase common stock through payroll deductions,
which may not exceed 20% of an employee's base salary, commissions and bonus.
The purchase price is equal to the lower of 85% of the fair market value of the
common stock (i) at the beginning of the applicable offering period or (ii) at
the end of the applicable purchase period.
(e) REINCORPORATION
On March 20, 2000 the Board of Directors approved a reincorporation in the
State of Delaware to be concluded prior to the effectiveness of the Company's
IPO. The accompanying financial statements reflect this reincorporation, and the
resulting recognition of par value, as if it had occurred on December 31, 1999.
(f) STOCK OPTIONS
On November 12, 1999, the Company approved an increase in the number of
stock options issuable under its 1998 Equity Incentive Plan to 2,800,000. During
the period from October 1, 1999 to March 15, 2000 the Company granted 764,000
options to purchase shares of common stock under its Stock Plans and 700,000
non-plan grants to certain officers and directors outside any option plan, on
terms substantially similar to grants under the 1998 Equity Incentive Plan.
During the same period, 1,831,374 options were exercised.
F-23
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GlobalCast Communications, Inc.:
We have audited the accompanying balance sheets of GlobalCast
Communications, Inc. (the Company) as of June 30, 1998 and 1999, and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GlobalCast Communications,
Inc. as of June 30, 1998 and 1999, and the results of its operations and its
cash flows for each of the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations since
inception that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to those matters, are also described in
Note 7. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG LLP
Mountain View, California
March 9, 2000
F-24
<PAGE> 109
GLOBALCAST COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1999
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 123 $ 536
Accounts receivable....................................... -- 49
Prepaid expenses and other current assets................. 54 6
----------- ----------
Total current assets.................................. 177 591
Fixed assets net............................................ 381 --
Other assets, net........................................... 162 --
----------- ----------
Total assets.......................................... $ 720 $ 591
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 170 $ 74
Accrued liabilities....................................... 107 14
Notes payable............................................. 1,056 --
Note payable to related parties........................... 200 --
Deferred revenue.......................................... 310 310
Capital lease obligations, current........................ 175 --
----------- ----------
Total current liabilities............................. 2,018 398
Capital lease obligations, non-current...................... 238 --
Other long-term liabilities................................. 8 --
----------- ----------
Total liabilities..................................... 2,264 398
----------- ----------
Shareholders' equity (deficit):
Convertible preferred stock:
Series A; par value $0.001; 7,000,000 shares authorized;
issued and outstanding 5,896,925 shares in 1998 and
1999 (liquidation value $1,061)........................ 6 6
Series B; par value $0.001; 9,000,000 shares authorized;
issued and outstanding 6,433,693 shares in 1998 and
1999 (liquidation value $2,509)........................ 6 6
Series C; par value $0.001; 24,400,000 shares
authorized; issued and outstanding 14,988,890 shares in
1999 (liquidation value $4,047 in 1999)................ -- 15
Common stock; $0.001 par value; 65,000,000 shares
authorized; issued and outstanding 13,073,814 and
13,132,814 shares in 1998 and 1999, respectively........ 13 13
Additional paid-in capital................................ 3,914 7,910
Note receivable from shareholder.......................... (44) (44)
Accumulated deficit....................................... (5,439) (7,713)
----------- ----------
Total shareholders' equity (deficit).................. (1,544) 193
----------- ----------
Total liabilities and shareholders' equity
(deficit)............................................ $ 720 $ 591
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 110
GLOBALCAST COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net sales................................................... $ 111 $ 111
------- -------
Operating expenses:
Research and development.................................. 884 651
Selling and marketing..................................... 938 484
General and administrative................................ 1,399 906
------- -------
Total operating expenses............................... 3,221 2,041
------- -------
Operating loss......................................... (3,110) (1,930)
Loss from disposal of fixed assets.......................... -- (228)
Interest expense, net....................................... (120) (147)
Other income, net........................................... 6 31
------- -------
Net loss............................................... $(3,224) $(2,274)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 111
GLOBALCAST COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------
SERIES A SERIES B SERIES C COMMON STOCK ADDITIONAL
------------------ ------------------ ------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ --------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1997........ 5,896,925 $ 6 6,410,256 $ 6 -- $-- 8,830,492 $ 9 $3,580
Exercise of stock options...... -- -- -- -- -- -- 4,242,822 4 165
Issuance of Series B preferred
stock, net of issuance costs
of $7........................ -- -- 23,437 -- -- -- -- 25
Issuance of warrant............ -- -- -- -- -- -- -- -- 144
Net loss....................... -- -- -- -- -- -- -- -- --
--------- ------ --------- --- ---------- --- ---------- --- ------
Balances, June 30, 1998........ 5,896,925 6 6,433,693 6 -- -- 13,073,314 13 3,914
Issuance of Series C preferred
stock, net of issuance costs
of $35....................... -- -- -- -- 14,988,890 15 -- -- 3,996
Exercise of stock options...... -- -- -- -- -- -- 59,750 --
Net loss....................... -- -- -- -- -- -- -- -- --
--------- ------ --------- --- ---------- --- ---------- --- ------
Balances, June 30, 1999........ 5,896,925 $ 6 6,433,693 $ 6 14,988,890 $15 13,133,064 $13 $7,910
========= ====== ========= === ========== === ========== === ======
<CAPTION>
NOTE TOTAL
RECEIVABLE SHAREHOLDERS'
FROM ACCUMULATED (DEFICIT)
SHAREHOLDER DEFICIT EQUITY
----------- ----------- -------------
<S> <C> <C> <C>
Balances, June 30, 1997........ $(41) $(2,215) $1,345
Exercise of stock options...... (3) -- 166
Issuance of Series B preferred
stock, net of issuance costs
of $7........................ -- -- 25
Issuance of warrant............ -- -- 144
Net loss....................... -- (3,224) (3,224)
---- ------- ------
Balances, June 30, 1998........ (44) (5,439) (1,544)
Issuance of Series C preferred
stock, net of issuance costs
of $35....................... -- -- 4,011
Exercise of stock options...... -- --
Net loss....................... -- (2,274) (2,274)
---- ------- ------
Balances, June 30, 1999........ $(44) $(7,713) $ 193
==== ======= ======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 112
GLOBALCAST COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,224) $(2,274)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of discount on notes payable.............. -- 144
Loss on sale of fixed assets........................... -- 227
Depreciation and amortization.......................... 212 160
Changes in operating assets and liabilities:
Accounts receivable.................................. 304 (49)
Other assets......................................... (111) 147
Accrued liabilities.................................. 48 (93)
Accounts payable..................................... 82 (96)
Deferred revenue..................................... 160 --
------- -------
Net cash used in operating activities............. (2,529) (1,834)
------- -------
Cash flows from investing activities:
Purchases of fixed assets................................. (136) (36)
Proceeds from sale of fixed assets........................ -- 94
------- -------
Net cash provided by (used in) operating
activities...................................... (136) 58
------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net............ 25 3,811
Proceeds from issuance of common stock.................... 166 --
Payments on capital lease obligations..................... (124) (421)
Proceeds from notes payable............................... 1,200 --
Repayment of notes payable................................ -- (1,200)
Proceeds from sale of property and equipment in sale
leaseback transaction.................................. 151 --
------- -------
Net cash provided by financing activities......... 1,418 2,190
------- -------
Net (decrease) increase in cash and cash equivalents........ (1,247) 414
Cash and cash equivalents at beginning of year.............. 1,370 123
------- -------
Cash and cash equivalents at end of year.................... $ 123 $ 537
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 132 $ --
======= =======
Noncash financing activities:
Conversion of notes payable for preferred stock........... $ -- $ 200
======= =======
Note receivable for common stock.......................... $ 3 $ --
======= =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 113
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
(1) THE COMPANY AND BASIS OF PRESENTATION
GlobalCast Communications, Inc. (the Company) is a California corporation
that was incorporated in June 1995. The Company develops network transport
protocols and communication software. The Company was originally incorporated as
Multilink Distributed Solutions, Inc. before later changing its name to
GlobalCast Communications, Inc. The Company has financed its research and
development primarily by raising equity capital.
The accompanying financial statements have been prepared on a basis that
presumes the Company will continue to exist and contemplates the realization of
assets and the satisfaction of liabilities and other commitments in the normal
course of business. The Company has incurred net losses since its inception, and
as described in Note 7, has sold its technology rights.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary if the Company is unable
to continue as a going concern.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Consulting revenues are recognized as the related services are performed.
Deferred revenue represents cash received on an in-process development contract.
(b) CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
less than three months to be cash equivalents. As of June 30, 1998 and 1999,
cash equivalents primarily consist of money market funds which are carried at
cost plus accrued interest. The carrying value of money market funds
approximates market value.
(c) PROPERTY AND EQUIPMENT
Equipment, furniture, and leasehold improvements are stated at cost.
Depreciation and amortization are calculated using the straight-line method over
the following useful lives:
<TABLE>
<S> <C>
Computer equipment..................... 3 years
Computer software...................... 3 years
Furniture and fixtures................. 5 years
</TABLE>
(d) INCOME TAXES
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary
F-29
<PAGE> 114
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(e) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets as well as 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.
(f) STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account
for employee stock-based compensation. The Company has recorded no compensation
costs related to its stock option plan for the period from June 1, 1995
(inception) to June 30, 1999, because the exercise price of each option equals
or exceeds the fair value of the underlying common stock as of the grant date
for each stock option.
Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effect on net loss as if the Company had elected to use the fair value approach
to account for all its employee stock-based compensation plans. Had compensation
cost for the Company's plans been determined consistent with the fair-value
approach enumerated in SFAS No. 123, the Company's pro forma net loss for the
years ended June 30, 1998 and 1999, would not have been materially different
from the net loss reported in the accompanying statement of operations.
The fair value of options granted was estimated on the date of grant using
the minimum value method with the following weighted-average assumptions:
risk-free interest rate of approximately 6.5%; expected life of five years; and
no dividends.
(g) COMPREHENSIVE LOSS
The Company did not have any significant components of other comprehensive
loss for the years ended June 30, 1998 and 1999.
(h) Segment Reporting
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures About Segments of an Enterprise and Related Information, for
the year ended June 30, 1999. Based on definitions contained within SFAS No.
131, the Company has determined that it operates in one segment.
(i) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's software has been
available for general release concurrent with
F-30
<PAGE> 115
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
the establishment of technological feasibility, and, accordingly, no development
costs have been capitalized.
(j) OTHER ASSETS, NET
Other assets, primarily technology rights, are being amortized ratably over
three years.
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because the Company does not currently hold any
derivative instruments and does not engage in hedging activities, the Company
expects adoption of SFAS No. 133 will not have a material impact on its
financial position, results of operations, or cash flows. The Company will be
required to adopt SFAS No. 133 for the year ended December 31, 2001, in
accordance with SFAS No. 137, which delayed implementation of SFAS No. 133.
(3) NOTES PAYABLE
In September 1997, the Company entered into a loan and security agreement
(the Agreement) with a bank. The Agreement extended up to $200,000 in credit to
the Company.
In January 1998, the Company entered into a second loan and security
agreement which increased the credit available to the Company by $1,000,000 and
extended the term of the original agreement. As of June 30, 1998, the Company
had borrowed the maximum allowable under the terms of the loan agreement.
Outstanding principal as of June 30, 1998, was $1,200,000 which bears
interest at an annual rate of prime plus 2.0% (10.50% as of June 30, 1998)
The Agreements contain certain covenants. The most restrictive of these
covenants is the requirement to deliver financial statements to the bank within
specified time periods. As of June 30, 1999, the Company had repaid the entire
principal balance.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30, 1998 and 1999, follows:
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Computer equipment...................................... $414 $ --
Computer software....................................... 7 --
Furniture and fixtures.................................. 243 --
---- ------
664 --
Less accumulated depreciation........................... 283 --
---- ------
$381 $ --
==== ======
</TABLE>
F-31
<PAGE> 116
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
(5) STOCKHOLDERS' EQUITY
As of June 30, 1999, the authorized capital stock of the Company consisted
of 65,000,000 shares of common stock and 40,400,000 shares of preferred stock.
Of the preferred stock, 7,000,000 shares are designated as Series A, 9,000,000
shares are designated as Series B, 21,000,000 shares are designated as Series C,
and 3,400,000 shares are designated as Series C-1 nonvoting preferred stock.
(a) PREFERRED STOCK
Each share of Series A, B, and C preferred stock is convertible at the
holder's option into one share of common stock. All preferred stock will
automatically convert into common stock in the event that the holders of a least
50% of the outstanding Series A, B, and C preferred stock, voting as a single
class, consent to such a conversion, or upon the closing of an underwritten
public offering of common stock at a price of at least $0.78 per share with a
gross proceeds of more than $10,000,000.
In the event of a public offering, all outstanding shares of Series C-1
preferred stock shall be automatically converted into shares of common stock at
the then effective conversion rate of the Series C preferred stock.
The holders of Series A, B, C, and C-1 preferred stock are entitled to
receive on an equal basis, noncumulative dividends in preference to holders of
common stock, at the rate of $0.0114, $0.0312, $0.022, and $0.022 per share,
respectively, when and if declared by the Board of Directors.
Upon the liquidation, dissolution, or winding up of the Company, the
holders of preferred stock are entitled to receive on an equal basis, and in
preference to the holders of common stock, an amount equal to $0.18, $0.39,
$0.27, and $0.27 per share, respectively, plus any declared but unpaid
dividends. The remaining assets shall be ratably distributed to the holders of
common stock, Series A, B, C, and C-1 on a common equivalent basis until the
holders of the Series A have received an aggregate per share amount of $0.27,
and until the holders of the Series B have received an aggregate per share
amount of $0.585 until the holder of Series C have received an aggregate per
share amount of $0.405, and until the holders of Series C-1 have received an
aggregate per share amount of $0.405. Thereafter, the holders of common stock
will be entitled to receive all remaining assets.
The holders of common stock, Series A, B, C, and C-1 preferred stock shall
vote together on all matters presented to the stockholders. The holders of each
share of Series A, B, C, and C-1 preferred stock has the right to that number of
votes equal to the number of shares of common stock issuable upon conversion of
such shares.
(b) STOCK OPTIONS
In 1997, the Company adopted the 1997 Stock Option Plan (the Plan), under
which the Company has the ability to grant incentive stock options and
nonstatutory stock options. Options issued under the Plan can have an exercise
price of no less than 100% of the fair market value of the Company's common
stock at the date of grant. The Plan allows for the issuance of a maximum of
7,230,769 shares of the Company's common stock. The Company has reserved
7,230,769 shares of common stock for issuance under the Plan. Stock options
granted with varying vesting periods and have an expiration date of 10 years
from the date of grant.
F-32
<PAGE> 117
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
A summary of the stock options as of June 30, 1998 and 1999, is presented
below:
<TABLE>
<CAPTION>
1998 1999
----------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year........................... 2,028,555 $0.04 4,607,216 $0.04
Granted.......................... 4,385,974 0.04 1,702,500 0.04
Exercised........................ (61,605) 0.04 (59,750) 0.04
Canceled......................... (1,745,708) 0.04 (2,500) 0.04
---------- ---------
Outstanding at end of year....... 4,607,216 0.04 6,247,466 0.04
========== =========
Options exercisable at
year-end....................... 62,559 0.04 1,546,603 0.04
========== =========
Weighted-average fair value of
options granted during the
period with exercise prices
equal to fair value at date of
grant.......................... 4,385,974 0.02 1,702,500 0.02
</TABLE>
(c) WARRANTS
In May 1998, in connection with a bridge loan with outside investors, the
Company issued warrants to purchase 230,764 shares of the Company's Series B
convertible preferred stock at a price of $0.39 per share. The warrants expire
on May 28, 2008.
In June 1998, in connection with a loan agreement with a bank, the Company
issued warrants to purchase 230,769 shares of the Company's Series B convertible
preferred stock at a price of $0.39 per share. The warrants expire on May 28,
2008.
The fair value of these warrants, calculated using the Black-Scholes option
pricing model, using $0.39 as the stock price of the underlying stock and the
following weighted-average assumptions: no dividends; contractual life of 10
years; risk-free interest rate of approximately 6.35%; and expected volatility
of 70% was $143,633. This amount was reflected as a discount on the related
notes payable and amortized to expense in 1999.
(d) NOTES RECEIVABLE FROM SHAREHOLDERS
These full recourse loans bear interest at an annual rate of 6.72%, and are
due and payable on September 30, 2000.
(6) INCOME TAXES
The Company's tax provision differs from that expected by multiplying the
Company's net losses by the Federal Statutory income tax rate due to operating
losses not benefited.
F-33
<PAGE> 118
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
The types of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are set forth below.
<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves................................ $ 13 $ --
Capitalized start-up and organization costs.......... 3 2
Research and experimentation credit carryforwards.... 147 202
Net operating loss and credit carryforwards.......... 722 1,682
----- -------
Total deferred tax assets............................ 885 1,886
Valuation allowance.................................. (885) (1,886)
----- -------
Net deferred tax assets.............................. $ -- $ --
===== =======
</TABLE>
Management has established a full valuation allowance against total
deferred tax assets due to the uncertainty in realization of the deferred tax
assets. The increase in the valuation allowance was $16,000 and $1,001,000 for
the years ended June 30, 1998 and 1999, respectively.
As of June 30, 1999, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $3,923,000 and
$3,937,000, respectively, available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire in various years
beginning fiscal year 2011 through 2019. The California net operating loss
carryforwards expire in 2004.
As of June 30, 1999, the Company has research and experimentation tax
credit carryforwards for federal and California income tax purposes of
approximately $82,000 and $119,000, respectively, available to reduce future
income taxes liabilities. The federal research and experimentation tax credit
carryforwards expire in various years beginning fiscal year 2012 through 2019.
The California research and experimentation tax credit can be carried forward
indefinitely until utilized.
Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
the net operating loss and tax credit carryforwards may be subject to limitation
due to a change in the ownership of the Company.
(7) COMMITMENTS AND CONTINGENCIES
In September 1999, the Company entered into an agreement with Talarian to
sell the Company's technology rights and $400,000 cash in exchange for 605,000
shares of Talarian's common stock.
A customer has asserted that the $310,000 it paid to the Company for
developed technology in 1997 should be refunded. The customer has never accepted
the technology developed by the Company as being in accordance with
specifications. The Company had recorded this amount as deferred revenue and
ceased revenue recognition when the claim was asserted.
F-34
<PAGE> 119
GLOBALCAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1999
(8) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash equivalents and
accounts receivable. Cash equivalents are money market funds maintained with a
high quality financial institution. The Company generally does not require
collateral for sales on credit. The Company closely monitors extensions of
credit and has not experienced significant credit losses in the past.
A summary of net sales to major customers that exceeded 10% of total net
sales during each of the years in the two-year period ended June 30, 1999, and
the amount due from these customers as of June 30, 1999, follows (in thousands):
<TABLE>
<CAPTION>
NET SALES
------------ ACCOUNTS
1998 1999 RECEIVABLE
---- ---- ----------
<S> <C> <C> <C>
Customer A.............................................. $-- $ 58 $--
Customer B.............................................. -- 45 45
Customer C.............................................. 37 -- --
Customer D.............................................. 20 -- --
Customer E.............................................. 15 -- --
</TABLE>
F-35
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WhiteBarn, Inc.:
We have audited the accompanying balance sheets of WhiteBarn, Inc. (the
Company) as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for each of the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WhiteBarn, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
March 10, 2000
F-36
<PAGE> 121
WHITEBARN, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $270 $229
Accounts receivable, net of allowance of $0 and $1,980 in
1998 and 1999, respectively............................ 76 148
Unbilled accounts receivable.............................. 49 53
Prepaid rent.............................................. 3 --
Deferred income taxes..................................... -- 1
---- ----
Total current assets................................... 398 431
---- ----
Property and equipment:
Computers and equipment................................... 52 59
Software.................................................. 1 1
---- ----
Total property and equipment........................... 53 60
Less accumulated depreciation and amortization............ (27) (41)
---- ----
Property and equipment, net............................ 26 19
Security deposits........................................... 2 6
---- ----
Total assets........................................... $426 $456
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses.......................................... $ 12 $ 20
Deferred revenue.......................................... 10 --
Income taxes payable...................................... 28 13
---- ----
Total current liabilities.............................. 50 33
Deferred income taxes....................................... 6 3
---- ----
Total liabilities...................................... 56 36
Stockholders' equity:
Common stock, no par value, 5,375,000 shares
authorized; 4,375,000 and 4,390,000 shares issued and
outstanding in 1998 and 1999, respectively............ 176 179
Retained earnings...................................... 194 241
---- ----
Total stockholders' equity............................. 370 420
---- ----
Total liabilities and stockholders' equity............. $426 $456
==== ====
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 122
WHITEBARN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Revenues.................................................... $1,119 $1,482
Cost of Revenues............................................ 714 1,009
------ ------
Gross Profit.............................................. 405 473
Operating expenses:
Cost of revenues.......................................... 714 1,009
Research and development.................................. 26 --
General and administrative................................ 261 416
------ ------
Total operating expenses............................... 287 416
------ ------
Income from operations................................. 118 57
Interest income............................................. 9 12
------ ------
Income before taxes.................................... 127 69
Income tax expense..................................... 40 22
------ ------
Net income............................................. $ 87 $ 47
====== ======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 123
WHITEBARN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------ -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1997..................... 4,375,000 $176 $107 $283
Net income....................................... -- -- 87 87
--------- ---- ---- ----
Balance at December 31, 1998..................... 4,375,000 176 194 370
Issuance of common stock upon exercise of stock
options........................................ 15,000 3 -- 3
Net income....................................... -- -- 47 47
--------- ---- ---- ----
Balance at December 31, 1999..................... 4,390,000 $179 $241 $420
========= ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 124
WHITEBARN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 87 $ 47
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 12 14
Provision for doubtful accounts........................ -- 2
Deferred income taxes.................................. 3 (4)
Changes in assets and liabilities:
Accounts receivable.................................. 12 (72)
Unbilled accounts receivable......................... (49) (4)
Security deposits.................................... (2) (4)
Prepaid rent......................................... (2) 3
Deferred revenue..................................... 10 (10)
Income taxes payable................................. 26 (15)
Accrued expenses..................................... 6 8
---- ----
Net cash provided by (used in) operating
activities...................................... 103 (35)
---- ----
Cash flows from investing activities:
Purchases of property and equipment....................... (24) (9)
---- ----
Net cash used in investing activities............. (24) (9)
---- ----
Cash flows from financing activities:
Issuance of common stock.................................. -- 3
---- ----
Net cash provided by financing activities......... -- 3
---- ----
Net increase (decrease) in cash and cash
equivalents..................................... 79 (41)
Cash and cash equivalents at beginning of year.............. 191 270
---- ----
Cash and cash equivalents at end of year.................... $270 $229
==== ====
Supplemental disclosure of cash flow information:
Income taxes paid......................................... $ 10 $ 41
==== ====
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 125
WHITEBARN, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
WhiteBarn, Inc. (the Company) is a software consulting and development
company that offers products and services focused around Internet and Intranet
technology. The Company's Warrenville, Illinois-based consultants work directly
with clients to determine their business requirements and facilitate
implementation.
The Company was originally incorporated as a C-corporation in the state of
Illinois on April 27, 1994, under the name WhiteBarn Studios, Inc., and changed
its name to WhiteBarn Web Works, Inc. on October 13, 1996 and to WhiteBarn, Inc.
on March 23, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments with original
maturity dates of three months or less. As of December 31, 1998 and 1999, cash
equivalents consisted of a money market account in the amount of $220,959 and
$186,917, respectively.
(b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) REVENUE RECOGNITION
The Company earns revenue primarily through consulting services with third
parties. The Company recognizes revenues over the period in which the work is
performed. A small portion of the Company's revenue is derived from hosting web
sites and from licensing of software. Such amounts aggregated $6,975 and $5,995
and $14,430 and $4,610 during the years ended December 31, 1998 and 1999,
respectively.
Revenue from hosting of web sites is recorded as earned in the period of
service. Revenue from the license of software is recorded when the license
agreement is signed and software is delivered.
(d) SOFTWARE DEVELOPMENT
Software development costs are accounted for in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as research and development costs and are charged to expense as
incurred. Once technological feasibility has been established, software
development costs incurred prior to general release of the product would be
eligible for capitalization. No development costs have been capitalized as costs
incurred during the period between technological feasibility and when products
are ready for release to customers has been insignificant.
F-41
<PAGE> 126
WHITEBARN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(e) PROPERTY AND EQUIPMENT
Property and equipment includes computer equipment and software and is
stated at cost. Depreciation and amortization is provided over the estimated
useful lives of the assets, generally 3 years, using the straight-line method
for financial reporting purposes.
(f) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(g) COST OF REVENUES
Cost of revenues includes compensation and benefits, contractor fees and
travel expenses incurred during the performance of revenue-producing activities.
(h) ADVERTISING EXPENSES
Advertising expenses are charged to operations during the year in which
they are incurred. The total amount of advertising expenses charged to
operations was $2,918 and $13,126 for the years ended December 31, 1998 and
1999, respectively.
(4) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1998:
U.S. Federal....................................... $28 $ 2 $30
State.............................................. 9 1 10
--- --- ---
Total........................................... $37 $ 3 $40
=== === ===
Year ended December 31, 1999:
U.S. Federal....................................... $20 $(3) $17
State.............................................. 6 (1) 5
--- --- ---
Total........................................... $26 $(4) $22
=== === ===
</TABLE>
F-42
<PAGE> 127
WHITEBARN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The total income tax provision for the year ended December 31, 1998 and
1999 differs from the amounts computed by applying the federal income tax rate
of 25% to the income before income taxes for the following reasons:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Federal income tax expense at statutory rate............... $32 $17
Increase in taxes resulting from:
Permanent differences.................................... 1 1
State income taxes, net of Federal income tax benefit.... 7 4
--- ---
Income tax provision....................................... $40 $22
=== ===
</TABLE>
The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities at December 31, 1999 and 1998 are presented below (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $-- $ 1
--- ---
Total gross deferred tax assets................... -- 1
Deferred tax liabilities:
Depreciation and amortization............................. (6) (3)
--- ---
Total gross deferred tax liabilities.............. (6) (3)
--- ---
Net deferred tax liabilities................................ $(6) $(2)
=== ===
</TABLE>
(5) SIGNIFICANT CUSTOMERS
The Company had three customers that collectively accounted for 95% of
accounts receivable and individually accounted for 38%, 37%, and 20% of accounts
receivable at December 31, 1998. The Company had two customers that collectively
accounted for 79% of revenue and individually accounted for 42% and 37% of
revenue during the year ended December 31, 1998.
The Company had two customers that accounted for 83% of accounts receivable
and individually accounted for 64% and 19% of accounts receivable at December
31, 1999. The Company had four customers that collectively accounted for 76% of
revenues and individually accounted for 33%, 16%, 15% and 12% of revenues during
the year ended December 31, 1999.
(6) LEASES
The Company incurred $33,000 and $44,000 of rent expense leasing office
space in Warrenville, Illinois during 1998 and 1999, respectively. The Company
has an operating lease for office space with future non-cancelable rental
payments as follows (in thousands):
<TABLE>
<S> <C>
2000..................................................... $ 76
2001..................................................... 67
2002..................................................... 70
2003 and after........................................... --
----
Total minimum lease payments............................. $213
====
</TABLE>
F-43
<PAGE> 128
WHITEBARN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTIONS
On January 2, 1997, the Board of Directors of the Company approved the
WhiteBarn, Inc. Stock Option Plan (the Plan) pursuant to which the Board may
grant stock options to officers and key employees. The Plan authorizes grants of
options to purchase up to 1,000,000 shares of common stock. Such shares may be
treasury, or authorized, but unissued, shares of the Company.
Stock options are granted at an exercise price equal to the stock's
estimated fair value at the date of grant. All stock options have five year
contractual lives once vested and generally vest and become fully exercisable
after three years from the date of grant. At December 31, 1999, there were no
additional shares available for grant under the Plan.
The Company accounts for its stock options in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and accordingly, no compensation has been recognized on stock options issued
under the Plan. Had the Company determined compensation cost based on the fair
value at the grant date in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's
net income would have been reduced to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Net income:
As reported.............................................. $87 $47
Pro forma................................................ $78 $42
</TABLE>
For purposes of calculating the pro forma compensation cost consistent with
SFAS 123, the fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes Option Pricing model. The per share
weighted-average fair value of stock options granted during 1998 and 1999 was
$0.04 and $0.03, respectively, using the following weighted-average assumptions
(excluding a volatility assumption): expected dividend yield of 0%, risk-free
interest rate of 5%, and expected life of 5 years.
The following table summarizes information about fixed stock options
outstanding as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding at beginning of year.......... 750,000 $ 0.13 915,000 $0.14
Granted................................... 165,000 0.20 100,000 0.30
Exercised................................. -- -- (15,000) 0.20
------- ---------
Outstanding at end of year................ 915,000 $ 0.14 1,000,000 $0.16
======= =========
Options exercisable at end of year........ 445,000 $ 0.14 562,500 $0.15
======= =========
</TABLE>
F-44
<PAGE> 129
WHITEBARN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about fixed stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
--------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.10......................... 550,000 4.5 $0.10 275,000 $0.10
0.20......................... 350,000 4.7 0.20 287,500 0.20
0.30......................... 100,000 7.5 0.30 -- 0.30
--------- -------
1,000,000 5.2 $0.16 562,500 $0.15
========= =======
</TABLE>
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of the Company's financial instruments, which include
accounts receivable, accrued expenses and income taxes payable approximate their
fair values due to the short term nature of these instruments.
(9) 401(k) SAVINGS PLAN
During 1998, the Company established a 401(k) savings plan for its
employees. Under the plan, employees may defer 2% to 15% of their compensation
up to the maximum limits set by the Internal Revenue Code. The Company does not
match employee contributions.
(10) SUBSEQUENT EVENT
On March 7, 2000, the Company entered into an agreement and plan of merger
with Talarian Corporation (Talarian). Under the terms of the agreement, each
outstanding share of common stock of the Company was converted into and
represented the right to receive 0.07932 shares of Talarian common stock and
cash in the amount of $0.09443, provided that the fractional shares of Talarian
Stock to which Company shareholders were entitled were rounded to the nearest
whole share.
F-45
<PAGE> 130
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Talarian, GlobalCast and WhiteBarn been a combined company during
the specific periods. The unaudited pro forma combined condensed financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements and related notes thereto, of Talarian, GlobalCast and WhiteBarn,
included elsewhere in this filing. The following unaudited pro forma combined
condensed financial statements give effect to the acquisition of GlobalCast and
WhiteBarn by Talarian using the purchase method of accounting. The unaudited pro
forma combined condensed financial statements are based on the respective
historical audited and unaudited financial statements and related notes of
Talarian, GlobalCast, and WhiteBarn.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-term
tangible and intangible assets or, in some circumstances, resulting in a charge
to the statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisition of WhiteBarn took place on September 30, 1999, and combines
Talarian's audited September 30, 1999 consolidated balance sheet (which includes
the assets of GlobalCast acquired on September 30, 1999) with WhiteBarn's
audited December 31, 1999 balance sheet. The unaudited pro forma combined
condensed statements of operations assumes the acquisitions took place on
October 1, 1998 and combines Talarian's audited consolidated statement of
operations for the year ended September 30, 1999, with GlobalCast's audited
statement of operations for the year ended June 30, 1999 and WhiteBarn's audited
statement of operations for the year ended December 31, 1999, and Talarian's
unaudited consolidated statement of operations for the three months ended
December 31, 1999, with WhiteBarn's unaudited statement of operations for the
three months ended December 31, 1999.
F-46
<PAGE> 131
TALARIAN CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- -----------------------
ASSETS TALARIAN WHITEBARN ADJUSTMENTS COMBINED
------ -------- --------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 1,917 $229 $ (500)(b) $ 1,646
Accounts receivable, net................... 1,731 148 1,879
Other current assets....................... 241 53 294
Deferred income taxes...................... -- 1 1
-------- ---- ------ --------
Total current assets.................... 3,889 431 (500) 3,820
Other assets................................. -- 6 6
Fixed assets, net............................ 511 19 530
Goodwill and other intangible assets......... 1,572 -- 2,626(b) 4,198
-------- ---- ------ --------
Total assets............................ $ 5,972 $456 $2,126 $ 8,554
======== ==== ====== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Bank borrowings and current portion of
debt.................................... $ 1,196 $ -- $ $ 1,196
Accounts payable........................... 89 -- 89
Accrued payroll and related expenses....... 595 -- 595
Other accrued expenses..................... 421 20 100(b) 541
Income taxes payable....................... -- 13 13
Deferred revenue........................... 2,805 -- 2,805
-------- ---- ------ --------
Current liabilities.......................... 5,106 33 100 5,239
Deferred revenue less current portion...... 2,145 -- 2,145
Long term debt............................. 21 -- 21
Deferred income taxes...................... -- 3 3
-------- ---- ------ --------
Total liabilities....................... 7,272 36 100 7,408
-------- ---- ------ --------
Redeemable convertible preferred stock..... 8,768 8,768
-------- ---- ------ --------
Stockholders' deficit:
Common stock............................... 4 179 (179)(b) 4
Additional paid in capital................. 10,379 -- 2,446 14,311
1,486(a)
Deferred stock-based compensation.......... (6,119) -- (1,486)(a) (7,605)
Accumulated deficit........................ (14,332) 241 (241)(b) (14,332)
-------- ---- ------ --------
Total stockholders' deficit............. (10,068) 420 2,026 (7,622)
-------- ---- ------ --------
Total liabilities and stockholders'
deficit............................... $ 5,972 $456 $2,126 $ 8,554
======== ==== ====== ========
</TABLE>
F-47
<PAGE> 132
TALARIAN CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- ------------------------
TALARIAN WHITEBARN GLOBALCAST ADJUSTMENTS COMBINED
-------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Licenses.............................. $ 5,912 $ -- $ -- $ $ 5,912
Maintenance........................... 2,488 -- -- 2,488
Professional services................. 640 1,482 111 2,233
------- ------ ------- ------- -------
Total revenue................. 9,040 1,482 111 -- 10,633
------- ------ ------- ------- -------
Cost of revenue:
Software products..................... 164 -- -- 164
Maintenance........................... 595 -- -- 595
Professional services................. 358 1,009 -- 1,367
------- ------ ------- ------- -------
Total cost of revenue......... 1,117 1,009 -- -- 2,126
------- ------ ------- ------- -------
Gross profit.................. 7,923 473 111 -- 8,507
------- ------ ------- ------- -------
Operating expenses:
Sales and marketing................... 5,321 -- 484 5,805
Research and development.............. 3,214 -- 651 3,865
General and administrative............ 1,656 416 906 2,978
Amortization of deferred stock
compensation....................... 744 -- -- 772(a) 1,516
Acquired in process research and
development........................ 300 -- -- (300)(g) --
Amortization of goodwill and other
intangible assets.................. -- -- -- 918(c) 1,471
553(e)
------- ------ ------- ------- -------
Total operating expenses...... 11,235 416 2,041 1,943 15,635
------- ------ ------- ------- -------
(Loss) income from
operations.................... (3,312) 57 (1,930) 1,943 (7,128)
------- ------ ------- ------- -------
Interest and other...................... (17) (10) (344) (371)
------- ------ ------- ------- -------
Net (loss) income................ $(3,329) $ 47 $(2,274) $ 1,943 $(7,499)
======= ====== ======= ======= =======
Basic and diluted net loss per share.... $ (1.23) $ (1.85)
======= =======
Shares used to compute basic and diluted
net loss per share.................... 3,099 348(d) 4,052
======= =======
605(f)
</TABLE>
F-48
<PAGE> 133
TALARIAN CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ----------------------
TALARIAN WHITEBARN ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenue:
Licenses................................... $ 1,829 -- 1,829
Maintenance................................ 718 -- 718
Professional services...................... 247 365 612
------- --- ---- ------
Total revenue........................... 2,794 365 -- 3,159
------- --- ---- ------
Cost of revenue:
Licenses................................... 60 -- 60
Maintenance................................ 177 -- 177
Professional services...................... 87 328 415
------- --- ---- ------
Total cost of revenue................... 324 328 -- 652
------- --- ---- ------
Gross profit............................ 2,470 37 -- 2,507
------- --- ---- ------
Operating expenses:
Sales and marketing........................ 1,425 -- 1,425
Research and development................... 824 -- 824
General and administrative................. 505 123 628
Amortization of deferred stock
compensation............................ 950 -- 148(a) 1,098
Amortization of goodwill and other
intangible assets....................... 138 -- 229(c) 367
------- --- ---- ------
Total operating expenses................ 3,842 123 377 4,342
------- --- ---- ------
Loss from operations.................... (1,372) (86) (377) (1,835)
Interest and other, net...................... (25) 3 -- (22)
------- --- ---- ------
Net (loss)............................ $(1,397) (83) (377) (1,857)
======= === ==== ======
Basic and diluted net loss per share......... $ (0.40) $(0.39)
======= ======
Shares used to compute basic and diluted net
loss per share............................. 348(d)
3,815 605(f) 4,768
======= ======
</TABLE>
F-49
<PAGE> 134
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
On March 13, 1999, the Company acquired WhiteBarn Inc. (WhiteBarn), a
privately held company located in Warrenville, Illinois. Talarian paid $500,000
cash, issued 348,215 shares of its common stock (of which 59,490 shares are to
be held in escrow and become payable over two years following the closing,
contingent on continued employment of an officer), and assumed all outstanding
fully vested stock options of WhiteBarn. The transaction will be accounted for
as a purchase.
Common stock issued to former stockholders of WhiteBarn (exclusive of the
escrowed shares), cash and fully vested options assumed, have been treated as
purchase consideration. The fair value of the common stock held in escrow and
issuable in the future to an officer of WhiteBarn, and the intrinsic value of
new unvested options granted to former employees of WhiteBarn now employed by
Talarian with exercise prices less than the fair value of common stock on the
grant date are recorded as deferred stock compensation and amortized on a
straight line basis over two years, and on an accelerated basis in accordance
with the provisions of Financial Accounting Standards Board Interpretation 28
over four years, respectively.
The pro forma balance sheet as of December 31, 1999, gives effect to the
transaction as if it had occurred on December 31, 1999.
The following adjustments have been reflected in the unaudited pro forma
combined condensed balance sheet (in thousands):
(a) To record deferred stock compensation related to (i) new, unvested
stock options issued to former employees of WhiteBarn and (ii) stock held
in escrow.
<TABLE>
<CAPTION>
AMORTIZATION
-----------------------------
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEET 1999 1999
------------- ------------- ------------
<S> <C> <C> <C>
Deferred stock compensation on options
issued............................... $1,070 $564 $ 96
Deferred stock compensation on stock in
escrow............................... 416 208 52
------ ---- ----
$1,486 $772 148
====== ==== ====
</TABLE>
(b) To record common stock issued and fully vested stock options
assumed and cash paid by Talarian and record the applicable purchase
accounting adjustments for the acquisition of WhiteBarn.
Under purchase accounting, the total purchase price has been allocated
to WhiteBarn's assets and liabilities based on their relative fair values.
Amounts allocated to current products and technology, customer list and
assembled workforce will be amortized on a straight-line basis over
estimated useful lives of between two and three years. Goodwill will be
amortized over an
F-50
<PAGE> 135
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
estimated useful life of three years. The amounts and components of the
purchase price together with the preliminary allocation of purchase price
to assets acquired are as follows:
<TABLE>
<S> <C>
Common stock................................................ $2,021
Estimated fair value of stock options assumed............... 425
Cash........................................................ 500
Estimated transaction costs................................. 100
------
Total purchase price...................................... $3,046
======
Cash and cash equivalents................................... $ 229
Accounts receivable......................................... 148
Prepaid expenses and other current assets................... 54
Property, equipment and other non-current assets............ 25
Accrued liabilities......................................... (20)
Income taxes payable........................................ (13)
Deferred income taxes....................................... (3)
------
Fair value of net tangible assets of WhiteBarn............ 420
Assembled work force........................................ 350
Current products and technology............................. 250
Customer list............................................... 830
Goodwill.................................................... 1,196
------
Net assets acquired....................................... $3,046
======
</TABLE>
The actual allocation of the purchase price will depend on the
composition of WhiteBarn's net assets on the closing date and Talarian's
evaluation of the fair value of the net assets as of the date indicated.
Consequently, the actual allocation of the purchase price could differ from
that presented above.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The pro forma combined condensed statements of operations give effect to
the acquisitions as if they had occurred on October 1, 1998.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations (in thousands):
(c) Adjustment to record the amortization of goodwill and intangible
assets resulting from the preliminary allocation of the WhiteBarn purchase
price calculated as follows:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Developed technology.................. $ 250 2 years $125
Assembled workforce................... 350 3 years 117
Customer lists........................ 830 3 years 277
Goodwill.............................. 1,196 3 years 399
------ ----
Total....................... $2,626 $918
====== ====
</TABLE>
F-51
<PAGE> 136
TALARIAN CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(d) To reflect the shares of common stock issued as consideration for
the acquisition of WhiteBarn.
(e) Adjustment to record the amortization of goodwill and intangible
assets resulting from the preliminary allocation of purchase price on the
acquisition of certain GlobalCast assets calculated as follows:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
VALUE USEFUL LIFE AMORTIZATION
------ ----------- ------------
<S> <C> <C> <C>
Developed technology.................. $ 210 4 years $ 53
Goodwill.............................. 1,500 3 years 500
------ ----
Total....................... $1,710 $553
====== ====
</TABLE>
(f) To reflect the shares of common stock issued as consideration for
the acquisition of GlobalCast.
(g) Adjustment to reverse the value of purchased in-process research
and development as this is a non-recurring charge.
F-52
<PAGE> 137
[GRAPHIC]
SHARES
[TALARIAN LOGO]
COMMON STOCK
------------------------------------------------------
PROSPECTUS
, 2000
------------------------------------------------------
LEHMAN BROTHERS
SG COWEN
WIT SOUNDVIEW
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION
<PAGE> 138
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discount. All amounts shown are estimates, except the Securities
and Exchange Commission Registration Fee, the National Association of Securities
Dealers, Inc. Filing Fee and the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $18,216
National Association of Securities Dealers Inc. Filing
Fee....................................................... 7,400
Nasdaq National Market Listing Fee..........................
Blue Sky Fees and Expenses..................................
Transfer Agent and Registrar Fees...........................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Printing Expenses...........................................
Miscellaneous...............................................
-------
Total..................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or the board of directors of a corporation to grant, indemnity to
directors and officers in terms sufficiently broad to permit indemnification
under certain circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation provides that its directors shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that the exculpation from liabilities
is not permitted under the Delaware General Corporation Law as in effect at the
time such liability is determined. As permitted by the Delaware General
Corporation Law, the bylaws of the Registrant provide that the Registrant shall
indemnify its directors and officers to the full extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions.
The Registrant intends to enter into indemnification agreements with each
of its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's certification of incorporation and to provide
additional procedural protections in the event of litigation. At present, there
is no pending litigation or proceeding involving a director, officer or employee
of the Registrant regarding which indemnification is sought, nor is the
Registrant aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 8 of the Underwriting Agreement (Exhibit
1.01 hereto), which provides for indemnification by the Underwriters of the
Registrant and its executive officers and directors for certain liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
the Registration Statement.
See also the undertakings set out in response to Item 17.
II-1
<PAGE> 139
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Underwriting Agreement (draft dated )........ 1.01
Registrant's Certificate of Incorporation................... 3.01
Registrant's Bylaws......................................... 3.02
Amended and Restated Investors Rights Agreement dated
February 3, 2000, as amended March 10, 2000 between
Registrant and certain stockholders and warrant holders
named therein............................................. 4.02
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities:
1. From March 16, 1997 through March 15, 2000, the Registrant has
issued 2,795,441 shares of common stock to its employees, directors and
consultants upon exercise of options for an aggregate consideration of
$2,010,867 in cash.
2. In September 1999, the Registrant issued 552,600 shares of common
stock to GlobalCast Communications, Inc., a California corporation, in
connection with its acquisition of substantially all of the assets of that
company.
3. In September 1999, the Registrant issued 52,400 shares of common
stock to Lucent Technologies, Inc., a Delaware corporation, in
consideration for Lucent's execution of the Letter Agreement with
Registrant dated September 3, 1999 regarding Registrant's succession, upon
its acquisition of GlobalCast Communications, Inc., to GlobalCast's rights,
title and interest in a License Agreement dated July 25, 1997 between
Lucent and GlobalCast as amended January 28, 1998.
4. In February 2000, the Registrant issued and sold 1,571,055 shares
of Series D preferred stock to Nortel Networks Inc., a Delaware corporation
for an aggregate consideration of $10,000,000.74 in cash.
5. In March 2000, the Registrant issued 348,215 shares of common stock
to shareholders of WhiteBarn, Inc., an Illinois corporation, in connection
with the merger of WhiteBarn, Inc. into the Registrant.
The sales and issuances of the above securities were determined to be
exempt from registration under the Securities Act in reliance upon Section 4(2)
of the Securities Act or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving a public offering or transactions under compensation
benefit plans and contracts relating to compensation as provided under Rule 701.
The recipients of the securities in each transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution and appropriate legends were
affixed to the share certificates issued in these transactions. All recipients
had adequate access, through their relationships with the Registrant, to
information about the Registrant.
II-2
<PAGE> 140
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.*
2.01 Agreement and Plan of Merger between Talarian Corporation, a
California corporation, and Registrant.*
2.02 Asset Purchase Agreement dated September 30, 1999 between
Registrant and GlobalCast Communications, Inc., a California
corporation.
2.03 Agreement and Plan of Merger dated March 7, 2000 between
Registrant and WhiteBarn, Inc., an Illinois corporation.*
3.01 Registrant's Amended and Restated Articles of Incorporation
as filed February 4, 2000.
3.02 Registrant's Bylaws as adopted March 28, 1991.
3.03 Form of First Amended and Restated Certificate of
Incorporation to be effective before the closing of the
offering.*
3.04 Form of Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering.*
3.05 Restated Bylaws to be effective upon the closing of the
offering.*
4.01 Specimen Common Stock Certificate.*
4.02 Amended and Restated Investors Rights Agreement dated
February 3, 2000, as amended March 10, 2000 between
Registrant and certain stockholders and warrant holders
named therein.
5.01 Opinion of Fenwick & West LLP.*
10.01 Form of Indemnity Agreement.
10.02 Registrant's 1991 Stock Option Plan and related documents.
10.03 Registrant's 1998 Equity Incentive Plan and related
documents.
10.04 Registrant's 2000 Employee Stock Purchase Plan.
10.05 Registrant's 2000 Equity Incentive Plan and related
documents.
10.06 WhiteBarn, Inc. Stock Option Plan.
10.07 WhiteBarn, Inc. 2000 Equity Incentive Plan.
10.08 Lease dated February 8, 1995 between Registrant and GVE
Distel Associates.
10.09 Agreement dated March 13, 2000 between Registrant and
Certain WhiteBarn Shareholders.*
10.10 Form of Option Acceleration Agreement between Registrant and
each executive officer.
10.11 Settlement and License Agreement dated February 1, 1989
between Registrant and Lockheed Missiles & Space Company, a
California corporation.*
10.12 Value Added Reseller Agreement dated December 17, 1993
between Registrant and Northern Telecom Limited, a Canadian
corporation, as amended by Amending Agreement No. 1 dated
September 30, 1997.*
10.13 License Agreement dated July 25, 1997 between Lucent
Technologies Inc., a Delaware corporation, and Registrant as
successor to GlobalCast Communications, Inc., a California
corporation, as amended by Amendment No. 1 effective January
28, 1998 and letter dated September 3, 1999.*
10.14 Licensing and Distribution Agreement dated September 29,
1998 between Registrant and BMC Software, Inc., a Delaware
corporation.*
10.15 Standard Inbound License Agreement (Product Source Code)
dated September 30, 1999 between Registrant and Novell,
Inc., a Delaware corporation.*
10.16 Sublease dated July 18, 1997 between Registrant and
BroadVision, Inc., a Delaware corporation.
10.17 Sub-Sublease dated November 18, 1997 between Registrant and
Fenwick & West LLP, a California limited liability
partnership, as amended as of February 1, 1999.
</TABLE>
II-3
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.18 Commitment Agreement dated March 13, 2000 between the
Registrant, Mark Mahowald and Wagner & Associates, P.C.*
10.19 Agreement dated February 3, 2000 between Registrant and
Nortel Networks Inc.*
10.20 Form of Registrant's Software License and Distribution
Agreement
21.01 Subsidiaries of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG LLP, independent accountants (Talarian).
23.03 Consent of KPMG LLP, independent accountants (GlobalCast).
23.04 Consent of KPMG LLP, independent accountants (WhiteBarn).
24.01 Power of Attorney (see page II-5).
27.01 Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
(b) Financial statement schedules:
Financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Altos, State of
California, on the 13th day of April, 2000.
TALARIAN CORPORATION
By: /s/ MICHAEL A. MORGAN
------------------------------------
Michael A. Morgan
Vice President, Finance and
Administration and Chief Financial
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Paul A. Larson, Thomas J. Laffey and
Michael A. Morgan, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, making such changes in this Registration Statement as such
person or persons so acting deems appropriate, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PAUL A. LARSON President, Chief Executive April 11, 2000
- --------------------------------------------- Officer and Director
Paul A. Larson
/s/ MICHAEL A. MORGAN Vice President, Finance and April 13, 2000
- --------------------------------------------- Administration and Chief Financial
Michael A. Morgan Officer
/s/ THOMAS J. LAFFEY Vice President, Chief Technology April 11, 2000
- --------------------------------------------- Officer, Secretary and Director
Thomas J. Laffey
</TABLE>
II-5
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PAUL D. CALLAHAN Director April 11, 2000
- ---------------------------------------------
Paul D. Callahan
/s/ DAVID I. CAPLAN Director April 11, 2000
- ---------------------------------------------
David I. Caplan
/s/ DAVID E. GOLD Director April 11, 2000
- ---------------------------------------------
David E. Gold
/s/ BRIAN T. HOREY Director April 11, 2000
- ---------------------------------------------
Brian T. Horey
/s/ RICHARD A. NORTZ Director April 11, 2000
- ---------------------------------------------
Richard A. Nortz
</TABLE>
II-6
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.*
2.01 Agreement and Plan of Merger between Talarian Corporation, a
California corporation, and Registrant.*
2.02 Asset Purchase Agreement dated September 30, 1999 between
Registrant and GlobalCast Communications, Inc., a California
corporation.
2.03 Agreement and Plan of Merger dated March 7, 2000 between
Registrant and WhiteBarn, Inc., an Illinois corporation.*
3.01 Registrant's Amended and Restated Articles of Incorporation
as filed February 4, 2000.
3.02 Registrant's Bylaws as adopted March 28, 1991.
3.03 Form of First Amended and Restated Certificate of
Incorporation to be effective before the closing of the
offering.*
3.04 Form of Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering.*
3.05 Restated Bylaws to be effective upon the closing of the
offering.*
4.01 Specimen Common Stock Certificate.*
4.02 Amended and Restated Investors Rights Agreement dated
February 3, 2000, as amended March 10, 2000 between
Registrant and certain stockholders and warrant holders
named therein.
5.01 Opinion of Fenwick & West LLP.*
10.01 Form of Indemnity Agreement.
10.02 Registrant's 1991 Stock Option Plan and related documents.
10.03 Registrant's 1998 Equity Incentive Plan and related
documents.
10.04 Registrant's 2000 Employee Stock Purchase Plan.
10.05 Registrant's 2000 Equity Incentive Plan and related
documents.
10.06 WhiteBarn, Inc. Stock Option Plan.
10.07 WhiteBarn, Inc. 2000 Equity Incentive Plan.
10.08 Lease dated February 8, 1995 between Registrant and GVE
Distel Associates.
10.09 Agreement dated March 13, 2000 between Registrant and
Certain WhiteBarn Shareholders.*
10.10 Form of Option Acceleration Agreement between Registrant and
each executive officer.
10.11 Settlement and License Agreement dated February 1, 1989
between Registrant and Lockheed Missiles & Space Company, a
California corporation.*
10.12 Value Added Reseller Agreement dated December 17, 1993
between Registrant and Northern Telecom Limited, a Canadian
corporation, as amended by Amending Agreement No. 1 dated
September 30, 1997.*
10.13 License Agreement dated July 25, 1997 between Lucent
Technologies Inc., a Delaware corporation, and Registrant as
successor to GlobalCast Communications, Inc., a California
corporation, as amended by Amendment No. 1 effective January
28, 1998 and letter dated September 3, 1999.*
10.14 Licensing and Distribution Agreement dated September 29,
1998 between Registrant and BMC Software, Inc., a Delaware
corporation.*
10.15 Standard Inbound License Agreement (Product Source Code)
dated September 30, 1999 between Registrant and Novell,
Inc., a Delaware corporation.*
10.16 Sublease dated July 18, 1997 between Registrant and
BroadVision, Inc., a Delaware corporation.
10.17 Sub-Sublease dated November 18, 1997 between Registrant and
Fenwick & West LLP, a California limited liability
partnership, as amended as of February 1, 1999.
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.18 Commitment Agreement dated March 13, 2000 between the
Registrant, Mark Mahowald and Wagner & Associates, P.C.*
10.19 Agreement dated February 3, 2000 between Registrant and
Nortel Networks Inc.*
10.20 Form of Registrant's Software License and Distribution
Agreement
21.01 Subsidiaries of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG LLP, independent accountants (Talarian).
23.03 Consent of KPMG LLP, independent accountants (GlobalCast).
23.04 Consent of KPMG LLP, independent accountants (WhiteBarn).
24.01 Power of Attorney (see page II-5).
27.01 Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
<PAGE> 1
EXHIBIT 2.02
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made as of
September 30, 1999 (the "EFFECTIVE DATE"), by and between Talarian Corporation,
a California corporation ("PURCHASER") and GlobalCast Communications, Inc., a
California corporation (the "COMPANY").
RECITALS
A. Company has engaged in the business of developing multicast
networking software and is now winding down its business.
B. The parties hereto desire that Company sell to Purchaser and
Purchaser purchase from Company substantially all of the remaining assets of
Company pursuant to the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 DEFINITION. For purposes of this Agreement, "PURCHASED ASSETS" means,
collectively, all of the assets, documents, rights and properties of Company
(except for excess cash as set forth in Section 1.1(c) below), free and clear of
any liens or encumbrances, which assets include, but are not limited to, the
following:
(a) All of the software products of Company, including without
limitation, the software listed on SCHEDULE 1.1(A), including any and all source
and object codes, binaries, supplements, modifications, updates, corrections and
enhancements to past and current versions of such products, shipping versions of
such products and versions of such products currently under development, and any
and all English and foreign language versions and back-up and archival tapes
from Company's storage facilities of past and current versions of such products;
in each case for all markets (collectively, the "SOFTWARE").
(b) Documentation. Copies of all design and use documentation
for the Software.
(c) Lucent License. All right, title and interest in and to
the License Agreement between Lucent Technologies, Inc. ("LUCENT") and Company
dated July 25, 1997, as amended on April 7, 1998 (the "LUCENT LICENSE").
(d) Other Licenses. All right, title and interest in and to
the licenses from West Virginia University, University of Illinois, Yongiing Wu,
Sudhir Koka, Jeffrey Lee
<PAGE> 2
Morrison, Ken Hu, John Raymond Callahan, Brian Whetten and Todd L. Montgomery
listed under "Distribution Agreements - Licenses being assigned to Talarian" on
Schedule 3.6. The license from Old Dominion University is not being assigned to
Talarian, nor is Talarian being assigned any of the licenses listed under
"Distribution Agreements - Licenses not being assigned to Talarian" on Schedule
3.6, and Talarian is not responsible for any obligations thereunder.
(e) Rights to Intellectual Property. All right, title and
interest in and to all intellectual property owned by Company, including without
limitation (i) those patents and patent applications, and registered copyrights
and applications therefor, listed in SCHEDULE 1.1(B) hereto, and (ii) those
trademarks, trade names and service marks listed on SCHEDULE 1.1(C) hereto (and
any registrations and applications for such marks), together with the goodwill
of the business connected with the use of and symbolized by said marks and (iii)
all of the know-how and trade secrets relating to the Purchased Assets
(collectively, "COMPANY INTELLECTUAL PROPERTY").
(f) Cash. Cash and cash equivalents of the Company in an
amount equal to $400,000. Any amounts in excess of $400,000 will be retained by
the Company.
(g) Cancellation of Indebtedness. Cancellation of licensing
fees in the amount of $155,000 owed by Purchaser to Company pursuant to a
license agreement entered into between Purchaser and Company as of May 18, 1998.
1.2 AGREEMENT TO SELL AND PURCHASE THE PURCHASED ASSETS. Company hereby
agrees to sell, assign, transfer and convey to Purchaser at the Closing (as
defined in Section 2.3 hereof), and Purchaser agrees to purchase and acquire
from Company at the Closing, all right, title and interest in and to all of the
Purchased Assets, subject to Company's retained rights set forth in Section 5.6.
1.3 TRANSFER OF PURCHASED ASSETS; PASSAGE OF TITLE; DELIVERY.
(a) TITLE PASSAGE. Except as otherwise provided in this
Section 1.3, upon the Closing, title to all of the Purchased Assets will pass to
Purchaser; Company will deliver to Purchaser possession of all of the Purchased
Assets as provided in Section 1.3(b) hereof; and Company will further execute
and/or deliver to Purchaser (i) the Assignment, Bill of Sale and Assumption
Agreement attached as EXHIBIT A hereto, (ii) the consents and assignments of
contracts and Company Intellectual Property as set forth on SCHEDULE 1.3(A)
attached hereto, and (iii) such other instruments of conveyance as Purchaser may
reasonably request (both at and after the Closing) to effect or evidence the
transfers contemplated hereby.
(b) DELIVERY OF PURCHASED ASSETS FREE AND CLEAR OF
RESTRICTIONS. Company hereby represents to Purchaser that it owns, and will
convey to Purchaser at the Closing, the Purchased Assets free and clear of any
and all Liens (as defined in Section 3.4). To the extent practicable, Company
shall deliver the Software included in the Purchased Assets electronically.
Purchaser hereby acknowledges that, to the best of its knowledge, it has
received from Company all Purchased Assets.
2
<PAGE> 3
1.4 BULK SALES. Purchaser hereby waives any requirement for compliance
with the provisions of Article 6 of the Uniform Commercial Code concerning bulk
sales or any similar law. Company agrees to indemnify Purchaser and hold
Purchaser harmless from any claim, loss, liability, expense or obligation
(including without limitation attorneys' fees and costs) arising out of or
relating to any non-compliance (or alleged non-compliance) with such laws, and
shall, without limitation, reimburse Purchaser for all costs (including without
limitation attorneys' fees and costs), as the same are incurred, of
investigation, prosecution, defense or settlement of any claim or action arising
out of relating to any of the foregoing.
1.5 NON ASSUMPTION OF LIABILITIES; EXCLUDED ASSETS. Except for
liabilities and obligations under the Lucent License and those licenses being
assigned to Talarian pursuant to Section 1.1(d) arising after the date hereof,
the Purchased Assets shall not include, Purchaser is not assuming and shall not
be liable for, and Company shall retain and, as between Purchaser and Company,
remain solely liable for and be obligated to discharge, all of the debts,
contracts, agreements, commitments, obligations and other liabilities of any
nature of Company, whether known or unknown, accrued or not accrued, fixed or
contingent, due or to become due, and arising out of or resulting from the
operations of Company at any time before or after the date hereof, including,
without limitation, any liabilities resulting from the sale of the Purchased
Assets constituting a "bulk sale" under any state commercial code, any
obligation to Lifecycle Systems or any liabilities under Company's warrant
issued to Silicon Valley Bank. In addition, Purchased Assets shall not include
Company's minute books and stock records.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE. Purchaser and Company hereby agree that the full
purchase price (the "PURCHASE PRICE") to be paid by Purchaser to Company for the
sale, transfer, conveyance and assignment of all the Purchased Assets to
Purchaser shall consist of 552,600 shares of Purchaser's Common Stock
(collectively, the "SHARES") issued to Company in the form of a stock
certificate issued at the Closing in the name of GlobalCast Communications, Inc.
2.2 TAX-FREE TRANSACTION. The parties intend to treat this transaction
as a tax-free plan of reorganization and to consummate the acquisition in
accordance with the provisions of Section 368(a)(1)(C) of the Code. The parties
believe that the value of the Shares to be received in this transaction is
equal, to the value of the Purchased Assets to be surrendered in exchange
therefor. The Shares issued in this transaction will be issued solely in
exchange for the Purchased Shares, and no other transaction other than this
transaction represents, provides for or is intended to be an adjustment to, the
consideration paid for the Purchased Assets. No consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by Purchaser for the Purchased Assets in this transaction. The
parties shall not take a position on any tax returns inconsistent with this
Section 2.2. In addition, Purchaser represents now, and as of the Closing, that
it presently intends to continue Company's historic business or use a
significant portion of Company's business assets in a business.
2.3 CLOSING. The consummation of the transaction contemplated hereby
will take place at a closing to be held at the offices of Fenwick & West,
located at Two Palo Alto Square,
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Palo Alto, California (the "CLOSING") on September __, 1999, or at such other
time or date, and at such place, or by such other means of exchanging documents,
as may be agreed to by the parties hereto. The date on which the Closing
actually occurs will be referred to as the "CLOSING DATE".
3. REPRESENTATIONS AND WARRANTIES OF COMPANY.
Company represents and warrants to Purchaser that, except as set forth
in SCHEDULE 3 attached hereto (the "SCHEDULE OF EXCEPTIONS"), each of the
following statements is true, accurate and correct as of the Closing:
3.1 DUE ORGANIZATION AND CORPORATE POWERS. Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of California and has full corporate power and authority and the legal
right to own and use the Purchased Assets. Company has full corporate power and
authority to enter into this Agreement and to enter into all assignments or
other documents that Company is required to execute and deliver hereunder (the
"COMPANY ANCILLARY DOCUMENTS") and to consummate the transactions contemplated
hereby and thereby. Company holds all permits, licenses, orders and approvals of
all federal, state and local governmental or regulatory bodies necessary and
required therefor.
3.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by Company of this Agreement and the Company Ancillary
Documents, and the consummation of all the transactions contemplated hereby and
thereby, will have been duly and validly authorized by all necessary corporate
action, including actions by the Company's Board of Directors and shareholders.
This Agreement, when executed and delivered by Company, and the Company
Ancillary Documents, when executed and delivered by Company, will be duly and
validly executed and delivered and will be the respective valid and binding
obligations of Company, enforceable against Company in accordance with their
respective terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 NO VIOLATION. Neither the execution and delivery of this Agreement
by Company, nor the execution and delivery by Company of the Company Ancillary
Documents, nor the performance by Company of its respective obligations under
this Agreement or the Company Ancillary Documents will (i) conflict with,
violate or result in any breach of the terms, conditions or provisions of the
articles, bylaws or other organizational documents or agreements of Company;
(ii) result in a material violation or breach of, or permit any third party to
rescind any term or provision of, or constitute a default under, any loan,
notice, note, indenture, mortgage, deed of trust, security agreement, lease or
material contract, contract, license, lease or other agreement or obligation to
which Company is a party or by which Company or any of the Purchased Assets is
bound or (iii) violate in any material respect any law, statute, rule or
regulation or order, writ, judgment, injunction or decree of any Governmental
Entity (as defined in Section 3.5).
3.4 TITLE. Company has good and marketable title to or, in the case of
the Lucent License, valid rights thereunder, all of the Purchased Assets, free
and clear of all mortgages,
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pledges, liens, licenses, rights of possession, security interests,
restrictions, encumbrances, charges, title retention, conditional sale or other
security arrangements and all claims or agreements of any nature whatsoever,
other than statutory liens in favor of federal, state and local taxing
authorities arising in the ordinary course of business securing the payment of
taxes that are not yet due and payable (collectively, "LIENS"). Company has the
complete and unrestricted power and the unqualified right to sell, assign and
deliver the Purchased Assets to Purchaser without obtaining the consent or
approval of any person or party. Upon consummation of the transactions
contemplated by this Agreement, Purchaser will acquire valid title to or, in the
case of the Lucent License, valid rights thereunder, the Purchased Assets free
and clear of any Liens. No person other than Company has any right or interest
in the Purchased Assets, including the right to grant interests in the Purchased
Assets to third parties.
3.5 CONSENTS AND APPROVALS OF GOVERNMENTAL ENTITIES. There is no
requirement applicable to Company to make any filing, declaration or
registration with, or to obtain any permit, authorization, consent or approval
of, any Governmental Entity as a condition to the lawful consummation by Company
of the transactions contemplated by this Agreement and the Company Ancillary
Documents. "GOVERNMENTAL ENTITY" shall mean any court, or any Federal, state
municipal or other governmental authority, department, commission, board, agency
or other instrumentality (domestic or foreign).
3.6 DISTRIBUTION AGREEMENTS, ETC. All distribution agreements, license
agreements, sales representative agreements, or other agreements or
understandings relating to the Purchased Assets, either in the United States or
outside of the United States, are specifically identified in SCHEDULE 3.6.
Except as separately set forth in Schedule 3.6, the transactions contemplated by
this Agreement do not require the consent of any third party to such other
agreement or understanding. Except as set forth in Schedule 3.6, all such
agreements or understandings are terminable by Purchaser, without payment or
penalty and upon no more than sixty (60) days prior notice. Purchaser is not
undertaking any obligation or liability under such agreements except under the
Lucent License as set forth in Section 1.5 herein.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in this
Agreement or the Schedules hereto, there are no other debts, liabilities or
obligations of any nature (whether absolute, contingent, accrued, known,
unknown, due or to become due) of the Company.
3.8 LITIGATION. There is no claim, action, suit, inquiry, proceeding or
investigations relating to Company or the Purchased Assets which are currently
pending or, to the best of Company's knowledge, threatened against Company at
law, in equity, by way of arbitration or before or by any Governmental Entity.
There are no judgments, decrees, injunctions or orders of any Governmental
Entity against Company affecting the Purchased Assets. There are no claims
relating to any of the Purchased Assets containing allegations that the
Purchased Assets are defective or in breach of any warranty, or were improperly
designed or manufactured or improperly labeled, except for such claims which
could not have a material adverse effect on the Purchased Assets.
3.9 INTELLECTUAL PROPERTY.
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(a) Ownership; No Notice of Infringement. Company owns all
Company Intellectual Property, including, without limitation, the Software free
and clear of any Liens, subject to the Lucent License. To the Company's
knowledge, the Purchased Assets and their expected use do not infringe or
violate any of the patents, trademarks, service marks, trade names, copyrights,
trade secrets, proprietary rights or other intellectual property of any other
person or entity. Company has taken reasonable measures to protect all Company
Intellectual Property and Company is not aware of any infringement of any
Company Intellectual Property by any third party. Company has not received any
written or oral claim or notice of infringement or potential infringement of the
intellectual property of any other person or entity. In addition, there is no
pending or threatened claim by Company against any person or entity for
infringement, misuse or misappropriation of any Purchased Assets nor is Company
aware of any such infringement, misuse or misappropriation.
(b) No Warranties for Software. Except as otherwise set forth
in this Section 3.9, the Software is being sold to Purchaser "as-is" and without
any implied warranties of merchantability or fitness for a particular purpose.
(c) Rights Assignment and Nondisclosure Agreements. A copy of
Company's standard form of nondisclosure or confidentiality agreement utilized
to protect the Company Intellectual Property has been provided to Purchaser. All
employees and any other third parties who have been involved in development of
the Purchased Assets for Company have executed confidentiality and invention
assignment agreements, wherein they have assigned all of their rights in any
Company Intellectual Property developed, created, invented or reduced to
practice by them to Company. All employees who have or have had access to
confidential or trade secret information concerning technology or products
related to the Purchased Assets have executed nondisclosure agreements in favor
of Company requiring such employees to maintain the confidentiality of such
information.
(d) Lucent License. Company holds the Lucent License free and
clear of any Liens. The Lucent License is currently in full force and effect and
the consummation of the transactions contemplated by this Agreement will not
violate or otherwise breach the Lucent License.
3.10 COMPLIANCE WITH LAWS. Company has, to the best knowledge of
Company, duly complied with all applicable laws, rules, regulations and orders
of all Governmental Entities (including but not limited to all export control
laws and regulations of the United States of America or any governmental
authority or agency of the United States government), except where the failure
to comply would not have a material adverse effect on the Purchased Assets, and
Company is not in default with respect to any order, judgment, writ, injunction,
decree, award, rule or regulation of any court, or any Governmental Entity that
affect any of the Purchased Assets.
3.11 TAXES. All sales and use taxes, real and personal property taxes,
gross receipts taxes, documentary transfer taxes, withholding taxes,
unemployment insurance contributions and other taxes or governmental charges of
any kind, however denominated, including any interest,
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penalties and additions to tax in respect thereto, for which Purchaser could
become liable as a result of acquiring the Purchased Assets or which could
result in a Lien on or charge against the Purchased Assets (collectively,
"TAXES") have been or will be paid for all periods (or portions thereof) prior
to the due dates thereof. Company and any other person required to file returns
or reports of Taxes have been duly and timely filed (or will file prior to the
Closing Date) all returns and reports of Taxes required to be filed prior to
such date, and all such returns and reports are true, correct and complete.
There are no Liens for Taxes on any of the Purchased Assets. There are no
pending or, to the best knowledge of Company, threatened proceedings with
respect to Taxes, and there are no outstanding waivers or extensions of statutes
of limitations with respect to assessments of Taxes. Company is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of
1986, as amended.
3.12 FAIR CONSIDERATION; NO FRAUDULENT CONVEYANCE. The sale of the
Purchased Assets pursuant to this Agreement is made in exchange for fair and
equivalent consideration, and Company is not now insolvent and will not be
rendered insolvent by the sale, transfer and assignment of the Purchased Assets
pursuant to the terms of this Agreement. Company is not entering into this
Agreement and the Company Ancillary Documents with the intent to defraud, delay
or hinder its creditors and the consummation of the transactions contemplated by
this Agreement and the Company Ancillary Documents referenced in this Agreement
will not have any such effect. The transactions contemplated in this Agreement
or any Company Ancillary Document will not constitute a fraudulent conveyance,
or otherwise give rise to any right of any creditor of Company whatsoever to any
of the Purchased Assets in the hands of Purchaser after the Closing.
3.13 CREDITORS. Attached hereto as SCHEDULE 3.13 is a complete and
accurate list of all existing creditors and persons holding claims to payment by
Company, including all amounts payable by Company to each such persons.
3.14 FULL DISCLOSURE. No representation or warranty by Company in this
Agreement, the Company Ancillary Documents, or in any document, statement,
certificate or schedule furnished or to be furnished to Purchaser by (or on
behalf of) Company pursuant thereto, contains, or will when furnished contain,
any untrue statement of a material fact, or omits, or will then omit to state, a
material fact necessary to make any statement of facts contained herein or
therein not materially misleading. There have been no events or transactions, or
information which has come to the attention of Company which, as related
directly to Company or the Purchased Assets, would have a material adverse
effect on the Purchased Assets.
3.15 INVESTOR REPRESENTATIONS. Company understands, acknowledges and
agrees to the following:
(a) Purchase for Own Account. The Shares to be received by
Company hereunder will be acquired for investment for Company's own account, not
as a nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act of 1933, as amended, (the "1933
ACT"), and Company has no present intention of selling, granting any
participation in, or otherwise distributing the same, except for the
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distribution of the Shares to no more than 46 current shareholders each of whom
is an "accredited investor" as defined in Rule 501(a) under Regulation D of the
1933 Act, each of whom will have executed an Investor Representation Letter
substantially in the form of EXHIBIT B hereto prior to any such distribution.
Company also represents that it has not been formed for the specific purpose of
acquiring the Shares.
(b) Disclosure of Information. Company has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Shares to be received under
this Agreement. Company further has had an opportunity to ask questions and
receive answers from Purchaser regarding Purchaser's business and to obtain
additional information (to the extent Purchaser possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Company or to which Company had access. The foregoing,
however, does not in any way limit or modify the representations and warranties
made by Purchaser in Section 4.
(c) Investment Experience. Company understands that the
receipt of the Shares involves substantial risk. Company: (i) has experience as
an investor in securities of companies in the development stage and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
in the Shares and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of this investment
in the Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship with
Purchaser and certain of its officers, directors or controlling persons of a
nature and duration that enables Company to be aware of the character, business
acumen and financial circumstances of such persons.
(d) Restricted Securities. Company understands that the Shares
are characterized as "restricted securities" under the 1933 Act inasmuch as they
are being acquired from Purchaser in a transaction not involving a public
offering and that under the 1933 Act and applicable regulations thereunder such
securities may be resold without registration under the 1933 Act only in certain
limited circumstances. In this connection, Company represents that it is
familiar with Rule 144 of the U.S. Securities and Exchange Commission (the
"SEC"), as presently in effect, and understands the resale limitations imposed
thereby and by the 1933 Act. Company understands that Purchaser is under no
obligation to register any of the securities sold hereunder. Company understands
that no public market now exists for any of the Shares and that it is uncertain
whether a public market will ever exist for the Shares.
(e) Further Limitations on Disposition. Without in any way
limiting the representations set forth above, Company further agrees not to make
any disposition of all or any portion of the Shares unless and until:
(i) there is then in effect a registration statement
under the 1933 Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
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(ii) Company shall have notified Purchaser of the
proposed disposition and shall have furnished Purchaser with a
statement of the circumstances surrounding the proposed disposition,
and, at the expense of Company or its transferee, with an opinion of
counsel, reasonably satisfactory to Purchaser, that such disposition
will not require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be required: (I) for any
transfer of any Shares in compliance with SEC Rule 144 or Rule 144A, or (II) for
any transfer of Shares by (A) Company to not more than 40 shareholders, all of
whom are "accredited investors" or (B) the estate of any such shareholder;
provided that in each of the foregoing cases the transferee agrees in writing to
be subject to the terms of this Section 3.15 to the same extent as if the
transferee were an original investor hereunder.
3.16 LEGENDS. It is understood that the certificates evidencing the
Shares will bear the legends set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTOR SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF THESE SECURITIES WILL
NOT REQUIRE AN OPINION OF COUNSEL (I) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 OR RULE 144A UNDER THE ACT, (II) IN ANY
TRANSFER OF THESE SECURITIES BY THE INVESTOR TO NOT MORE THAN 40
SHAREHOLDERS OF THE INVESTOR EACH OF WHOM IS AN "ACCREDITED INVESTOR,"
(III) IN ANY TRANSFER OF THESE SECURITIES BY THE ESTATE OF ANY SUCH
SHAREHOLDER OF THE INVESTOR, AND IN EACH OF CASES (I) THROUGH (III) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES, AND THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THESE SECURITIES OF THE RESALE
RESTRICTIONS REFERRED TO ABOVE.
The legend set forth above shall be removed by Purchaser from any certificate
evidencing Shares upon delivery to Purchaser of an opinion by counsel,
reasonably satisfactory to Purchaser, that a registration statement under the
1933 Act is at that time in effect with respect to the legended security or that
such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which
Purchaser issued the Shares.
3.17 SECURITIES REPRESENTATIONS. Company further represents and
warrants to Purchaser that the following are true and correct as of the Closing:
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(a) At least seventy-five percent (75%) of the outstanding
shares of Company's capital stock, on an as-converted basis, entitled to vote on
this Agreement and the transactions contemplated hereby voted in favor of the
Agreement and such transactions;
(b) Not more than ten percent (10%) of the outstanding shares
of Company's capital stock, on an as-converted basis, entitled to vote on this
Agreement and the transactions contemplated hereby voted against the Agreement
and such transactions; and
(c) All holders of outstanding shares of Company's capital
stock entitled to vote on this Agreement and the transactions contemplated
hereby have, and have been properly informed of, their dissenters' rights under
Chapter 13 of the California General Corporation Law or any other applicable
federal or state law ("DISSENTERS' RIGHTS").
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Company as follows:
4.1 DUE ORGANIZATION. Purchaser (i) is duly organized, validly existing
and in good standing under the laws of the State of California and (ii) has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates as lessee and to conduct its
business as now being conducted and as proposed to be conducted, except to the
extent the failure to have such power, authority or legal right would not, in
the aggregate with all such other failures, have a material adverse effect on
Purchaser.
4.2 CORPORATE POWER. Purchaser has all requisite corporate power and
authority to enter into and deliver this Agreement and each related agreement
and to perform its obligations hereunder and thereunder. Purchaser is not in
default in the performance, observance or fulfillment of any provision of its
charter documents.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by Purchaser of this Agreement and each related agreement and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action. Except as otherwise
contemplated by this Agreement, no other corporate action on the part of
Purchaser is necessary for the execution, delivery and performance by Purchaser,
as applicable, of this Agreement and each related agreement and the consummation
by Purchaser, as applicable, of the transactions contemplated hereby and
thereby. This Agreement and each related agreement has been duly executed and
delivered by Purchaser, and this Agreement and the related agreements constitute
the legally valid and binding obligations of Purchaser, enforceable against it
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.4 CAPITALIZATION. As of the Closing Date, the authorized capital
stock of Purchaser consists of (i) 15,000,000 shares of Common Stock of which
3,204,305 shares are issued and
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outstanding, all of which are validly issued, fully paid and non-assessable, and
(ii) 8,449,915 shares of preferred stock, of which 2,152,692 shares are
designated Series A Preferred Stock, of which 2,017,552 shares are issued and
outstanding; 1,422,223 shares are designated Series B Preferred Stock, of which
1,388,889 shares are issued and outstanding and are convertible into 1,447,278
shares of Common Stock; and 4,875,000 shares are designated Series C Preferred
Stock, of which 3,775,000 shares are issued and outstanding. As of the Closing,
there are outstanding warrants to purchase 128,140 shares of Series A Preferred
Stock, and outstanding warrants to purchase 33,334 shares of Series B Preferred
Stock, which are convertible into 34,734 shares of Common Stock. As of the
Closing, options to purchase 749,000 shares of Common Stock are issued and
outstanding pursuant to Purchaser's 1991 Stock Option Plan, as amended, and
options to purchase 1,015,187 shares of Common Stock are issued and outstanding
pursuant to Purchaser's 1998 Stock Option Plan, as amended. All of the issued
and outstanding shares of Common Stock are, and all shares reserved for issuance
will be upon issuance in accordance with the terms specified in the instruments
or agreements pursuant to which they are issuable (including pursuant to this
Agreement), duly authorized, validly issued, fully paid and nonassessable.
4.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance of this Agreement
by Purchaser do not and will not (i) conflict with or violate Purchaser's
Articles of Incorporation or By-Laws, (ii) materially conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Purchaser, or
(iii) result in any material breach of or constitute a material default under,
or impair Purchaser's rights, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
on any of the properties or assets of Purchaser pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation.
(b) The execution, delivery and performance of this Agreement
by Purchaser does not and will not require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Entity, except
for applicable requirements, if any, of the 1933 Act, and any applicable state
blue sky laws which shall be completed either before or promptly after the
Closing.
4.6 LEGAL PROCEEDINGS. There are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of Purchaser, threatened against
Purchaser or any of its assets and properties before any Governmental Entity.
4.7 FINANCIAL STATEMENTS. Purchaser has delivered to the Company an
unaudited balance sheet as of September 30, 1998 and an unaudited balance sheet
for the ten months ended July 31, 1999, and the related audited statement of
income for the year ended September 30, 1998 and the related unaudited statement
of income for the eleven months ended July 31, 1999, respectively (such balance
sheets and statements of income are collectively referred to as the "FINANCIAL
STATEMENTS"). The Financial Statements, together with the notes thereto, are
complete and correct in all material respects, have been prepared in accordance
with generally
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accepted accounting principles applied on a consistent basis throughout the
periods indicated, except as disclosed therein, and present fairly the financial
condition and position of the Purchaser as of September 30, 1998 and July 31,
1999; provided, however, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material), and do not contain all footnotes required under generally accepted
accounting principles. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to July 31,
1999, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of Purchaser.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Financial Statements, Purchaser has conducted its business only in the ordinary
course consistent with past practice, and there has not been (i) any material
adverse change in Purchaser, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of Purchaser's capital stock or (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock.
5. COVENANTS.
Company and Purchaser covenant and agree as follows:
5.1 COMPANY LICENSE. Purchaser's license from Company dated as of May
18, 1998 for the RMP and RMTP-II protocols (the "COMPANY LICENSE") is fully paid
up, as set forth in Section 1.1(f) herein, and shall remain in full force and
effect and will survive the assignment of the Lucent License and any other
licenses to Purchaser and any future dissolution of Company. Upon the Closing,
Purchaser shall have no further obligations to make any payments under the
Company License, and Company shall have no further obligations to Purchaser to
provide Purchaser with support, maintenance or engineering under the Company
License. In addition, upon the Closing, the Company shall have no further
delivery obligations to Purchaser under the Company License. Nothing in this
Section 5.1 shall prohibit Company from dissolving.
5.2 DISTRIBUTION OF SHARES. Company agrees not to distribute the Shares
prior to the later of: (i) expiration of the Indemnity Period (as defined in
Section 7.1 herein) and (ii) the resolution of all Claims (as defined in Section
7.4(a)); and it is understood that the certificates evidencing the Shares will
bear the legends set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
INDEMNITY PROVISIONS AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH
AGREEMENT, THESE SHARES REMAIN SUBJECT TO THE INDEMNITY PROVISIONS AND
SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.
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Company agrees to distribute the Shares only to "accredited investors"
as defined in Rule 501(a) under Regulation D of the 1933 Act, and only in
accordance with Section 3.15 herein. Company agrees that prior to effecting any
such transfer, each transferee will execute and deliver to Purchaser an
Investment Representation Letter, substantially in the form of EXHIBIT B hereto.
Notwithstanding the foregoing, it is agreed that Company may distribute
the Shares to an escrow account or liquidating trust established pursuant to the
liquidation of Company, provided that the liquidation trust or escrow account
shall only distribute the Shares in compliance with Company's obligations under
this Agreement, and shall be responsible for all representations, warranties and
obligations of Company under this Agreement.
5.3 POWER OF ATTORNEY. Company hereby grants a Power of Attorney to
Purchaser for the purpose of taking appropriate action needed to effect the
intent of the transactions contemplated hereby and to give Purchaser its
intended benefit. Without limiting the foregoing, Company hereby assigns its
right to enforce Company Intellectual Property and other rights in the Purchased
Assets to Purchaser, and Purchaser shall hereafter be entitled to enforce such
rights directly or in Company's name.
5.4 COMPLIANCE WITH DISSENTERS' RIGHTS. Company agrees to take the
following actions:
(a) Company shall promptly notify Purchaser in the event any
shareholder exercises his, her or its Dissenters' Rights.
(b) Company shall not distribute any Shares until the earlier
of: (i) the date on which all Dissenters' Rights have expired and no shareholder
has exercised such Dissenters' Rights; and (ii) in the event any shareholders
have exercised their Dissenters' Rights, the date on which Company has properly
satisfied such Dissenters' Rights according to applicable statutes.
5.5 COMPLIANCE WITH STATE BLUE SKY LAWS. Company agrees to promptly
comply with all applicable state blue sky laws.
5.6 COMPANY'S RETENTION OF RIGHTS. To the extent that Company owes any
of its existing licensees any support, maintenance or engineering obligations
which were incurred prior to the Effective Date, Company retains a non-exclusive
right to use and copy the Software and the Company Intellectual Property to
create derivative works based on the Software, and to distribute such derivative
works to such licensees, solely for the purpose of fulfilling such support and
maintenance obligations. Company's rights in the Software will be limited to
those expressly set forth in this Section 5.6. Notwithstanding the foregoing,
Purchaser may, in its sole discretion and at any time, terminate all rights of
Company set forth in this Section 5.6; provided, however that Purchaser must
agree to assume all such support and maintenance obligations from Company.
Purchaser, however, has no obligation to make such assumption.
5.7 COMPANY'S ASSIGNMENT OF LICENSES. Company shall take all necessary
actions to effect the assignment of all purchased assets set forth in Section
1.1, including but not limited to obtaining all required consents and notifying
all such licensors of such assignments.
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6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of
Purchaser hereunder will be subject to the satisfaction and fulfillment of each
of the following conditions, except as Purchaser may expressly waive the same in
writing:
(a) Compliance. The representations and warranties of
Company set forth in this Agreement will be true and accurate in all material
respects on the date of this Agreement and on and as of the Closing Date, with
the same force and effect as if they had been made at the Closing, and Company
shall have complied in all material respects with all covenants required to be
performed or observed by it before the Closing. Purchaser will have received a
certificate to such effect executed by Company's Chief Financial Officer.
(b) Delivery of Purchased Assets. Company will have
delivered and Purchaser will have received the Purchased Assets.
(c) Delivery of Closing Documents. Company will have
delivered, and Purchaser will have received, such other documents relating
hereto as Purchaser may reasonably request, including the fully executed
Agreement and related agreements and copies of consents of the Board of
Directors and shareholders approving this Agreement and the transactions
contemplated hereby.
(d) Third Party Consents Obtained. All executed
copies by Company of the consents and assignments required to be obtained or
executed by Company as set forth in Schedule 1.3(A), if any, necessary to assign
or transfer all of the Purchased Assets (including, but not limited to, Company
Intellectual Property) to Purchaser, free and clear of all Liens, will have been
delivered.
(e) Assignment. Company will have executed and
delivered the Assignment, Bill of Sale and Assumption Agreement to the effect
and in the form of EXHIBIT A hereto with respect to the Purchased Assets.
(f) Assignment of Lucent License. Company will have
delivered and Purchaser will have received an executed copy of a letter,
substantially in the form of EXHIBIT C hereto, from Lucent regarding the Lucent
License and consenting to Company's assignment of the Lucent License to
Purchaser.
(g) Requisite Approval. This Agreement and the
transactions contemplated hereby will have been approved by (i) the Board of
Directors of Company and (ii) the holders of at least seventy-five percent (75%)
of the outstanding shares of Company's capital stock, on an as-converted basis,
voting together as a single class. This Agreement and the transactions
contemplated hereby will not have been voted against by more than ten percent
(10%) of the outstanding shares of Company's capital stock, on an as-converted
basis, voting together as a single class. Company will have duly and properly
informed all holders of outstanding shares of Company's capital stock of their
Dissenters' Rights. In addition, Company will have obtained any other required
corporate approvals.
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6.2 CONDITIONS TO COMPANY'S OBLIGATIONS. The obligations of Company
hereunder will be subject to the satisfaction and fulfillment of each of the
following conditions, except as Company may expressly waive the same in writing:
(a) Assignment. Purchaser will have executed and delivered the
Assignment, Bill of Sale and Assumption Agreement to the effect and in the form
of EXHIBIT A hereto.
(b) Compliance. The representations and warranties of
Purchaser set forth in this Agreement will be true and accurate in all material
respects on the date of this Agreement and on and as of the Closing Date, with
the same force and effect as if they had been made at the Closing. Company will
have received a certificate to such effect executed by Purchaser's Chief
Executive Officer.
(c) Payment. Purchaser will have delivered the Shares
described in Section 2.1.
(d) Delivery of Closing Documents. Purchaser will have
delivered, and Company will have received, such other documents relating hereto
as Company may reasonably request.
(e) Board of Directors. Company will have the right to have a
person selected by Company elected to Purchaser's Board of Directors, with such
person subject to Purchaser's approval, which will not be unreasonably withheld,
and Purchaser will maintain him or her in such position for at least one year
from the Closing.
7. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Company and Purchaser herein will survive the Closing for a
period of fifteen (15) months (the "INDEMNITY PERIOD"); provided, however, that
the Indemnity Period will be reduced to an aggregate period of twelve (12)
months upon the closing of an initial public offering of Purchaser's common
stock in a firmly underwritten registered offering under the Securities Act of
1933, as amended, or the sale of the Company by merger, reorganization, sale of
all or substantially all of the Company's assets or otherwise, in which the
shareholders of the Company immediately prior to such transaction hold
immediately following such transaction less than a majority in interest of the
capital stock of the Company or its successor.
7.2 INDEMNIFIED LOSSES. For the purpose of this Section 7, "LOSS" will
mean and include any and all liability, loss, damage, claim, expense, cost,
fine, fee, penalty, obligation or injury including, without limitation, those
resulting from any and all actions, suits, proceedings, demands, assessments,
judgments, awards or arbitrations, together with costs and expenses including
the fees of attorneys and other legal costs and expenses relating thereto,
(including without limitation costs of investigation, negotiation, prosecution,
defense or settlement).
7.3 INDEMNIFICATION BY COMPANY. Company will defend, indemnify and hold
harmless Purchaser, any parent, subsidiary or affiliate of Purchaser and any
director, officer,
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manager, employee, shareholder, member, interest holder, partner, agent or
attorney of Purchaser or of any parent, subsidiary or affiliate of Purchaser
from and against and in respect of any Loss which arises out of or results from
the following:
(a) the failure of Company to satisfy any liability or perform
any obligation or covenant required to be performed by it hereunder; or
(b) any breach by Company of any of its representations and
warranties in this Agreement.
7.4 PROCEDURE/ARBITRATION. In seeking indemnification for Losses
pursuant to this Section 7, Purchaser shall exercise its remedies with respect
to the Shares in the following manner:
(a) Purchaser shall notify Company in writing of a claim for
indemnification for any Loss (each a "CLAIM"). Company then has thirty (30) days
following the receipt of such notice to notify Purchaser in writing if it
desires to dispute such Claim. In the event Company fails to notify Purchaser in
writing within such thirty (30) day period of its desire to dispute the Claim or
notifies Purchaser of its consent to the Claim, Purchaser shall collect the
entire Claim from the Shares. The Company shall only have liability hereunder
for Claims made by Purchaser during the Indemnity Period. Purchaser may make a
Claim during the Indemnity Period even if the exact amount of the Claim or
Purchaser's liability for the Claim has not yet been resolved. In the event
Company notifies Purchaser that it desires to dispute the Claim, the Claim shall
be settled by mandatory and binding arbitration pursuant to the arbitration
provisions set forth below:
(i) Any dispute between the parties related to this
Section 7 shall be settled by arbitration in Santa Clara County, California and,
except as herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA RULES") then in
effect. However, in all events, the provisions of this Agreement shall govern
over any conflicting rules which may now or hereafter be contained in the AAA
Rules. Any judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction over the subject matter thereof. The arbitrator
shall have the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve a dispute between the
parties.
(ii) The parties to the dispute will each pay fifty
percent (50%) of the initial compensation to be paid to the arbitrator in any
such arbitration and fifty percent (50%) of the costs of transcripts and other
normal and regular expenses of the arbitration proceedings; provided, however,
that the prevailing party in any arbitration will be entitled to an award of
attorneys' fees and costs, and all costs of arbitration, including those
provided for above, will be paid by the losing party, and the arbitrator will be
authorized to make such determinations.
(iii) Upon the conclusion of any arbitration
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and will deliver such documents to the parties to
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the dispute, along with a signed copy of the award. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of the arbitration provisions set forth herein or any
other provision of this Agreement or any Company Ancillary Document. Except as
specifically otherwise provided in this Agreement, arbitration will be the sole
and exclusive remedy of the parties for any dispute concerning indemnification.
The final decision of the arbitrator will be furnished to the parties in writing
and will constitute a conclusive determination of the issue in question, binding
upon such parties.
(iv) If arbitration is brought, the prevailing party
will be entitled to recover reasonable fees and costs of attorneys, including
without limitation costs, expenses and fees on any appeal, to be fixed in amount
by the court or the arbitrator(s).
(b) The valuation of Shares that will be used to satisfy the
Claim shall be determined based on the fair market value of the common stock of
Purchaser on either (i) the date Company's thirty (30) day period to dispute
such Claim expires, if such Claim is not disputed; or (ii) the date such Claim
is settled by arbitration (in accordance with the procedures set forth in
Section 7.4(a) above), if the matter goes to arbitration. If the parties can not
agree on the fair market value, then the fair market value of the common stock
of Purchaser will be determined by an arbitrator in accordance with Section
7.4(a) above as follows: the arbitrator will make an independent valuation of
both the common stock and the preferred stock of Purchaser and the valuation of
the common stock will be used to satisfy the Claim; provided, however, that for
purposes of this Section 7.4 only, the valuation assigned to the common stock
will be no less than eighty percent (80%) of the valuation assigned to the
preferred stock.
(c) Except for intentional fraud or willful misconduct under
the Agreement, the indemnification provided for in this Section 7.4 shall be
limited to the lesser of (i) all Shares and (ii) $1,000,000; provided, however,
that such $1,000,000 limit shall not apply to liabilities known to Company prior
to the Effective Date and not set forth herein or in the Schedule of Exceptions
attached hereto.
(d) The indemnification provided for in this Section 7.4 shall
not apply unless the aggregate Claim for which Purchaser seeks indemnification
exceeds $75,000, in which event indemnification shall apply to the entire Claim.
(e) The indemnification provided for in this Section 7.4 shall
be limited to actual out-of-pocket losses incurred by Purchaser including, but
not limited to, salaries and overhead expenses (but only actual direct and
variable overhead expenses) for employees assigned to develop a remedy to a
Claim.
(g) If a Claim by a third party is made against Purchaser and
if Purchaser intends to seek indemnification with respect thereto, Company may
participate, at its own cost and expense, in the settlement or defense of any
Claim for which indemnification is sought; provided, however, that such
settlement or defense shall be controlled by Purchaser; provided, however, that
Purchaser will not settle any dispute in excess of $250,000 without the approval
of Company, such approval not to be unreasonably withheld.
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8. MISCELLANEOUS.
8.1 EXPENSES. Each of the parties hereto will bear its own costs and
expenses (including without limitation attorneys' fees) in connection with the
negotiation and consummation of this Agreement, the Company Ancillary Documents,
and all transactions contemplated hereby and thereby.
8.2 NOTICES. Any notice required or permitted to be given under this
Agreement will be in writing and will be effective upon: (i) receipt if hand
delivered; (ii) the next business day after dispatch by fax transmission or
nationally recognized overnight express courier and addressed as set forth
herein; or (iii) three days after dispatch by certified or registered United
States mail, postage prepaid, addressed as set forth herein.
(a) If to Company:
GlobalCast Communications, Inc.
830 Hillview Court #225
Milpitas, CA 95035
Attn: Stephen J. Gross, Chief Financial Officer
Fax No.: (408) 957-0487
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1058
Attn: Issac J. Vaughn, Esq.
Fax No.: (415) 493-6811
(b) If to Purchaser:
Talarian Corporation
333 Distel Circle
Los Altos, CA 94022
Attn: Paul A. Larson, President
Fax No.: (650) 965-9077
With a copy to:
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Barry Kramer, Esq.
Fax No.: (415) 494-1417
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8.3 ENTIRE AGREEMENT; CAPTIONS. This Agreement, the Schedules and
Exhibits hereto (which are incorporated herein by reference) and the Company
Ancillary Documents together constitute the entire agreement and understanding
between the parties and there are no other agreements or commitments with
respect to the transactions contemplated herein or therein. This Agreement and
the Company Ancillary Documents supersede any prior offer, agreement or
understanding between the parties with respect to the transactions contemplated
hereby and thereby. The captions in this Agreement are for convenience only and
will not be considered a part of or affect the construction or interpretation of
any provision of this Agreement.
8.4 AMENDMENT; WAIVER. Any term or provision of this Agreement may be
amended only by a writing signed by Company and Purchaser. The observance of any
term or provision of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound by such waiver. No waiver by a party of any
breach of this Agreement will be deemed to constitute a waiver of any other
breach or any succeeding breach.
8.5 NO THIRD PARTY BENEFICIARIES. Nothing expressed or implied in this
Agreement is intended, or will be construed, to confer upon or to give any
person, firm or corporation, other than the parties hereto, any rights or
remedies under or by reason of this Agreement.
8.6 EXECUTION IN COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in one or more counterparts, each of which will be
deemed an original but all of which together will constitute one and the same
instrument.
8.7 ASSIGNMENT. Notwithstanding any other term or provision of this
Agreement to the contrary, this Agreement may not be assigned by any party
hereto without the prior written consent of the other party, except that any
party may assign this Agreement (and the Company Ancillary Documents) by
operation of law or in connection with any merger, consolidation or sale of all
or substantially all of its assets or in connection with any similar transaction
without such consent.
8.8 BENEFIT AND BURDEN. This Agreement will be binding upon, will inure
to the benefit of, and be enforceable by and against, the parties hereto and
their respective successors and permitted assigns.
8.9 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement will be
governed by and construed in accordance with the internal laws of the State of
California (excluding application of any conflict of law doctrines that would
make applicable the law of any other state or jurisdiction) and, where
appropriate, applicable federal law. The parties hereto submit to the exclusive
jurisdiction and venue of any state or federal court located in Santa Clara
County, California, for purposes of any action arising out of or relating to
this Agreement and agree that service of process in any such action may be made
in the manner provided herein for delivery of notices.
8.10 SEVERABILITY. If any provision of this Agreement is for any reason
and to any extent deemed to be invalid or unenforceable, then such provision
will not be voided but rather
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will be enforced to the maximum extent then permissible under then applicable
law and so as to reasonably effect the intent of the parties hereto, and the
remainder of this Agreement will remain in full force and effect.
8.11 POST-CLOSING COOPERATION. Company agrees that, if requested by
Purchaser, it will cooperate with Purchaser in enforcing the terms of any
agreements between Company and any third party involving the Purchased Assets,
including, without limitation, the Lucent License and any terms relating to
confidentiality and the protection of intellectual property rights.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Asset Purchase Agreement by their duly authorized representatives as of the
Effective Date.
"PURCHASER" "COMPANY"
TALARIAN CORPORATION GLOBALCAST COMMUNICATIONS, INC.
By: _____________________________ By: ___________________________________
Paul A. Larson, President and Stephen J. Gross, Chief Financial
Chief Executive Officer Officer
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<PAGE> 1
Exhibit 3.01
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TALARIAN CORPORATION
FIRST: The name of this corporation is Talarian Corporation.
SECOND: The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
THIRD: This corporation is authorized to issue two classes of shares of
stock designated respectively "Common Stock" ("Common Stock") and "Preferred
Stock" ("Preferred Stock"), both of which shall have no par value. The number of
shares of Common Stock this corporation is authorized to issue is 20,000,000,
and the number of shares of Preferred Stock this corporation is authorized to
issue is 8,920,970, 2,152,692 of which are designated Series A Preferred Stock,
1,422,223 of which are designated Series B Preferred Stock, 3,775,000 of which
are designated Series C Preferred Stock, and 1,571,055 of which are designated
Series D Preferred Stock.
FOURTH: The rights, preferences, privileges and restrictions of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
and Series D Preferred Stock are as follows:
Section 1. Definitions. For purposes of this Article FOURTH, the
following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean this corporation, Talarian Corporation.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Dividend Rate" shall mean $0.05625 per share per annum for the
Series A Stock, $0.081 per share per annum for the Series B Stock, $0.072 per
share per annum for the Series C Stock, and $0.57286 per share per annum for the
Series D Stock.
(e) "Original Issue Date" shall mean, for the Series A Stock, the
date of the first issuance of the Series A Stock; for the Series B Stock, the
date of the first issuance of the Series B Stock; for the Series C Stock, the
date of the first issuance of the Series C Stock; and for the Series D Stock,
the date of the first issuance of the Series D Stock.
(f) "Original Issue Price" shall mean $0.625 per share for the
Series A Stock, $0.90 per share for the Series B Stock, $0.80 per share for the
Series C Stock, and $6.36515 per share for the Series D Stock.
<PAGE> 2
(g) "Preferred Stock" shall mean the Series A Stock, Series B Stock,
Series C Stock, and Series D Stock, together.
(h) "Redemption Price" shall mean, for the Series A Stock, $0.625
per share, plus all accrued but unpaid dividends on each share of Series A
Stock; for the Series B Stock, $0.90 per share, plus all accrued but unpaid
dividends on each share of Series B Stock; for the Series C Stock, $0.80 per
share, plus all accrued but unpaid dividends on each share of Series C Stock;
and for the Series D Stock, $6.36515 per share, plus all accrued but unpaid
dividends on each share of Series D Stock.
(i) "Series A Stock" shall mean the Series A Preferred Stock of the
Company.
(j) "Series B Stock" shall mean the Series B Preferred Stock of the
Company.
(k) "Series C Stock" shall mean the Series C Preferred Stock of the
Company.
(l) "Series D Stock" shall mean the Series D Preferred Stock of the
Company.
(m) "Subsidiary" shall mean any corporation of which at least fifty
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
Section 2. Dividends
(a) Cumulative Dividends. The holders of the outstanding Preferred
Stock shall be entitled to receive in cash, out of any funds legally available
therefor, cumulative dividends at the Dividend Rate, payable quarterly on the
last day of the third month of each calendar quarter when and as declared by the
Board of Directors. Such dividends shall accrue as to each share of Preferred
Stock from the date of initial issuance by the Company of such share; provided,
however, that, in the case of shares of the Company issued in exchange for
shares of Talarian Corporation, a Maryland corporation, (Talarian Maryland), the
date of initial issuance shall be the date of initial issuance of such shares by
Talarian Maryland. Such dividends shall accrue whether or not earned, and no
dividends (other than a dividend payable solely in Common Stock) or other
distributions shall be made with respect to the Common Stock, and no Common
Stock shall be purchased by the Company (other than purchases of Common Stock
from employees or consultants of the Company) until cumulative dividends on the
Preferred Stock for all past dividend periods and the then current fiscal year
shall have been paid or declared and a sum sufficient for the payment thereof
set apart. Payment of any dividends to the holders of Preferred Stock shall be
made pro rata, on an equal priority, pari passu basis, according to their
respective dividend preferences as set forth above.
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(b) Further Dividends. After all cumulative dividends on the
Preferred Stock at the Dividend Rate as provided above have been paid or
declared and set apart for payment in any given fiscal year of the Company, if
the Board shall elect to declare additional dividends out of funds legally
available therefor, such additional dividends shall be declared in equal amounts
per share on all shares of Common Stock and Preferred Stock (on an
as-if-converted to Common Stock basis).
(c) Exemption for Certain Repurchases. Each holder of outstanding
shares of Preferred Stock shall be deemed to have consented, for purposes of
Sections 502, 503 and 506 of the California Corporation Code, to distributions
made by the Company in connection with the repurchase, at the initial purchase
price thereof, of shares of Common Stock issued to or held by officers,
directors, employees or consultants of the Company in connection with the
termination of their employment or services pursuant to agreements providing for
the right of repurchase between the Company and such persons.
Section 3. Liquidation Rights of Preferred Stock.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary ("Liquidation"), the
holders of the Preferred Stock then outstanding shall be entitled to be paid out
of the assets of the Company legally available for distribution to its
shareholders, before any payment or declaration and setting apart for payment of
any amount shall be made in respect of the Common Stock, an amount equal to the
Original Issue Price per share plus an amount equal to all accrued and unpaid
dividends thereon (the "Preference Amount"). If upon any Liquidation the assets
to be distributed to the holders of the Preferred Stock shall be insufficient to
permit the payment to such shareholders of the full Preference Amount, then all
the assets of the Company to be distributed to shareholders shall be distributed
among the holders of the then outstanding Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective Preference Amount as
set forth herein.
(b) Remaining Assets. If following the distribution of the full
Preference Amount to the holders of the Preferred Stock there are assets of the
Company remaining to be distributed, they shall be distributed ratably to the
holders of the Common Stock then outstanding.
(c) Reorganization. A consolidation or merger of the Company with or
into any other corporation or corporations in which the holders of the Company's
outstanding shares before the consolidation or merger do not retain a majority
of the voting power in the surviving corporation on account of such shares, or a
sale of all or substantially all the assets of the Company, shall be deemed a
Liquidation as used in this Section 3.
(d) Non-Cash Consideration. If the assets to be distributed by the
Company pursuant to paragraphs (a) and (b) above are other than cash or
securities, the value of such consideration shall be its fair market value as
determined by the Board. Any securities to be delivered pursuant to paragraphs
(a) and (b) above shall be valued as follows:
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<PAGE> 4
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a national securities exchange or
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the earlier of (i) their delivery to the
shareholders or (ii) the closing of any transaction described in paragraph (c);
and
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the earlier of (i) their delivery to
shareholders or (ii) the closing of any transaction described in paragraph (c);
and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Company.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in clauses
(i)(A), (B) or (C) to reflect the approximate fair market value thereof, as
determined in good faith by the Board.
Section 4. Voting Rights.
(a) Preferred Stock. Each holder of shares of Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which such shares of Preferred Stock could be converted pursuant to
the provisions of Section 6 hereof, at the record date for the determination of
the shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited.
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise expressly
provided herein or as required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together and not as separate classes.
(c) Election of Directors. With respect to the election of members
of the Board, (i) the holders of the Series D Stock, voting as a separate class,
shall be entitled to elect one member of the Board, (ii) the holders of the
Series C Stock, voting as a separate class, shall be entitled to elect one
member of the Board, (iii) the holders of the Series B Stock, voting as a
separate class, shall be entitled to elect one member of the Board, (iv) the
holders of Series A Preferred Stock and Common Stock, voting as a separate
class, shall be entitled to elect two members of the Board, and (v) the holders
of the Common Stock and the holders of the Series A Stock, Series B Stock and
Series C Stock, voting together as a separate class, shall be entitled to elect
two members of the Board.
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Section 5. Redemption.
(a) Mandatory Redemption. This corporation shall redeem on December
31, 2002 and on December 31 of each successive year, at least one third (1/3) of
the shares of each series of Preferred Stock outstanding at the close of
business on November 1, 2002 from any source of funds legally available
therefor, until all outstanding shares of Preferred Stock have been redeemed or
converted as provided in Section 6; provided, however, that this corporation, at
its sole option and discretion, may redeem greater numbers (including all) of
the outstanding shares of Preferred Stock, at the price set forth in this
subsection 5(a) at any time on or after December 31, 2002 upon notice given as
set forth in Subsection 5(d) below, to the extent permitted by law. The price
per share for any redemption of Preferred Stock made pursuant to this subsection
5(a) shall be the Redemption Price for such shares. If no funds or insufficient
funds are legally available at the time of any Redemption Date (as defined
below) to redeem all the shares of Preferred Stock then due to be redeemed, then
any such unredeemed shares shall be carried forward and shall be redeemed
(together with the other shares of Preferred Stock which are then scheduled to
be redeemed) at the next such scheduled Redemption Date to the full extent of
legally available funds of this corporation at such time. Notwithstanding the
foregoing, the Company shall not redeem any shares pursuant to this Section 5 if
holders of a majority of the outstanding Preferred Stock request in writing that
the Company forego such redemption.
(b) Partial Redemption. In the event of any redemption of only a
part of the then outstanding Preferred Stock, for any reason, this corporation
shall effect such redemption pro rata among all holders of Preferred Stock on an
equal priority, pari passu basis, based on the Redemption Price of such shares.
(c) Unredeemed Shares. Shares of Preferred Stock which are subject
to redemption hereunder but which have not been redeemed due to insufficient
legally available funds shall continue to be entitled to dividends, liquidation,
conversion and all other rights, preferences, privileges and restrictions of the
Preferred Stock until such shares have been converted or redeemed.
(d) Mechanics of Redemption.
(i) Notice; Procedure. At least thirty (30) but no more than
sixty (60) days prior to the date fixed for any redemption of Preferred Stock
(the "Redemption Date"), written notice (the "Redemption Notice") shall be
mailed, postage prepaid, to each holder of record (at the close of business on
the business day next preceding the date on which notice is given) of the
Preferred Stock to be redeemed, at the address last shown on the records of this
corporation for such holder or given by the holder to this corporation for the
purpose of notice or, if no such address appears or is given, at the place where
the principal executive office of this corporation is then located, notifying
such holder of the redemption to be effected, specifying the Redemption Date,
the Redemption Price, the place at which payment may be obtained and the date on
which such holder's conversion rights set forth in Section 6 as to such shares
terminate and calling upon such holder to
4
<PAGE> 6
surrender to this corporation, in the manner and at the place designated, such
holder's certificate or certificates representing the shares to be redeemed.
Except as provided in subsection 5(d)(ii), on or before the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender to this
corporation the certificate or certificates representing such shares of
Preferred Stock, in the manner and at the place designated in the Redemption
Notice, and thereupon the redemption price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be cancelled. If
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(ii) Effect of Redemption Date; Legally Available Funds. From
and after the Redemption Date, unless there shall have been a default in payment
of the Redemption Price, all rights of the holders of such shares as holders of
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of this corporation legally available for redemption of
shares of Preferred Stock on any Redemption Date are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such date, then all
funds that are legally available shall be used to redeem such shares pro rata
among the holders of Preferred Stock as described in subsection 5(b). The shares
of Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein.
(iii) Deposit of Redemption Price. Three (3) days prior to the
Redemption Date, this corporation shall deposit the Redemption Price of all
outstanding shares of Preferred Stock designated for redemption in the
Redemption Notice, and not yet redeemed or converted, with a bank or trust
company having aggregate capital and surplus in excess of $50,000,000 and a
rating of not less than "Prime-2" from Moody's Investors Services or an
equivalent rating from any similar service as a trust fund for the benefit of
the respective holders of the shares designated for redemption and not yet
redeemed or converted. Simultaneously, this corporation shall deposit
irrevocable instruction and authority to such bank or trust company to pay, on
and after the date fixed for redemption or prior thereto, the Redemption Price
of such Preferred Stock to the holders thereof upon surrender of their
certificates. Any monies deposited by this corporation pursuant to this
subsection 5(d)(iii) for the redemption of shares which are thereafter converted
into shares of Common Stock in accordance with Section 6 hereof shall be
returned to this corporation forthwith upon such conversion. The balance of any
monies deposited by this corporation pursuant to this subsection 5(d)(iii)
remaining unclaimed at the expiration of six (6) months following the Redemption
Date shall thereafter be returned to this corporation, provided that the
shareholder to which such monies would be payable hereunder shall be entitled,
upon proof of its ownership of the Preferred Stock and payment of any bond
requested by this corporation, to receive such monies without interest from the
Redemption Date.
5
<PAGE> 7
Section 6. Conversion.
The holders of the Preferred Stock shall have the following
conversion rights:
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at any time or from time to time at the option of the holder
thereof, into fully paid and nonassessable shares of Common Stock as provided
herein.
(b) Conversion Price. Each share of Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing the conversion price for such series of Preferred Stock that is in
effect at the time of conversion (the "Conversion Price") into the Original
Issue Price for such series of Preferred Stock. The initial Conversion Price for
a series of Preferred Stock shall be the Original Issue Price for such series.
The Conversion Price shall be subject to adjustment from time to time as
provided below.
(c) Mechanics of Conversion. Each holder of Preferred Stock who
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or any transfer agent for the Preferred Stock or Common Stock, and shall
give written notice to the Company at such office that such holder elects to
convert the same and shall state therein the number of shares and series of
Preferred Stock being converted. Thereupon the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 6(b) above and any rights such holder held to receive accrued and unpaid
dividends on the shares of Preferred Stock being converted shall automatically
terminate as of immediately prior to such conversion, without any payment being
made in respect thereof. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate representing the shares of Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the Original Issue Date of a series
of Preferred Stock effect a subdivision of the outstanding Common Stock, the
Conversion Price for such Preferred Stock in effect immediately before that
subdivision shall be proportionately decreased, and, conversely, if the Company
shall at any time or from time to time after the Original Issue Date of a series
of Preferred Stock combine the outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price for such series of Preferred Stock in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this subsection (d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date of a
series of Preferred Stock makes, or fixes a record date for the determination of
holders of Common
6
<PAGE> 8
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Price for
such series of Preferred Stock that is then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as of the
close of business on such record date, by multiplying the Conversion Price then
in effect by a fraction (1) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (2) the denominator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection (e) to reflect
the actual payment of such dividend or distribution.
(f) Adjustments for Other Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date of a
series of Preferred Stock makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company other than shares of Common Stock, in each
such event provision shall be made so that the holders of such series of
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Company which they would have received had their Preferred Stock been converted
into Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Preferred Stock or
with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date of a series of
Preferred Stock, the Common Stock issuable upon the conversion of such series of
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 6 or in Section 3(c)), then in any such event each
holder of such series of Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the number of shares of Common Stock into which such shares of
Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
(h) Reorganizations. If at any time or from time to time after the
Original Issue Date of a series of Preferred Stock there is a capital
reorganization of the Common
7
<PAGE> 9
Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 6 or in Section 3(c)), as a part of such capital reorganization
provision shall be made so that the holders of such series of Preferred Stock
shall thereafter be entitled to receive upon conversion of such Preferred Stock
the number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 6 with respect to the rights of the holders of such
Preferred Stock after such capital reorganization to the end that the provisions
of this Section 6 (including adjustment of the Conversion Price then in effect
and the number of shares issuable upon conversion of such Preferred Stock) shall
be applicable after that event and be as nearly equivalent as practicable.
(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Original
Issue Date of a series of Preferred Stock, the Company issues or sells, or is
deemed by the express provisions of this subsection (i) to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), other than as
otherwise provided in this Section 6, for an Effective Price (as hereinafter
defined) less than the then effective Conversion Price for such series of
Preferred Stock, then and in each such case the then existing Conversion Price
for such series of Preferred Stock shall be reduced, as of the close of business
on the date of such issue or sale, to a price equal to the then existing
Conversion Price multiplied by a fraction (i) the numerator of which shall be
(A) the number of shares of Common Stock Equivalents Outstanding (as hereinafter
defined) at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock that the aggregate
consideration received (as defined in subsection (i)(3)) by the Company for the
total number of Additional Shares of Common Stock so issued or sold would
purchase at the Conversion Price then in effect, and (ii) the denominator of
which shall be (A) the number of shares of Common Stock Equivalents Outstanding
at the close of business on the day next preceding the date of such issue or
sale plus (B) the number of Additional Shares of Common Stock so issued or sold.
(2) For the purpose of making any adjustment required under
this subsection (i), the consideration received by the Company for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the gross amount of cash received by the Company before deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale and without deduction of
any expenses payable by the Company, (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board, and (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or Rights or Options (as
hereinafter defined) to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably
8
<PAGE> 10
determined in good faith by the Board to be allocable to such Additional Shares
of Common Stock, Convertible Securities or Rights or Options.
(3) For the purpose of making any adjustment required under
this subsection (i), if the Company issues or sells any rights, options or
warrants to subscribe for, purchase or otherwise acquire (such rights, options
or warrants being herein referred to as "Rights or Options"), either Common
Stock or stock or other securities convertible into shares of Common Stock (such
convertible stock or securities being herein referred to as "Convertible
Securities") and if the Effective Price of such shares of Common Stock is less
than any Conversion Price then in effect, in each case the Company shall be
deemed to have issued at the time of the issuance of such Rights or Options or
Convertible Securities that number of Additional Shares of Common Stock equal to
the maximum number of shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise of
such Rights or Options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided that
(A) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(B) if the minimum amount of consideration payable
to the Company upon the exercise or conversion of Rights or Options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to which
such minimum amount of consideration is reduced; and
(C) if the minimum amount of consideration payable
to the Company upon the exercise or conversion of such Rights or Options or
Convertible Securities is subsequently increased, the Effective Price shall be
again recalculated using the increased minimum amount of consideration payable
to the Company upon the exercise or conversion of such Rights or Options or
Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion of any such Convertible Securities. If
any such Rights or Options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such Rights or Options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the
9
<PAGE> 11
shares of Common Stock, if any, actually issued or sold on the exercise of such
Rights or Options or rights of conversion of such Convertible Securities, and
such shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such Rights or
Options, whether or not exercised, plus the consideration received for issuing
or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provided that such
readjustment shall not apply to prior conversions of Preferred Stock.
(4) For the purpose of making any adjustment required under
this subsection (i),
(A) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than (1) shares of Common Stock
issued or issuable upon conversion of the Preferred Stock and (2) shares of
Common Stock issued to employees, officers, or directors of or consultants or
advisers to the Company or any Subsidiary pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board;
(B) the "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this subsection (i), into the aggregate
consideration received, or deemed to have been received by the Company for such
issue under this subsection (i), for such Additional Shares of Common Stock; and
(C) "Common Stock Equivalents Outstanding" shall
mean all shares of Common Stock that are outstanding plus all shares of Common
Stock issuable upon conversion of Preferred Stock or other convertible
instruments or upon exercise of options or warrants or other rights to acquire
Common Stock that are outstanding.
(j) Certificate of Adjustment. In each case of an adjustment or
readjustment of any Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of the Preferred Stock, the Company,
at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (1) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (2) the Conversion Price at the time in effect, (3)
the number of Additional Shares of Common Stock and (4) the
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<PAGE> 12
type and amount, if any, of other property which at the time would be received
upon conversion of the Preferred Stock.
(k) Notices of Record Date. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all the assets of the Company to any other
person or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Preferred Stock at least
twenty (20) days prior to the record date specified therein a notice specifying
(1) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (2)
the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (3) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
(l) Automatic Conversion.
(1) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock based on the then effective Conversion
Price immediately upon the closing of an underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Company in which the aggregate public offering price equals or exceeds
$7,500,000 and the public offering price per share of which equals or exceeds
$4.00 per share (appropriately adjusted for subdivisions and combinations of
shares of Common Stock and dividends on Common Stock payable in shares of Common
Stock).
(2) Upon the occurrence of any event specified in paragraph
(1) above, the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares of Preferred
Stock are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Preferred Stock, the holders of Preferred Stock shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of
11
<PAGE> 13
Common Stock into which the shares of Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred, and any
rights such holder held to receive accrued and unpaid cumulative dividends on
the shares of Preferred Stock being converted shall automatically terminate as
of immediately prior to such automatic conversion, without any payment being
made in respect thereof.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the Common Stock's fair market
value as determined in good faith by the Board as of the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this Section 6
to be given to the holders of shares of Preferred Stock shall be deemed given
upon the earlier of actual receipt or deposit in the United States mail, by
certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
(p) Payment of Taxes. The Company will pay all transfer taxes or
charges that may be imposed with respect to the issue or delivery of shares of
Common Stock upon conversion of shares of Preferred Stock, except for any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Preferred Stock so converted were registered.
(q) No Impairment. The Company shall not amend its Articles of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of Preferred Stock against dilution or other
impairment.
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Section 7. Restrictions and Limitations.
(a) Protective Provisions. As long as any of the Preferred Stock
shall be issued and outstanding, the Company shall not, without first obtaining
the approval (by vote or consent as provided by law) of the holders of more than
50% of the total number of shares of Preferred Stock then outstanding:
(1) amend or repeal any provision of, or add any provisions
to, the Company's Articles of Incorporation or Bylaws if such action would alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, any series of Preferred Stock;
(2) authorize, create or issue shares of any class of stock
having any preference or priority as to dividends or assets superior to, or on a
parity with, any such preference or priority of any series of Preferred Stock;
(3) reclassify any outstanding shares into shares having any
preference or priority as to dividends or assets superior to, or on a parity
with, such preference or priority of any series of Preferred Stock;
(4) authorize additional shares of Preferred Stock;
(5) repurchase shares of the Company's Common Stock except for
the repurchase of shares of Common Stock issued to employees, officers, or
directors of or consultants or advisers to the Company or any Subsidiary
pursuant to stock purchase or stock option plans or other arrangements that are
approved by the Board;
(6) pay a dividend or make a distribution on the Common Stock
of the Company, other than in shares of Common Stock;
(7) effect a merger or consolidation of the Company, or sell
all or substantially all of the assets of the Company;
(8) increase the authorized number of directors above 7; or
(9) amend this Section 7(a).
(b) No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Company shall be
authorized to issue.
FIFTH: The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible
under California law.
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SIXTH: The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, by agreement or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
to the limits on such excess indemnification set forth in Section 204 of the
California Corporations Code.
14
<PAGE> 1
Exhibit 3.02
BYLAWS
OF
TALARIAN CORPORATION
(a California corporation)
As Adopted March 28, 1991
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I OFFICES .......................................................... 1
Section 1.1: Principal Office ........................................ 1
Section 1.2: Other Offices ........................................... 1
ARTICLE II DIRECTORS ....................................................... 1
Section 2.1: Exercise of Corporate Powers ............................ 1
Section 2.2: Number .................................................. 1
Section 2.3: Need Not Be Shareholders ................................ 2
Section 2.4: Compensation ............................................ 2
Section 2.5: Election and Term of Office ............................. 2
Section 2.6: Vacancies ............................................... 2
Section 2.7: Removal ................................................. 2
Section 2.8: Powers and Duties ....................................... 3
ARTICLE III MEETINGS OF DIRECTORS .......................................... 5
Section 3.1: Place of Meetings ....................................... 5
Section 3.2: Regular Meetings ........................................ 5
Section 3.3: Special Meetings ........................................ 5
Section 3.4: Notice of Special Meetings .............................. 5
Section 3.5: Quorum .................................................. 5
Section 3.6: Conference Telephone .................................... 6
Section 3.7: Waiver of Notice and Consent ............................ 6
Section 3.8: Action Without a Meeting ................................ 6
Section 3.9: Committees .............................................. 6
ARTICLE IV COMMITTEES ...................................................... 6
Section 4.1: Appointment and Procedure ............................... 6
Section 4.2: Executive Committee Powers .............................. 6
Section 4.3: Powers of Other Committees .............................. 7
Section 4.4: Limitations on Powers of Committees ..................... 7
ARTICLE V OFFICERS ......................................................... 7
Section 5.1: Election and Qualifications ............................. 7
Section 5.2: Term of Office and Compensation ......................... 7
Section 5.3: Chairman of the Board ................................... 8
Section 5.4: President ............................................... 8
Section 5.5: President Pro Tem ....................................... 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 5.6: Vice President .......................................... 8
Section 5.7: Secretary ............................................... 9
Section 5.8: Chief Financial Officer ................................. 10
Section 5.9: Instruments in Writing .................................. 10
ARTICLE VI INDEMNIFICATION ................................................. 10
Section 6.1: Indemnification of Directors, Officers and Employees .... 10
Section 6.2: Advancement of Expenses ................................. 11
Section 6.3: Non-Exclusivity of Rights ............................... 11
Section 6.4: Indemnification Contracts ............................... 11
Section 6.5: Effect of Amendment ..................................... 11
ARTICLE VII MEETINGS OF SHAREHOLDERS ....................................... 11
Section 7.1: Place of Meetings ....................................... 11
Section 7.2: Annual Meetings ......................................... 12
Section 7.3: Special Meetings ........................................ 12
Section 7.4: Notice of Meetings ...................................... 12
Section 7.5: Consent to Shareholders' Meetings ....................... 13
Section 7.6: Quorum .................................................. 13
Section 7.7: Adjourned Meetings ...................................... 14
Section 7.8: Voting Rights ........................................... 14
Section 7.9: Action by Written Consent ............................... 14
Section 7.10: Election of Directors ................................... 15
Section 7.11: Proxies ................................................. 15
Section 7.12: Inspectors of Election .................................. 15
ARTICLE VIII SUNDRY PROVISIONS ............................................. 16
Section 8.1: Shares Held By the Company .............................. 16
Section 8.2: Certificates for Shares ................................. 16
Section 8.3: Lost Certificates ....................................... 16
Section 8.4: Certification and Inspection of Bylaws .................. 17
Section 8.5: Annual Reports .......................................... 17
ARTICLE IX CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW ...... 17
Section 9.1: Bylaw Provisions Construed as Additional and Supplemental
to Provisions of Law .................................... 17
</TABLE>
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<TABLE>
<S> <C>
Section 9.2: Bylaws Provisions Contrary to or Inconsistent with
Provisions of Law ....................................... 17
ARTICLE X ADOPTION, AMENDMENT OR REPEAL OF BYLAWS .......................... 17
Section 10.1: By Shareholders ......................................... 17
Section 10.2: By the Board of Directors ............................... 17
ARTICLE XI RESTRICTIONS ON TRANSFER OF STOCK ............................... 18
Section 11.1: Transfer of Shares ...................................... 18
Section 11.2: Subsequent Agreement or Bylaw ........................... 18
</TABLE>
<PAGE> 5
BYLAWS
OF
TALARIAN CORPORATION
(a California corporation)
As Adopted March 28, 1991
ARTICLE I
OFFICES
SECTION 1.1: PRINCIPAL OFFICE. The principal executive office for the
transaction of the business of this corporation (the "Company") shall be located
at such place as the Board of Directors may from time to time decide. The Board
of Directors is hereby granted full power and authority to change the location
of the principal executive office from one location to another.
SECTION 1.2: OTHER OFFICES. One or more branch or other
subordinate offices may at any time be fixed and located by the Board of
Directors at such place or places within or outside the State of California
as it deems appropriate.
ARTICLE II
DIRECTORS
SECTION 2.1: EXERCISE OF CORPORATE POWERS. Except as otherwise provided by
these Bylaws, by the Articles of Incorporation of the Company or by the laws of
the State of California now or hereafter in force, the business and affairs of
the Company shall be managed and all corporate powers shall be exercised by or
under the ultimate direction of a board of directors (the "Board of Directors").
SECTION 2.2: NUMBER. The authorized number of directors of the Company
shall initially be 5. The authorized number of directors may be varied from time
to time by resolution of the Board of Directors, provided that the authorized
number shall be not fewer than 4 nor more than 7. The authorized number of
directors of the Company shall be variable by the Board of Directors within such
range until changed by an amendment of this Section by the shareholders of the
Company. No amendment of this Section or an amendment of the Articles of
Incorporation reducing the fixed number or the minimum number of authorized
directors to a number less than five can be adopted if the votes cast against
its adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3% of the outstanding shares
entitled to vote.
SECTION 2.3: NEED NOT BE SHAREHOLDERS. The directors of the Company need
not be shareholders of this Company.
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SECTION 2.4: COMPENSATION. Directors and members of committees may receive
such compensation, if any, for their services as may be fixed or determined by
resolution of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
SECTION 2.5: ELECTION AND TERM OF OFFICE. The directors shall be elected
annually by the shareholders at the annual meeting of the shareholders. The term
of office of the directors shall begin immediately after their election and
shall continue until the next annual meeting of the shareholders and until their
respective successors are elected and qualified.
SECTION 2.6: VACANCIES. A vacancy or vacancies on the Board of Directors
shall exist in case of the death, resignation or removal of any director, or if
the authorized number of directors is increased, or if the shareholders fail, at
any annual meeting of shareholders at which any director is elected, to elect
the full authorized number of directors at that meeting. The Board of Directors
may declare vacant the office of a director if he or she is declared of unsound
mind by an order of court or convicted of a felony or if, within 60 days after
notice of his election, he or she does not accept the office. Any vacancy,
except for a vacancy created by removal of a director as provided in Section 2.7
hereof, may be filled by a person selected by a majority of the remaining
directors then in office, whether or not less than a quorum, or by a sole
remaining director. Vacancies occurring in the Board of Directors by reason of
removal of directors shall be filled only by approval of shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent, other than to fill a
vacancy created by removal, requires the consent of a majority of the
outstanding shares entitled to vote. If, after the filling of any vacancy by the
directors, the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors then in
office, any holder or holders of an aggregate of 5% or more of the total number
of shares at the time outstanding having the right to vote for such directors
may call a special meeting of shareholders to be held to elect the entire Board
of Directors. The term of office of any director then in office shall terminate
upon such election and qualification of a successor. Any director may resign
effective upon giving written notice to the Chairman of the Board, if any, the
President, the Secretary or the Board of Directors, unless the notice specifies
a later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective. A reduction of the authorized number of directors
shall not remove any director prior to the expiration of such director's term of
office.
SECTION 2.7: REMOVAL. The entire Board of Directors or any individual
director may be removed from office without cause by an affirmative vote of a
majority of the outstanding shares entitled to vote; provided that, unless the
entire Board of Directors is removed, no director shall be removed when the
votes cast against removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election at
which the same total number of votes were cast, or, if such action is taken by
written consent, all shares entitled to vote were voted, and the entire number
of directors authorized at the time of the director's most recent election were
then being elected. If any or all directors are so removed, new directors may be
elected at the same meeting or at a subsequent meeting. If at any time a class
or series of shares is entitled to elect one or more directors under authority
granted by the Articles of Incorporation, the provisions of this Section 2.7
shall apply to the vote of that class or series and not to the vote of the
outstanding shares as a whole.
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SECTION 2.8: POWERS AND DUTIES. Without limiting the generality or extent
of the general corporate powers to be exercised by the Board of Directors
pursuant to Section 2.1 of these Bylaws, it is hereby provided that the Board of
Directors shall have full power with respect to the following matters:
(a) To purchase, lease and acquire any and all kinds of
property, real, personal or mixed, and at its discretion to pay therefor in
money, in property and/or in stocks, bonds, debentures or other securities of
the Company.
(b) To enter into any and all contracts and agreements which
in its judgment may be beneficial to the interests and purposes of the Company.
(c) To fix and determine and to vary from time to time the
amount or amounts to be set aside or retained as reserve funds or as working
capital of the Company or for maintenance, repairs, replacements or enlargements
of its properties.
(d) To declare and pay dividends in cash, shares and/or
property out of any funds of the Company at the time legally available for the
declaration and payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of its
meetings and the management of the affairs of the Company as it may deem proper.
(f) To prescribe the manner in which and the person or persons
by whom any or all of the checks, drafts, notes, bills of exchange, contracts
and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the
office of a director as provided in Section 2.6 hereof; and, in case of vacancy
in the office of directors, to fill the same to the extent provided in Section
2.6 hereof.
(h) To create offices in addition to those for which provision
is made by law or these Bylaws; to elect and remove at pleasure all officers of
the Company, fix their terms of office, prescribe their titles, powers and
duties, limit their authority and fix their salaries in any way it may deem
advisable that is not contrary to law or these Bylaws.
(i) To designate one or more persons to perform the duties and
exercise the powers of any officer of the Company during the temporary absence
or disability of such officer.
(j) To appoint or employ and to remove at pleasure such agents
and employees as it may see fit, to prescribe their titles, powers and duties,
limit their authority and fix their salaries in any way it may deem advisable
that is not contrary to law or these Bylaws.
(k) To fix a time in the future, which shall not be more than
60 days nor less than 10 days prior to the date of the meeting nor more than 60
days prior to any other action for which it is fixed, as a record date for the
determination of the shareholders entitled to notice of and to vote at any
meeting, or entitled to receive any payment of any dividend or other
distribution, or allotment of any rights, or entitled to exercise any rights in
respect of any other
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lawful action; and in such case only shareholders of record on the date so fixed
shall be entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights or to exercise the rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
Company after any record date fixed as aforesaid. The Board of Directors may
close the books of the Company against transfers of shares during the whole or
any part of such period.
(1) To fix and locate from time to time the principal office
for the transaction of the business of the Company and one or more branch or
other subordinate offices of the Company within or without the State of
California; to designate any place within or without the State of California for
the holding of any meeting or meetings of the shareholders or the Board of
Directors, as provided in Sections 3.1 and 7.1 hereof; to adopt, make and use a
corporate seal, and to prescribe the forms of certificates for shares and to
alter the form of such seal and of such certificates from time to time as is in
its judgment it may deem best, provided such seal and such certificates shall at
all times comply with the provisions of law now or hereafter in effect.
(m) To authorize the issuance of shares of stock of the
Company in accordance with the laws of the State of California and the Articles
of Incorporation.
(n) Subject to the limitation provided in Section 10.2 hereof,
to adopt, amend or repeal from time to time and at any time these Bylaws and any
and all amendments thereof.
(o) To borrow money and incur indebtedness on behalf of the
Company, including the power and authority to borrow money from any of the
shareholders, directors or officers of the Company; and to cause to be executed
and delivered therefor in the corporate name promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations, or other
evidences of debt and securities therefor; and the note or other obligation
given for any indebtedness of the Company, signed officially by any officer .or
officers thereunto duly authorized by the Board of Directors, shall be binding
on the Company.
(p) To approve a loan of money or property to any officer or
director of the Company or any parent or subsidiary company, guarantee the
obligation of any such officer or director, or approve an employee benefit plan
authorizing such a loan or guaranty to any such officer or director; provided
that, on the date of approval of such loan or guaranty, the Company has
outstanding shares held of record by 100 or more persons. Such approval shall
require a determination by the Board of Directors that the loan or guaranty may
reasonably be expected to benefit the Company and must be by vote sufficient
without counting the vote of any interested director.
(q) Generally to do and perform every act and thing whatsoever
that may pertain to the office of a director or to a board of directors.
ARTICLE III
MEETINGS OF DIRECTORS
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SECTION 3.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the Board of Directors of the Company shall be held at the
principal executive office of the Company or at any other place within or
outside the State of California which may be designated from time to time by
resolution of the Board of Directors or which is designated in the notice of the
meeting.
SECTION 3.2: REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held after the adjournment of each annual meeting of the shareholders
(which regular directors' meeting shall be designated the "Regular Annual
Meeting") and at such other times as may be designated from time to time by
resolution of the Board of Directors. Notice of the time and place of all
regular meetings shall be given in the same manner as for special meetings,
except that no such notice need be given if (a) the time and place of such
meetings are fixed by the Board of Directors or (b) the Regular Annual Meeting
is held at the principal executive office of this Corporation and on the date
specified by the Board of Directors.
SECTION 3.3: SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, if any, or the
President, or any Vice President, or the Secretary or by any two or more
directors.
SECTION 3.4: NOTICE OF SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held upon no less than 4 days' notice by mail or 48 hours'
notice delivered personally or by telephone or telegraph to each director.
Notice need not be given to any director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to such director. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to a person at the
home or office of the director who the person giving the notice has reason to
believe will promptly communicate it to the director. A notice or waiver of
notice need not specify the purpose of any meeting of the Board of Directors. If
the address of a director is not shown on the records of the Company and is not
readily ascertainable, notice shall be addressed to him at the city or place in
which meetings of the directors are regularly held. If a meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place shall
be given prior to the time of the adjourned meeting to all directors not present
at the time of adjournment.
SECTION 3.5: QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board of Directors for the transaction of business.
Every act or decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present is the act of the Board of
Directors subject to provisions of law relating to interested directors and
indemnification of agents of the Company. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
SECTION 3.6: CONFERENCE TELEPHONE. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications
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equipment, so long as all directors participating in such meeting can hear one
another. Participation in a meeting pursuant to this Section constitutes
presence in person at such meeting.
SECTION 3.7: WAIVER OF NOTICE AND CONSENT. The transactions of any meeting
of the Board of Directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice if a
quorum is present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
such meeting or an approval of the minutes thereof. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 3.8: ACTION WITHOUT A MEETING. Any action required or permitted by
law to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board of Directors shall individually or collectively consent in
writing to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors. Such action by written
consent shall have the same force and effect as the unanimous vote of such
directors.
SECTION 3.9: COMMITTEES. The provisions of this Article apply also to
committees of the Board of Directors and action by such committees.
ARTICLE IV
COMMITTEES
SECTION 4.1: APPOINTMENT AND PROCEDURE. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors, appoint
from among its members one or more committees, including without limitation an
executive committee, an audit committee and a compensation committee, of two or
more directors. Each committee may make its own rules of procedure subject to
Section 3.9 hereof, and shall meet as provided by such rules or by a resolution
adopted by the Board of Directors (which resolution shall take precedence). A
majority of the members of the committee shall constitute a quorum, and in every
case the affirmative vote of a majority of all members of the committee shall be
necessary to the adoption of any resolution.
SECTION 4.2: EXECUTIVE COMMITTEE POWERS. During the intervals between the
meetings of the Board of Directors, the Executive Committee, if any, in all
cases in which specific directions shall not have been given by the Board of
Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Company in
such manner as the Executive Committee may deem best for the interests of the
Company.
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SECTION 4.3: POWERS OF OTHER COMMITTEES. Other committees shall have such
powers as are given them in a resolution of the Board of Directors.
SECTION 4.4: LIMITATIONS ON POWERS OF COMMITTEES. No committee shall have
the power to act with respect to:
(a) any action for which the laws of the State of California
also require shareholder approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the Board of Directors or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of
new Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not amendable or repeatable;
(f) a distribution to the shareholders of the Company, except
at a rate or in a periodic amount or within a price range as set forth in the
articles or determined by the Board of Directors; and
(g) the appointment of other committees of the Board of
Directors or the members thereof.
ARTICLE V
OFFICERS
SECTION 5.1: ELECTION AND QUALIFICATIONS. The officers of the Company
shall consist of a President, a Secretary, a Chief Financial Officer and such
other officers, including, but not limited to, a Chairman of the Board of
Directors, one or more Vice Presidents, a Treasurer, and Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as the Board of
Directors shall deem expedient, who shall be chosen in such manner and hold
their offices for such terms as the Board of Directors may prescribe. Any number
of offices may be held by the same person. Any Vice President, Assistant
Treasurer or Assistant Secretary, respectively, may exercise any of the powers
of the President, the Chief Financial Officer or the Secretary, respectively, as
directed by the Board of Directors, and shall perform such other duties as are
imposed upon him or her by these Bylaws or the Board of Directors.
SECTION 5.2: TERM OF OFFICE AND COMPENSATION. The term of office and
salary of each of said officers and the manner and time of the payment of such
salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board of Directors from time to time at its pleasure, subject to
the rights, if any, of any officer under any contract of employment. Any officer
may resign at any time upon written notice to the Company, without prejudice to
the rights, if any, of the Company under any contract to which the officer is a
party. If any vacancy
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occurs in any office of the Company, the Board of Directors may appoint a
successor to fill such vacancy.
SECTION 5.3: CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings of
the Board of Directors and shall have such other powers and shall be subject to
such other duties as the Board of Directors may from time to time prescribe.
SECTION 5.4: PRESIDENT. The powers and duties of the President are:
(a) To act as the general manager and, unless otherwise
designated by the Board of Directors, the chief executive officer of the Company
and, subject to the control of the Board of Directors, to have general
supervision, direction and control of the business and affairs of this company.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board of Directors or if there be no Chairman, at
all meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the
Board of Directors to be held at such times and, subject to the limitations
prescribed by law or by these Bylaws, at such places as he or she shall deem
proper.
(d) To affix the signature of the Company to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which, in the judgment of the President, should be executed on
behalf of the Company; to sign certificates for shares of stock of the Company;
and, subject to the direction of the Board of Directors, to have general charge
of the property of the Company and to supervise and control all officers, agents
and employees of the Company.
SECTION 5.5: PRESIDENT PRO TEM. If neither the Chairman of the Board of
Directors, the President, nor any Vice President is present at any meeting of
the Board of Directors, a President pro tem may be chosen by the directors
present at the meeting to preside and act at such meeting. If neither the
President nor any Vice President is present at any meeting of the shareholders,
a President pro tem may be chosen by the shareholders present at the meeting to
preside at such meeting.
SECTION 5.6: VICE PRESIDENT. The titles, powers and duties of the Vice
President or Vice Presidents, if any, shall be as prescribed by the Board of
Directors. In case of the resignation, disability or death of the President, the
Vice President, or one of the Vice Presidents, shall exercise all powers and
duties of the President. If there is more than one Vice President, the order in
which the Vice Presidents shall succeed to the powers and duties of the
President shall be as fixed by the Board of Directors.
SECTION 5.7: SECRETARY. The powers and duties of the Secretary are:
(a) To keep a book of minutes at the principal executive
office of the Company, or such other place as the Board of Directors may order,
of all meetings of its
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directors and shareholders with the time and place of holding of such meeting,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
(b) To keep the seal of the Company and to affix the same to
all instruments which may require it.
(c) To keep or cause to be kept at the principal executive
office of the Company, or at the office of the transfer agent or agents, a
record of the shareholders of the Company, giving the names and addresses of all
shareholders and the number and class of shares held by each, the number and
date of certificates issued for shares and the number and date of cancellation
of every certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the
Company, to fill in all certificates issued, and to make a proper record of each
such issuance; provided that, so long as the Company shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the Company, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the Company any and
all shares of the Company; provided that, so long as the Company shall have one
or more duly appointed and acting transfer agents of the shares, or any class or
series of shares, of the Company, such duties with respect to such shares shall
be performed by such transfer agent or transfer agents, and the method of
transfer of each certificate shall be subject to the reasonable regulations of
the transfer agent to whom the certificate is presented for transfer and, if the
Company then has one or more duly appointed and acting registrars, subject to
the reasonable regulations of the registrar to which a new certificate is
presented for registration; and, provided further, that no certificate for
shares of stock shall be issued or delivered or, if issued or delivered, shall
have any validity whatsoever until and unless it has been signed or
authenticated in the manner provided in Section 8.2 hereof.
(f) To make service and publication of all notices that may be
necessary or proper in connection with meetings of the Board of Directors of the
shareholders of the Company. In case of the absence, disability, refusal or
neglect of the Secretary to make service or publication of any notices, then
such notices may be served and/or published by the President or a Vice
President, or by any person thereunto authorized by either of them, or by the
Board of Directors, or by the holders of a majority of the outstanding shares of
the Company.
(g) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
SECTION 5.8: CHIEF FINANCIAL OFFICER. The powers and duties of the Chief
Financial Officer are:
(a) To supervise and control the keeping and maintaining of
adequate and correct accounts of the Company's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of account
shall at all reasonable times be open to inspection by any director.
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(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Company and, at his or her
discretion, to cause any or all thereof to be deposited for the account of the
Company with such depository as may be designated from time to time by the Board
of Directors.
(c) To receive or cause to be received, and to give or cause
to be given, receipts and acquittances for monies paid in for the account of the
Company.
(d) To disburse, or cause to be disbursed, all funds of the
Company as may be directed by the President or the Board of Directors, taking
proper vouchers for such disbursements.
(e) To render to the President or to the Board of Directors,
whenever either may require, accounts of all transactions as Chief Financial
Officer and of the financial condition of the Company.
(f) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
SECTION 5.9: INSTRUMENTS IN WRITING. All checks, drafts, demands for
money, notes and written contracts of the Company shall be signed by such
officer or officers, agent or agents, as the Board of Directors may from time to
time designate. No officer, agent, or employee of the Company shall have the
power to bind the Company by contract or otherwise unless authorized to do so by
these Bylaws or by the Board of Directors.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1: INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Company shall indemnify each person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director or officer of a foreign or domestic
corporation which was a predecessor corporation of the Company or of another
enterprise at the request of such predecessor corporation, to the fullest extent
permitted by the California Corporations Code, against all expenses, including,
without limitation, attorneys' fees and any expenses of establishing a right to
indemnification, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such Proceeding, and such indemnification
shall continue as to a person who has ceased to be such a director or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such person; provided, however, that the Company shall indemnify any such person
seeking indemnity in connection 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 Company.
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SECTION 6.2: ADVANCEMENT OF EXPENSES. The Company shall pay all expenses
incurred by such a director or officer in defending any Proceeding as they are
incurred in advance of its final disposition; provided, however, that if the
California Corporations Code then so requires, the payment of such expenses
incurred by a director or officer in advance of the final disposition of a
Proceeding shall be made only upon receipt by the Company of an undertaking by
or on behalf of such director or officer to repay such amount if it shall be
determined ultimately that such person is not entitled to be indemnified under
this Article VI or otherwise; and provided further that the Company shall not be
required to advance any expenses to a person against whom the Company brings an
action, alleging that such person committed an act or omission not in good faith
or that involved intentional misconduct or a knowing violation of law, or that
was contrary to the best interest of the Company, or derived an improper
personal benefit from a transaction.
SECTION 6.3: NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
in this Article VI shall not be deemed exclusive of any other rights that such
person may have or hereafter acquire under any statute, bylaw, agreement, vote
of shareholders of disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. Additionally, nothing in this Article VI shall limit the ability of the
Company, in its discretion, to indemnify or advance expenses to persons whom the
Company is not obligated to indemnify or advance expenses to pursuant to this
Article VI.
SECTION 6.4: INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to cause the Company to enter into a contract with any director,
officer, employee or agent of the Company, or any person serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, providing for
indemnification rights equivalent to or, if the Board of Directors so
determines, greater than (to the extent permitted by the Company's Articles of
Incorporation and the California Corporations Code), those provided for in this
Article VI.
SECTION 6.5: EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
MEETINGS OF SHAREHOLDERS
SECTION 7.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the shareholders of the Company shall be held at the principal
executive office for the transaction of business of the Company, or at any place
within or outside the State of California which may be designated by written
consent of all the shareholders entitled to vote thereat, or which may be
designated by resolution of the Board of Directors. Any meeting shall be valid
wherever held if held by the written consent of all the shareholders entitled to
vote thereat, given either before or after the meeting and filed with the
Secretary of the Company.
SECTION 7.2: ANNUAL MEETINGS. The annual meetings of the shareholders
shall be held at the place provided pursuant to Section 7.1 hereof and at such
time in a particular year as may
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be designated by written consent of all the shareholders entitled to vote
thereat or which may be designated by resolution of the Board of Directors of
the Company. Said annual meetings shall be held for the purpose of the election
of directors, for the making of reports of the affairs of the Company and for
the transaction of such other business as may properly come before the meeting.
SECTION 7.3: SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes whatsoever may be called at any time by the President,
the Chairman of the Board of Directors or by the Board of Directors, or by two
or more members thereof, or by one or more holders of shares entitled to cast
not less than 10% of the votes at the meeting. Upon request in writing sent by
registered mail to the Chairman of a the Board of Directors, President, Vice
President or Secretary, or delivered to any such officer in person, by any
person entitled to call a special meeting of shareholders, it shall be the duty
of such officer forthwith to cause notice to be given to the shareholders
entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, which (except where called by the Board of
Directors) shall be not less than 35 days nor more than 60 days after the
receipt of such request. If the notice is not given within 20 days after receipt
of the request, the person entitled to call the meeting may give the notice.
Notices of meetings called by the Board of Directors shall be given in
accordance with Section 7.4.
SECTION 7.4: NOTICE OF MEETINGS. Notice of any meeting of shareholders
shall be given in writing not less than 10 (or, if sent by third-class mail, 30)
nor more than 60 days before the date of the meeting to each shareholder
entitled to vote thereat by the Secretary or an Assistant Secretary, or such
other person charged with that duty, or if there be no such officer or person,
or in case of his or her neglect or refusal, by any director or shareholder. The
notice shall state the place, date and hour of the meeting and (a) in the case
of a special meeting, the general nature of the business to be transacted, and
no other business may be transacted, or (b) in the case of the annual meeting,
those matters which the Board of Directors, at the time of the mailing of the
notice, intends to present for action by the shareholders, but any proper matter
may be presented at the meeting for such action, except that notice must be
given or waived in writing of any proposal relating to approval of contracts
between the Company and any director of the Company, amendment of the Articles
of Incorporation, reorganization of the Company or winding up of the affairs of
the Company. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the Board of Directors for election. Notice of a shareholders'
meeting or any report shall be given to any shareholder, either (a) personally
or (b) by first-class mail, or, in case the Company has outstanding shares held
of record by 500 or more persons on the record date for the shareholders'
meeting, notice may be sent by third-class mail, or other means of written
communication, charges prepaid, addressed to such shareholder at such
shareholder's address appearing on the books of the Company or given by such
shareholder to the Company for the purpose of notice. If a shareholder gives no
address or no such address appears on the books of the Company, notice shall be
deemed to have been given if sent by mail or other means of written
communication addressed to the place where the principal executive office of the
Company is located, or if published at least once in a newspaper of general
circulation in the county in which such office is located. The notice or report
shall be deemed to have been given at the time when delivered personally or
deposited in the United States mail, postage prepaid, or sent by other means of
written communication and addressed as hereinbefore provided. An affidavit or
declaration of delivery or mailing of any notice or report in accordance with
the
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<PAGE> 17
provisions of this Section 7.4, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report. If any notice or report addressed to the shareholder at the address
of such shareholder appearing on the books of the Company is returned to the
Company by the United States Postal Service marked to indicate that the United
States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the Company for a period of one year from the date of the
giving of the notice or report to all other shareholders.
SECTION 7.5: CONSENT TO SHAREHOLDERS' MEETINGS. The transactions of any
meeting of shareholders, however called and noticed, and wherever held, are as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present, either in person or by proxy, and if, either before or after
the meeting, each of the shareholders entitled to vote, not present in person or
by proxy, signs a written waiver of notice or a consent to the holding of such
meeting or an is approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law to be included in the notice but not so
included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice, consent to
the holding of the meeting or approval of the minutes thereof, except as to
approval of contracts between the Company and any of its directors, amendment of
the Articles of Incorporation, reorganization of the Company or winding up the
affairs of the Company.
SECTION 7.6: QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of the shareholders
shall constitute a quorum for the transaction of business. Shares shall not be
counted to make up a quorum for a meeting if voting of such shares at the
meeting has been enjoined or for any reason they cannot be lawfully voted at the
meeting. Shareholders present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum. Except as provided herein, the affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required.
SECTION 7.7: ADJOURNED MEETINGS. Any shareholders' meeting, whether or not
a quorum is present, may be adjourned from time to time by the vote of a
majority of the shares, the holders of which are either present in person or
represented by proxy thereat, but, except as provided in Section 7.6 hereof, in
the absence of a quorum, no other business may be transacted at such meeting.
When a meeting is adjourned for more than 45 days or if after adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at a
meeting. Except as aforesaid, it shall not
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<PAGE> 18
be necessary to give any notice of the time and place of the adjourned meeting
or of the business to be transacted thereat other than by announcement at the
meeting at which such adjournment is taken. At any adjourned meeting the
shareholders may transact any business which might have been transacted at the
original meeting.
SECTION 7.8: VOTING RIGHTS. Only persons in whose names shares entitled to
vote stand on the stock records of the Company at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held or, if some other day be fixed for the determination
of shareholders of record pursuant to Section 2.8(k) hereof, then on such other
day, shall be entitled to vote at such meeting. The record date for determining
shareholders entitled to give consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors has been taken, shall be
the day on which the first written consent is given. In the absence of any
contrary provision in the Articles of Incorporation or in any applicable statute
relating to the election of directors or to other particular matters, each such
person shall be entitled to one vote for each share.
SECTION 7.9: ACTION BY WRITTEN CONSENT. Any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholder approval of (a) contracts
between the Company and any of its directors, (b) indemnification of any person,
(c) reorganization of the Company or (d) distributions to shareholders upon
winding up of the affairs of the Company without a meeting by less than
unanimous written consent shall be given at least 10 days before the
consummation of the action authorized by such approval, and prompt notice shall
be given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing. All notices given hereunder
shall conform to the requirements of Section 7.4 hereto and applicable law. When
written consents are given with respect to any shares, they shall be given by
and accepted from the persons in whose names such shares stand on the books of
the Company at the time such respective consents are given, or their proxies.
Any shareholder giving a written consent, or any shareholder's proxy holder, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the Company prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Company, but may not do so thereafter. Such revocation is effective upon its
receipt by the Secretary of the Company. Notwithstanding anything herein to the
contrary, and subject to Section 305(b) of the California Corporations Code,
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
SECTION 7.10: ELECTION OF DIRECTORS. Every shareholder entitled to vote at
any election of directors of the Company may cumulate such shareholder's votes
and give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shareholder's shares are
normally entitled, or distribute the shareholder's votes on
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<PAGE> 19
the same principle among as many candidates as such shareholder thinks fit. No
shareholder, however, may cumulate such shareholder's votes for one or more
candidates unless such candidate's or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting, prior to voting, of such shareholder's intention to cumulate such
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. The
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares shall be declared elected. Votes against the director and votes
withheld shall have no legal effect. Election of directors need not be by ballot
except upon demand made by a shareholder at the meeting and before the voting
begins.
SECTION 7.11: PROXIES. Every person entitled to vote or execute consents
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or such person's duly
authorized agent and filed with the Secretary of the Company. No proxy shall be
valid (a) after revocation thereof, unless the proxy is specifically made
irrevocable and otherwise conforms to this Section and applicable law, or (b)
after the expiration of eleven months from the date thereof, unless the person
executing it specifies therein the length of time for which such proxy is to
continue in force. Revocation may be effected by a writing delivered to the
Secretary of the Company stating that the proxy is revoked or by a subsequent
proxy executed by the person executing the prior proxy and presented to the
meeting, or as to any meeting by attendance at the meeting and voting in person
by the person executing the proxy. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted, a written notice of
such death or incapacity is received by the Secretary of the Company. In
addition, a proxy may be revoked, notwithstanding a provision making it
irrevocable, by a transferee of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability appears on
the certificate representing such shares.
SECTION 7.12: INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the Chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one or three. If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to
15
<PAGE> 20
appear or fails or refuses to act, the Chairman of the meeting may, and upon the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill that vacancy. These inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE VIII
SUNDRY PROVISIONS
SECTION 8.1: SHARES HELD BY THE COMPANY. Shares in other company's
standing in the name of the Company may be voted or represented and all rights
incident thereto may be exercised on behalf of the Company by any officer of the
Company authorized to do so by resolution of the Board of Directors.
SECTION 8.2: CERTIFICATES FOR SHARES. There shall be issued to every
holder of shares in the Company a certificate or certificates signed in the name
of the Company by the Chairman of the Board, if any, or the President or a vice
President and by the Chief Financial Officer or an Assistant Chief Financial
Officer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the Company
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
SECTION 8.3: LOST CERTIFICATES. Where the owner of any certificate for
shares of the Company claims that the certificate has been lost, stolen or
destroyed, a new certificate shall be issued in place of the original
certificate if the owner (a) so requests before the Company has notice that the
original certificate has been acquired by a bona fide purchaser and (b)
satisfies any reasonable requirements imposed by the Company, including without
limitation the filing with the Company of an indemnity bond or agreement in such
form and in such amount as shall be required by the President or a Vice
President of the Company. The Board of Directors may
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<PAGE> 21
adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
SECTION 8.4: CERTIFICATION AND INSPECTION OF BYLAWS. The Company shall
keep at its principal executive office the original or a copy of these Bylaws as
amended or otherwise altered to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
SECTION 8.5: ANNUAL REPORTS. Provided that the Company has 100 or fewer
shareholders, the making of annual reports to the shareholders is dispensed with
and the requirement that such annual reports be made to shareholders is
expressly waived, except as may be directed from time to time by the Board of
Directors or the President.
ARTICLE IX
CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW
SECTION 9.1: BYLAW PROVISIONS CONSTRUED AS ADDITIONAL AND SUPPLEMENTAL TO
PROVISIONS OF LAW. All restrictions, limitations, requirements and other
provisions of these Bylaws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the subject
matter thereof and shall be fully complied with in addition to the said
provisions of law unless such compliance shall be illegal.
SECTION 9.2: BYLAWS PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS
OF LAW. Any article, section, subsection, subdivision, sentence, clause or
phrase of these Bylaws which, upon being construed in the manner provided in
Section 9.1 hereof, shall be contrary to or inconsistent with any applicable
provision of law, shall not apply so long as said provisions of law shall remain
in effect, but such result shall not affect the validity or applicability of any
other portion of these Bylaws, it being hereby declared that these Bylaws, and
each article, section, subsection, subdivision, sentence, clause or phrase
thereof, would have been adopted irrespective of the fact that any one or more
articles, sections, subsections, subdivisions, sentences, clauses or phrases is
or are illegal.
ARTICLE X
ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
SECTION 10.1: BY SHAREHOLDERS. Bylaws may be adopted, amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote. Bylaws specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable board or vice versa may be adopted only by the shareholders.
SECTION 10.2: BY THE BOARD OF DIRECTORS. Subject to the right of
shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or
amendment thereof specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa, these Bylaws may be adopted, amended or repealed by the Board of
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<PAGE> 22
Directors. A Bylaw adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal Bylaws.
ARTICLE XI
RESTRICTIONS ON TRANSFER OF STOCK
SECTION 11.1: TRANSFER OF SHARES. Before any shareholder of the Company
may sell, assign, gift, pledge or otherwise transfer any shares of the Company's
capital stock, such shareholder shall first notify the Company in writing of
such transfer and such transfer may not be effected unless and until legal
counsel for the Company has concluded that such transfer, when effected as
proposed by such shareholder, will comply with all applicable provisions of any
applicable state and federal securities laws, including but not limited to the
Securities Act of 1933, as amended, and the California Corporate Securities Law
of 1968, as amended.
SECTION 11.2: SUBSEQUENT AGREEMENT OR BYLAW. If (a) any two or more
shareholders of the Company shall enter into any agreement abridging, limiting
or restricting the rights of any one or more of them to sell, assign, transfer,
mortgage, pledge, hypothecate or transfer on the books of the Company any or all
of the shares of the Company held by them, and if a copy of said agreement shall
be filed with the Company, or if (b) shareholders entitled to vote shall adopt
any Bylaw provision abridging, limiting or restricting the aforesaid rights of
any shareholders, then, and in either of such events, all certificates of shares
of stock subject to such abridgments, limitations or restrictions shall have a
reference thereto endorsed thereon by an officer of the Company and such
certificates shall not thereafter be transferred on the books of the Company
except in accordance with the terms and provisions of such as the case may be;
provided that, no restriction shall be binding with respect to shares issued
prior to adoption of the restriction unless the holders of such shares voted in
favor of or consented in writing to the restriction.
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<PAGE> 23
CERTIFICATION OF BYLAWS BY SECRETARY
KNOW ALL BY THESE PRESENTS:
I, Thomas J. Laffey, certify that I am Secretary of Talarian
Corporation (formerly Talarian Merger Corporation), a California corporation
(the "Company"), that I am duly authorized to make this certification, that the
attached Bylaws are a true and correct copy of the Bylaws duly adopted by the
Board of Directors of the Company and that the same are the Bylaws of the
Company now in effect without amendment thereto.
Dated: December 5, 1991
______________________________________
Thomas J. Laffey
Secretary
<PAGE> 1
Exhibit 4.02
TALARIAN CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement ("Agreement")
is entered into as of February 3, 2000 by and among TALARIAN CORPORATION, a
California corporation (the "Company"), those persons purchasing shares of the
Company's Series D Preferred Stock (the "Series D Stock") listed on Exhibit A
hereto (the "Investors"), those holders of the Company's Series C Preferred
Stock ("Series C Stock") listed on Exhibit B hereto (the "Series C Purchasers"),
those holders of the Company's Series B Preferred Stock ("Series B Stock")
listed on Exhibit B hereto (the "Series B Purchasers"), those holders of the
Company's Series A Preferred Stock ("Series A Stock") listed on Exhibit B hereto
(the "Series A Purchasers"), Dominion Ventures, Inc. ("DVI"), Unitechnic, S.A.
("Unitechnic") and Silicon Valley Bank ("SVB").
R E C I T A L S
A. Pursuant to an Amended and Restated Investors' Rights Agreement
dated November 30, 1995, as amended, (the "Prior Agreement") the Company granted
certain information, registration and first refusal rights to the Series A
Purchasers, the Series B Purchasers and the Series C Purchasers and certain
registration rights to DVI, Unitechnic and SVB.
B. Pursuant to a Series D Preferred Stock Purchase Agreement dated
of even date herewith (the "Series D Agreement") the Company is issuing shares
of Series D Stock to the Investors.
C. Pursuant to the Series D Agreement the Company is to provide the
Investors with the same information, registration and first refusal rights
provided to the Series A Purchasers, Series B Purchasers, and Series C
Purchasers.
D. The parties desire to enter into this Agreement to set forth the
information, registration and first refusal rights of the Series A Purchasers,
Series B Purchasers, Series C Purchasers and the Investors, and registration
rights of DVI, Unitechnic and SVB in one agreement that will supersede the Prior
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
<PAGE> 2
1. INFORMATION RIGHTS.
The Company covenants and agrees as follows:
(a) Annual and Quarterly Reports. For so long as any Series A
Purchaser, Series B Purchaser, Series C Purchaser or Investor (together, the
"Purchasers", and individually a "Purchaser") holds any shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, or any shares of Common
Stock issuable upon conversion of such shares of Series A Stock, Series B Stock,
Series C Stock, or Series D Stock the Company will furnish to such Purchaser:
(i) Within ninety (90) days after the end of each fiscal year,
an audited balance sheet as of the end of such fiscal year, an audited statement
of operations, and an audited statement of cash flows of the Company for such
year, setting forth in each case in comparative form the figures from the
previous fiscal year, all prepared in accordance with generally accepted
accounting principles; and
(ii) Within forty-five (45) days of the end of each fiscal
quarter (except the last quarter of the fiscal year), quarterly unaudited
financial statements, including an unaudited balance sheet, an unaudited
statement of operations and an unaudited statement of cash flows, prepared in
accordance with generally accepted accounting principles, except for footnotes
and normal year-end adjustments.
(b) Additional Information. For so long as any Purchaser holds at
least 40,000 shares of Series A Stock, Series B Stock, Series C Stock, or Series
D Stock in any combination, or an equivalent number of shares of Common Stock
issued upon conversion of such shares of Series A Stock, Series B Stock, Series
C Stock, or Series D Stock, the Company will furnish to such Purchaser:
(i) As soon as practicable after the end of each month, and in
any event within thirty (30) days thereafter (except the last month of the
fiscal year), monthly unaudited financial statements, including an unaudited
balance sheet, statement of operations and statement of cash flows, prepared in
accordance with generally accepted accounting principles, except for footnotes
and normal year-end adjustments, and setting forth a comparison of the financial
results for each month with the results projected in the Company's annual plan
to be provided pursuant to Section 1(b)(ii) below, with a narrative explaining
any material variations; and
(ii) Not later than thirty (30) days prior to the beginning of
each fiscal year, an annual plan for such year which shall include a projected
balance sheet, statement of operations and statement of cash flows for each
month of the year, itemized in such detail as management may reasonably
determine.
(c) Exception. Anything in this Section 1 to the contrary
notwithstanding, no Purchaser by reason of this Agreement shall have any right
to access any technical trade secrets or technical classified information of the
Company. Each Purchaser hereby agrees to hold in confidence and trust and not to
misuse or disclose any confidential information provided pursuant to this
Section 1.
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<PAGE> 3
(d) Termination of Rights. The obligation to provide the items and
rights described above will terminate upon consummation of the Company's initial
public offering of securities pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "Securities Act").
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (1) any Common
Stock issued or issuable upon conversion of any (i) Series A Stock issued
pursuant to those certain Stock Purchase Agreements dated January 1, 1990 or
February 22, 1991, (ii) Series B Stock issued pursuant to that certain Series B
Preferred Stock Purchase Agreement dated March 24, 1992, (iii) Series C Stock
issued pursuant to that certain Stock Purchase Agreement dated February 28,
1994, (iv) Series C Stock issued pursuant to that certain Stock Purchase
Agreement dated November 30, 1995, (v) Series D Stock issued pursuant to the
Series D Agreement, (vi) Series A Stock issuable upon exercise of the warrants
held by DVI, or (vii) Series B Stock issuable upon exercise of the warrants held
by each of Unitechnic and SVB (such warrants described in (vi) and (vii)
collectively are hereinafter referred to as the "Warrants", and all of such
Common Stock is hereinafter referred to as the "Conversion Shares"), and (2) any
Common Stock of the Company (or any corporation into which the Company merges
for purposes of changing its state of incorporation) issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such securities; excluding in all cases, however, any
Registrable Securities (i) sold to the public, or (ii) sold or otherwise
transferred by a person in a transaction in which the rights under this Section
2 are not assigned or assignable.
(c) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock which are Registrable
Securities and (1) are then issued and outstanding or (2) are then issuable
pursuant to then exercisable or convertible securities.
(d) The term "Holder" means any person who holds Registrable
Securities; provided, however, that for purposes of this Agreement, a record
holder of securities convertible into or exercisable for Registrable Securities,
directly or indirectly, shall be treated as the holder of such Registrable
Securities; and provided, further, that holders of Registrable Securities will
not be required to convert shares of Series A Stock, Series B Stock, Series C,
or Series D Stock into Common Stock, or exercise the Warrants, in order to
exercise registration rights granted hereunder, until immediately before the
closing of the offering to which the registration relates.
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<PAGE> 4
(e) The term "Form S-3" means such form under the Securities
Act as is in effect on the date hereof or any successor registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(f) The term "SEC" or "Commission" means the Securities and
Exchange Commission.
2.2 Demand Registration.
(a) If the Company shall receive at any time (but not within
six months of the effective date of (i) a registration in which Registrable
Securities were registered hereunder, or (ii) the initial public offering of the
Company's securities pursuant to a registration statement filed with and
declared effective by the Securities Exchange Commission), a written request
from the Holders of at least fifty percent (50%) of the Registrable Securities
then outstanding that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities having an
anticipated aggregate offering price of $4,000,000 or more, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request (the "Company Notice") to all Holders, and subject to the limitations of
subsection 2.2(b), effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities which each Holder requests to be
registered in a written notice given to the Company within 30 days after the
Company Notice is given.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 2.2 and the
Company shall include such information in the Company Notice. In such event, the
right of any Holder to include his Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten, then the Company
shall so advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all
Holders requesting registration (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 2.2.
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(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve (12) month period.
(e) All expenses incurred in connection with a registration
pursuant to this Section 2.2 (excluding underwriters' discounts and
commissions), including without limitation all registration and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders, shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2.2 if the registration request is
subsequently withdrawn, unless the Holders agree to forfeit their right to a
demand registration pursuant to this Section 2.2 or unless such withdrawal is a
result of the Holders learning of material adverse information about the Company
of which they were not aware at the time of the registration request.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above described
notice from the Company, so notify the Company in writing, which notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any given registration statement filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder to be included in a Registration pursuant to this Section 2.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included
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in the underwriting shall be allocated as follows: first, to the Company; and
second, to the Holders on a pro rata basis based on the total number of
Registrable Securities held by the Holders; provided however, that the right of
the underwriters described above shall be restricted so that the number of
Registrable Securities included in any registration is not reduced below 25% of
the shares included in the registration, except for a registration relating to
the Company's initial public offering from which all Registrable Securities may
be excluded. If any Holder disapproves of the terms of any such underwriting,
such holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, delivered at least five (5) days prior to the effective date of
the registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from the registration.
(b) All expenses incurred in connection with a registration
pursuant to this Section 2.3 (excluding underwriters' discounts and
commissions), including, without limitation all registration and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders, shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$1,000,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement once during any twelve month period for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 2.4; (4) if the Company has,
within the twelve (12) month period preceding the date of such request, already
effected one registration on Form S-3 for the Holders pursuant to this Section
2.4; or (5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
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<PAGE> 7
(c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. The Company shall pay all expenses
incurred in connection with the first two registrations requested pursuant to
this Section 2.4, (excluding underwriters' discounts and commissions), including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company. All expenses incurred in
connection with any subsequent registration requested pursuant to this Section
2.4 shall be borne by the Holders in proportion to the number of Registrable
Securities owned by the Holders included in such registration at the time it
goes effective.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days, provided
however, in the event of an underwritten initial public offering, the Company
shall keep such registration effective until the completion of the distribution
of the securities registered in such offering, or for one hundred twenty (120)
days from the date of effectiveness, whichever is earlier;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such number of copies of a
prospectus (including amendments and supplements thereto), including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement; and
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered
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<PAGE> 8
under the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Section 2.2, Section 2.3, or
Section 2.4, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with such registration, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the l934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or any
state securities law in connection with the offering covered by such
registration statement. The Company will reimburse each such
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<PAGE> 9
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this subsection
2.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer, controlling
person, underwriter or other such Holder, partner or director, officer or
controlling person of such other Holder may become subject under the Securities
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 2.8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld, provided further, that in no event shall any
indemnity under this Section 2.8(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party
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under this Section 2.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.8.
(d) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
(e) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities (other than to donees or partners of the Holder who agree
to be similarly bound) for up to one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all officers, directors and ten percent (10%) shareholders
of the Company as of the date of filing the registration statement enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
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(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Registrable Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
2.11 Termination of the Company's Obligations. The Company shall
have no obligations pursuant to Sections 2.2 through 2.4 with respect to any
request or requests made by any Holder on a date more than five (5) years after
the closing date of the Company's initial public offering.
3. Right of First Offer. Subject to the terms and conditions specified in
this Section 3, the Company hereby grants to each Purchaser (so long as such
Purchaser holds either (i) at least 50% of the shares of Series A Stock held by
him or her as of February 22, 1991, or the Common Stock issued on conversion
thereof, in any combination, or (ii) at least 100,000 shares of the Series A
Stock, Series B Stock, Series C Stock, or Series D Stock in any combination, or
an equivalent number of shares of Common Stock issued upon conversion of such
Series A Stock, Series B Stock, Series C Stock, or Series D Stock) a right of
first refusal with respect to future sales by the Company of its Shares (as
hereinafter defined). For purposes of this Section 3, Purchaser includes any
partners and affiliates of a Purchaser. A Purchaser shall be entitled to
apportion the right of first offer hereby granted among itself, its partners and
affiliates in such proportions as it deems appropriate.
Except as set forth in Section 3(d), each time the Company proposes to
issue any shares of, or securities convertible into, or exercisable for, any
shares of any class of its capital stock ("Shares") after the effective date of
this Agreement, the Company shall make an offering of such Shares to each
Purchaser in accordance with the following provisions:
(a) The Company shall deliver a notice pursuant to Section
5(a) ("Notice") to each of the Purchasers stating (i) its bona fide intention to
issue such Shares, (ii) the number of such Shares to be issued, and (iii) the
price, if any, for which it proposes to issue such Shares.
(b) Each Purchaser shall have fifteen (15) calendar days after
mailing of the Notice to agree in writing to purchase, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion of (x) the number of shares of Common Stock then held by such
Purchaser, plus the number of shares of Common Stock then issuable upon
conversion of the Series A Stock, Series B Stock, Series C Stock, and Series D
Stock then held by such Purchaser, to (y) the total number of shares of Common
Stock issued
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and outstanding plus the total number of shares of Common Stock issuable upon
conversion of all of the then outstanding shares of Series A Stock, Series B
Stock, Series C Stock, and Series D Stock of the Company plus the total number
of shares of Common Stock issuable upon any outstanding rights, options or
warrants to subscribe for, purchase or acquire either Common Stock, Series A
Stock, Series B Stock, Series C Stock, or Series D Stock.
(c) The Company may, during the one hundred twenty (120) day
period following the expiration of the period provided in subsection 3(b)
hereof, issue any Shares which Purchasers have not agreed in writing to purchase
pursuant to subparagraph (b) hereof to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than, those specified in
the Notice. If the Company does not consummate the proposed sale of the Shares
within such one hundred twenty (120) day period, the right provided hereunder
shall be deemed to be revived and such Shares shall not be issued unless first
reoffered to the Purchasers in accordance herewith.
(d) The right of first refusal in this Section 3 shall not be
applicable to (i) the issuance or sale of shares of Common Stock, Series A
Stock, Series B Stock, Series C Stock, or Series D Stock (or options or warrants
therefor) to employees, officers, directors, or consultants for the primary
purpose of soliciting or retaining their employment, (ii) shares issued or
issuable by the Company in connection with any merger or reorganization
transaction in which the Company is the surviving company, (iii) shares of
capital stock, or options or warrants therefor, issued to banks, leasing
companies, service providers, customers, licensees, licensors or vendors in
connection with a loan, equipment lease, payment advance, payment reduction or
deferral arrangement, or license, (iv) shares issued upon conversion of the
Series A Stock, Series B Stock, Series C Stock, or Series D Stock, (v) any
shares of Common Stock, Series A Stock, Series B Stock or Series C Stock of the
Company that are outstanding on the date of this Agreement, and (vi) up to
1,581,083 shares of Series D Stock, and shall not be applicable after
consummation of a bona fide, firmly underwritten public offering of shares of
the Company's Common Stock.
4. ASSIGNMENT; AMENDMENT.
4.1 Assignment of Rights. The rights to information described in
Section 1 hereof, the rights to cause the Company to register Registrable
Securities pursuant to Section 2 and the right of first offer pursuant to
Section 3 may be assigned by a Holder having such rights to a transferee or
assignee of Registrable Securities (including securities convertible into or
exercisable for Registrable Securities, directly or indirectly) upon notice to
the Company, provided, however, that the Company may refuse any such assignment
if (i) it reasonably determines that the proposed assignee is or is likely to be
a competitor of the Company, or (ii) if the assignment is for less than 100,000
shares of Registrable Securities, and is for less than all of the Registrable
Securities held by the Holder. Notwithstanding the foregoing, such an assignment
may be made to a partner or shareholder of the Holder, to any parent, child or
spouse of the Holder or to the Holder's estate, without obtaining the Company's
consent, and DVI may assign its rights to cause the Company to register
Registrable Securities pursuant to Section 2 under this Agreement to one or more
of its limited partnerships with which DVI is affiliated without obtaining
Company's consent; provided, however, that written notice of such assignments
must be promptly provided to the Company.
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4.2 Amendment of Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and (a) as to Sections 1 and 3 hereof by
Purchasers holding a majority of the total outstanding Series A Stock, Series B
Stock, Series C Stock, and Series D Stock, and Common Stock issued on conversion
thereof, calculated on an "as-if-converted" basis, and (b) as to Section 2
hereof by the Holders of a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
4.2 shall be binding upon each Holder or Purchaser and the Company. By
acceptance of any benefits under this Agreement, Holders of Registrable
Securities and Purchasers hereby agree to be bound by the provisions hereunder.
4.3 Provision of Registration Rights to Future Warrant Holders.
Notwithstanding any other provision hereof, the Company may grant registration
rights hereunder in connection with the issuance of warrants to purchase up to
150,000 shares of Common Stock in connection with loans, equipment leases or
similar transactions (all such warrants, the "New Warrants"), without the need
for any further approval of the Holders of Registrable Securities hereunder.
Such grant of registration rights shall be effective at such time as the Company
and grantee execute an addendum referencing this Agreement in which the grantee
agrees to be bound by Sections 2, 4 and 5 hereof, in which case the Common Stock
issuable upon exercise of the New Warrants shall be "Registrable Securities"
under Section 2.1(b)(1) hereof, and the New Warrants shall be considered
Warrants.
5. GENERAL PROVISIONS.
(a) Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if mailed by certified mail return receipt
requested, postage prepaid, as follows:
(i) if to a Purchaser or Holder at such person's
respective addresses as set forth on the Exhibits hereto;
(ii) if to the Company, at 333 Distel Circle, Los Altos, CA
94022-1404.
Any party hereto may by notice so given change its address for future notice
hereunder. Notice shall conclusively be deemed to have been given when
personally delivered or three business days after deposited in the mail in the
manner set forth above.
(b) Entire Agreement. This Agreement constitutes and contains the
entire agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, understandings,
agreements, duties or obligations between the parties respecting the subject
matter hereof. Without limiting the forgoing, the Prior Agreement is superseded
by this Agreement in its entirety, and is null and void, and the Series A
Purchasers, Series B Purchasers and Series C Purchasers waive any rights they
may have had to be offered the right to purchase any of the Series D Stock being
sold pursuant to the Series D Agreement.
-13-
<PAGE> 14
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, excluding that body of
law relating to conflict of laws.
(d) Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
(e) Successors And Assigns. Subject to Section 4.1, the provisions
of this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and permitted assigns of the parties hereto.
(f) Captions. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Costs And Attorneys' Fees. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
TALARIAN CORPORATION
____________________________________
Paul Larson, President
NORTEL NETWORKS INC.
By: ____________________________________
Its: ___________________________________
PREVIOUS INVESTORS
____________________________________
Print Name of Purchaser
____________________________________
Signature of Purchaser or Authorized
Signatory, if Applicable
____________________________________
Name and Title of Authorized Purchaser,
if Applicable
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT
-15-
<PAGE> 16
EXHIBIT A
Investors
Nortel Networks Inc.
4401 Great America Parkway
Santa Clara, California 95052
<PAGE> 17
EXHIBIT B
Series A Purchasers
-------------------
<TABLE>
<CAPTION>
Name and Address
- ----------------
<S> <C>
Avalon Ventures III Profit Sharing Plan Avalon Ventures IV,
c/o John T. Hendrick a California Limited Partnership
1020 Prospect Street, Suite 405 c/o John T. Hendrick
La Jolla, CA 92037 1020 Prospect Street, Suite 405
La Jolla, CA 92037
John T. Hendrick Joseph Zicherman
c/o Avalon Ventures c/o Morgan, Stanley & Company, Inc.
1020 Prospect Street, Suite 405 1251 Avenues of the Americas
La Jolla, CA 92037 New York, NY 10020
Kevin J. Kinsella, Trustee of the Gerald S.J. Cassidy
Kevin J. Kinsella Declaration of Trust dtd 11/2/94 c/o Cassidy & Associates
1735 Castellana Road Metropolitan Square Bldg., Suite 1100
La Jolla, CA 92037 655 11th Street, NW
Washington, D.C. 20005
The Rutherford Group John E. Egbert, Trustee
(formerly Valley Leasing, Ltd.) John E. Egbert Trust dtd 9/28/89
P.O. Box 1165 415 Cambridge Avenue, Suite 13
La Jolla, CA 92038 Palo Alto, CA 94306
Attn: Hugh M. Tietjen
Dr. Federico Faggin Paul G. Abrams
c/o Synaptics, Inc. & Marguerite L.J. Abrams
2698 Orchard Parkway 2125 First Avenue, 1602
San Jose, CA 95134-2020 Seattle, WA 98121
Third Millenium Venture Capital Limited Joann Brainard
P. O. Box 1669 11 Tullivers Isle
Los Altos, CA 94023-1123 Irvine, CA 92715
Attn: John Koza
Signal Ventures James S. Fant
c/o Daniel W. Derbes c/o Lester G. Fant, III
12780 High Bluff Drive, Suite 250 c/o Sidley & Austin
San Diego, CA 92130 1722 I Street, N.W.
Washington, D.C. 20006
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Name and Address
- ----------------
<S> <C>
James P. Fabiani Charles A. Felt
c/o Cassidy & Associates c/o Kessler Asher Group
700 Thirteenth Street, N.W., Suite 400 440 S. La Salle Street, Suite 1900
Washington, D.C. 20005 Chicago, IL 60605
Lester G. Fant, III Merrill Ferguson
c/o Sidley Austin 558 Ridge Road
1722 I Street, N.W. Winnetka, IL 60093
Washington, D.C. 20006
Tracy Ray, as Administrator of the Estate of Kleiner Perkins Caufield & Byers IV
Diane Ferguson-Escobar, Deceased c/o Mr. Brook H. Byers
344 Cherokee Road 2750 Sand Hill Road
Lake Forest, IL 60045 Menlo Park, CA 94025-7020
Foggy Bottom Associates Limited Partnership Fred O'Donnell
c/o John K. Freeman c/o First Options
Chesapeake Management Company One Financial Place
1301 Connecticut Ave., N.W., #222 440 South LaSalle Street, Suite 1637
Washington, D.C. 20036 Chicago, IL 60605
Martin A. Keane Lawrence J. Rosenberg
5733 W. Grover c/o William G. Rosenberg
Chicago, IL 60630 2508 I Street, N.W.
Washington, D.C. 20037
Grace Spann Koza and John R. Koza, Mark J. Spehn
Trustees of the Grace Spann Koza Trust dtd 12/17/90 12715 82nd Court
55 Bay Tree Lane Paloss Park, IL 60664
Los Altos, Ca 94022
John R. Koza Technology Venture Investors 3
Box K c/o Mark G. Wilson
Los Altos, CA 94022 2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
R. Eden Martin
c/o Sidley & Austin
One First National Plaza, Suite 480
Chicago, IL 60603
Gabriele Beth Rosenberg
c/o William G. Rosenberg
2508 I Street, N.W.
Washington, D.C. 20037
</TABLE>
<PAGE> 19
Name and Address
- ----------------
Ivor Royston and
Collette S.C. Royston
Co-Trustees, Royston Family Trust
5580 La Jolla Blvd., #391
La Jolla, CA 92037
Sprout Capital V
c/o Keith B. Geeslin
3000 Sand Hill Road
Bldg. 4, Suite 270
Menlo Park, CA 94025-7114
TVI Management - 3
c/o Mark G. Wilson
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
<PAGE> 20
Series B Purchasers
-------------------
<TABLE>
<CAPTION>
Name and Address
- ----------------
<S> <C>
Lawrence, Tyrrell, Ortale & Smith II, L.P. John E. Egbert, Trustee
515 Madison Avenue, 29th Floor John E. Egbert Trust dtd 9/28/89
New York, NY 10022 415 Cambridge Avenue, Suite 13
Attn: Brian Horey Palo Alto, CA 94306
Third Millenium Venture Capital Limited Signal Ventures
P. O. Box 1123 c/o Daniel W. Derbes
Los Altos, CA 94023-1123 12780 High Bluff Drive, Suite 250
Attn: John Koza San Diego, CA 92130
John R. Koza Martin A. Keane
Box K 5733 W. Grover
Los Altos, CA 94022 Chicago, IL 60630
Grace Spann Koza and John R. Koza,
Trustees of the Grace Spann Koza Trust
dtd 12/17/90
55 Bay Tree Lane
Los Altos, CA 94022
</TABLE>
<PAGE> 21
Series C Purchasers
-------------------
<TABLE>
<CAPTION>
Name and Address
- ----------------
<S> <C>
John E. Egbert, Trustee Lawrence Tyrell, Ortale & Smith II, L.P.
John E. Egbert Trust dtd 9/28/89 515 Madison Avenue, 29th Floor
415 Cambridge Avenue, Suite 13 New York, NY 10022
Palo Alto, CA 94306 Attn: Brian Horey
Glenn C. Meyers Family Trust dtd 1/20/86 Signal Ventures
951 Mariner's Island Blvd., Suite 460 c/o Daniel W. Derbes
San Mateo, CA 94404 12780 High Bluff Drive, Suite 250
San Diego, CA 92130
Roger Sippl STF II, L.P.
951 Mariner's Island Blvd. 2180 Sand Hill Road, Suite 450
Suite 460 Menlo Park, CA 94025
San Mateo, CA 94404 Attn: David E. Gold
F&W Investments 1994 Barry J. Kramer
Two Palo Alto Square, #200 281 Stanford Avenue
Palo Alto, CA 94306 Palo Alto, CA 94306
Attn: Joel D. Kellman
Jack R. Taylor John L. deBenedetti
345 Celadon Drive 2191 E. Bayshore Rd., Ste. 220
Durango, CO 81301 Palo Alto, CA 94303
Gregor G. Peterson and/or
Dion Z. Peterson, Trustees of the
Gregor G. Peterson Trust 5/4/73
</TABLE>
<PAGE> 22
TALARIAN CORPORATION
FIRST AMENDMENT TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This First Amendment to Amended and Restated Investors' Rights
Agreement (this "Amendment") is entered into as of March 10, 2000 by and among
TALARIAN CORPORATION, a California corporation (the "Company"), Mark Mahowald
("Mahowald"), Ron Lachman ("Lachman"), Scottie Snyder ("Snyder") (Mahowald,
Lachman and Snyder are sometimes collectively referred to herein as the
"WhiteBarn Shareholders") and the holders of Registrable Securities set forth on
the signature pages hereto, and amends that certain Amended and Restated
Investors' Rights Agreement dated February 3, 2000 (the "Investors' Rights
Agreement"), by and among the Company and the holders of shares, or warrants to
purchase shares, of its preferred stock who are parties thereto (the "Existing
Investors"). Terms used but not otherwise defined in this Amendment shall have
the meanings given to such terms in the Investors' Rights Agreement.
R E C I T A L S
A. The Company and WhiteBarn, Inc., an Illinois corporation
("WhiteBarn"), are parties to an Agreement and Plan of Merger dated as of March
7, 2000 (the "Merger Agreement"), which provides for the merger of WhiteBarn
with and into the Company and for the Company to issue shares of its capital
stock to the WhiteBarn Shareholders.
B. As a condition to the consummation of the Merger, the Company is
to provide the WhiteBarn Shareholders with the registration rights provided to
the Existing Investors by Section 2 of the Investors' Rights Agreement.
C. Pursuant to Section 4.2 of the Investors' Rights Agreement,
Section 2 of the Investors' Rights Agreement may be amended with the written
consent of the Company and the holders of a majority of the outstanding
Registrable Securities.
D. The parties desire to enter into this Amendment to amend the
terms of Section 2 of the Investors' Rights Agreement to include the WhiteBarn
Shareholders as Holders of Registrable Securities.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 23
1. Section 2.1(b) of the Investors' Rights Agreement is hereby amended and
restated to read in its entirety as follows (added language is shown in bold):
(b) The term "Registrable Securities" means (1) any
Common Stock issued or issuable upon conversion of any (i) Series A Stock
issued pursuant to those certain Stock Purchase Agreements dated January
1, 1990 or February 22, 1991, (ii) Series B Stock issued pursuant to that
certain Series B Preferred Stock Purchase Agreement dated March 24, 1992,
(iii) Series C Stock issued pursuant to that certain Stock Purchase
Agreement dated February 28, 1994, (iv) Series C Stock issued pursuant to
that certain Stock Purchase Agreement dated November 30, 1995, (v) Series
D Stock issued pursuant to the Series D Agreement, (vi) Series A Stock
issuable upon exercise of the warrants held by DVI, or (vii) Series B
Stock issuable upon exercise of the warrants held by each of Unitechnic
and SVB (such warrants described in (vi) and (vii) collectively are
hereinafter referred to as the "Warrants"), (2) any Common Stock issued to
the WhiteBarn Shareholders pursuant to Section 2.4 of that certain
Agreement and Plan of Merger dated as of March 7, 2000 between the Company
and WhiteBarn, Inc. (all of such Common Stock referenced in (1) and (2)
above is hereinafter referred to as the "Conversion Shares"), and (3) any
Common Stock of the Company (or any corporation into which the Company
merges for purposes of changing its state of incorporation) issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such securities; excluding in
all cases, however, any Registrable Securities (i) sold to the public, or
(ii) sold or otherwise transferred by a person in a transaction in which
the rights under this Section 2 are not assigned or assignable.
2. Section 2.1(g) is hereby added to the Investors' Rights Agreement to
read in its entirety as follows:
(g) The term "WhiteBarn Shareholders" shall mean Mark Mahowald, Ron
Lachman and Scottie Snyder.
3. In all respects, the WhiteBarn Shareholders shall be, and shall enjoy
the benefits and undertake the obligations inuring to them as, Holders of
Registrable Securities under Section 2 of the Investors' Rights Agreement.
3. Effectiveness. This Amendment shall be effective (i) upon the execution
hereof by the Company and the Existing Investors holding, in the aggregate, at
least a majority of the outstanding Registrable Securities and (ii) as to each
of the WhiteBarn Shareholders, as of the date such WhiteBarn Shareholder shall
execute and deliver it to the Company.
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"WHITEBARN SHAREHOLDERS": THE "COMPANY":
TALARIAN CORPORATION
_________________________________ By:________________________________
MARK MAHOWALD Michael A. Morgan
Vice President
_________________________________
RON LACHMAN
_________________________________
SCOTTIE SNYDER
"EXISTING INVESTORS":
_________________________________
Print Name of Investor
_________________________________
Signature of Investor or Authorized
Signatory, if Applicable
_________________________________
Name and Title of Authorized
Signatory, if Applicable
<PAGE> 1
EXHIBIT 10.01
INDEMNITY AGREEMENT
This Indemnity Agreement (this "AGREEMENT"), dated as of _____________,
is made by and between Talarian Corporation, a Delaware corporation (the
"COMPANY"), and _________________________ , a director and/or officer of the
Company (the "INDEMNITEE").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based on their experience as business managers, the Board of
Directors of the Company (the "BOARD") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware under which
the Company is organized ("SECTION 145"), empowers the Company to indemnify by
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "AGENT" of the
Company means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation,
Talarian Corporation, a Maryland corporation and Talarian Corporation, a
California corporation, or was a director or officer of another enterprise or
affiliate of the Company at the request of, for the convenience of,
<PAGE> 2
or to represent the interests of such predecessor corporation. The term
"ENTERPRISE" includes any employee benefit plan of the Company, its
subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "EXPENSES" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification or advancement of expenses
under this Agreement, Section 145 or otherwise; provided, however, that expenses
shall not include any judgments, fines, ERISA excise taxes or penalties or
amounts paid in settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "PROCEEDING"
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "SUBSIDIARY" means
any corporation of which more than fifty percent (50%) of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more of the Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O INSURANCE"), on such terms
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee:
4.1 Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
2
<PAGE> 3
4.2 Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
5.1 Partial Indemnification. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the General Corporation Law of Delaware, then in
respect of any threatened, pending or completed proceeding in which the Company
is jointly liable with the Indemnitee (or would be if joined in such
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by the Indemnitee in such proportion as
is appropriate to reflect (i) the relative benefits received by the Company on
the one hand and the Indemnitee on the other hand from the transaction from
which such proceeding arose and (ii) the relative fault of the Company on the
one hand and of the Indemnitee on the other hand in connection with the events
which resulted in such expenses, judgments, fines or settlement amounts, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Indemnitee on the other hand shall be
determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
3
<PAGE> 4
circumstances resulting in such expenses, judgments, fines or settlement
amounts. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
6.1 Advancement. Subject to Section 9 below, the Company shall
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the General Corporation
Law of Delaware or otherwise. The advances to be made hereunder shall be paid by
the Company to the Indemnitee within thirty (30) days following delivery of a
written request therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points without advance Board approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee,
4
<PAGE> 5
all amounts payable as a result of such proceeding in accordance with the terms
of such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the 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
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 To the extent the Indemnitee has been successful on the merits
or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of
this Agreement or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding, or such claim, issue or matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not
apply to the entire proceeding, the Company shall nonetheless indemnify the
Indemnitee unless the Company shall prove by clear and convincing evidence to a
forum listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which
the validity of the Company's claim under Section 8.2 hereof that the Indemnitee
is not entitled to indemnification will be heard from among the following,
except that the Indemnitee can select a forum consisting of the stockholders of
the Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and
the Board, which counsel shall make such determination in a written opinion;
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(d) A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings specifically authorized by the Board or brought to
establish or enforce a right to indemnification and/or advancement of expenses
arising under this Agreement, the charter documents of the Company or any
subsidiary or any statute or law or otherwise, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board finds it to be appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
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9.3 Securities Law Actions. To indemnify the Indemnitee on account
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful. In this respect, the Company and the
Indemnitee have been advised that the Securities and Exchange Commission takes
the position that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
11. GENERAL PROVISIONS.
11.1 Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
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<PAGE> 8
11.4 Subrogation. In the event of full payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
11.5 Counterparts. This Agreement may be executed in one or more
counter-parts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
11.7 Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given: (a) if delivered by hand and signed for by the party addressee; or (b) if
mailed by certified or registered mail, with postage prepaid, on the third
business day after the mailing date. Notices shall be sent to either party at
the party's address shown on the signature page of this Agreement or as
subsequently modified by written notice.
11.8 Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
11.9 Consent to Jurisdiction. The Company and the 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.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring
any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
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IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
TALARIAN CORPORATION INDEMNITEE:
By:
-------------------------------- ------------------------------------
Name:
------------------------------
Title:
-----------------------------
Address: Address:
--------------------------- ---------------------------
- ----------------------------------- ------------------------------------
9
<PAGE> 1
Exhibit 10.02
TALARIAN CORPORATION
1991 STOCK OPTION PLAN
As adopted April 26, 1991,
as Amended September 23, 1993, November 10, 1995 and February 14, 1997
1. PURPOSE. This 1991 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Talarian Corporation, a California
corporation, (the "Company"). Capitalized terms not previously defined herein
are defined in Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Revenue
Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time
of grant. The shares of stock that may be purchased upon exercise of Options
granted under this Plan (the "Shares") are shares of the common stock of the
Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 2,050,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Options shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers, directors,
consultants, independent contractors and advisers (provided such consultants,
contractors and advisers render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction) of the Company or
any Parent, Subsidiary or Affiliate of the Company. ISOs may be granted only to
employees (including officers and directors who are also employees) of the
Company or a Parent or Subsidiary of the Company. The Committee (as defined in
Section 14) in its sole discretion shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option under this Plan.
The Company may also, from time to time, assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (i) granting an Option under this Plan in replacement of
the option assumed by the Company, or (ii) treating the assumed option as if it
had been granted under this Plan if the terms of such assumed option could be
applied to an Option granted under this Plan. Such assumption shall be
permissible if the holder of the assumed option would have been eligible to be
granted an Option hereunder if the other company had applied the rules of this
Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
each Option is to be an ISO or an NQSO, the number of Shares subject to the
Option,
<PAGE> 2
the exercise price of the Option, the period during which the Option may be
exercised, and all other terms and conditions of the Option, subject to the
following:
(a) Form of Option Grant. Each Option granted under this Plan shall
be evidenced by a written Stock Option Grant (the "Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Date of Grant. The date of grant of an Option shall be the date
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to Optionee with a copy of this Plan within a reasonable time after
granting of the Option.
(c) Exercise Price. The exercise price of an NQSO shall be not less
than 85% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of an ISO shall be not less than 100% of the Fair
Market Value of the Shares on the date the Option is granted. The exercise price
of any ISO or NQSO granted to a person owning more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company ("Ten Percent Shareholder") shall not be less than
110% of the Fair Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the times
or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further that no
ISO granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
(e) Limitations on ISOs. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by an Optionee during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such year shall be
ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the Revenue Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan, and
any interest therein, shall not be transferable or assignable by Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of Optionee only by Optionee; provided, however,
that NQSOs held by an Optionee who is not an officer or director of the Company
or other person (in each case, an "Insider") whose transactions in the Company's
common stock are
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<PAGE> 3
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), may be transferred to such family members, trusts and
charitable institutions as the Committee, in its sole discretion, shall approve
at the time of the grant of such Option.
(g) Assumed Options. In the event the Company assumes an option
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424(a) of the Revenue Code). In the event the Company elects to grant a new
option rather than assuming an existing option (as specified in Section 4), such
new option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the Company
of a written stock option exercise agreement (the "Exercise Agreement") in a
form approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any, as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by check)
or, where approved by the Committee in its sole discretion at the time of grant
and where permitted by law: (i) by cancellation of indebtedness of the Company
to the Optionee; (ii) by surrender of shares of common stock of the Company
having a Fair Market Value equal to the applicable exercise price of the
Options, that have been owned by Optionee for more than six (6) months (and
which have been paid for within the meaning of the Securities and Exchange
Commission ("SEC") Rule 144 and, if such Shares were purchased from the Company
by use of a promissory note, such note has been fully paid with respect to such
shares), or were obtained by Optionee in the open public market; (iii) by tender
of a full recourse promissory note having such terms as may be approved by the
Committee and bearing interest at a rate sufficient to avoid imputation of
income under Sections 483 and 1274 of the Revenue Code; (iv) by waiver of
compensation due or accrued to Optionee for services rendered; (v) provided that
a public market for the Company's stock exits, through a "same day sale"
commitment from Optionee and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby Optionee
irrevocably elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price directly to
the Company; (vi) provided that a public market for the Company's stock exists,
through a "margin" commitment from Optionee and an NASD Dealer whereby Optionee
irrevocably elects to exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (vii) by any combination of the foregoing. Optionees
who are not employees or directors of the
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<PAGE> 4
Company shall not be entitled to purchase Shares with a promissory note unless
the note is adequately secured by collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise
of an Option, Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable. Where approved by
the Committee in its sole discretion, Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the minimum amount of taxes
required to be withheld. In such case, the Company shall issue the net number of
Shares to Optionee by deducting the Shares retained form the Shares exercised.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined in accordance
with Section 83 of the Revenue Code (the "Tax Date"). All elections by Optionees
to have Shares withheld for this purpose shall be made in writing in a form
acceptable to the Committee and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable
Tax Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Committee.
In addition, if Optionee is an Insider, and if the Company is subject to
Section 16(b) of the Exchange Act, the following shall apply:
(iv) the election may not be made within six (6) months of the
date of grant of the Option; provided, however, that this limitation shall not
apply in the event that death or disability of Optionee occurs prior to the
expiration of the six (6) month period;
(v) the election must be made either six (6) months prior to
the Tax Date or in the 10-day period beginning on the third day following the
public release of the Company's quarterly or annual summary statement of
operations; and
(vi) if the Tax Date is deferred until six months after
exercise of the Option because no election is filed under Section 83(b) of the
Revenue Code, Optionee shall receive the full number of Shares with respect to
which the Option is exercised, but Optionee shall be unconditionally obligated
to tender back to the Company the proper number of Shares on the Tax Date.
(d) Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following:
(i) If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, Optionee may exercise such Optionee's ISOs to the extent (and only
to the extent) that they would have been
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<PAGE> 5
exercisable upon the date of termination, within three (3) months after the date
of termination (or such shorter time period as may be specified in the Grant);
(ii) If Optionee is an Insider and the Company is subject to
Section 16(b) of the Exchange Act, Optionee's Option will be exercisable for a
period of time sufficient to allow Optionee from having a matching purchase and
sale under Section 16(b), with any extension beyond three (3) months from
termination of employment deemed to be as an NQSO, and provided further that in
no event may an Option be exercisable later than the expiration date of the
Option;
(iii) If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of
Optionee or disability of Optionee within the meaning of Section 22(e)(3) of the
Revenue Code, Optionee's ISOs may be exercised to the extent (and only to the
extent) that they would have been exercisable by Optionee on the date of
termination, by Optionee (or Optionee's legal representative) within twelve (12)
months after the date of termination (or such shorter time period as may be
specified in the Grant), but in any event no later than the expiration date of
the ISOs.
(iv) The Committee shall have discretion to determine whether
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated.
(v) In the case of an Optionee who is a director, independent
consultant, contractor or adviser, the Committee will have the discretion to
determine whether Optionee is "employed by the Company or any Parent, Subsidiary
or Affiliate of the Company" pursuant to the foregoing Sections.
(vi) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(vii) An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or national market system, and the Company shall have no
liability for any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Grant (a) a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party and/or (b) a right to repurchase all Shares
held by an Optionee upon Optionee's
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<PAGE> 6
termination of employment or service with the Company or a Parent, Subsidiary or
Affiliate of the Company at any time within ninety (90) days after the later of
Optionee's termination and the date Optionee purchases Shares under the Plan for
cash and/or cancellation of purchase money indebtedness, at: (A) with respect to
vested Shares, the Fair Market Value of such Shares on the date of Optionee's
termination, provided, that such right of repurchase terminates when the
Company's securities become publicly traded; or (B) with respect to unvested
Shares, the Optionee's original purchase price, provided, that to the extent
Optionee is not an officer, director or consultant of the Company, such right of
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) per year over five (5) years from the date of grant of the Option.
The Committee shall determine, at its discretion, the terms under which Shares
may vest.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of Optionee, impair any rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Revenue Code. The Committee shall have the power to reduce the exercise
price of outstanding Options without the consent of Optionees by a written
notice to the Optionees affected; provided, however, that the exercise price per
Share may not be reduced below the minimum exercise price that would be
permitted under Section 5(c) of this Plan for Options granted on the date the
action is taken to reduce the exercise price.
9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights
of a shareholder with respect to any Shares subject to an Option until such
Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee a
copy of the annual financial statements of the Company at such time after the
close of each fiscal year of the Company as such statements are released by the
Company to its common shareholders generally.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per Share of such Options
shall be proportionately adjusted, subject to any required action by the Board
of Directors (the "Board") or shareholders
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<PAGE> 7
of the Company and compliance with applicable securities laws; provided,
however, that a fractional share shall not be issued upon exercise of any Option
and any fractions of a Share that would have resulted shall either be cashed out
at Fair Market Value or the number of Shares issuable under the Option shall be
rounded up to the nearest whole number, as determined by the Committee; and
provided further that the exercise price may not be decreased to below the par
value, if any, for the Shares.
12. ASSUMPTION OF OPTIONS BY SUCCESSORS.
(a) In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly owned subsidiary, a reincorporation, or other transaction in which
there is no substantial change in the shareholders of the corporation and the
Options granted under this Plan are assumed by the successor corporation), (ii)
a dissolution or liquidation of the Company, (iii) the sale of substantially all
of the assets of the Company, or (iv) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the Revenue Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition of all or substantially all of the outstanding
shares of the Company), any or all outstanding Options may be assumed by the
successor corporation, which assumption shall be binding on all Optionees. In
the alternative, the successor corporation may substitute an equivalent option
or provide substantially similar consideration to Optionees as was provided to
shareholders (after taking into account the existing provisions of Optionee's
options, such as the exercise price and the vesting schedule). The successor
corporation may also issue, in place of outstanding shares of the Company held
by Optionee as a result of the exercise of an Option that is subject to
repurchase, substantially similar shares or other property subject to similar
repurchase restrictions no less favorable to Optionee. In the event such
successor corporation, if any, refuses to assume or substitute the Options, as
provided above, or if there is no successor corporation, such Options shall
expire in connection with such transaction at such time and on such conditions
as the Board shall determine.
(b) Subject the foregoing provisions of this Section 12, in the
event of the occurrence of any transaction described in Section 12(a), any
outstanding Option shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction".
(c) Notwithstanding the above, for Options granted prior to
September 30, 1995, in the event such successor corporation refuses to assume or
substitute, as provided above, pursuant to a transaction described in Subsection
12(a)(i) above, such Options shall accelerate and become exercisable in full at
least 20 days prior to, and shall expire on (and, if the Company has reserved to
itself a right to repurchase Shares issued on exercise of Options at the
original purchase price of such Shares, such right shall terminate on), the
consummation of such transaction at such time and on such conditions as the
Board shall determine. If the Fair Market Value of stock with respect to which
all ISOs are first exercisable in such calendar year exceeds $100,000, the
Options for the first $100,000 worth of Shares to become exercisable in that
year shall be ISOs and the Options for the amount in excess of $100,000 shall be
NQSOs.
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13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on
the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Upon the effective date of the Plan, the Board may
grant Options pursuant to this Plan; provided that, in the event that
shareholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such Shareholder approval is not obtained.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 with respect to
shareholder approval.
14. ADMINISTRATION. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, a majority of the Board is not comprised of
Disinterested Persons, the Company will take appropriate steps to comply with
the disinterested director requirements of Section 16(b) of the Exchange Act,
which may consist of the appointment by the Board of a Committee consisting of
not less than three persons (who need not be members of the Board), each of whom
is a Disinterested Person. As used in this Plan, references to the "Committee"
shall mean either the committee appointed to the Board to administer this Plan
or the Board if no committee has been established. After registration of the
Company under the Exchange Act, Board members who are not Disinterested Persons
may not vote on any matters affecting the administration of this Plan or on the
grant of any Options pursuant to this Plan to Insiders, but any such member may
be counted for determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to Options or administration of this
Plan and may vote on the grant of any Options pursuant to this Plan otherwise
than to Insiders. The Interpretation by the Committee of any of the provisions
of this Plan or any Option granted under this Plan shall be final and binding
upon the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may delegate to officers of the
Company the authority to grant Options under this Plan to Optionees who are not
Insiders of the Company.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the date on which this Plan is
adopted by the Board.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the shareholders of the Company, amend this Plan in any manner
that requires such shareholder approval pursuant to the Revenue Code or the
regulations promulgated thereunder as such provisions apply to ISO plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.
8
<PAGE> 9
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
(a) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(c) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(d) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d) (3) as promulgated by the SEC under Section 16(b) of the Exchange Act,
as such rule is amended from time to time and as interpreted by the SEC.
(e) "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, the event the common
stock of the Company is listed on a stock exchange or on the NASDAQ National
Market System, the Fair Market Value shall be the closing price on such exchange
or quotation system on the last trading day prior to the date of determination
(or the average closing price over the number of consecutive working days
preceding the date of determination as the Committee shall deem appropriate).
9
<PAGE> 10
TALARIAN CORPORATION
STOCK OPTION GRANT
Optionee:
------------------------------------
Address:
------------------------------------
Total Shares Subject to Option:
------------------------------------
Exercise Price per Share:
------------------------------------
Date of Grant:
------------------------------------
Expiration Date:
------------------------------------
Type of Option: [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
1. Grant of Option. Talarian Corporation, a California corporation (the
"Company"), hereby grants to the optionee named above ("Optionee") an option
(this "Option") to purchase the total number of shares of common stock of the
Company set forth above (the "Shares") at the exercise price per share set forth
above (the "Exercise Price"), subject to all of the terms and conditions of this
Stock Option Grant (this "Grant") and the Company's 1991 Stock Option Plan, as
amended to the date hereof (the "Plan"). If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986,
as amended (the "Revenue Code"). Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to them in the Plan.
2. Exercise Period of Option.
(a) Exercise Schedule. Subject to the terms and conditions of the
Plan and this Grant, this Option shall become exercisable as to portions of the
Shares as follows: (a) This Option shall not be exercisable with respect to any
of the Shares until _______________ (the "First Vesting Date"); (b) if Optionee
has been continuously employed by the Company at all times during the time
period beginning on the Date of Grant set forth above and ending on the First
Vesting Date, then on the First Vesting Date this Option shall become
exercisable as to ________________ (______%) of the Shares; and (c) thereafter
this Option shall become exercisable as to an additional ______________
(_______%) of the Shares for each additional full calendar month after the First
Vesting Date that Optionee remains continuously employed by the Company
thereafter; provided that Optionee shall in no event be entitled under this
Option to purchase a number of shares of the Company's common stock greater than
the "Total Shares Subject to Option" indicated above.
<PAGE> 11
(b) Right to Exercise Option in Full. Notwithstanding Section 2(a)
hereof, this Option shall be immediately exercisable with respect to all of the
Shares, provided however, that the Company shall have the right to repurchase
(in addition to any other rights of repurchase the Company may hold) any or all
of the Shares that are not yet exercisable pursuant to Section 2(a) hereof at a
price equal to the Exercise Price Per Share, as adjusted for stock splits,
reverse stock splits and the like, at the time which Optionee ceases to be
employed by the Company. Provided Participant continues to be employed by the
Company, the Company's right to repurchase the Shares at a price equal to the
Exercise Price Per Share shall lapse at the same rate that this Option for such
Shares would have become exercisable pursuant to Section 2(a) hereof, if such
Option had not been exercised in full pursuant to this Section 2(b).
(c) Expiration. Notwithstanding anything herein to the contrary,
this Option shall expire on the Expiration Date set forth above and must be
exercised, if at all, on or before the Expiration Date; and provided further
that this Option must become exercisable as to at least 20% of the Shares for
each full year since the Date of Grant.
3. Restriction on Exercise. This Option may not be exercised unless such
exercise is in compliance with the Securities Act and all applicable state
securities laws as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's common stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
to effect such compliance.
4. Termination of Option. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be
employed by the Company or any Parent or Subsidiary of the Company (or, in the
case of a nonqualified stock option, an Affiliate of the Company). Optionee
shall be considered to be employed by the Company for all purposes under this
Section 4 if Optionee is an officer, director or full-time employee of the
Company or any Parent, Subsidiary or Affiliate of the Company or if the
Committee determines that Optionee is rendering substantial services as a
part-time employee, consultant, contractor or adviser to the Company or any
Parent, Subsidiary or Affiliate of the Company. The Committee shall have
discretion to determine whether Optionee has ceased to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company and the effective
date on which such employment terminated (the "Termination Date").
(a) Termination Generally. If Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, this Option, to the extent (and only to the extent)
that it would have been exercisable by Optionee on the Termination Date, may be
exercised by Optionee within three (3) months after the Termination Date, but in
no event later than the Expiration Date.
(b) Death or Disability. If Optionee's employment with the Company
or any Parent, Subsidiary or Affiliate of the Company is terminated because of
the death of Optionee or the disability of Optionee within the meaning of
Section 22(e)(3) of the Revenue Code, this Option, to the extent (and only to
the extent) that it would have been exercisable by Optionee on
<PAGE> 12
the Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.
(c) No Right to Employment. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Optionee's employment or other relationship at any
time, with or without cause.
5. Manner of Exercise.
(a) Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
approved by the Company, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
(b) Exercise Price. Such notice shall be accompanied by full
payment of the Exercise Price for the Shares being purchased. Payment for the
Shares may be made in cash (by check) or, where permitted by law: (i) by
cancellation of indebtedness of the Company to Optionee; (ii) by surrender of
shares of common stock of the Company having a Fair Market Value equal to the
exercise price of the Option that have been owned by Optionee for more than six
(6) months (and which have been paid for within the meaning of SEC Rule 144 and,
if such Shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares), or were obtained by
Optionee in the open public market; (iii) by waiver of compensation due or
accrued to Optionee for services rendered; (iv) provided that a public market
for the Company's stock exists, through a "same day sale" commitment from
Optionee and a broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby Optionee irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay for
the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the Company; (v)
provided that a public market for the Company's stock exists, through a "margin"
commitment from Optionee and an NASD Dealer whereby Optionee irrevocably elects
to exercise the Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the Company; or (vi) by
any combination of the foregoing. Optionees who are not employees or directors
of the Company shall not be entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral other than the Shares.
(c) Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the Company. If Optionee
is an Insider subject at the time of exercise of this Option to Section 16(b) of
the Exchange Act, Optionee may provide for payment of
<PAGE> 13
Optionee's minimum statutory withholding taxes upon exercise of the Option by
requesting that the Company retain Shares with a Fair Market Value equal to the
minimum amount of taxes required to be withheld, all as set forth in Section
6(c) of the Plan. In such case, the Company shall issue the net number of Shares
to Optionee by deducting the Shares retained from the Shares exercised.
(d) Issuance of Shares. Provided that such notice and payment are
in form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee, Optionee's legal
representative or Optionee's assignee.
6. Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO within (1) the date
two years after the Date of Grant, or (2) the date one year after exercise of
the ISO with respect to the Shares to be sold or disposed, Optionee shall
immediately notify the Company in writing of such disposition. Optionee
acknowledges and agrees that Optionee may be subject to income tax withholding
by the Company on the compensation income recognized by Optionee from any such
early disposition by payment in cash (or in Shares, to the extent permissible
under Section 5(c)) or out of the current wages or other earnings payable to
Optionee.
7. Nontransferability of Option. If this Option is an ISO, or if Optionee is an
Insider subject to Section 16(b) of the Exchange Act, then this Option may not
be transferred in any manner other than by will or by the law of descent and
distribution and may be exercised during the lifetime of Optionee only by
Optionee. Otherwise, this Option may only be transferred to Optionee's immediate
family, to a trust for the benefit of Optionee or Optionee's immediate family,
or to a charitable entity qualified under IRC Section 501(c), where "immediate
family" shall mean spouse, lineal descendant or antecedent, brother or sister.
The terms of this Option shall be binding upon the executors, administrators,
successors and assigns of Optionee.
8. Tax Consequences. Set forth below is a brief summary as of the date this form
of Grant was adopted of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability or California income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal and
California income tax purposes and may subject Optionee to an alternative
minimum tax liability in the year of exercise.
(b) Exercise of Nonqualified Stock Option. If this Option does not
qualify as an ISO, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. Optionee will
be treated as having received compensation
<PAGE> 14
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price. The Company will be required to withhold from Optionee's compensation or
collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(c) Disposition of Shares. In the case of an NQSO, if Shares are
held for more than one year before disposition, any gain on disposition of the
Shares will be treated as long-term capital gain for federal and California
income tax purposes. In the case of an ISO, if Shares are held for more than one
year after the date of exercise and more than two years after the Date of Grant,
any gain on disposition on the Shares will be treated as long-term capital gain
for federal and California income tax purposes. If Shares acquired pursuant to
an ISO are disposed of within such one year or two year periods (a
"disqualifying disposition"), gain on such disqualifying disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price (the "Spread"), or, if less, the difference
between the amount realized on the sale of such Shares and the Exercise Price.
Any gain in excess of the Spread shall be treated as capital gain.
9. Interpretation. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Company's Board of
Directors or the committee thereof that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such a dispute by
the Board or Committee shall be final and binding on the Company and on
Optionee.
10. Entire Agreement. The Plan and the Stock Option Exercise Agreement
attached as Exhibit A are incorporated herein by this reference. This Grant, the
Plan and the Stock Option Exercise Agreement constitute the entire agreement of
the parties hereto and supersede all prior undertakings and agreements with
respect to the subject matter hereof.
TALARIAN CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 15
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Stock
Option Grant. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax adviser prior to such exercise or disposition.
------------------------------------
Optionee
<PAGE> 16
Exhibit A
TALARIAN CORPORATION
<PAGE> 17
Exhibit A
TALARIAN CORPORATION
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made this ____ day of ________, 2___ (the "Effective
Date") between Talarian Corporation, a California corporation (the "Company"),
and the optionee named below ("Optionee") pursuant to the Company's 1991 Stock
Option Plan (the "Plan").
Optionee:
------------------------------------
Social Security Number:
------------------------------------
Address:
------------------------------------
------------------------------------
Number of Unvested Shares as of the
Effective Date:
------------------------------------
Number of Vested Shares as of the
Effective Date:
------------------------------------
Total Number of Shares Purchased:
------------------------------------
Price per Share:
------------------------------------
Aggregate Purchase Price:
------------------------------------
Date of Option Grant:
------------------------------------
Type of Option: [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
Optionee hereby delivers to the Company the Aggregate Purchase Price, to
the extent permitted in the Grant and pursuant to exercise of that certain
option ("Option") granted to Optionee under the Plan, as follows (check as
applicable and complete):
[ ] in cash in the amount of $ , receipt of which is acknowledged
by the Company; ---------
[ ] by delivery of fully-paid, nonassessable and vested shares of the common
stock of the Company owned by Optionee for at least six (6) months prior
to the
<PAGE> 18
date hereof (and which have been paid for within the meaning of SEC Rule
144), or obtained by Optionee in the open public market, and owned free
and clear of all liens, claims, encumbrances or security interests,
valued at the current Fair Market Value of $_____ per share;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $__________;
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $______;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of $_______; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of $_______.
Optionee also hereby delivers to the Company (i) this Exercise
Agreement, (ii) two (2) copies of a blank Stock Power and Assignment Separate
from Stock Certificate in the form of Attachment 1 attached hereto (the "Stock
Powers"), both executed by Optionee (and Optionee's spouse, if any), and (iii)
if Optionee is married, a Consent of Spouse in the form of Attachment 2 attached
hereto (the "Spouse Consent") executed by Optionee's spouse. Upon its receipt of
the Aggregate Purchase Price and all the documents to be executed and delivered
by Optionee to the Company, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Optionee, to be placed in
escrow as provided in Section 11 until expiration or termination of the
Company's Right of First Refusal and Repurchase Option described in Sections 7
and 9, respectively.
The Company and Optionee hereby agree as follows:
1. Purchase of Shares. On this date and subject to the terms and
conditions of this Exercise Agreement, Optionee hereby exercises the Grant
between the Company and Optionee dated as of the Date of Grant set forth above,
with respect to the Number of Shares Purchased set forth above of the Company's
common stock (the "Shares") at an aggregate purchase price equal to the
Aggregate Purchase Price set forth above (the "Aggregate Purchase Price") and
the Price per Share set forth above (the "Purchase Price Per Share"). The term
"Shares" refers to the Shares purchased under this Exercise Agreement and
includes all securities received (a) in replacement of the Shares, and (b) as a
result of stock dividends or stock splits with respect to the Shares.
2. Representations of Optionee. Optionee represents and warrants to the
Company that:
(a) Optionee has received, read and understood the Plan and the
Grant and agrees to abide by and be bound by their terms and conditions.
-2-
<PAGE> 19
(b) Optionee is purchasing the Shares for Optionee's own account
for investment purposes only and not with a view to, or for sale in connection
with, a distribution of the Shares within the meaning of the Securities Act.
(c) Optionee has no present intention of selling or otherwise
disposing of all or any portion of the Shares.
(d) Optionee is fully aware of (i) the highly speculative nature of
the investment in the Shares; (ii) the financial hazards involved; and (iii) the
lack of liquidity of the Shares and the restrictions on transferability of the
Shares (e.g., that Optionee may not be able to sell or dispose of the Shares or
use them as collateral for loans).
(e) Optionee is capable of evaluating the merits and risks of this
investment, has the ability to protect Optionee's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
3. Compliance with Securities Laws. Optionee understands and
acknowledges that the Shares have not been registered under the Securities Act
and that, notwithstanding any other provision of the Grant to the contrary, the
exercise of any rights to purchase any Shares is expressly conditioned upon
compliance with the Securities Act and all applicable state securities laws.
Optionee agrees to cooperate with the Company to ensure compliance with such
laws. The Shares are being issued under the Securities Act pursuant to (the
Company will check the applicable box):
[ ] the exemption provided by Rule 701;
[ ] the exemption provided by Rule 504;
[ ] Section 4(2) of the Securities Act;
[ ] other: .
-----------------------------
4. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act or unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
(a) Rule 144. Optionee has been advised that Rule 144 promulgated
under the Securities Act, which permits certain resales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, requires that the Shares be paid for and then held for a minimum of one
year before they may be resold under Rule 144. Prior to an initial public
offering of the Company's stock, "nonaffiliates" (i.e. persons other than
officers, directors and major shareholders of the Company) may resell only under
Rule 144(k), which requires that the Shares be paid for and held for a minimum
of two years. Rule 144(k) is not available to affiliates.
-3-
<PAGE> 20
(b) Rule 701. If the exemption relied upon for exercise of the
Shares is Rule 701, the Shares will become freely transferable, subject to
limited conditions regarding the method of sale, by nonaffiliates 90 days after
the first sale of common stock of the Company to the general public pursuant to
a registration statement filed with and declared effective by the SEC, subject
to any lengthier market standoff agreement contained in this Exercise Agreement
or entered into by Optionee. Affiliates must comply with the provisions (other
than the holding period requirements) of Rule 144.
5. State Law Restrictions on Transfer. Optionee understands that
transfer of the Shares may be restricted by Section 260.141.11 of the Rules of
the California Commissioner of Corporations, a copy of which is attached hereto
as Attachment 3, and that the certificate(s) representing the Shares may bear a
legend to that effect.
6. Market Standoff Agreement. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time from the effective date of such registration as the Company
or the underwriters may specify for employee shareholders generally.
7. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company shall have an assignable right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"); and the Holder shall offer to sell
the Shares at the Offered Price to the Company.
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company or its assignee may, by
giving written notice to the Holder, elect to purchase all (but not less than
all) of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price for the Shares purchased
under this Section shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
-4-
<PAGE> 21
(d) Payment. Payment of the purchase price shall be made, at the
option of the Company or its assignee, either (i) in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company or such assignee, or by any combination thereof within thirty
(30) days after receipt of the Notice or (ii) in the manner and at the time(s)
set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company shall again be offered
the Right of First Refusal, before any Shares held by the Holder may be sold or
otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during Optionee's lifetime or on Optionee's death by will or
intestacy to Optionee's immediate family or a trust for the benefit of Optionee
or Optionee's immediate family shall be exempt from the provisions of this
Section; provided that, as a condition to receiving the Shares, the transferee
or other recipient shall agree in writing to receive and hold the Shares so
transferred subject to the provisions of this Exercise Agreement, and to
transfer such Shares no further except in accordance with the terms of this
Exercise Agreement. As used herein, "immediate family" shall mean spouse, lineal
descendant or antecedent, brother or sister.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of common stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the SEC (other than a registration statement
solely covering an employee benefit plan or corporate reorganization).
8. Compliance with State Securities Laws. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE
CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION,
IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN
EXEMPTION BEING AVAILABLE.
-5-
<PAGE> 22
9. Company's Repurchase Option. The Company, or its assignee, shall have
the option to repurchase all or a portion of the Shares on the terms and
conditions set forth in this Section (the "Repurchase Option") if Optionee
should cease to be employed by the Company for any reason, or no reason,
including without limitation Optionee's death, disability, voluntary resignation
or termination by the Company with or without cause.
(a) Right of Termination Unaffected. Nothing in this Exercise
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company to terminate Optionee's employment
at any time, for any reason or no reason, with or without cause. For purposes of
this Exercise Agreement, Optionee shall be considered to be "employed by the
Company" if Optionee is an officer, director or full-time employee of the
Company or any Parent, Subsidiary or Affiliate of the Company or if the
Committee determines that Optionee is rendering substantial services as a
part-time employee, consultant, contractor or adviser to the Company or any
Parent, Subsidiary or Affiliate of the Company. The Committee shall have
discretion to determine whether Optionee has ceased to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company and the effective
date on which such employment terminated (the "Termination Date").
(b) Vested and Unvested Shares. "Vested Shares" shall mean at any
point in time those Shares that would have been eligible for exercise under
Section 2(a) of the Grant at such point in time if the Option had not been
exercised under Section 2(b) of the Grant, and the remaining Shares are
"Unvested Shares." Unvested Shares may not be sold or otherwise transferred by
Optionee without the Company's prior written consent. The number of Shares that
are Vested Shares or Unvested Shares will be proportionally adjusted to reflect
any stock dividend, stock split, reverse stock split or recapitalization of the
Common Stock of the Company occurring after the Effective Date.
(c) Exercise of Repurchase Option. At any time within one hundred
twenty (120) days after the later of the Termination Date and the date the
Optionee purchased the Shares, the Company, or its assignee, may elect to
repurchase a portion, all or none of the Unvested Shares and/or a portion (with
Optionee's consent), all or none of the Vested Shares by giving Optionee written
notice of exercise of the Repurchase Option.
(d) Calculation of Repurchase Price. The Company or its assignee(s)
shall have the option to repurchase from Optionee (or from Optionee's personal
representative as the case may be) any or all of the Unvested Shares at the
Optionee's original Purchase Price Per Share (as adjusted to reflect any stock
dividend, stock split, reverse stock split or recapitalization of the Common
Stock of the Company occurring after the Effective Date) and any (with
Optionee's Consent) or all of the Vested Shares at the higher of Fair Market
Value of such Vested Shares on the Optionee's Termination Date or the Optionee's
original Purchase Price Per Share.
(e) Payment of Repurchase Price. The repurchase price shall be
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Optionee to
the Company or such assignee, or by any combination
-6-
<PAGE> 23
thereof. The repurchase price shall be paid without interest within thirty (30)
days after exercise of the Repurchase Option.
(f) Termination of Repurchase Option. The Repurchase Option shall
terminate as to any Vested Shares upon the first sale of common stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the SEC (other than a registration statement solely
covering an employee benefit plan or corporate reorganization).
10. Rights as Shareholder. Subject to the terms and conditions of this
Exercise Agreement, Optionee will have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Optionee
delivers payment of the Aggregate Purchase Price until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercise(s) the
Right of Repurchase or Right of First Refusal. Upon an exercise of the Right of
Repurchase or Right of First Refusal, Optionee will have no further rights as a
holder of the Shares so purchased upon such exercise, except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Exercise Agreement, and Optionee will promptly surrender the stock
certificate(s) evidencing the Shares so purchased to the Company for transfer or
cancellation.
11. Escrow. As security for Optionee's faithful performance of this
Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s)
evidencing the Shares, to deliver such certificate(s), together with the Stock
Powers executed by Optionee and by Optionee's spouse, if any (with the date and
number of Shares left blank), to the Secretary of the Company or other designee
of the Company ("Escrow Holder"), who is hereby appointed to hold such
certificate(s) and Stock Powers in escrow and to take all such actions and to
effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Optionee and the Company agree that
Escrow Holder will not be liable to any party to this Exercise Agreement (or to
any other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Exercise Agreement. Escrow Holder may rely upon any letter,
notice or other document executed by any signature purported to be genuine and
may rely on the advice of counsel and obey any order of any court with respect
to the transactions contemplated by this Agreement. The Shares will be released
from escrow upon termination of the Right of Repurchase and Right of First
Refusal.
12. Legends. Optionee understands and agrees that the Shares are subject
to a Right of First Refusal and a Repurchase Option held by the Company (or its
assignee) as set forth herein and that the certificate(s) representing the
Shares will bear legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND RIGHT OF FIRST
REFUSAL AND REPURCHASE OPTIONS HELD BY THE ISSUER AND/OR ITS
ASSIGNEE(S) AND MAY NOT BE
-7-
<PAGE> 24
TRANSFERRED EXCEPT AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL AND REPURCHASE ARE BINDING
ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
If the foregoing legend is required, Optionee acknowledges receipt of a
copy of Section 260.141.11 of the Rules of the California Corporations
Commissioner, attached as Attachment 3.
13. Stop-Transfer Notices. Optionee understands and agrees that, in
order to ensure compliance with the restrictions referred to herein, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
14. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF
THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT
-8-
<PAGE> 25
OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. IN PARTICULAR, IF THE
SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY OR IF OPTIONEE IS AN INSIDER
SUBJECT TO SECTION 16(b) OF THE EXCHANGE ACT, OPTIONEE REPRESENTS THAT OPTIONEE
HAS CONSULTED WITH OPTIONEE'S TAX ADVISERS CONCERNING THE ADVISABILITY OF FILING
AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE.
OPTIONEE FURTHER ACKNOWLEDGES THAT OPTIONEE HAS BEEN INFORMED THAT,
UNLESS AN ELECTION IS FILED BY THE OPTIONEE WITH THE INTERNAL REVENUE SERVICE
(AND, IF NECESSARY, THE PROPER STATE TAXING AUTHORITIES), WITHIN 30 DAYS OF THE
PURCHASE OF THE OPTION SHARES, ELECTING PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE (AND SIMILAR STATE TAX PROVISIONS, IF APPLICABLE) TO BE
TAXED CURRENTLY ON ANY DIFFERENCE BETWEEN THE PURCHASE PRICE OF THE OPTION
SHARES AND THEIR FAIR MARKET VALUE ON THE DATE OF PURCHASE, THERE MAY BE A
RECOGNITION OF TAXABLE INCOME TO THE OPTIONEE, MEASURED BY THE EXCESS, IF ANY,
OF THE FAIR MARKET VALUE OF THE OPTION SHARES, AT THE TIME THEY CEASE TO BE
UNVESTED SHARES, OVER THE PURCHASE PRICE FOR THE OPTION SHARES. SIMILAR ISSUES
MAY ARISE IN CONNECTION WITH ALTERNATIVE MINIMUM TAXES. OPTIONEE REPRESENTS THAT
OPTIONEE HAS CONSULTED ANY TAX ADVISORS OPTIONEE DEEMS ADVISABLE IN CONNECTION
WITH OPTIONEE'S PURCHASE OF THE OPTION SHARES AND THE FILING OF THE ELECTION
UNDER SECTION 83(b) AND SIMILAR TAX PROVISIONS. FORMS OF ELECTION UNDER SECTION
83(b) ARE ATTACHED HERETO AS ATTACHMENTS 5A AND 5B FOR REFERENCE PURPOSES ONLY.
OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING
ANY TAXES RESULTING FROM SUCH ELECTION OR FROM FAILURE TO FILE THE ELECTION AND
PAYING TAXES FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED
SHARES.
15. Entire Agreement. The Plan and Grant are incorporated herein by
reference. This Exercise Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: TALARIAN CORPORATION
- -----------------------------------
(print name)
By:
- ----------------------------------- -----------------------------------
(Signature)
Its:
----------------------------------
-9-
<PAGE> 26
Dated: Dated:
----------------------------- ------------------------------
-10-
<PAGE> 27
Talarian Corporation
Stock Option Exercise Agreement
LIST OF ATTACHMENTS
Attachment 1: Stock Power and Assignment Separate from Stock Certificate
Attachment 2: Spouse Consent
Attachment 3: California Commissioner Rule 260.141.11
Attachment 4: Copy of Optionee's Check
Attachment 5: 83(b) Election
-11-
<PAGE> 28
Talarian Corporation
Stock Option Exercise Agreement
ATTACHMENT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. __ dated as of __________, 19__, (the "Agreement"), the
undersigned hereby sells, assigns and transfers unto _____________,
____________, shares of the Common Stock of Talarian Corporation, a California
corporation (the "Company"), standing in the undersigned's name on the books of
the Company represented by Certificate No(s). _______ delivered herewith, and
does hereby irrevocably constitute and appoint the Secretary of the Company as
the undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ____________, 19__
OPTIONEE
----------------------------
(Signature)
----------------------------
(Please Print Name)
----------------------------
(Spouse's Signature, if any)
----------------------------
(Please Print Spouse's Name)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon exercise of its "Right of First Refusal" and/or "Right
of Repurchase" set forth in the Agreement without requiring additional
signatures on the part of the Optionee or, Optionee's Spouse, if any.
-12-
<PAGE> 29
Talarian Corporation
Stock Option Exercise Agreement
ATTACHMENT 2
SPOUSE CONSENT
The undersigned spouse of Optionee has read, understands, and hereby
approves the Stock Option Exercise Agreement between Optionee and Talarian
Corporation (the "Agreement"). In consideration of Talarian Corporation having
granted my spouse the right to purchase the Shares as set forth in the
Agreement, the undersigned hereby agrees to be irrevocably bound by the
Agreement and further agrees that any community property interest shall
similarly be bound by the Agreement. The undersigned hereby appoints Optionee as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
Date: _________________ ____________________________
Optionee's Spouse
Address:_____________________
_____________________________
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<PAGE> 30
Talarian Corporation
Stock Option Exercise Agreement
ATTACHMENT 3
CALIFORNIA COMMISSIONER RULE 260.141.11
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or transferee of such security at
the time the certificate evidencing the security is delivered to the issuee or
transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or
Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian or
trustee for the account of the transferor or the transferor's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for
the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or
as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the
purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of
the Code, of the securities to be transferred, provided that no order under
Section 25140 or subdivision (a) of Section 25143 is in effect with respect
to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a
wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the
Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or the
administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a
change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirements of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
-14-
<PAGE> 31
Talarian Corporation
Stock Option Exercise Agreement
ATTACHMENT 4
COPY OF OPTIONEE'S CHECK
-15-
<PAGE> 32
Talarian Corporation
Stock Option Exercise Agreement
ATTACHMENT 5
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986 as amended, to include the excess, if any, of the
fair market value of the property described below at the time of transfer over
the amount paid for such property, as compensation for services in the
calculation of: (1) regular gross income; (2) alternative minimum taxable income
or (3) disqualifying disposition gross income, as the case may be.
1. TAXPAYER'S NAME:
------------------------------------
TAXPAYER'S ADDRESS:
------------------------------------
SOCIAL SECURITY NUMBER:
------------------------------------
2. The property with respect to which the election is made is described as
follows: _______ shares of Common Stock of Talarian Corporation, a
California corporation (the "Company"), which were transferred upon
exercise of an option by Company, which is Taxpayer's employer or the
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was _____________, and
this election is made for calendar year 200_. The shares were
transferred following the exercise of an incentive stock option.
4. The shares received upon exercise of the option are subject to the
following restrictions: The Company may repurchase all or a portion of
the shares at the Taxpayer's original purchase price under certain
conditions at the time of Taxpayer's termination of employment or
services.
5. The fair market value of the shares (without regard to restrictions
other than restrictions which by their terms will never lapse) was
$______ per share at the time of exercise of the option.
6. The amount paid for such shares upon exercise of the option was $______
per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE IRS.
Dated: ___________________, 200_ _____________________________
Taxpayer's Signature
-16-
<PAGE> 33
TALARIAN CORPORATION
ADDENDUM TO
STOCK OPTION GRANT
**THE FOLLOWING IS AN ADDENDUM TO STOCK OPTION GRANT WHICH AMENDS AND REVISES
THE STOCK OPTION GRANTS UNDER THE TALARIAN 1991 STOCK OPTION PLAN.**
To: All participants in the Talarian Corporation 1991 Stock Option Plan (the
"OPTIONEES").
With respect to the Stock Option Grants under the 1991 Stock Option
Plan, the following sections shall be revised as follows:
1. The first paragraph of Section 2 of the Stock Option Grant shall be
renumbered "2(a)" and the following new paragraph shall be added at the
end of Section 2:
(b) Right to Exercise Option in Full. Notwithstanding
Section 2(a) hereof, from the period from January 25, 2000 to
January 31, 2000, this Option shall be immediately exercisable
with respect to all Shares, provided however, that the Company
shall have the right to repurchase (in addition to any other
rights of repurchase the Company may hold) any or all of the
Shares that are not yet exercisable pursuant to Section 2(a)
hereof at a price equal to the Exercise Price Per Share, as
adjusted for stock splits, reverse stock splits and the like, at
the time which Optionee ceases to be employed by the Company (as
determined by the Board of Directors or Committee thereof).
Provided Optionee continues to be employed by the Company, the
Company's right to repurchase the Shares at a price equal to the
Exercise Price Per Share shall lapse at the same rate that this
Option for such Shares would have become exercisable pursuant to
Section 2(a) hereof, if such Option had not been exercised in
full pursuant to this Section 2(b). Shares subject to repurchase
by the Company pursuant to this Section 2(b) may not be sold or
otherwise transferred without the Company's written consent.
2. A new Section 8(d) shall be inserted into the Stock Option Grant as
follows:
(d) Section 83(b) Election for Shares Subject to
Repurchase Pursuant to Section 2(b). With respect to Shares
subject to repurchase pursuant to Section 2(b), unless an
election is filed by the Optionee with the Internal Revenue
Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of such Shares,
electing pursuant to Section 83(b) of
<PAGE> 34
the Code (and similar state tax provisions, if applicable) to be
taxed currently on any difference between the Exercise Price of
such Shares and their Fair Market Value on the date of purchase,
there may be a recognition of taxable income and/or alternative
minimum taxable income to the Optionee, measured by the excess,
if any, of the Fair Market Value of such Shares at the time they
cease to be subject to the repurchase right, over the Exercise
Price of such Shares.
3. A Stock Option Exercise Agreement in the form of Exhibit A is to be used
for early option exercises pursuant to Section 1 of this Addendum.
4. All other provisions of the Stock Option Grant not inconsistent with
this Addendum shall remain in full force and effect.
5. THIS ADDENDUM MAY BE EXECUTED AT THE ELECTION OF THE OPTIONEE. OPTIONEE
IS UNDER NO OBLIGATION TO EXERCISE THIS ADDENDUM OR EXERCISE HIS OR HER
OPTION. EXERCISE OF THE OPTION IS IRREVOCABLE AND MAY HAVE SIGNIFICANT
TAX AND FINANCIAL IMPLICATIONS FOR THE OPTIONEE. OPTIONEE SHOULD CONSULT
WITH HIS OR HER OWN TAX/FINANCIAL ADVISOR AND MUST NOT RELY ON ANY
STATEMENTS FROM THE COMPANY IN MAKING A DECISION WHETHER OR NOT TO ENTER
INTO THIS ADDENDUM AND/OR EXERCISE HIS OR HER OPTION.
IN WITNESS WHEREOF, the Company has caused this Addendum to be executed
by its duly authorized representative and Optionee has executed this Addendum
effective January ___, 2000.
TALARIAN CORPORATION OPTIONEE
By: ___________________________ ____________________________
(Signature)
- ------------------------------- ----------------------------
(Please print name) (Please print name)
- -------------------------------
(Please print title)
2
<PAGE> 1
Exhibit 10.03
TALARIAN CORPORATION
1998 EQUITY INCENTIVE PLAN
AS ADOPTED ON SEPTEMBER 29, 1998
AND AMENDED ON JULY 16, 1999 AND NOVEMBER 12, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined in
the text are defined in Section 22 hereof. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 17
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,800,000 Shares (or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations) plus the Shares described in the following two sentences. Subject
to Sections 2.2 and 17 hereof, Shares will again be available for grant and
issuance in connection with future Awards under this Plan that: (i) are subject
to issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (ii) are issued pursuant to
an Award granted pursuant to this Plan but are repurchased by the Company at the
original issue price; or (iii) are subject to an Award that otherwise terminates
without Shares being issued. In addition, any authorized shares not issued or
subject to outstanding grants under the Talarian Corporation 1991 Stock Option
Plan (the "PRIOR PLAN") on the Effective Date (as defined in Section 18) and any
shares that: (i) are subject to issuance upon exercise of options granted
pursuant to the Prior Plan that expire or become unexercisable for any reason
without having been exercised in full; or (ii) are issued upon exercise of an
option granted pursuant to the Prior Plan but are repurchased by the Company at
the original issue price will no longer be available for grant and issuance
under the Prior Plan, but will be available for grant and issuance under this
Plan; provided, however, that the total number of shares available for grant and
issuance under this Plan shall not exceed 10,000,000 Shares. At all times the
Company will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all Awards granted and outstanding under
this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan, (ii) the Exercise Prices of and number of Shares subject to
outstanding Options and (iii) the Purchase Prices of and number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share will not be issued but will either be paid in cash at the Fair
1
<PAGE> 2
Market Value of such fraction of a Share or will be rounded down to the nearest
whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in
Section 5 hereof) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or awards under
any other incentive or compensation plan of the Company or any
Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement,
any Exercise Agreement or any Restricted Stock Purchase
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Unless in contravention of any express
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any such determination will be final and binding on the Company and on all
persons having an interest in any Award under this Plan. The Committee may
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delegate to one or more officers of the Company the authority to grant an Award
under this Plan, provided such officer or officers are members of the Board.
5. OPTIONS. The Committee may grant Options to eligible persons described
in Section 3 hereof and will determine whether such Options will be Incentive
Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock
Options ("NQSOS"), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and
all other terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless a
later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately but
subject to repurchase pursuant to Section 11 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. Subject to earlier termination of the Option
as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant). The Exercise
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Agreement will state (i) the number of Shares being purchased, (ii) the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and (iii) such representations and agreements regarding Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws.
Participant shall execute and deliver to the Company the Exercise Agreement
together with payment in full of the Exercise Price, and any applicable taxes,
for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date.
Such Options must be exercised by the Participant, if at
all, as to all or some of the Vested Shares calculated as
of the Termination Date, within three (3) months after the
Termination Date (or within such shorter time period, not
less than thirty (30) days, or within such longer time
period, not exceeding five (5) years, after the Termination
Date as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO) but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than for Cause), then
Participant's Options may be exercised only to the extent
that such Options are exercisable by Participant on the
Termination Date. Such options must be exercised by
Participant (or Participant's legal representative or
authorized assignee), if at all, as to all or some of the
Vested Shares calculated as of the Termination Date, within
twelve (12) months after the Termination Date (or within
such shorter time period, not less than six (6) months, or
within such longer time period, not exceeding five (5)
years, after the Termination Date as may be determined by
the Committee, with any exercise beyond (i) three (3)
months after the Termination Date when the Termination is
for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the
Code, or (ii) twelve (12) months after the Termination Date
when the Termination is for Participant's disability,
within the meaning of Section 22(e)(3) of the Code, deemed
to be an NQSO) but in any event no later than the
expiration date of the Options.
(c) If the Participant is terminated for Cause, then Participant's
Options shall expire on such Participant's Termination Date,
or at such later time and on such conditions as are determined
by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that
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such minimum number will not prevent Participant from exercising the Option for
the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with respect
to which ISOs are exercisable for the first time by a Participant during any
calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options
for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of One Hundred Thousand Dollars ($100,000) that become exercisable in
that calendar year will be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date (as defined in
Section 18 hereof) to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to ISOs, then such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 hereof for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to certain specified
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the Purchase Price, the restrictions
to which the Shares will be subject, and all other terms and conditions of the
Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the
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Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within such thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee and will be at least
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted or at the time the purchase is consummated,
except in the case of a sale to a Ten Percent Shareholder, in which case the
Purchase Price will be one hundred percent (100%) of the Fair Market Value on
the date the Restricted Stock Award is granted or at the time the purchase is
consummated. Payment of the Purchase Price must be made in accordance with
Section 7 hereof.
6.3 Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 hereof or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.
7. PAYMENT FOR SHARE PURCHASES.
7.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the
Participant;
(b) by surrender of shares that: (i) either (A) have been
owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if
such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the
public market and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
from the Company for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(i) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the Shares so purchased sufficient to pay the
total Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of
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such Shares to forward the total Exercise Price directly
to the Company; or
(ii) through a "margin" commitment from the Participant
and an NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD
Dealer in the amount of the total Exercise Price, and
whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise
Price directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may, in its sole discretion,
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
8. WITHHOLDING TAXES.
8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash by the Company, such payment
will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
9.1 Voting and Dividends. No Participant will have any of the rights
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock. The Participant will have no right to retain such stock
dividends or stock distributions with respect to Unvested Shares that are
repurchased pursuant to
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Section 11 hereof. The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.
9.2 Financial Statements. The Company will provide financial
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance is limited to key employees whose services in
connection with the Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution, and may not be made subject to
execution, attachment or similar process. During the lifetime of the Participant
an Award will be exercisable only by the Participant or Participant's legal
representative and any elections with respect to an Award may be made only by
the Participant or Participant's legal representative.
11. RESTRICTIONS ON SHARES.
11.1 Right of First Refusal. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.
11.2 Right of Repurchase. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of no
less than twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.
12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares set forth in Section 11 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or
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terminated. The Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates. Any Participant who is permitted
to execute a promissory note as partial or full consideration for the purchase
of Shares under this Plan will be required to pledge and deposit with the
Company all or part of the Shares so purchased as collateral to secure the
payment of Participant's obligation to the Company under the promissory note;
provided, however, that the Committee may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be effective
unless such Award is in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (i) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (ii) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
17. CORPORATE TRANSACTIONS.
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17.1 Assumption or Replacement of Awards by Successor or Acquiring
Corporation. In the event of (i) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly owned subsidiary, a reincorporation, or other transaction in which there
is no substantial change in the shareholders of the corporation and the Options
granted under this Plan are assumed by the successor corporation), (ii) a
dissolution or liquidation of the Company, (iii) the sale of substantially all
of the assets of the Company, or (iv) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the Revenue Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition of all or substantially all of the outstanding
shares of the Company), any or all outstanding Options may be assumed by the
successor corporation, which assumption shall be binding on all Optionees. In
the alternative, the successor corporation may substitute an equivalent option
or provide substantially similar consideration to Optionees as was provided to
shareholders (after taking into account the existing provisions of Optionee's
options, such as the exercise price and the vesting schedule). The successor
corporation may also issue, in place of outstanding shares of the Company held
by Optionee as a result of the exercise of an Option that is subject to
repurchase, substantially similar shares or other property subject to similar
repurchase restrictions no less favorable to Optionee. In the event such
successor corporation, if any, refuses to assume or substitute the Options, as
provided above, or if there is no successor corporation, such Options shall
expire in connection with such transaction at such time and on such conditions
as the Board shall determine.
17.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Award under this Plan in substitution of
such other company's award or (ii) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
the date that it is adopted by the Board (the "EFFECTIVE Date"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however,
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that: (i) no Option may be exercised prior to initial shareholder approval of
this Plan; (ii) no Option granted pursuant to an increase in the number of
Shares approved by the Board shall be exercised prior to the time such increase
has been approved by the shareholders of the Company; (iii) in the event that
initial shareholder approval is not obtained within the time period provided
herein, all Awards granted hereunder shall be canceled, any Shares issued
pursuant to any Award shall be canceled and any purchase of Shares issued
hereunder shall be rescinded; and (iv) Awards granted pursuant to an increase in
the number of Shares approved by the Board which increase is not timely approved
by shareholders shall be canceled, any Shares issued pursuant to any such Awards
shall be canceled, and any purchase of Shares subject to any such Award shall be
rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the shareholders of the Company, amend this Plan in any
manner that requires such shareholder approval pursuant to Section 25102(o) of
the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award, including the Stock Option Agreement and
Restricted Stock Agreement.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or
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understanding between the Company or any Parent or Subsidiary of the Company and
the Participant regarding the terms of the Participant's service as an employee,
officer, director or consultant to the Company or a Parent or Subsidiary of the
Company, including without limitation, the willful and continued failure or
refusal of the Participant to perform the material duties required of such
Participant as an employee, officer, director or consultant of the Company or a
Parent or Subsidiary of the Company, other than as a result of having a
Disability, or a breach of any applicable invention assignment and
confidentiality agreement or similar agreement between the Company or a Parent
or Subsidiary of the Company and the Participant, (iv) Participant's disregard
of the policies of the Company or any Parent or Subsidiary of the Company so as
to cause loss, damage or injury to the property, reputation or employees of the
Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by
the Participant which is materially injurious to the financial condition or
business reputation of, or is otherwise materially injurious to, the Company or
a Parent or Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee created and appointed by the Board
to administer this Plan, or if no committee is created and appointed, the Board.
"COMPANY" means Talarian Corporation, or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national securities exchange
on which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
by The Wall Street Journal (or, if not so reported, as
otherwise reported by any newspaper or other source as the
Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
12
<PAGE> 13
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock representing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Talarian Corporation 1998 Equity Incentive Plan,
as amended from time to time.
"PURCHASE PRICE" means the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK" means Shares purchased pursuant to a Restricted
Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6 hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and
any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board and issued and promulgated in writing. In the case of any
Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of
absence, the Committee may make such provisions respecting suspension of vesting
of the Award while on leave from the Company or a Parent or Subsidiary of the
Company as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
13
<PAGE> 14
TALARIAN CORPORATION
ADDENDUM TO THE
STOCK OPTION AGREEMENT
**THE FOLLOWING IS AN ADDENDUM TO THE STOCK OPTION AGREEMENT WHICH AMENDS AND
REVISES THE STOCK OPTION AGREEMENTS UNDER THE TALARIAN 1998 EQUITY INCENTIVE
PLAN.**
To: All participants in the Talarian Corporation 1998 Equity Incentive Plan
(the "PARTICIPANTS").
With respect to the Stock Option Agreements under the 1998 Equity Incentive
Plan, the following sections shall be revised as follows:
1. Section 2.1 of the Stock Option Agreement shall be revised by inserting the
following sentence at the end of the provision:
Notwithstanding the foregoing, this Option shall be immediately
exercisable during the period January 25, 2000 to January 31, 2000;
provided, however, that any shares obtained upon exercise of this
Option pursuant to this sentence shall be subject to the repurchase
provisions of Section 8 hereof, in addition to the other provisions
hereof.
2. A new Section 8 to the Stock Option Agreement shall be added as follows:
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or
its assignee, shall have the option to repurchase Participant's
Unvested Shares (as defined in Section 2.2 of this Agreement) on the
terms and conditions set forth in the Exercise Agreement (the
"REPURCHASE OPTION") if Participant is Terminated (as defined in the
Plan) for any reason, or no reason, including without limitation
Participant's death, Disability (as defined in the Plan), voluntary
resignation or termination by the Company. Notwithstanding the
foregoing, the Company shall retain the Repurchase Option for Unvested
Shares only as to that number of Unvested Shares (whether or not
exercised) that exceeds the number of shares which remain unexercised.
3. The following sentence shall be added to the beginning of Section 9 of the
Stock Option Agreement:
Unvested Shares may not be sold or otherwise transferred by
Participant without the Company's prior written consent.
<PAGE> 15
4. A new Subsection 10.4 shall be inserted into the Stock Option Agreement as
follows:
10.4. Section 83(b) Election for Unvested Shares. With respect to
Unvested Shares, which are subject to the Repurchase Option, unless an
election is filed by the Participant with the Internal Revenue Service
(and, if necessary, the proper state taxing authorities), within 30
days of the purchase of the Unvested Shares, electing pursuant to
Section 83(b) of the Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the
Exercise Price of the Unvested Shares and their Fair Market Value on
the date of purchase, there may be a recognition of taxable income
and/or alternative minimum taxable income to the Participant, measured
by the excess, if any, of the Fair Market Value of the Unvested Shares
at the time they cease to be Unvested Shares, over the Exercise Price
of the Unvested Shares.
5. The first sentence of Section 15 of the Stock Option Agreement shall be
deleted and replaced by the following:
The Company may assign any of its rights under this Agreement
including its rights to purchase Shares under the Repurchase Option
and the Right of First Refusal.
6. A Stock Option Exercise Agreement in the form of Exhibit A is to be used
for early option exercises pursuant to Section 1 of this Addendum.
7. All other provisions of the Stock Option Grant not inconsistent with this
Addendum shall remain in full force and effect.
8. THIS ADDENDUM MAY BE EXECUTED AT THE ELECTION OF THE PARTICIPANT.
PARTICIPANT IS UNDER NO OBLIGATION TO EXERCISE THIS ADDENDUM OR EXERCISE
HIS OR HER OPTION. EXERCISE OF THE OPTION IS IRREVOCABLE AND MAY HAVE
SIGNIFICANT TAX AND FINANCIAL IMPLICATIONS FOR THE PARTICIPANT. PARTICIPANT
SHOULD CONSULT WITH HIS OR HER OWN TAX/FINANCIAL ADVISOR AND MUST NOT RELY
ON ANY STATEMENTS FROM THE COMPANY IN MAKING A DECISION WHETHER OR NOT TO
ENTER INTO THIS ADDENDUM AND/OR EXERCISE HIS OR HER OPTION.
2
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Addendum to be executed by
its duly authorized representative and Participant has executed this Addendum
effective January __, 2000.
TALARIAN CORPORATION PARTICIPANT
By:
--------------------------- ------------------------------
(Signature)
- ------------------------------ -------------------------------
(Please print name) (Please print name)
- -------------------------------
(Please print title)
3
<PAGE> 17
[Six month cliff; monthly vesting thereafter; immediately exercisable]
NO._______
TALARIAN CORPORATION
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "AGREEMENT") is made and entered into
as of the date of grant set forth below (the "DATE OF GRANT") by and between
Talarian Corporation, a California corporation (the "COMPANY"), and the
participant named below (the "Participant"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1998 Equity
Incentive Plan (the "PLAN").
PARTICIPANT:
------------------------------------
SOCIAL SECURITY NUMBER:
------------------------------------
ADDRESS:
------------------------------------
TOTAL OPTION SHARES:
------------------------------------
EXERCISE PRICE PER SHARE:
------------------------------------
DATE OF GRANT:
------------------------------------
FIRST VESTING DATE:
------------------------------------
EXPIRATION DATE:
------------------------------------
(unless earlier terminated under Section
5.6 of the Plan)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an option
(this "OPTION") to purchase the total number of shares of Common Stock of the
Company set forth above as Total Option Shares (the "SHARES") at the Exercise
Price Per Share set forth above (the "EXERCISE PRICE"), subject to all of the
terms and conditions of this Agreement and the Plan. If designated as an
Incentive Stock Option above, the Option is intended to qualify as an "incentive
stock option" (the "ISO") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. EXERCISE PERIOD.
2.1 Exercise Period of Option. This Option is immediately
exercisable although the Shares issued upon exercise of the Option will be
subject to the restrictions on transfer and Repurchase Options set forth in
Sections 7, 9 and 18 below. Provided Participant continues to provide services
to the Company or any Subsidiary or Parent of the Company, the Option will
become vested as to portions of the Shares as follows: (i) this Option shall not
vest
<PAGE> 18
[Six month cliff; monthly vesting thereafter; immediately exercisable]
with respect to any of the Shares until ________, 200__ (the "FIRST VESTING
DATE"); (ii) on the First Vesting Date the Option will become vested as to
twelve and one half percent (12.5%) of the Shares; and (iii) thereafter at the
end of each full succeeding month the Option will become vested as to 2.0833%
percent of the Shares until the Shares are vested with respect to one hundred
percent (100%) of the Shares. If application of the vesting percentage causes a
fractional share, such share shall be rounded down to the nearest whole share
for each month except for the last month in such vesting period, at the end of
which last month this Option shall become vested for the full remainder of the
Shares.
2.2 Vesting of Options. Shares that are vested pursuant to the
schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
2.3 Expiration. The Option shall expire on the Expiration Date set
forth above or earlier as provided in Section 3 below or pursuant to Section 5.6
of the Plan.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause.
If Participant is Terminated for any reason, except death, Disability or for
Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the Termination Date, may be exercised by
Participant no later than three (3) months after the Termination Date, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant is
Terminated because of death or Disability of Participant (or Participant dies
within three (3) months of Termination when Termination is for any reason other
than Participant's Disability or for Cause), the Option, to the extent that it
is exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date. Any exercise beyond (i) three (3) months after the Termination Date when
the Termination is for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve
(12) months after the Termination Date when the termination is for Participant's
disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be
an NQSO.
3.3 Termination for Cause. If Participant is Terminated for Cause,
then the Option will expire on Participant's Termination Date, or at such later
time and on such conditions as are determined by the Committee.
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement
shall confer on Participant any right to continue in the employ of, or other
relationship with, the Company or any Parent or Subsidiary of the Company, or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.
2
<PAGE> 19
[Six month cliff; monthly vesting thereafter; immediately exercisable]
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option,
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's executor, administrator, heir or legatee, as the case may be) must
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
Committee from time to time (the "EXERCISE AGREEMENT"), which shall set forth,
inter alia, (i) Participant's election to exercise the Option, (ii) the number
of Shares being purchased, (iii) any restrictions imposed on the Shares and (iv)
any representations, warranties and agreements regarding Participant's
investment intent and access to information as may be required by the Company to
comply with applicable securities laws. If someone other than Participant
exercises the Option, then such person must submit documentation reasonably
acceptable to the Company verifying that such person has the legal right to
exercise the Option.
4.2 Limitations on Exercise. The Option may not be exercised unless
such exercise is in compliance with all applicable federal and state securities
laws, as they are in effect on the date of exercise. The Option may not be
exercised as to fewer than one hundred (100) Shares unless it is exercised as to
all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that
(i) either (A) have been owned by Participant for more than
six (6) months and have been paid for within the meaning of
SEC Rule 144 (and, if such shares were purchased from the
Company by use of a promissory note, such note has been
fully paid with respect to such shares); or (B) were
obtained by Participant in the open public market; and (ii)
are clear of all liens, claims, encumbrances or security
interests;
(c) by waiver of compensation due or accrued to Participant for
services rendered;
(d) provided that a public market for the Company's stock
exists: (i) through a "same day sale" commitment from
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased
sufficient to pay for the total Exercise Price and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the total Exercise Price directly to the
Company, or (ii) through a "margin" commitment from
Participant and an NASD Dealer whereby Participant
irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account
as security for a loan from the NASD Dealer in the amount of
the total Exercise Price, and whereby the NASD Dealer
3
<PAGE> 20
[Six month cliff; monthly vesting thereafter; immediately exercisable]
irrevocably commits upon receipt of such Shares to forward
the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option is
an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (i) the date two (2)
years after the Date of Grant, and (ii) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are
intended to comply with Section 25102(o) of the California Corporations Code and
any regulations relating thereto. Any provision of this Agreement which is
inconsistent with Section 25102(o) or any regulations relating thereto shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o) and any regulations relating
thereto. The exercise of the Option and the issuance and transfer of Shares
shall be subject to compliance by the Company and Participant with all
applicable requirements of federal and state securities laws and with all
applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Participant
understands that the Company is under no obligation to register or qualify the
Shares with the SEC, any state securities commission or any stock exchange to
effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Participant only by Participant or in the
event of Participant's incapacity, by Participant's legal representative. The
terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
4
<PAGE> 21
[Six month cliff; monthly vesting thereafter; immediately exercisable]
9. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Vested Shares held by
Participant or any transferee of such Vested Shares may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) shall have an assignable right of first
refusal to purchase the Vested Shares to be sold or transferred on the terms and
conditions set forth in the Exercise Agreement (the "RIGHT OF FIRST REFUSAL").
The Company's Right of First Refusal will terminate when the Company's
securities become publicly traded.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION
OR DISPOSING OF THE SHARES.
10.1 Exercise of ISO. If the Option qualifies as an ISO, there will
be no regular federal or California income tax liability upon the exercise of
the Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal alternative minimum tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
10.2 Exercise of Nonqualified Stock Option. If the Option does not
qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of the Option. Participant will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Participant is a current or former employee of the
Company, the Company may be required to withhold from Participant's compensation
or collect from Participant and pay to the applicable taxing authorities an
amount equal to a percentage of this compensation income at the time of
exercise.
10.3 Disposition of Shares. The following tax consequences may
apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an ISO and are disposed of more than two (2) years after the
Date of Grant, any gain realized on disposition of the Shares will be treated as
long term capital gain for federal and California income tax purposes. If Shares
purchased under an ISO are disposed of within the applicable one (1) year or two
(2) year period, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as long term capital gain.
5
<PAGE> 22
[Six month cliff; monthly vesting thereafter; immediately exercisable]
(c) Withholding. The Company may be required to withhold from
the Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
10.4. Section 83(b) Election for Unvested Shares. With respect to
Unvested Shares, which are subject to the Repurchase Option, unless an election
is filed by the Participant with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
of the Unvested Shares, electing pursuant to Section 83(b) of the Code (and
similar state tax provisions, if applicable) to be taxed currently on any
difference between the Exercise Price of the Unvested Shares and their Fair
Market Value on the date of purchase, there may be a recognition of taxable
income (including, where applicable, alternative minimum taxable income) to the
Participant, measured by the excess, if any, of the Fair Market Value of the
Unvested Shares at the time they cease to be Unvested Shares, over the Exercise
Price of the Unvested Shares.
11. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to Participant.
12. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
13. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This
Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
14. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: (i) personal
delivery; (ii) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); (iii) one (1) business
day after deposit with any return receipt express courier (prepaid); or (iv) one
(1) business day after transmission by facsimile, rapifax or telecopier.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement including its rights to purchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Participant and Participant's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then
6
<PAGE> 23
[Six month cliff; monthly vesting thereafter; immediately exercisable]
such provision will be enforced to the maximum extent possible and the other
provisions will remain fully effective and enforceable.
17. ACCEPTANCE. Participant hereby acknowledges receipt of a copy
of the Plan and this Agreement. Participant has read and understands the terms
and provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
18. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company,
or its assignee, shall have the option to repurchase Participant's Unvested
Shares (as defined in Section 2.2 of this Agreement) on the terms and conditions
set forth in the Exercise Agreement (the "REPURCHASE OPTION") if Participant is
Terminated (as defined in the Plan) for any reason, or no reason, including
without limitation Participant's death, Disability (as defined in the Plan),
voluntary resignation or termination by the Company. Notwithstanding the
foregoing, the Company shall retain the Repurchase Option for Unvested Shares
only as to that number of Unvested Shares (whether or not exercised) that
exceeds the number of shares which remain unexercised.
7
<PAGE> 24
[Six month cliff; monthly vesting thereafter; immediately exercisable]
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in triplicate by its duly authorized representative and Participant has
executed this Agreement in triplicate, effective as of the Date of Grant.
TALARIAN CORPORATION PARTICIPANT
By:
-------------------------------- -----------------------------------
(Signature)
- ----------------------------------- ------------------------------------
(Please print name) (Please print name)
- -----------------------------------
(Please print title)
8
<PAGE> 25
[Six month cliff; monthly vesting thereafter; immediately exercisable]
EXHIBIT A
FORM OF STOCK OPTION EXERCISE AGREEMENT
<PAGE> 26
EXHIBIT A
NO._______
TALARIAN CORPORATION
1998 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Stock Option Exercise Agreement (the "EXERCISE AGREEMENT") is made
and entered into as of _________________________, 2000 (the "EFFECTIVE DATE") by
and between Talarian Corporation, a California corporation (the "COMPANY"), and
the purchaser named below (the "PURCHASER"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1998 Equity
Incentive Plan (the "PLAN").
PURCHASER:
------------------------------------
SOCIAL SECURITY NUMBER:
------------------------------------
ADDRESS:
------------------------------------
------------------------------------
TOTAL OPTION SHARES:
------------------------------------
EXERCISE PRICE PER SHARE:
------------------------------------
DATE OF GRANT:
------------------------------------
FIRST VESTING DATE:
------------------------------------
EXPIRATION DATE:
------------------------------------
(unless earlier terminated under Section
5.6 of the Plan)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. EXERCISE OF OPTION.
1.1 Exercise. Pursuant to exercise of that certain option (the
"OPTION") granted to Purchaser under the Plan and subject to the terms and
conditions of this Exercise Agreement, Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, the Total Number of Shares
set forth above (the "SHARES") of the Company's Common Stock at the Exercise
Price Per Share set forth above (the "EXERCISE PRICE"). As used in this Exercise
Agreement, the term "SHARES" refers to the Shares purchased under this Exercise
<PAGE> 27
Agreement and includes all securities received (i) in replacement of the Shares,
(ii) as a result of stock dividends or stock splits with respect to the Shares,
and (iii) all securities received in replacement of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.
1.2 Title to Shares. The exact spelling of the name(s) under which
Purchaser will take title to the Shares is:
-----------------------------------------------------
-----------------------------------------------------
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the following
trust (including date):
-----------------------------------------------------
-----------------------------------------------------
[ ] Other; please specify:
-------------------------------
1.3 Payment. Purchaser hereby delivers payment of the Exercise
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[ ] in cash (by check) in the amount of $____________,
receipt of which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company owed
to Purchaser in the amount of $_______________;
[ ] by delivery of _________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company
owned by Purchaser for at least six (6) months prior
to the date hereof which have been paid for within
the meaning of SEC Rule 144, (if purchased by use of
a promissory note, such note has been fully paid with
respect to such vested shares), or obtained by
Purchaser in the open public market, and owned free
and clear of all liens, claims, encumbrances or
security interests, valued at the current Fair Market
Value of $___________ per share;
[ ] by the waiver hereby of compensation due or accrued
for services rendered in the amount of $_________.
2
<PAGE> 28
2. DELIVERY.
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the
Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power
and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
hereto (the "STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse,
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "SPOUSE CONSENT") executed by Purchaser's spouse,
and (iv) the Exercise Price and payment or other provision for any applicable
tax obligations in the form of _______________, [ADD DESCRIPTION OF METHOD OF
PAYMENT (USUALLY A "CHECK")] a copy of which is attached hereto as Exhibit 3.
2.2 Deliveries by the Company. Upon its receipt of the Exercise
Price, payment or other provision for any applicable tax obligations and all the
documents to be executed and delivered by Purchaser to the Company under Section
2.1, the Company will issue a duly executed stock certificate evidencing the
Shares in the name of Purchaser to be placed in escrow as provided in Section 11
until expiration or termination of the Company's Repurchase Option and Right of
First Refusal described in Sections 8 and 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a copy of
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions. Purchaser acknowledges that there may be
adverse tax consequences upon exercise of the Option or disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such exercise
or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
3.3 Access to Information. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (i) the
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating the
merits and
3
<PAGE> 29
risks of this investment, has the ability to protect Purchaser's own interests
in this transaction and is financially capable of bearing a total loss of this
investment.
3.5 No General Solicitation. At no time was Purchaser presented
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
4.1 Compliance with U.S. Federal Securities Laws. Purchaser
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act and that, notwithstanding any other provision of
the Stock Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the Securities
Act and all applicable state securities laws. Purchaser agrees to cooperate with
the Company to ensure compliance with such laws. The Shares are being issued
under the Securities Act pursuant to the exemption provided by SEC Rule 701.
4.2 Compliance with California Securities Laws. THE PLAN, THE STOCK
OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY WITH
SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE AND ANY RULES (INCLUDING
COMMISSIONER RULES, IF APPLICABLE) OR REGULATIONS PROMULGATED THEREUNDER BY THE
CALIFORNIA DEPARTMENT OF CORPORATIONS (the "REGULATIONS"). ANY PROVISION OF THIS
EXERCISE AGREEMENT WHICH IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT
FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH
THE REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. RESTRICTED SECURITIES.
5.1 No Transfer Unless Registered or Exempt. Purchaser understands
that Purchaser may not transfer any Shares unless such Shares are registered
under the Securities Act or qualified under applicable state securities laws or
unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser understands
that only the Company may file a registration statement with the SEC and that
the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not
4
<PAGE> 30
permit Purchaser to transfer all or any of the Shares in the amounts or at the
times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that SEC
Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
paid for (within the meaning of Rule 144). Purchaser understands that Rule 144
may indefinitely restrict transfer of the Shares so long as Purchaser remains an
"affiliate" of the Company or if "current public information" about the Company
(as defined in Rule 144) is not publicly available.
5.3 SEC Rule 701. The Shares are issued pursuant to SEC Rule 701
promulgated under the Securities Act and may become freely tradeable by
non-affiliates (under limited conditions regarding the method of sale) ninety
(90) days after the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the SEC, subject to the lengthier market standoff agreement contained in Section
7 of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (in addition to the holding period
requirements) of Rule 144.
6. RESTRICTIONS ON TRANSFERS.
6.1 Disposition of Shares. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than as permitted by this
Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser shall have complied with all requirements of
this Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate actions necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) have been
taken; and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Regulations referred
to in Section 4.2. hereof.
5
<PAGE> 31
6.2 Restriction on Transfer. Purchaser shall not transfer, assign,
grant a lien or security interest in, pledge, hypothecate, encumber or otherwise
dispose of any of the Shares which are subject to the Company's Repurchase
Option or Right of First Refusal described below, except as permitted by this
Exercise Agreement.
6.3 Transferee Obligations. Each person (other than the Company) to
whom the Shares are transferred by means of one of the permitted transfers
specified in this Exercise Agreement must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to (i) both the Company's Repurchase Option and
Right of First Refusal granted hereunder and (ii) the market stand-off
provisions of Section 7 hereof, to the same extent such Shares would be so
subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) after the
effective date of such registration requested by such managing underwriters and
subject to all restrictions as the Company or the underwriters may specify.
Purchaser also further agrees to enter into any agreement reasonably required by
the underwriters to implement the foregoing.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or its
assignee, shall have the option to repurchase all or a portion of the
Purchaser's Unvested Shares (as defined in Section 2.2 of the Stock Option
Agreement) on the terms and conditions set forth in this Section (the
"REPURCHASE OPTION") if Purchaser is Terminated (as defined in the Plan) for any
reason, or no reason, including without limitation, Purchaser's death,
Disability (as defined in the Plan), voluntary resignation or termination by the
Company with or without Cause. Notwithstanding the foregoing, the Company shall
retain the Repurchase Option for Unvested Shares only as to that number of
Unvested Shares (whether or not exercised) that exceeds the number of shares
which remain unexercised.
8.1 Termination and Termination Date. In case of any dispute as to
whether Purchaser is Terminated, the Committee shall have discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "TERMINATION DATE").
8.2 Exercise of Repurchase Option. At any time within ninety (90)
days after the Purchaser's Termination Date (or, in the case of securities
issued upon exercise of an Option after the Purchaser's Termination Date, within
ninety (90) days after the date of such exercise), the Company, or its assignee,
may elect to repurchase any or all the Purchaser's Unvested Shares by giving
Purchaser written notice of exercise of the Repurchase Option.
8.3 Calculation of Repurchase Price for Unvested Shares. The
Company or its assignee shall have the option to repurchase from Purchaser (or
from Purchaser's personal representative as the case may be) the Unvested Shares
at the Purchaser's Exercise Price,
6
<PAGE> 32
proportionately adjusted for any stock split or similar change in the capital
structure of the Company as set forth in Section 2.2 of the Plan (the
"REPURCHASE PRICE").
8.4 Payment of Repurchase Price. The Repurchase Price shall be
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness owed by
Purchaser to the Company or such assignee, or by any combination thereof. The
Repurchase Price shall be paid without interest within sixty (60) days after
exercise of the Repurchase Option.
8.5 Right of Termination Unaffected. Nothing in this Exercise
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without Cause.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Vested Shares held by
Purchaser or any transferee of such Vested Shares (either being sometimes
referred to herein as the "HOLDER") may be sold or otherwise transferred
(including without limitation a transfer by gift or operation of law), the
Company and/or its assignee(s) shall have an assignable right of first refusal
to purchase the Vested Shares to be sold or transferred (the "OFFERED Shares")
on the terms and conditions set forth in this Section (the "RIGHT OF FIRST
REFUSAL").
9.1 Notice of Proposed Transfer. The Holder of the Offered Shares
shall deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name of each proposed bona fide purchaser or other transferee (the
"PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred to
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "OFFERED
PRICE"); and (v) that the Holder acknowledges this Notice is an offer to sell
the Offered Shares to the Company and/or its assignee(s) pursuant to the
Company's Right of First Refusal at the Offered Price as provided for in this
Exercise Agreement.
9.2 Exercise of Right of First Refusal. At any time within thirty
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (or, with the
consent of the Holder, less than all) the Offered Shares proposed to be
transferred to any one or more of the Proposed Transferees named in the Notice,
at the purchase price, determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Board. If the transfer
is a gift, the Offered Price is the Fair Market Value on the proposed transfer
date, as conclusively determined in good faith by the Board.
7
<PAGE> 33
9.4 Payment. Payment of the Offered Price will be payable, at the
option of the Company and/or its assignee(s) (as applicable), by check or by
cancellation of all or a portion of any outstanding indebtedness owed by the
Holder to the Company (or to such assignee, in the case of a purchase of Offered
Shares by such assignee) or by any combination thereof. The Offered Price will
be paid without interest within sixty (60) days after the Company's receipt of
the Notice, or, at the option of the Company and/or its assignee(s), in the
manner and at the time(s) set forth in the Notice.
9.5 Holder's Right to Transfer. If all of the Offered Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided (i) that
such sale or other transfer is consummated within one hundred twenty (120) days
after the date of the Notice, (ii) any such sale or other transfer is effected
in compliance with all applicable securities laws, and (iii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such one hundred twenty (120) day period, then a new Notice
must be given to the Company pursuant to which the Company will again be offered
the Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary in
this Section, the following transfers of Vested Shares will be exempt from the
Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchaser's "Immediate Family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's Immediate Family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal will continue to apply thereafter to
such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "IMMEDIATE FAMILY" will
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of the
Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or the Purchaser's spouse.
9.7 Termination of Right of First Refusal. The Company's Right of
First Refusal will terminate when the Company's securities become publicly
traded.
10. RIGHTS AS A SHAREHOLDER. Subject to the terms and conditions of this
Exercise Agreement, Purchaser will have all of the rights of a shareholder of
the Company with respect to
8
<PAGE> 34
the Shares from and after the date that Shares are issued to Purchaser until
such time as Purchaser disposes of the Shares or the Company and/or its
assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an
exercise of the Repurchase Option or Right of First Refusal, Purchaser will have
no further rights as a holder of the Shares so purchased upon such exercise,
other than the right to receive payment for the Shares so purchased in
accordance with the provisions of this Exercise Agreement, and Purchaser will
promptly surrender the stock certificate(s) evidencing the Shares so purchased
to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company (the "ESCROW HOLDER"), who is hereby appointed
to hold such certificate(s) and Stock Powers in escrow and to take all such
actions and to effectuate all such transfers and/or releases of such Shares as
are in accordance with the terms of this Exercise Agreement. Purchaser and the
Company agree that Escrow Holder will not be liable to any party to this
Exercise Agreement (or to any other party) for any actions or omissions unless
Escrow Holder is grossly negligent or intentionally fraudulent in carrying out
the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may
rely upon any letter, notice or other document executed with any signature
purported to be genuine and may rely on the advice of counsel and obey any order
of any court with respect to the transactions contemplated by this Exercise
Agreement. The Shares will be released from escrow upon termination of both the
Repurchase Option and the Right of First Refusal.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 Legends. Purchaser understands and agrees that the Company
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or U.S. Federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF
CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
9
<PAGE> 35
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER,
INCLUDING THE RIGHT OF FIRST REFUSAL OPTION HELD BY THE
ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK
OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
12.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure
compliance with the restrictions imposed by this Exercise Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Agreement or (ii) to treat
as owner of such Shares, or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares have been so transferred.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. IN PARTICULAR, IF UNVESTED SHARES ARE SUBJECT TO REPURCHASE
BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH
PURCHASER'S OWN TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b)
ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN THIRTY
(30) DAYS OF THE PURCHASE OF SHARES TO BE EFFECTIVE. Set forth below is a brief
summary as of the date the Plan was adopted by the Board of some of the U.S.
Federal and California tax consequences of exercise of the Option and
disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND
10
<PAGE> 36
REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
13.1 Exercise of Incentive Stock Option. If the Option qualifies as
an ISO, there will be no regular U.S. Federal income tax liability or California
income tax liability upon the exercise of the Option, although the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as a tax preference item for U.S. Federal
alternative minimum tax purposes and may subject Purchaser to the alternative
minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option does not
qualify as an ISO, there may be a regular U.S. Federal income tax liability and
a California income tax liability upon the exercise of the Option. Purchaser
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price. If Purchaser is or was
an employee of the Company, the Company may be required to withhold from
Purchaser's compensation or collect from Purchaser and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
13.3 Disposition of Shares. The following tax consequences may
apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an ISO and are disposed of more than two (2) years after the
Date of Grant, any gain realized on disposition of the Shares will be treated as
long term capital gain for federal and California income tax purposes. If Shares
purchased under an ISO are disposed of within the applicable one (1) year or two
(2) year period, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as long term capital gain.
(c) Withholding. The Company may be required to withhold from
the Purchaser's compensation or collect from the Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
13.4 Section 83(b) Election for Unvested Shares. With respect to
Unvested Shares, which are subject to the Repurchase Option, unless an election
is filed by the Purchaser with the Internal Revenue Service (and, if necessary,
the proper state taxing authorities), WITHIN 30 DAYS OF THE PURCHASE of the
Unvested Shares, electing pursuant to Section 83(b) of the Code (and similar
state tax provisions, if applicable) to be taxed currently on any difference
between
11
<PAGE> 37
the Exercise Price of the Unvested Shares and their Fair Market Value on the
date of purchase, there may be a recognition of taxable income (and/or, where
applicable, alternative minimum taxable income) to the Purchaser, measured by
the excess, if any, of the Fair Market Value of the Unvested Shares at the time
they cease to be Unvested Shares, over the Exercise Price of the Unvested
Shares. A form of Election under Section 83(b) is attached hereto as Exhibit 4
for reference.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and U.S. Federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Exercise Agreement, including its rights to purchase Shares under the
Repurchase Option or Right of First Refusal. This Exercise Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this Exercise
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW; SEVERABILITY. This Exercise Agreement shall be
governed by and construed in accordance with the internal laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California. If any provision of
this Exercise Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
17. NOTICES. Any notice required to be given or delivered to the Company
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, (i) three (3) days after deposit in the United States
mail by certified or registered mail (return receipt requested), (ii) one (1)
business day after its deposit with any return receipt express courier
(prepaid), or (iii) one (1) business day after transmission by rapifax or
telecopier.
18. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Exercise Agreement.
19. HEADINGS. The captions and headings of this Exercise Agreement are
included for ease of reference only and will be disregarded in interpreting or
construing this Exercise Agreement. All references herein to Sections will refer
to Sections of this Exercise Agreement.
12
<PAGE> 38
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
Exercise Agreement, together with all Exhibits thereto, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be
executed in triplicate by its duly authorized representative and Purchaser has
executed this Exercise Agreement in triplicate as of the Effective Date,
indicated above.
TALARIAN CORPORATION PURCHASER
By: (Signature)
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
(Please print name) (Please print name)
- -----------------------------------
(Please print title)
[SIGNATURE PAGE TO TALARIAN CORPORATION STOCK OPTION EXERCISE AGREEMENT]
13
<PAGE> 39
LIST OF EXHIBITS
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: Copy of Purchaser's Check
Exhibit 4: 83(b) Election
<PAGE> 40
EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
<PAGE> 41
STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ________ dated as of _______________, ____, (the "AGREEMENT"), the
undersigned hereby sells, assigns and transfers unto
_______________________________, __________ shares of the Common Stock of
Talarian Corporation, a California corporation (the "COMPANY"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
______ delivered herewith, and does hereby irrevocably constitute and appoint
the Secretary of the Company as the undersigned's attorney-in-fact, with full
power of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS
THERETO.
Dated: _______________, 2000
PURCHASER
------------------------------------
(Signature)
------------------------------------
(Please Print Name)
------------------------------------
(Spouse's Signature, if any)
------------------------------------
(Please Print Spouse's Name)
INSTRUCTIONS TO PURCHASER: Please do not fill in any blanks other than the
signature line. The purpose of this Stock Power and Assignment is to enable the
Company to acquire the SHARES pursuant to its "Right of First Refusal" or
"Repurchase Option" set forth in the Exercise Agreement without requiring
additional signatures on the part of the Purchaser or Purchaser's Spouse.
<PAGE> 42
EXHIBIT 2
SPOUSE CONSENT
<PAGE> 43
SPOUSE CONSENT
The undersigned spouse of ______________________________ (the
"PURCHASER") has read, understands, and hereby approves the Stock Option
Exercise Agreement between Purchaser and the Company (the "AGREEMENT"). In
consideration of the Company's granting my spouse the right to purchase the
Shares as set forth in the Agreement, the undersigned hereby agrees to be
irrevocably bound by the Agreement and further agrees that any community
property interest I may have in the Shares shall similarly be bound by the
Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
Date:
-----------------------
------------------------------------
Print Name of Purchaser's Spouse
------------------------------------
Signature of Purchaser's Spouse
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE> 44
EXHIBIT 3
COPY OF PURCHASER'S CHECK
<PAGE> 45
Talarian Corporation
Stock Option Exercise Agreement
EXHIBIT 4
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986 as amended, to include the excess, if any, of the
fair market value of the property described below at the time of transfer over
the amount paid for such property, as compensation for services in the
calculation of: (1) regular gross income; (2) alternative minimum taxable income
or (3) disqualifying disposition gross income, as the case may be.
1. TAXPAYER'S NAME:
-------------------------------
TAXPAYER'S ADDRESS:
----------------------------
SOCIAL SECURITY NUMBER:
------------------------
2. The property with respect to which the election is made is described as
follows: _______ shares of Common Stock of Talarian Corporation, a
California corporation (the "Company"), which were transferred upon
exercise of an option by Company, which is Taxpayer's employer or the
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was _____________, and
this election is made for calendar year 200_.
4. The shares received upon exercise of the option are subject to the
following restrictions: The company may repurchase all or a portion of
the shares at the Taxpayer's original purchase price under certain
conditions at the time of Taxpayer's termination of employment or
services.
5. The fair market value of the shares (without regard to restrictions
other than restrictions which by their terms will never lapse) was
$______ per share at the time of transfer.
6. The amount paid for such shares was $______ per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE IRS.
Dated: ___________________, 200_ _____________________________
Taxpayer's Signature
<PAGE> 1
Exhibit 10.04
TALARIAN CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
As Adopted April __, 2000
1. ESTABLISHMENT OF PLAN. Talarian Corporation. (the "COMPANY") proposes
to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries
that the Board of Directors of the Company (the "BOARD") designates from time to
time as corporations that shall participate in this Plan. The Company intends
this Plan to qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments to or replacements of such Section), and this
Plan shall be so construed. Any term not expressly defined in this Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. A total of 300,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to 1% of the total
number of outstanding shares of the Company Common Stock on the immediately
preceding December 31; provided, that the Board or the Committee may in its sole
discretion reduce the amount of the increase in any particular year; and,
provided further, that the aggregate number of shares issued over the term of
this Plan shall not exceed 3,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary prior to the beginning of such Offering Period or prior to such other
time period as specified by the Committee, except that employees who are
employed on the Effective Date of the Registration Statement filed by the
Company with the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "SECURITIES ACT") registering the initial public
offering of the Company's Common Stock shall be eligible to participate in the
first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five
<PAGE> 2
Talarian Corporation
2000 Employee Stock Purchase Plan
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries or who, as a
result of being granted an option under this Plan with respect to such Offering
Period, would own stock or hold options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on [FEBRUARY 1
AND AUGUST 1] of each year and ending on [JANUARY 31 AND JULY 31] of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on [JANUARY 31, 2002]. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the Offering Dates, the Purchase Dates and the duration of Offering
Periods or Purchase Periods without stockholder approval if such change is
announced prior to the relevant Offering Period, or prior to such other time
period as specified by the Committee.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company prior to such Offering Date, or such other time period as
specified by the Committee. Notwithstanding the foregoing, the Committee may set
a later time for filing the subscription agreement authorizing payroll
deductions for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Company by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Company prior to such Offering Date, or such other time
period as specified by the Committee. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (x) the maximum number of shares set by the Committee pursuant to
Section 10(c) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
8. PURCHASE PRICE. The purchase price per share at which a share of Common
Stock will be sold in any Offering Period shall be eighty-five percent (85%) of
the lesser of:
2
<PAGE> 3
Talarian Corporation
2000 Employee Stock Purchase Plan
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the price per share
at which shares of the Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than one percent (1%), nor greater than fifteen percent (15%) or such
lower limit set by the Committee. Compensation shall mean all W-2 cash
compensation, including, but not limited to, base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions, provided,
however, that for purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election; provided further, that a participant's Compensation
shall be limited to a maximum of $250,000. Payroll deductions shall commence on
the first payday of the Offering Period and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing after the Company's receipt of
the authorization and shall continue for the remainder of the Offering Period
unless changed as described below. Such change in the rate of payroll deductions
may be made at any time during an Offering Period, but not more than one (1)
change may be made effective during any Purchase Period. A participant may
increase or decrease the rate of payroll deductions for any subsequent Offering
Period by filing with the Company a new authorization for payroll deductions
prior to the beginning of such Offering Period, or prior to such other time
period as specified by the Committee.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period after the Company's receipt of the request and no
further payroll deductions will be made for the duration of the Offering Period.
Payroll deductions credited to the participant's account prior to the effective
date of the request shall be used to purchase shares of Common Stock of the
Company in accordance with Section (e) below. A participant may not resume
making payroll deductions during the Offering Period in which he or she reduced
his or her payroll deductions to zero.
3
<PAGE> 4
Talarian Corporation
2000 Employee Stock Purchase Plan
(d) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Prior to
the commencement of any Offering Period or prior to such time period as
specified by the Committee, the Committee may, in its sole discretion, set a
maximum number of shares which may be purchased by any employee at any single
Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise
determined by the Committee, there shall be no Maximum Share Amount. In no event
shall the Maximum Share Amount exceed the amounts permitted under Section 10(b)
above. If a new Maximum Share Amount is set, then all participants must be
notified of such Maximum Share Amount prior to the commencement of the next
Offering Period. The Maximum Share Amount shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the
4
<PAGE> 5
Talarian Corporation
2000 Employee Stock Purchase Plan
Committee shall determine to be equitable. In such event, the Company shall give
written notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period, or such other time period as specified
by the Committee.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current
Offering Period in which a participant is enrolled is higher than the Fair
Market Value on the first day of any subsequent Offering Period, the Company
will automatically enroll such participant in the subsequent Offering Period.
Any funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in
this Plan is terminated by withdrawal, termination of employment or otherwise,
or in the event this Plan is terminated by the Board, the Company shall deliver
to the participant all payroll deductions credited to such participant's
account. No interest shall accrue on the payroll deductions of a participant in
this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each option under
this Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under this Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under this Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no
5
<PAGE> 6
Talarian Corporation
2000 Employee Stock Purchase Plan
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination. In the event of (i) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the options under this Plan are assumed, converted or replaced by
the successor corporation, which assumption will be binding on all
participants), (ii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company or (iv) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, the Plan will continue with regard to Offering
Periods that commenced prior to the closing of the proposed transaction and
shares will be purchased based on the Fair Market Value of the surviving
corporation's stock on each Purchase Date, unless otherwise provided by the
Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the
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Talarian Corporation
2000 Employee Stock Purchase Plan
Company, the Committee or the Board, be reformed to comply with the requirements
of Section 423. This Section 19 shall take precedence over all other provisions
in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial
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Talarian Corporation
2000 Employee Stock Purchase Plan
accounting treatment for the Plan that is different from the financial
accounting treatment in effect on the date this Plan is adopted by the Board.
8
<PAGE> 1
Exhibit 10.05
TALARIAN CORPORATION
2000 EQUITY INCENTIVE PLAN
As Adopted April __, 2000
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms
not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 3,000,000 Shares plus Shares that are subject to: (a) issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option; (b) an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; and (c)
an Award that otherwise terminates without Shares being issued. In addition, any
authorized shares not issued or subject to outstanding grants under the
Company's 1998 Equity Incentive Plan and 1991 Stock Option Plan (the "PRIOR
PLANS") on the Effective Date (as defined below) and any shares issued under the
Prior Plans that are forfeited or repurchased by the Company or that are
issuable upon exercise of options granted pursuant to the Prior Plans that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plans,
but will be available for grant and issuance under this Plan. In addition, on
each January 1, the aggregate number of Shares reserved and available for grant
and issuance pursuant to this Plan will be increased automatically by a number
of Shares equal to 5% of the total outstanding shares of the Company as of the
immediately preceding December 31, provided that no more than 30,000,000 shares
shall be issued as ISOs (as defined in Section 5 below). At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the
Exercise Prices of and number of Shares subject to outstanding Options, and (d)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 1,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 2,000,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE> 2
Talarian Corporation
2000 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required
by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
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Talarian Corporation
2000 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than for Cause or
because of Participant's Disability), then Participant's
Options may be exercised only to the extent that such
Options would have been exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee)
no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's death or Disability,
deemed to be an NQSO), but in any event no later than the
expiration date of the Options.
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Talarian Corporation
2000 Equity Incentive Plan
(c) If the Participant is Terminated for Cause, then the
Participant may exercise such Participant's Options only to
the extent that such Options would have been exercisable
upon the Termination Date no later than three (3) months
after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by
the Committee, with any exercise beyond three (3) months
after the Termination Date deemed to be an NQSO), but in
any event, no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
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Talarian Corporation
2000 Equity Incentive Plan
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Shares may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be
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Talarian Corporation
2000 Equity Incentive Plan
made in the form of cash or whole Shares or a combination thereof, either in a
lump sum payment or in installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares); or
(2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects
to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
9.1 Types of Options and Shares. Options granted under this Plan and
subject to this Section 9 shall be NQSOs.
9.2 Eligibility. Options subject to this Section 9 shall be granted
only to Outside Directors.
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Talarian Corporation
2000 Equity Incentive Plan
9.3 Initial Grant. Each Outside Director who first becomes a member
of the Board on or after the Effective Date will automatically be granted an
Option for 20,000 Shares (an "INITIAL GRANT") on the date such Outside Director
first becomes a member of the Board, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who became a
member of the Board prior to the Effective Date and who did not receive a prior
Option grant will receive an Initial Grant immediately following the Effective
Date.
9.4 Succeeding Grant. Immediately following each Annual Meeting of
stockholders, each Outside Director will automatically be granted an Option for
10,000 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member
of the Board on such date and has served continuously as a member of the Board
for a period of at least one year since the date of such Outside Director's
Initial Grant. If an Outside Director did not receive an Initial Grant on or
after the Effective Date, such Outside Director will automatically be granted a
Succeeding Grant on the one (1) year anniversary of such Outside Director's last
option grant from the Company.
9.5 Vesting and Exercisability. The date an Outside Director
receives an Initial Grant or a Succeeding Grant is referred to in this Plan as
the "START DATE" for such Option.
(a) Initial Grant. Each Initial Grant will vest and be exercisable
as to 25% of the Shares on the first one year anniversary of
the Start Date for such Initial Grant, and thereafter as to
2.08333% of the Shares at the end of each full succeeding
month, so long as the Outside Director continuously remains a
director or a consultant of the Company.
(b) Succeeding Grant. Each Succeeding Grant will vest and be
exercisable as to 25% of the Shares on the first one year
anniversary of the Start Date for such Succeeding Grant, and
thereafter as to 2.08333% of the Shares at the end of each
full succeeding month, so long as the Outside Director
continuously remains a director or a consultant of the
Company.
Notwithstanding any provision to the contrary, in the event of a Corporate
Transaction described in Section 18.1, the vesting of all options granted to
Outside Directors pursuant to this Section 9 will accelerate and such options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and must be exercised,
if at all, within three (3) months of the consummation of said event. Any
options not exercised within such three-month period shall expire.
9.6 Exercise Price. The exercise price of an Option pursuant to an
Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares,
at the time that the Option is granted.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
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Talarian Corporation
2000 Equity Incentive Plan
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
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Talarian Corporation
2000 Equity Incentive Plan
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 9 hereof, in the event
of (i) a dissolution or liquidation of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (iii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iv) the sale of substantially
all of the assets of the Company, or (v) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the
9
<PAGE> 10
Talarian Corporation
2000 Equity Incentive Plan
Company by tender offer or similar transaction (each, a "CORPORATE
TRANSACTION"), any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. However, in the event a
Participant is Terminated within one (1) year from the date of the Corporate
Transaction for any reason except for death, Disability or Cause, then the
vesting of all outstanding Awards for such Participant will accelerate as to an
additional 25% of the Shares that are unvested on the date of such Termination.
In the alternative, the successor or acquiring corporation may substitute
equivalent Awards or provide substantially similar consideration to Participants
as was provided to shareholders (after taking into account the existing
provisions of the Awards). The successor corporation may also issue, in place of
outstanding unvested Shares of the Company held by the Participants,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. In the event such successor
corporation (if any) refuses to assume or substitute Awards, as provided above,
pursuant to a Corporate Transaction described in this Subsection 18.1, such
Awards will expire on such Corporate Transaction at such time and on such
conditions as the Committee will determine. Notwithstanding anything in this
Plan to the contrary, the Committee may, in its sole discretion, provide that
the vesting of any or all Awards granted pursuant to this Plan will accelerate
upon a Corporate Transaction described in this Section 18. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the Corporate Transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any Corporate Transaction described in Section
18.1, any outstanding Awards will be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, or sale of
assets.
18.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
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Talarian Corporation
2000 Equity Incentive Plan
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Talarian Corporation or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national
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Talarian Corporation
2000 Equity Incentive Plan
securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
in The Wall Street Journal;
(d) in the case of an Award made on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person
with such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting
interest.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
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Talarian Corporation
2000 Equity Incentive Plan
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Talarian Corporation 2000 Equity Incentive Plan,
as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
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<PAGE> 14
Talarian Corporation
2000 Equity Incentive Plan
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
14
<PAGE> 1
Exhibit 10.06
WHITEBARN INC.
STOCK OPTION PLAN
1. PURPOSE AND SCOPE.
The purposes of this Plan are to encourage stock ownership by key
management employees of WHITEBARN, INC. (herein called the Corporation), to
provide an incentive for such employees to expand and improve the profits and
prosperity of the Corporation, and to assist the Corporation in attracting and
retaining key personnel through the grant of options to purchase shares of the
Corporation's common stock.
2. DEFINITIONS.
Unless otherwise required by the context:
2.1."BOARD" shall mean the Board of Directors of the Corporation.
2.2."COMMITTEE" shall mean the Stock Option Plan Committee, which is
appointed by the Board, and which shall be composed of two members of the Board.
2.3."CORPORATION" shall mean Whitebarn, Inc., an Illinois
corporation.
2.4."CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.5."FAIR MARKET VALUE OF THE SHARES" shall mean the value of the Shares
determined by the Committee and approved by the Board for the period prior to
December 31, 1997 and thereafter determined by one of two methods:
1) by the use of a valuation consultant selected by the Committee for this
purpose, who is qualified by experience and ability to determine the fair
market value of the Shares; or
2) by assigning the value of the Shares to equal revenue for the previous
year divided by the total number of shares outstanding at the end of that
year, including all shares committed as a part of any stock option plan.
The first valuation date will be the date on which the Committee determines the
first valuation, with subsequent valuations being computed as of each December
31 thereafter. The choice of valuation methods shall be solely up to the
Committee.
2.6."OPTION" shall mean a right to purchase Shares, such right granted
pursuant to the Plan.
2.7."PARTICIPANT" shall mean an employee of the Corporation to whom an
Option is granted under the Plan.
2.8."PLAN" shall mean this Whitebarn, Inc. Stock Option Plan.
<PAGE> 2
2.9."SHARES" shall mean the shares of common stock of the Corporation,
no par value.
3. STOCK TO BE OPTIONED.
Subject to the provisions of Section 11 of the Plan, the maximum number of
Shares of that may be optioned or sold under the Plan is 1,000,000 shares. Such
shares may be treasury, or authorized, but unissued, Shares of the Corporation.
4. ADMINISTRATION.
The Plan shall be administered by the Committee. Both members must agree to
any action of the Committee. The Committee shall be responsible to the Board for
the operation of the Plan, and shall make recommendations to the Board with
respect to participation in the Plan by employees of the Corporation, and with
respect to the extent of that participation. The interpretation and construction
of any provision of the Plan by the Committee shall be final, unless otherwise
determined by the Board. No member of the Board or the Committee shall be liable
for any action or determination made by him/her in good faith.
5. ELIGIBILITY.
The Board, upon recommendation of the Committee, may grant Options to any
key management employee (including an employee who is a director or an officer)
of the Corporation. Options may be awarded by the Board at any time to new
Participants, or to current Participants, or to a greater or lesser number of
Participants, and may include or exclude previous Participants, as the Board,
upon recommendation by the Committee shall determine. Options granted at
different times need not contain similar provisions.
6. OPTION PRICE.
The purchase price for Shares under each Option shall be 100 percent of the
fair market value of the Shares as of the most recent valuation date preceding
the date the Option is granted.
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by the Board and
shall be evidenced by a Stock Option Agreement substantially in the form
attached hereto as EXHIBIT A or in such form as the Board, upon recommendation
of the Committee, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:
7.1. EMPLOYMENT AGREEMENT - The Board may, in its discretion, require that
<PAGE> 3
any Participant agree to remain in the employ of the Corporation for a period of
time and execute an employment agreement with the Corporation. No such agreement
shall impose upon the Corporation, however, any obligation to employ the
Participant for any period of time.
7.2. TIME AND METHOD OF PAYMENT - The Option Price shall be paid in full
in cash at the time an Option is exercised under the Plan. Otherwise, an
exercise of any Option granted under the Plan shall be invalid and of no effect.
Promptly after the exercise of an option and the payment of the full Option
Price, the Participant shall be entitled to the issuance of a stock certificate
evidencing her/her ownership of such Shares. A Participant shall have none of
the rights of a shareholder until shares are issued to him/her.
7.3. NUMBER OF SHARES - Each Option shall state the total number of Shares
to which it pertains.
7.4. VESTING OF OPTION AND RESTRICTIONS - During the Vesting Period (as
defined below) the Options granted under this Plan shall be subject to the
following
restrictions:
(a) The term "Vesting Period" as applied to the Shares subject to the
Option granted under this Plan shall mean the period starting on the
date the Stock Option Agreement, signed by the Participant, is
delivered to the Corporation and ending on the date when all options
are vested per the vesting schedule provided in the stock option
Agreement.
(b) Any Option granted under the Plan may be exercised:
(i) as to fifty (50%) percent of the Shares granted under such Option,
only after the Participant has completed the initial vesting period (as defined
in the Stock Option Agreement) of full continuous months of employment with the
Corporation subsequent to the date the Stock Option Agreement, attached as
Exhibit A and signed by the Participant, is delivered to the Corporation;
(ii) as to the other fifty (50%) percent of the shares granted under such
option, only after the Participant has completed the full vesting period (as
defined in the Stock Option Agreement) of continuous months of employment with
the Corporation subsequent to the date the Stock Option Agreement attached as
Exhibit A executed by the Participant is delivered to the Corporation; and
(iii) only as to vested Options after termination of employment with the
Corporation subject to subsection 7.4(d) below; provided, however, that any
Shares purchased pursuant to the exercise of a vested Option after termination
of employment shall be subject to the provisions of Section 7.6.
below.
<PAGE> 4
(c) Non-vested options shall terminate upon the termination of a
Participant's employment with the Corporation.
(d) The termination of a Participant's employment with the Corporation for
any reason, including death or disability shall be deemed an offer to the
Corporation to sell such vested Options to the Corporation, upon the following
terms:
(i) the Price shall be the difference between the Option Price and the
"fair market value" per Share as determined in accordance with the provisions of
this Plan;
(ii) if the Corporation does not, within three (3) months following
Participant's termination of employment, purchase such vested Options, such
Options may be exercised in accordance with the terms of this Plan and the
Option Agreement.
7.5. OPTION PERIOD - A vested Option may be exercised over a period of
sixty (60) months, with the first exercise date beginning on the date the option
vests as provided in Section 7.4 above. No option may be exercised for a
fractional Share.
7.6 EXERCISE OF OPTION - A vested Option shall be exercised in whole or in
part by giving to the Treasurer of the Corporation the Notice of Exercise of
Option in the form attached as Exhibit B, completed and signed by the
Participant.
7.7. STOCK RESTRICTIONS - Shares purchased pursuant to an Option granted
under this Plan shall be subject to the following restrictions:
a) None of the Shares shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of unless they first, by written notice, have
been offered to the Corporation for purchase with appropriate adjustment for any
change in the number of Shares due to events described in Section 11 and the
Corporation does not, within three (3) months following such offer, purchase the
Shares and make payment in full therefor for a price per Share which shall be
equal to the "fair market value" per Share determined in accordance with the
provisions of this Plan.
b) The termination of a Participant's employment with the Corporation for
any reason, including death or disability, shall be deemed an offer to the
Corporation to sell such Shares upon the terms set forth in Section 7.7(a)
above. The Price shall be the "fair market value" per Share as determined in
accordance with the provisions of this Plan.
c) With respect to any Shares which may be transferred by operation of
law, Corporation's receipt of notice of any such transfer shall be deemed an
offer to sell such shares in the same manner and upon the same terms as if such
event was a termination of the Participant's employment.
d) If the Board and the Shareholders of the Corporation approve the
acceptance of an offer to purchase all or a majority interest in the outstanding
Shares of the Corporation which is not acceptable to a Participant, the
Participant's refusal to accept such an offer
<PAGE> 5
shall be deemed an offer to the Corporation to sell such Shares for the higher
of the offer price or the price that would be payable if the Participant had
terminated his employment with the Corporation as of the time of such refusal.
e) The restrictions set forth in this Section 7 shall lapse as to any
Shares the Corporation fails to repurchase after they have been offered to the
Corporation as described in Section 7.
f) All notices in writing required pursuant to this Section 7 will be
sufficient only if actually delivered or if sent via registered or certified
mail, postage pre-paid to the Corporation, attention Treasurer at its principal
office within the City of Warrenville and will be deemed conclusively deemed
given on the date of delivery, if delivered, or on the third (3rd ) business day
following the date of such mailing, if mailed.
g) The restrictions set forth in this Section 7 shall be applicable to all
Options granted under this Plan and all Shares issued pursuant to the exercise
of any Option under this Plan.
8.TERMINATION OF EMPLOYMENT.
TERMINATION OF OPTIONS - If a Participant ceases to be employed by the
Corporation, his/her non-vested Options shall terminate immediately and his/her
Shares acquired via exercise of Options shall be subject to the option to
purchase as set forth in this Plan. The Committee shall determine in each case
whether a leave of absence shall constitute a termination of employment. Any
such determination of the Committee shall be final and conclusive, unless
overruled by the Board.
9. NO OBLIGATION OF EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Participant
to exercise such Option.
10. NONASSIGNABILITY.
Options shall not be transferable other than by will or by the law of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
11. EFFECT OF CHANGE IN SHARES SUBJECT TO THE PLAN.
The aggregate number of Shares available for Options under the Plan, the
shares subject to any Option, and the price per share shall all be
proportionately adjusted for any increase or decrease in the number of issued
Shares subsequent to the effective date of the Plan resulting from (1) a
subdivision or consolidation of shares or any other capital
<PAGE> 6
adjustment, (2) the payment of a stock dividend, or (3) other increase or
decrease in such shares effected without receipt of consideration by the
Corporation. If the Corporation shall be the surviving corporation in any merger
or consolidation, the Option shall pertain, apply and relate to the securities
to which a holder of the number of Shares subject to the Option would have been
entitled after the merger or consolidation. Upon dissolution or liquidation of
the Corporation, or upon a merger or consolidation in which the Corporation is
not the surviving corporation or upon sale of a majority of the then outstanding
shares of the Corporation or substantially all of the assets of the Corporation,
all Options outstanding under the Plan shall terminate; provided, however, that
each Participant shall have the right, immediately prior to such dissolution or
liquidation, or such merger or consolidation, or such sale of a majority of the
shares or assets, to exercise such Participant's vested Options in whole or in
part, but only to the extent that such Options were otherwise exercisable under
the terms of the Plan but had not been exercised at the exercise date.
Non-vested Options shall be exercisable only in the event of the sale or
exchange of (a majority) (fifty one (51%) percent) of the shares or the sale of
substantially all of the assets of the Corporation.
12. AMENDMENT AND TERMINATION.
The Board, by resolution, may terminate, amend or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
13. AGREEMENT AND REPRESENTATION OF EMPLOYEES.
As a condition to the exercise of any portion of an Option, the Corporation
may require the person exercising such Option to represent and warrant at the
time of such exercise that any Shares acquired at exercise are being acquired
only for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Corporation, such a representation
is required under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
14. RESERVATION OF SHARES.
The Corporation, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of Shares that shall be sufficient to satisfy the requirements of this Plan. The
inability of the Corporation to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Corporation for
the lawful issuance and sale of its Shares hereunder shall relieve the
Corporation of any liability in respect of the failure to issue or sell Shares
as to which the requisite authority has not been obtained.
<PAGE> 7
15. EFFECTIVE DATE OF PLAN.
The Plan shall be effective from the date that the Plan is approved by the
Board which was January 2, 1997.
<PAGE> 1
Exhibit 10.07
WHITEBARN, INC.
2000 EQUITY INCENTIVE PLAN
AS ADOPTED ON MARCH 6, 2000
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined in
the text are defined in Section 22 hereof. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 17
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 3,530,005 Shares (or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations, if applicable, or other comparable or applicable state law, if any)
plus the Shares described in the following two sentences. Subject to Sections
2.2 and 17 hereof, Shares will again be available for grant and issuance in
connection with future Awards under this Plan that: (i) are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option; (ii) are issued pursuant to an Award granted
pursuant to this Plan but are repurchased by the Company at the original issue
price; or (iii) are subject to an Award that otherwise terminates without Shares
being issued.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan, (ii) the Exercise Prices of and number of Shares subject to
outstanding Options and (iii) the Purchase Prices of and number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share will not be issued but will either be paid in cash at the Fair Market
Value of such fraction of a Share or will be rounded down to the nearest whole
Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in
Section 5 hereof) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.
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<PAGE> 2
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and procedures relating to
this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or awards under
any other incentive or compensation plan of the Company or any
Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement,
any Exercise Agreement or any Restricted Stock Purchase
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Unless in contravention of any express
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any such determination will be final and binding on the Company and on all
persons having an interest in any Award under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant an Award
under this Plan, provided such officer or officers are members of the Board.
5. OPTIONS. The Committee may grant Options to eligible persons described
in Section 3 hereof and will determine whether such Options will be Incentive
Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock
Options ("NQSOS"), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and
all other terms and conditions of the Option, subject to the following:
2
<PAGE> 3
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless a
later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately but
subject to repurchase pursuant to Section 11 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. Subject to earlier termination of the Option
as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant). The Exercise Agreement will state (i) the number of Shares
being purchased, (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any, and (iii) such representations and agreements
regarding Participant's investment intent and access to information and other
matters, if any, as may be required or desirable by the Company to comply with
applicable securities laws. Participant shall execute and deliver to the Company
the Exercise Agreement together with payment in full of the Exercise Price, and
any applicable taxes, for the number of Shares being purchased.
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<PAGE> 4
5.6 Termination. Subject to earlier termination pursuant to Sections
17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date.
Such Options must be exercised by the Participant, if at
all, as to all or some of the Vested Shares calculated as
of the Termination Date, within three (3) months after the
Termination Date (or within such shorter time period, not
less than thirty (30) days, or within such longer time
period, not exceeding five (5) years, after the Termination
Date as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO) but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than for Cause), then
Participant's Options may be exercised only to the extent
that such Options are exercisable by Participant on the
Termination Date. Such options must be exercised by
Participant (or Participant's legal representative or
authorized assignee), if at all, as to all or some of the
Vested Shares calculated as of the Termination Date, within
twelve (12) months after the Termination Date (or within
such shorter time period, not less than six (6) months, or
within such longer time period, not exceeding five (5)
years, after the Termination Date as may be determined by
the Committee, with any exercise beyond (i) three (3)
months after the Termination Date when the Termination is
for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the
Code, or (ii) twelve (12) months after the Termination Date
when the Termination is for Participant's disability,
within the meaning of Section 22(e)(3) of the Code, deemed
to be an NQSO) but in any event no later than the
expiration date of the Options.
(c) If the Participant is terminated for Cause, then Participant's
Options shall expire on such Participant's Termination Date,
or at such later time and on such conditions as are determined
by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with respect
to which ISOs are exercisable for the first time by a Participant during any
calendar year
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<PAGE> 5
exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first
One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in
such calendar year will be ISOs and the Options for the amount in excess of One
Hundred Thousand Dollars ($100,000) that become exercisable in that calendar
year will be NQSOs. For this purpose, Options will be taken into account in the
order in which they were granted. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date (as defined in
Section 18 hereof) to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to ISOs, then such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 hereof for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to certain specified
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the Purchase Price, the restrictions
to which the Shares will be subject, and all other terms and conditions of the
Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within such thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee and will be at least
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted or at the time the purchase is consummated,
except in the case of a sale to a Ten Percent Shareholder, in
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<PAGE> 6
which case the Purchase Price will be one hundred percent (100%) of the Fair
Market Value on the date the Restricted Stock Award is granted or at the time
the purchase is consummated. Payment of the Purchase Price must be made in
accordance with Section 7 hereof.
6.3 Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 hereof or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code, if
applicable, or other comparable or applicable state law, if any.
7. PAYMENT FOR SHARE PURCHASES.
7.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the
Participant;
(b) by surrender of shares that: (i) either (A) have been
owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if
such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the
public market and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
from the Company for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(i) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the Shares so purchased sufficient to pay the
total Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the total Exercise Price directly to the
Company; or
(ii) through a "margin" commitment from the Participant
and an NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the
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<PAGE> 7
NASD Dealer in the amount of the total Exercise Price,
and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise
Price directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may, in its sole discretion,
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
8. WITHHOLDING TAXES.
8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash by the Company, such payment
will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
9.1 Voting and Dividends. No Participant will have any of the rights
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock. The Participant will have no right to retain such stock
dividends or stock distributions with respect to Unvested Shares that are
repurchased pursuant to Section 11 hereof. The Company will comply with Section
260.140.1 of Title 10 of the California Code of Regulations, if applicable, or
other comparable or applicable state law, if any, with respect to the voting
rights of Common Stock or other applicable law.
9.2 Financial Statements. The Company will provide financial
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations, if
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<PAGE> 8
applicable, or other comparable or applicable state law, if any. Notwithstanding
the foregoing, the Company will not be required to provide such financial
statements to Participants when issuance is limited to key employees whose
services in connection with the Company assure them access to equivalent
information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution, and may not be made subject to
execution, attachment or similar process. During the lifetime of the Participant
an Award will be exercisable only by the Participant or Participant's legal
representative and any elections with respect to an Award may be made only by
the Participant or Participant's legal representative.
11. RESTRICTIONS ON SHARES.
11.1 Right of First Refusal. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
if applicable, or other comparable or applicable state law, if any, provided
that such right of first refusal terminates upon the Company's initial public
offering of Common Stock pursuant to an effective registration statement filed
under the Securities Act.
11.2 Right of Repurchase. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of no
less than twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.
12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares set forth in Section 11 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated. The
Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the
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payment of Participant's obligation to the Company under the promissory note;
provided, however, that the Committee may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
to comply with Section 25102(o) of the California Corporations Code, if
applicable, or other comparable or applicable state law, if any. Any provision
of this Plan which is inconsistent with Section 25102(o), if applicable, or
other comparable, or applicable state law, if any, without further act or
amendment by the Company or the Board, shall be reformed to comply with such
requirements. An Award will not be effective unless such Award is in compliance
with all applicable federal and state securities laws, rules and regulations of
any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are
in effect on the date of grant of the Award and also on the date of exercise or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under this
Plan prior to (i) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (ii) compliance with any
exemption, completion of any registration or other qualification of such Shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
exemption, registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
17. CORPORATE TRANSACTIONS.
17.1 Assumption or Replacement of Awards by Successor or Acquiring
Corporation. In the event of (i) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly owned subsidiary, a reincorporation, or other transaction in which there
is no substantial change in the shareholders
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of the corporation and the Options granted under this Plan are assumed by the
successor corporation), (ii) a dissolution or liquidation of the Company, (iii)
the sale of substantially all of the assets of the Company, or (iv) any other
transaction which qualifies as a "corporate transaction" under Section 424(a) of
the Code wherein the shareholders of the Company give up all of their equity
interest in the Company (except for the acquisition of all or substantially all
of the outstanding shares of the Company), any or all outstanding Options and
the Plan may be assumed by the successor corporation, which assumption shall be
binding on all Optionees. In the alternative, the successor corporation may
substitute an equivalent option or provide substantially similar consideration
to Optionees as was provided to shareholders (after taking into account the
existing provisions of Optionee's options, such as the exercise price and the
vesting schedule). The successor corporation may also issue, in place of
outstanding shares of the Company held by Optionee as a result of the exercise
of an Option that is subject to repurchase, substantially similar shares or
other property subject to similar repurchase restrictions no less favorable to
Optionee. In the event such successor corporation, if any, refuses to assume or
substitute the Options, as provided above, or if there is no successor
corporation, such Options shall expire in connection with such transaction at
such time and on such conditions as the Board shall determine.
17.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Award under this Plan in substitution of
such other company's award or (ii) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
the date that it is adopted by the Board (the "EFFECTIVE Date"). This Plan will
be approved by the shareholders of the Company consistent with applicable laws,
within twelve (12) months before or after the Effective Date. Upon the Effective
Date, the Board may grant Awards pursuant to this Plan; provided, however, that:
(i) no Option may be exercised prior to initial shareholder approval of this
Plan; (ii) no Option granted pursuant to an increase in the number of Shares
approved by the Board shall be exercised prior to the time such increase has
been approved by the shareholders of the Company; (iii) in the event that
initial shareholder approval is not obtained within the time period provided
herein, all Awards granted hereunder shall be
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canceled, any Shares issued pursuant to any Award shall be canceled and any
purchase of Shares issued hereunder shall be rescinded; and (iv) Awards granted
pursuant to an increase in the number of Shares approved by the Board which
increase is not timely approved by shareholders shall be canceled, any Shares
issued pursuant to any such Awards shall be canceled, and any purchase of Shares
subject to any such Award shall be rescinded.
19. TERM OF PLAN. Unless earlier terminated as provided herein, this Plan
will terminate ten (10) years from the Effective Date or, if earlier, the date
of shareholder approval.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the shareholders of the Company, amend this Plan in any
manner that requires such shareholder approval pursuant to Section 25102(o) of
the California Corporations Code, if applicable, or other comparable or
applicable state law, if any, or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award, including the Stock Option Agreement and
Restricted Stock Agreement.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
11
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breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant, (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee created and appointed by the Board
to administer this Plan, or if no committee is created and appointed, the Board.
"COMPANY" means WhiteBarn, Inc., or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national securities exchange
on which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
by The Wall Street Journal (or, if not so reported, as
otherwise reported by any newspaper or other source as the
Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock representing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
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"PLAN" means this WhiteBarn, Inc. 2000 Equity Incentive Plan, as
amended from time to time.
"PURCHASE PRICE" means the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK" means Shares purchased pursuant to a Restricted
Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6 hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and
any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board and issued and promulgated in writing. In the case of any
Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of
absence, the Committee may make such provisions respecting suspension of vesting
of the Award while on leave from the Company or a Parent or Subsidiary of the
Company as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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EXHIBIT 10.08
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions").
1.1 PARTIES: This Lease, dated, for reference purposes only, February 8,
1995, is made by and between GVE Distel Associates, a California General
Partnership (herein called "Lessor") and BroadVision, Inc., a Delaware
corporation, doing business under the name of ______________________
________________________________________, (herein called "Lessee").
1.2 PREMISES: Suite Number(s) N/A, N/A floors, consisting of
approximately 16,359 BOMA feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 350 Distel Circle
in the City of Los Altos, County of Santa Clara, State of California, as more
particularly described in Exhibit ____ hereto, and as defined in paragraph 2.
1.4 USE: General office, software research and development,
administration and sales and all other legal uses, subject to paragraph 6.
1.5 TERM: 61 months commencing May 1, 1995 ("Commencement Date") and
ending May 31, 2000, as defined in paragraph 3.
1.6 BASE RENT: $18,812.85 per month, payable on the 1st day of each
month, per paragraph 4.1. See Paragraph 51.
1.7 BASE RENT INCREASE: See Paragraph 51 the monthly Base Rent payable
under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: $18,812.85 for____________________________
________________________________________________________________________________
1.9 SECURITY DEPOSIT: $34,406.43 .
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 50% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located. along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term. at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in material default, and
subject to the rules and regulations attached hereto, and as established by
Lessor from time to time, Lessee shall be entitled to rent and use ________
parking spaces in the Office Building Project at the monthly rate applicable
from time to time for monthly parking as set by Lessor and/or its licensee. See
Paragraph 55.
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2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $N/A per
month at the commencement of the term of this Lease and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS-RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit __ with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
reasonably modify, amend and enforce said rules and regulations. Lessor shall
not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents. employees and invitees of the Office
Building Project.
2.5 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole
and reasonable discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveway
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provide that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
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<PAGE> 3
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2. Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
the obligations of Lessee hereunder or extend the term hereof: but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered Lessee, as hereinafter
defined; provided, however, that if Lessor shall not have delivered possession
of the Premises within sixty (60) days following said Commencement Date, as the
same may be extended under the terms of a Work Letter executed by Lessor and
Lessee, Lessee may, at Lessee's option, by notice in writing to Lessee, within
ten (10) days thereafter, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder; provided, however, that, as to
Lessee's obligations, Lessee first reimburses Lessor for all costs incurred (or
Non-Standard Improvements and, as to Lessor's obligations, Lessor shall return
any money previously deposited by Lessee (less any offsets due Lessor for
Non-Standard Improvements); and provided further, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect. See Paragraph 50.
3.2.1 POSSESSION TENDERED-DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. It Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined to paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the
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<PAGE> 4
Premises set forth in paragraph 1.6 of the Basic Lease Provisions, without
offset or deduction, Lessee shall pay Lessor upon execution hereof the advance
Base Rent described in paragraph 1.8 of the Basic Lease Provisions. Rent for any
period during the term hereof which is for less than one month shall be prorated
based upon the actual number of days of the calendar month involved. Rent shall
be payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as this calendar year in which the
Lease term commences. See Paragraph 52.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease,
to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement,
in neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates;
(bb) All heating, air conditioning, plumbing,
electrical systems, life safety equipment, telecommunication and other equipment
used in common by, or for the benefit of, lessees or occupants of the Office
Building Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
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<PAGE> 5
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by
any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such file.
(e) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(d)(viii), in which case their cost shall be included
as above provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense increase shall be payable
by Lessee within thirty (30) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within _________ (___) days after delivery by
Lessor to Lessee of said statement, Lessor and Lessee shall forthwith adjust
between them by cash payment any balance determined to exist with respect to
that portion of the last Comparison Year for which Lessee is responsible as to
Operating
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<PAGE> 6
Expense increases, notwithstanding that the Lease term may have terminated
before the end of such Comparison Year.
4.3 RENT INCREASE. See Paragraph 51.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease. Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. Lessor shall not be required to keep said
security deposit separate from its general accounts. If Lessee performs all of
Lessee's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any. of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises and common areas
in the state existing on the date that the Lease term commences, but without
regard to alterations or improvements made by Lessee or the use for which Lessee
will occupy the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such Lease term Commencement Date. In the event it Is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rule, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating to the occupation and use of Premises by Lessee, Lessee shall conduct
its business in a lawful manner and shall not use or permit the use of the
Premises or the Common Areas in any manner that will tend to create waste or a
nuisance or shall tend to disturb other occupants of the Office Building
Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
Page 6 of 27
<PAGE> 7
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation. See Paragraph 50.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning. municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof unless improvements materially affect the use of the premises.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises. to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS. See Paragraph 57.
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<PAGE> 8
(a) Lessee shall not, without Lessor's prior written consent make
any material alterations, improvements, additions, Utility Installations or
repairs in, on or about the Premises. or the Office Building Project. As used in
this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window
and wall coverings, power panels. electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements. additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations. Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements to insure Lessor against
any liability for mechanic's and materialmen's liens, and to insure completion
of the work. Should Lessee make any material alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, or use
a contractor not expressly approved by Lessor, Lessor may, at any time during
the term of this Lease, require that Lessee remove any part or all of the same.
(b) Any alterations. Improvements, additions or Utility
installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition, that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' lees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations. improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and conduit, wiring and outlets, shall be made
and done in a good and workmanlike manner and of good and sufficient quality and
materials and shall be the property of Lessor and remain upon and be surrendered
with the Premises at the expiration of the Lease term, unless Lessor requires
their removal pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(e) Lessee's personal
property and equipment, other than that which is affixed to the Premises so that
it cannot be removed without material damage to the Premises or the
Page 8 of 27
<PAGE> 9
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project.
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability Insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance. plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire end extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named In any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shell invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it
Page 9 of 27
<PAGE> 10
was immediately prior to the commencement of the term of this Lease if the
increase is specified by Lessor's insurance carrier as being caused by the
nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancelable or
subject to reduction of coverage or other modification except after thirty (30)
days prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall Indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders. from and against
any and all claims for damage to the person or properly of anyone or any entity
arising from Lessee's use of the Office Building Project. or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor,
except in the event of Lessor's negligence.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee. Lessee's employees, invitees, customers, or any other person
In or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto. and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
Page 10 of 27
<PAGE> 11
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean it the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean it the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean it the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of ether Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises Damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises.
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
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<PAGE> 12
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease small terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures. equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any lime during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option or Lessee at Lessee's option cancel and
terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures. equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services). the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage. repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within thirty (30) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor
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<PAGE> 13
written notice of Lessee's election to do so at any time prior to the
commencement or completion. respectively, of such repair or restoration. In such
event this Lease shall terminate as of the date of such notice. See Paragraph
59.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvement beyond Tenant Improvements in Paragraph 50 placed upon the Premises
by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax.
improvement bond or bonds, levy or tax (other than inheritance, personal Income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of. partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed. Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work
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<PAGE> 14
sheets or such other information (which may include the cost of construction) as
may be reasonably available, Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures. furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. See attached Janitorial Specifications.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
Hours of service will be:
7:00 a.m. - 6:00 p.m. Monday through Friday
Excluding holidays
Provided Lessee has access to HVAC and electrical during off
hours.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project, Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, stake,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
control or in cooperation with governmental request or directions.
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<PAGE> 15
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest to the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1 "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
fifty percent (50%) of the voting stock of such corporation, or (b) if Lessee is
a partnership, more than fifty percent (50%) of the profit and loss
participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises. all of which are referred to as "Lessee Affiliate",
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or after the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
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<PAGE> 16
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included to all subleases under this Lease whether or not expressly
Incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease, Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease. to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or clam against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease. Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
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<PAGE> 17
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented.
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee. and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable and customary costs and expenses
incurred in connection therewith, including attorney's, architects', engineers'
or other consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Protect and not to violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee at least as financially responsible as Lessee was expected to be at the
time of the execution of this Lease or of such assignment or whichever is
greater.
13. DEFAULT; REMEDIES. Lessee shall have 30 days after notice to cure any
non-monetary default.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) the failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (a) and (b), above where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessees noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day period shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
Page 17 of 27
<PAGE> 18
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessees assets located at the Premises or of Lessee's
interest in this Lease where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. See paragraph 59. In the event or any material default or
breach of this Lease by Lessee, Lessor may at any time thereafter, with notice
or demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor wall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that it the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such Costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) business days
after such
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<PAGE> 19
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises.
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as la the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to terminate
this Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee; or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. BROKER'S FEE. Broker's fee to be paid by Lessor.
(a) The brokers involved in this transaction are Cornish & Carey, Howard
Dellmar as "listing broker" and Cornish & Carey, Terry Deveau as "cooperating
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or in such separate shares as they may
mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of
$_____________________________________, for brokerage services rendered by said
broker(s) to Lessor in this transaction. Per separate agreement.
(b) Lessor further agrees that (i) it Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
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<PAGE> 20
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option. or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessors obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE. See Paragraph 60.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party 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) and the date to
which the rent and other charges are made in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrance of the Office Building Project or of
the Business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is to full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been Patio
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statement of Lessee. All such financial
statements shall be
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<PAGE> 21
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest. Lessor herein named (and to case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity at any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee. See Paragraph 63.
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<PAGE> 22
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessors consent to or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be (See Paragraph 61) of the rent payable immediately preceding the
termination date of this Lease, and all Options, if any, granted under the terms
of this lease shall be deemed terminated and be of no further effect during said
month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAWS. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION. See Paragraph 62
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any reasonable documents required to
effectuate an attornment, a subordination, or to make this Lease or any Option
granted herein prior to the lien of any mortgage, deed of trust or ground lease,
as the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
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<PAGE> 23
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right, certain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable of unlawful entry or
detainer of the Premises or an evictor. Lessee waives any charges for damages or
injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, ether
voluntary or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall rot be obligate to exercise
any standard of reasonableness in determining whether to grant such consent. The
holding of any auction on the Premises or Common Areas in violation of this
paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Protect without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
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35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work merger,
and shall at the option of Lessor, terminate all or any existing subtenancies or
may, at the option of Lessor, operate as an assignment to Lessor of any or all
of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions of
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to any of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorize and legally
capable of executing this Lease on behalf of Lessor and that such execution is
binding upon all parties holding an ownership interest in the Office Building
Project.
39. OPTIONS. See Paragraph 53
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
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<PAGE> 25
noncompliance, alleged in said notice of default is cured. or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to Lessee)
and continuing until the obligation is paid. or (iii) in the event that Lessor
has given to Lessee three or more notices of default under paragraph 13.1(c), or
paragraph 13.1(d), whether or not the defaults are cured, during the 1 month
period of time immediately prior to the time that Lessee attempts to exercise
the subject Option, (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation to Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lesser of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion. or
(iii) Lessor gives to Lessee three or more notices default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. SECURITY MEASURES-LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name or title of the Office Building Project or
building in which the Premises are located upon not less than 9 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings of the
Office Building Project or on pole signs in the Common Areas;
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40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
43. [FIRST FEW LINES WERE CUT OFF] executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as ether
Lessor or Lessee herein. except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
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<PAGE> 27
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which
constitute a part of this Lease:
Addendum One - Attached hereto and made a part hereof.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION 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 TRANSACTION RELATING THERETO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
- ------------------------------------ ------------------------------------
By: By:
--------------------------------- ---------------------------------
Its: Its:
----------------------------- -----------------------------
By: By:
--------------------------------- ---------------------------------
Its: Its:
----------------------------- -----------------------------
Executed at Executed at
------------------------- -------------------------
on on
---------------------------------- ----------------------------------
Address Address
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EXHIBIT B
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: February 8, 1995
By and Between: Green Valley Enterprises and BroadVision, Inc., a Delaware
Corporation
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of
the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the
Office Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles
into areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts without prior consent.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind
are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of
the Office Building Project.
10. Lessee shall not employ any service or contractor for material services
and/or work to be performed in the Building, except as approved by
Lessor.
11. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are lost.
12. No window coverings, shades or awnings shall be installed or used by
Lessee.
13. No Lessee, employee or invitee shall go upon the roof of the Building.
14. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
15. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
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<PAGE> 29
16. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
17. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
18. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver
shall not constitute a waiver of any other rule or regulation or any
subsequent application thereof to such Lessee.
19. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
20. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the
appropriate operation and safety of the Office Building Project and its
occupants. Lessee agrees to abide by these and such rules and
regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein
referred to as "Oversized Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or Invitees to be loaded, unloaded, or parked in areas other
than those designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination
of the holder's parking privileges. Lessee will pay such replacement
charge as is reasonably established by Lessor for the loss of such
devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with
the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent
offsite location(s), and to reasonably allocate them between compact and
standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be
responsible for any damage to vehicles, injury to persons or loss of
property, all of which risks are assumed by the party using the parking
area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
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10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
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EXHIBIT C
WORK LETTER TO STANDARD OFFICE LEASE
Dated: February 27, 1995
By and Between Green Valley Enterprises and BroadVision, Inc., a Delaware
Corporation
The Premises shall be constructed in accordance with Lessor's Standard
Improvements, as follows:
1. PARTITIONS
As per attached plans.
2. WALL SURFACES
Existing vinyl covered partition walls, painted one solid color of
tenant's choice.
3. DRAPERIES
Vertical window blinds on all exterior windows.
4. CARPETING
Shaw Industries - Parallels - Bay Hills II or approved equal, Color:
64930 "Prosperous Plum" Armstrong Classic Corlon sheet vinyl in restrooms, vinyl
comp. tile in kitchen and lounge and selected areas per plans.
5. DOORS
Existing prefinished, stained, solid core, wood doors in anodized bronze
finished aluminum frames.
6. ELECTRICAL AND TELEPHONE OUTLETS
As per attached plans.
7. CEILING
2' x 4' T-bar grid ceiling with flat lay-in acoustical tiles.
Lobby has 2' x 2' grid with tegular tiles.
Damaged and staired tiles to be replaced.
8. LIGHTING
As per attached plans. Existing ceiling mounted 2' x 4' prismatic lens
light fixtures. Parabolic lens fixtures in waiting/reception area.
9. HEATING AND AIR CONDITIONING DUCTS
Supply and return air in each room controlled in zones with thermostats
(see mans for thermostat locations)
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10. SOUND PROOFING
N/A
11. PLUMBING
Flushometer toilets in restrooms and porcelain sinks with faucets.
Kitchen and lounge have stainless steel sinks with faucets.
12. ENTRACE DOORS
13. COMPLETION OF IMPROVEMENTS
Lessor shall construct and complete improvements to the Premises in
accordance with the plans and specifications prepared by Barry Swenson Builder,
Architectural, dated February 24, 1995 consisting of sheets ___________________
(the "Improvements").
14. CONSTRUCTION
If Lessor's cost of constructing the Improvements to the Premises
exceeds the cost of Lessor's Standard Improvements, Lessee shall pay to Lessor
in cash before the commencement of such construction a sum equal to such excess.
If the final plans and specifications are approved by Lessor and Lessee,
and Lessee pays Lessor for such excess, then Lessor shall, at its sole cost and
expense, construct the Improvements in accordance with said approved final plans
and specifications and all applicable rules, regulations, laws or ordinances.
15. COMPLETION
15.1 Lessor shall obtain a building permit to construct the Improvements
as soon as possible.
15.2 Lessor shall complete the construction of the Improvements as soon
as reasonably possible after the obtaining of necessary building permits.
15.3 The term "Completion" as used in this Work Letter, is hereby
defined to mean the date the building department of the municipality having
jurisdiction of the Premises shall have made a final inspection of the
Improvements and authorized a final release of restrictions on the use of public
utilities in connection therewith and the same are in a broom-clean condition.
15.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 1.5 of
the Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
15.5 In the event that the Improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
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<PAGE> 33
15.6 If Lessor shall be delayed at any time in the progress of the
construction of the Improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay, or by any other cause beyond Lessor's control, then the
Commencement Date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay.
16. TERM
Upon Completion of the Improvements as defined in paragraph 16.3, above,
Lessor and Lessee shall execute an amendment to the Lease setting forth the date
of Tender of Possession as defined in paragraph 3.21 of the Lease or of actual
taking of possession, whichever first occurs, as the Commencement Date of this
Lease.
17. WORK DONE BY LESSEE
Any work done by Lessee shall be done only with Lessor's prior written
consent and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
with good and sufficient materials. All work shall be done only with union labor
and only by contractors approved by Lessor, it being understood that all
plumbing, mechanical, electrical wiring and ceiling work are to be done only by
contractors designated by Lessor.
18. TAKING OF POSSESSION OF PREMISES
Lessor shall notify Lessee of the Estimated Completion Date at least ten
(10) days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements Lessee is to construct and
to equip and fixturize the Premises, as long as such entry does not interfere
with Lessor's work. Lessee shall take possession of the Premises upon the tender
thereof as provided in paragraph 3.2.1 of the Lease to which this Work Letter is
attached. Any entry by Lessee of the Premises under this paragraph shall be
under all of the terms and provisions of the Lease to which this Work Letter is
attached.
19. ACCEPTANCE OF PREMISES
Lessee shall notify Lessor in writing of any items that Lessee teems
incomplete or incorrect in order for the Premises to be acceptable to Lessee
within ten (10) days following Tender of Possession as set forth in paragraph
3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be deemed
to have accepted the Premises and approved construction if Lessee doss not
deliver such a list to Lessor within said number of days.
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<PAGE> 34
ADDENDUM ONE
This is the First Addendum to that certain Lease by and between GVE Distel
Associates, a California General Partnership ("Lessor") and BroadVision Inc., A
Delaware Corporation ("Lessee"). Both parties further agree:
PARAGRAPH 50. IMPROVEMENTS
Landlord shall deliver the base building with the following improvements:
1. New or upgraded heating, ventilation and air conditioning system to
serve the premises (Any new distribution not included);
2. New or resurfaced roof;
3. Upgraded landscaping throughout;
4. Repair and Restripe Parking Lot;
5. New Carpet;
6. Repaint Premises;
7. New Miniblinds throughout (Exterior windows only);
8. Sidelights in Exterior Offices;
9. Minimal reconfiguration of the space to suit Tenant's needs as per
Exhibit "A" attached hereto and made a part hereof;
10. Premises shall be delivered to Lessee in compliance with current ADA
including but not limited to, bathrooms, ingress and egress from
Premises and signage;
Both Parties agree that the above improvements are Standard Improvements.
Landlord shall provide a 90 day warranty on all above outlined improvements.
PARAGRAPH 51. Base Rent
Months 1 - 2: Free
Months 3 - 12: $1.15 Full Service
Months 13 - 24: $1.50 Full Service
Months 25 - 36: $1.55 Full Service
Months 37 - 48: $1.60 Full Service
Months 49 - 61: $1.65 Full Service
PARAGRAPH 52. OPERATING EXPENSES
Lessor and Lessee acknowledge that there will not be any pass through of
Operating Expenses and Real Estate Taxes for the first 12 months of the lease
term.
After the first 12 months of the lease term, Lessee shall pay, in addition to
the base rental, its prorata share of any increase in Operating Expenses
(Excluding Real Estate Taxes) in excess of $.32 per square foot per month ($3.84
per square foot annually) Such operating expenses, excluding real estate taxes,
shall not increase by more than five percent (5%) per year throughout the lease
term.
The Base Year for Real Estate Taxes shall be defined as the first 12 months of
the lease term. Lessee shall pay, in addition to the base rental, its prorata
share of any increases in Real Estate Taxes that exceed the Base Year costs.
Page 1 of 3
<PAGE> 35
Within one hundred eighty days (180) after receipt of any operating expense
statement or Real Estate tax statement from Lessor, Lessee shall have the right
to examine Lessor's books and records relating to such Operating Expense
Statements and Real Estate Tax Statements, or cause an independent audit thereof
to be conducted by an accounting firm to be selected by Lessee and subject to
the reasonable approval of Lessor.
PARAGRAPH 53. RENEWAL OPTIONS
Tenant shall have one 3-year option to renew at 95% of the then current market
rent. Tenant shall provide Landlord with written notice of its intent to extend
not later than six (6) months prior to the end of the lease term.
PARAGRAPH 54. SIGNAGE
Tenant shall have the right to place its name and logo in front of the building
only. Tenant's total signage area shall not exceed 40 square feet, the letters
shall not be more than 18" in height and no more than 4 colors used in the sign.
Tenant shall bear the cost for any signage and obtain approvals from the City of
Los Altos.
PARAGRAPH 55. PARKING
Tenant shall have the non-exclusive use of 4 parking spaces per 1,000 sq. ft.
leased.
Throughout the lease period and any option periods, Lessee shall not be charged
for parking on the Premises.
PARAGRAPH 56. CONTINGENCY
This lease is contingent upon receipt of a building permit from the City of Los
Altos with only minimal changes from the attached floor plan.
PARAGRAPH 57. ALTERATIONS AND ADDITIONS
Lessee shall inform Lessor of any alterations, improvements and/or additions of
any telephone and data lines, but shall not need Lessor's consent to complete
the work. Lessee warrants that all work shall be done in a workmanlike manner
with licensed and qualified contractors.
Lessor shall not unreasonably withhold consent for any Alterations or Additions
to the Premises.
PARAGRAPH 58. ABATEMENT OF RENT; LESSEE'S REMEDIES (REF. PARAGRAPH 9.5(B))
Commencement of re-design of Premises shall constitute commencement of repair
and restoration of Premises.
PARAGRAPH 59. REMEDIES (REF. PARA. 13.2)
In the event Lessor is able to sublet the premises, Lessee shall not be
responsible for any rental amounts paid to Lessor by Sublessee. Lessor shall
remain responsible for any leasing costs including, but not limited to, the cost
of recovering possession of the Premises, necessary renovation and alteration of
the Premises, reasonable attorney's fees and any real estate commission actually
paid in obtaining the Sublessee.
Page 2 of 3
<PAGE> 36
PARAGRAPH 60. ESTOPPEL CERTIFICATE (REF. PARA. 16)
Lessor shall pay Lessee's reasonable attorney's fees in connection with
execution of the Estoppel Certificate.
PARAGRAPH 61. HOLDING OVER (REF. PARA. 26)
Rent payable under a holding over period shall be the then current rent for the
first 60 days after lease expiration and 150% of the then current rent
thereafter.
PARAGRAPH 62. SUBORDINATION (REF. PARA. 30)
Lessee shall execute said Subordination as long as it doesn't affect their
rights under this lease.
Lessor shall pay Lessee's reasonable Attorney's fees in connection with
execution of the Subordination Agreement.
PARAGRAPH 63. NOTICE (REF. PARAGRAPH 23)
Notwithstanding the language in Paragraph 23, Notices shall be sent to:
BroadVision Inc. GVE-Distel Partners
350 Distel Circle 701 North First Street
Los Altos, CA 94022 San Jose, CA 95112
ATTN: Chief Financial Officer ATTN: Becky Menne
with a copy to:
Mr. Kenneth Guernsey
Cooley, Godward, Castro, Huddeson and
Tatum
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
- ------------------------------------- -----------------------------------
Lessor: GVE Distel Associates, Lessee: BroadVision Inc.,
A California General Partnership A Delaware Corporation
Page 3 of 3
<PAGE> 37
JANITORIAL SPECIFICATIONS
<TABLE>
<CAPTION>
A. OFFICE AREAS Daily Weekly Monthly Quarterly Annually
- ------------------------------ ----- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C>
Empty waste receptacles X
Insert plastic liner X or as needed
Empty & wipe ashtrays X
Horizontal dusting X
Vertical dusting X
Vertical wood polishing X
Clean HVAC vents X
Vacuum carpets X
Dust mop tile floor X
Damp mop tile floor X
Spray buff tile floors X
Remove spider webs X
Interior office windows Spot cleaned nightly, cleaned quarterly
Carpets cleaned 2X
B. LOBBY, COMMON AREAS
- -----------------------------
Clean ashtrays and urns X
Clean entrance glass X
Damp mop tile floors X
Spray buff tile floors X
Strip and wax tile floors X
Spot clean carpets X
Carpets cleaned 6X
Remove spider webs X
Vertical & Horizontal Dusting X
Vertical wood polishing X
C. BATHROOM SANITIZATION
- -----------------------------
Mop floor surface X
Horizontal Cleaning X
Empty waste bins X
Refill all dispensers X
Clean mirrors, frames X
Clean wash basins X
Clean Toilets and urinals X
Spot clean walls and stalls X
Remove all gum, tar, etc. X
Clean end disinfect drains X
D. BUILDING EXTERIOR
- -----------------------------
Clean sidewalks X
Clean smoking area X
E. MISCELLANEOUS
- -----------------------------
Janitorial supplies Included
Paper supplies Included
Light maintenance Included
Windows exterior 3X
Windows interior 3X
</TABLE>
Page 1 of 1
<PAGE> 1
Exhibit 10.10
_____________, 1998
Re: Option Acceleration
Dear __________________:
This letter will confirm to you Talarian's agreement regarding the
acceleration of Talarian options granted to you in connection with your
employment at Talarian (the "Options") under the following circumstances:
(i) If Talarian is Acquired (as defined below) during the term of
your employment, 50% of the unvested portion of each Option
shall accelerate and become fully vested effective on the
closing of the Acquisition, and the remainder of the Option
shall continue vesting over the original vesting period;
(ii) If Talarian is Acquired during the term of your employment, or
within 60 days thereafter, and your employment with Talarian
is terminated by Talarian without Cause (as defined below)
during the period commencing 60 days prior to the Acquisition
and continuing until 12 months thereafter, then the entire
unvested portion of each Option shall accelerate and become
fully vested effective upon the latter of the closing of the
Acquisition or the termination of your employment. For
purposes of the foregoing you will be considered terminated if
your compensation or responsibilities are materially and
adversely changed, or if the Option does not continue in
existence after the Acquisition on substantially the same or
better terms as existed prior to the Acquisition.
For purposes of this agreement "Acquired" or "Acquisition" shall
mean (i) a merger or consolidation of Talarian with or into another company
whereby the shareholders of Talarian prior to such transaction own, directly or
indirectly, less than a majority of the surviving corporation, (ii) the sale of
all or substantially all of Talarian's assets, or (iii) the sale, in one
transaction or a series of related transactions, of a majority of the voting
power of Talarian.
<PAGE> 2
______________, 1998
Page 2
Also for purposes of this agreement, "Cause" shall mean: (i) a
material failure or refusal by you to diligently perform your duties to
Talarian; provided, however, that if reasonably possible, Talarian will provide
you with 30 days advance notice to remedy the situation; (ii) intentional or
grossly negligent conduct by you that is materially detrimental to, or
materially discredits, the reputation, character or standing of Talarian,
including, without limitation, the commission of a crime of moral turpitude;
(iii) conduct by you that is intended to do injury to Talarian; or (iv)
disability that prevents you from performing your duties for more than 90 days
in any 360 day period.
Nothing in this letter will be deemed to increase the total number
of shares exercisable pursuant to any Options held by you.
Additionally, and notwithstanding any other provision of this
letter, this letter shall be null and void, and you shall not be entitled to any
other compensation or benefit on account of this letter, if the acceleration set
forth herein would, in the opinion of Talarian's accountants, the accountants of
an acquiror, or the SEC, result in Talarian not being able to use "pooling of
interests" accounting treatment in connection with an Acquisition in which such
accounting treatment would otherwise be used.
You will not be entitled to any other amounts or payments in
connection with a termination of employment from Talarian. As a condition to
Talarian's obligation to accelerate the Options set forth herein, Talarian may
require you to provide it with a full release in form and substance satisfactory
to Talarian, in its reasonable discretion, at the time of acceleration of the
Options.
If the foregoing is acceptable, please sign below. Thank you very
much for your continued efforts on behalf of Talarian.
Very truly yours,
Accepted:
________________________
<PAGE> 1
Exhibit 10.16
SUBLEASE
THIS SUBLEASE ("Sublease"), dated as of July l8, 1997, for reference
purposes only, is entered into by and between BROADVISION, INC., a Delaware
corporation ("Sublessor"), and TALARIAN, INC., a California corporation
("Sublessee").
RECITALS
A. Sublessee leased certain premises consisting of approximately 16,359
square feet located in a building sometimes commonly known as 350 Distel Circle,
Los Altos, California (the "Building"), pursuant to a certain Standard Office
Lease - Gross between Sublessor, as tenant, and GVE Distel Associates, a
California general partnership (hereinafter "Master Lessor"), as landlord, dated
February 8, 1995 (as amended or otherwise modified from time to time, the
"Master Lease"), a copy of which is attached hereto as Exhibit A (hereinafter
the "Premises"). Capitalized terms herein not otherwise defined herein, shall
have the same meanings as provided in the Master Lease.
B. Sublessor desires to sublease to Sublessee, and Sublessee desires to
sublease from Sublessor, the Premises upon the terms and conditions provided for
herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sublessor and Sublessee covenant and agree as follows:
AGREEMENT
1. PREMISES. Sublessor hereby leases to Sublessee, and Sublessee hereby
leases from Sublessor, the Premises, on and subject to the terms and conditions
set forth herein.
2. USE. Sublessee shall use the Premises only for those purposes
permitted in the Master Lease.
3. TERM.
(a) The term of this Sublease shall commence as of the later of (a)
November 7, 1997 and (b) the date of the full execution of this Sublease by all
parties hereto.
(b) Notwithstanding said commencement date, if for any reason
Sublessor cannot deliver possession of the Premises to Sublessee on or before
said date, Sublessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay Rent (as hereinafter defined) until possession of the
Premises is tendered to Sublessee.
Notwithstanding the provisions of this Section 3(b) to the contrary, if
Sublessor has not delivered the Premises to Sublessee in the condition required
under this Sublease on or before December 31, 1997, Sublessee shall have the
right thereafter, until such possession is delivered
<PAGE> 2
to Sublessee, to cancel this Sublease. Upon such cancellation, both parties
shall be released from further liability under this Sublease, and all deposits
and prepaid rent shall be returned to Sublessee.
(c) The term of this Sublease shall end on May 31, 2000, unless
earlier terminated in accordance with the terms of this Sublease; provided,
however, that the term of this Sublease shall earlier terminate in the event of
the earlier termination for any cause whatsoever of the Master Lease.
4. RENT. The rent payable by Sublessee for the Premises shall consist of
basic rental ("Basic Rent") plus Operating Expense Increases (as hereinafter
defined), all as provided below. Basic Rent, Operating Expense Increases and any
other charges due hereunder are hereinafter referred to collectively as "Rent."
All Rent shall be paid to Sublessor at the address specified for Sublessor
below, or to such other person or to such other place as Sublessor may from time
to time designate in writing.
(a) Sublessee shall pay to Sublessor in advance, on or before the
first day of each month of the term of the Sublease and without deduction or
offset, monthly Basic Rent in the amounts hereinafter set forth in this Section
4(a). The Basic Rent for any partial month shall be prorated at the rate of 1/30
of the Basic Rent per day.
<TABLE>
<CAPTION>
MONTHS MONTHLY BASIC RENT
------ ------------------
<S> <C>
1 - 12 $48,259.05
13 - 24 $49,894.95
25 - 31 $51,530.85
</TABLE>
(b) Sublessee shall also pay, in addition to Basic Rent, for each
Comparison Year during the term of this Sublease, any and all increases to the
Building's Operating Expenses and/or Real Estate Taxes over a 1997 Base Year, to
the extent that such increases are payable by Sublessor pursuant to the Master
Lease (the "Operating Expense Increases"); provided, however, that Sublessee
shall have no obligation to pay any such increases applicable to the first
twelve (12) months of the Sublease term. The parties hereto hereby acknowledge
that the last sentence of the second paragraph of Paragraph 52 of Addendum One
of the Master Lease shall apply to this Sublease.
(c) To the extent that the Operating Expense Increases due under the
Master Lease are payable on a monthly basis pursuant to the Master Lease, such
Operating Expense Increases shall be paid to Sublessor as and when Basic Rent is
paid. To the extent that the Operating Expense Increases are billed from time to
time to Sublessor by Master Lessor, such Operating Expense Increases shall be
paid by Sublessee to Sublessor within fifteen (15) business days after
Sublessee's receipt of an invoice therefor.
(d) Sublessee shall pay to Sublessor upon execution of this Sublease,
in addition to the portion of the Security Deposit as set forth in Section 7
below, the first month's Basic Rent in the amount of $48,259.05.
2
<PAGE> 3
5. AS-IS. Sublessor subleases the Premises to Sublessee strictly in its
present "as-is" condition and with all faults, and Sublessee by acceptance and
delivery of possession thereof acknowledges the same to be in good order and
repair and in a tenantable condition. Notwithstanding the foregoing, Sublessor,
at its sole cost, shall have the carpets in the Premises steam cleaned prior to
commencement of the term or this Sublease.
6. MASTER LEASE. This Sublease shall be subject and subordinate to all of
the terms and provisions of the Master Lease, and Master Lessor shall have all
rights in respect of the Master Lease and the Premises as set forth therein.
Except for payments of rent required under the Master Lease (which payments
shall be made by Sublessor), and, except as otherwise provided in Section 7
hereof, Sublessee hereby assumes and agrees to perform for Sublessor's benefit,
during the term of this Sublease, all of Sublessor's obligations under the
Master Lease insofar as they relate to the Premises (hereinafter the "Assumed
Obligations"), which accrue during the term of this Sublease.
7. INCORPORATION OF MASTER LEASE.
(a) Except as otherwise provided in this Sublease, all of the terms
and provisions of the Master Lease are incorporated into and made a part of this
Sublease, and the rights and obligations of the parties under the Master Lease
are hereby imposed upon the parties hereto with respect to the Premises, the
Sublessor being substituted for the "Lessor" in the Master Lease, the Sublessee
being substituted for the "Lessee" in the Master Lease and the Premises being
substituted for the "Premises" in the Master Lease.
(b) Notwithstanding the foregoing:
(i) the following paragraphs of the Master Lease are not
incorporated herein: 1.1, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 3, 6.2(a), 6.3(a), 7.1,
8.2, 8.4, 10.1, 11.1, 15, 39, Addendum One Paragraphs 50, 51, 53, 56, 58, 59,
60, 62, 63 and Exhibit C.
(ii) Sublessee shall fully perform all of the Assumed Obligations
and shall indemnify, defend, protect, and hold harmless Sublessor from any and
all liability, damages, liabilities, claims proceedings, actions, demands and
costs (including reasonable attorneys' fees) resulting, directly or indirectly,
from Sublessee's failure to perform the Assumed Obligations.
(iii) Upon any termination of the Master Lease, this Sublease
shall also terminate; provided, however, that if, without the fault of Sublessor
hereunder, the Master Lease should terminate prior to the expiration of this
Sublease, Sublessor shall have no liability to Sublessee, and, if the Master
Lease is terminated as a result of a default by Sublessor of its obligations
under the Master Lease or this Sublease, other than the Assumed Obligations,
Sublessee shall have all rights and remedies that would otherwise be available
to it at law or in equity as a result of such default..
(iv) Sublessor shall have no services or maintenance or repair
obligations with respect to the Premises except for its obligation to use
reasonable efforts to enforce the obligations of Master Lessor under the Master
Lease. Sublessee hereby expressly waives the provisions of subsection 1 of
Section 1932 and Sections 1941 and 1942 of the Civil
3
<PAGE> 4
Code of California and all rights to make repairs at the expense of Sublessor as
provided in Section 1942 of said Civil Code.
(v) Sublessee shall indemnify, defend, protect, and hold
Sublessor harmless from and against all actions, claims, demands, costs
liabilities, losses, reasonable attorneys` fees, damages, penalties, and
expenses (collectively "Claims") which may be brought or made against Sublessor
or which Sublessor may pay or incur to the extent caused by (i) a breach of this
Sublease by Sublessee, (ii) any violation of law by Sublessee or its employees,
agents, contractors or invitees (collectively, "Agents") relating to the use or
occupancy of the Premises, (iii) any act or omission by Sublessee or its Agents
resulting in contamination of any part or all of the Premises by Hazardous
Materials (as hereinafter defined), or (iv) the negligence or willful misconduct
of Sublessee or its Agents. Sublessor shall indemnify, defend, protect, and hold
Sublessee harmless from and against all actions, claims which may be brought or
made against Sublessee or which Sublessee may pay or incur to the extent caused
by (i) a breach of this Sublease or the Master Lease by Sublessor, (ii) any act
or omission by Sublessor or its Agents resulting in contamination of any part or
all of the Premises by Hazardous Materials, or (iii) the negligence or willful
misconduct of Sublessor or its Agents. As used herein, "Hazardous Materials"
means any substance or material which is classified or considered to be
hazardous or toxic under any present or future federal, state, regional or local
law relating to the use, storage, treatment, existence, release, emission,
discharge, generation, manufacture, disposal or transportation of any such
substances. Each of the Sublessee and Sublessor hereby agrees and covenants to
immediately notify the other of any knowledge such party gains regarding the
existence of Hazardous Materials at, or the introduction of Hazardous Materials
onto or about, the Premises or the Building.
(c) For the purposes of incorporating the terms and provisions of the
Master Lease into this Sublease, the Master Lease is hereby amended as follows
(references are to paragraphs of the Master Lease):
<TABLE>
<CAPTION>
PARAGRAPH COMMENTS
--------- --------
<S> <C>
5. Sublessee shall deposit with Sublessor upon execution
of this Sublease a cashier's check or other immediately
available funds in the amount of $51,530.85 (the "Cash
Security Deposit"). In addition to the Cash Security
Deposit, Sublessee shall deposit with Sublessor at
least thirty (30) days prior to occupancy of the
Subleased Premises an irrevocable letter of credit in
the amount of $154,592.55 (the "Letter of Credit").
Upon Sublessee's providing to Sublessor evidence
reasonably satisfactory to Sublessor of Sublessee's
closing of a new round of financing, Sublessee shall be
permitted to reduce the amount of the Letter of Credit
as follows: if the financing is in a principal amount
equal to or exceeding $3,000,000.00, but less than
$5,000,000.00, the Letter of Credit may be reduced to
$103,061.70; if the financing is in a principal amount
equal to or exceeding $5,000,000.00, the Letter of
Credit may be reduced to $51,530.85.
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
The Cash Security Deposit, together with the Letter of
Credit, shall constitute the Security Deposit.
8. Master Lessor and Sublessor shall be named as
additional insureds on the liability insurance.
13. The three (3) day cure period provided for any monetary
default is reduced to two (2) days. The thirty (30) day
cure period provided for any non-monetary default is
reduced to twenty-five (25) days.
23. Sublessor's notice address shall be as provided below,
or at such other address as Sublessor may from time to
time designate in writing.
</TABLE>
8. BROKERAGE. Each party warrants and represents to the other that such
party has not retained the services of any real estate broker, finder or any
other person whose services would form the basis for any claim for any
commission or fee in connection with this Sublease or the transactions
contemplated hereby, except for the following parties: Cornish & Carey
Commercial ("C&C"), representing the Sublessor, and Colliers Parrish
International, Inc. ("CPI"), representing the Sublessee. Sublessor shall pay to
C&C any commission due to C&C in connection with this Sublease pursuant to a
separate agreement between Sublessor and C&C. CPI shall recover any commission
due to it in connection with this Sublease directly from C&C. Each party agrees
to save, defend, indemnify and hold the other party free and harmless from any
breach of its warranty and representation as set forth in the preceding
sentence, including the other party's reasonable attorneys' fees.
9. SUBLESSOR'S OBLIGATIONS. Except as expressly otherwise provided
herein, Sublessor shall have no obligation to Sublessee with respect to the
Premises or the performance by Master Lessor of any obligations of Master Lessor
under the Master Lease.
10. CONSENT OF MASTER LESSOR. If Sublessee desires to take any action
which requires the consent of Master Lessor pursuant to the terms of the Master
Lease, including, without limitation, the making of any alterations, then,
notwithstanding anything to the contrary herein, (a) Sublessor, independently,
shall have the same rights of approval or disapproval as Master Lessor has under
the Master Lease, (b) Sublessee shall not take any such action until it obtains
the consent of both Sublessor and Master Lessor, and (c) Sublessee shall request
that Sublessor obtain Master Lessor's consent on Sublessee's behalf and
Sublessor shall use commercially reasonable efforts to obtain such consent,
unless Sublessor and Master Lessor agree that Sublessee may contact Master
Lessor directly with respect to the specific action for which Master Lessor's
consent is required. Any consent required of Sublessor conclusively shall be
deemed reasonably withheld, if consent also is required of the Master Lessor,
and Master Lessor withholds Master Lessor's consent.
11. NO THIRD PARTY RIGHTS. The benefit of the provisions of this Sublease
is expressly limited to Sublessor and Sublessee. Under no circumstances will any
third party be construed to have any rights as a third party beneficiary with
respect to any of said provisions;
5
<PAGE> 6
provided, however, that Master Lessor shall be entitled to the benefit of
Sublessee's (a) assumption of Sublessor's obligations, as "Tenant" under the
Master Lease, pursuant to Section 6 above, and (b) indemnities set forth in this
Sublease.
12. MASTER LESSOR CONSENT. This Sublease is subject to the consent of the
Master Lessor.
13. COUNTERPARTS. This Sublease may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first written above.
ADDRESS: SUBLESSOR:
BROADVISION, INC. BROADVISION, INC., a Delaware corporation
595 Broadway
Redwood City, California 94063
Attn: By: s/p
------------------------- -------------------------
Randy Bolten
Chief Financial Officer
SUBLESSEE:
TALARIAN, INC. TALARIAN, INC., a California corporation
333 Distel Circle
Los Altos, California 94022
Attn: By: s/p
------------------------- -------------------------
Paul Larson
President and Chief Operating Officer
7
<PAGE> 8
CONSENT OF MASTER LESSOR
The undersigned, as owner and holder of all right, title and interest of
Master Lessor under the Master Lease, hereby consents to the attached Sublease:
GVE DISTEL ASSOCLATES, a
California general partnership
By: s/
-------------------------
Its: General Partner
Dated: July 28, 1997
8
<PAGE> 1
EXHIBIT 10.17
SUB-SUBLEASE
THIS SUB-SUBLEASE (this "Sub-Sublease") is entered into as of the 18th day of
November, 1997, by and between (i) Talarian, Inc., a California corporation
("Talarian"), and (ii) Fenwick & West LLP ("Fenwick").
A. Pursuant to that certain Lease dated February 8, 1995 (the "Master
Lease"), by and between GVE Distel Associates, a California general partnership
("Master Landlord"), as landlord, and BroadVision, Inc., a Delaware corporation
("BroadVision"), as tenant, BroadVision is leasing from Master Landlord certain
space in a building located at 333 Distel Circle, Los Altos, California. A copy
of the Master Lease is attached hereto as Exhibit A.
B. Pursuant to that certain Sublease dated July 18, 1997 (the
"Sublease"), BroadVision subleased to Talarian the premises covered by the
Master Lease consisting of approximately 16,359 rentable square feet as more
particularly described in the Sublease (the "Subleased Premises"). A copy of the
Sublease is attached hereto as Exhibit B.
C. Fenwick desires to sub-sublease a portion of the Subleased Premises
consisting of approximately eight thousand one hundred seventy nine (8,179)
square feet from Talarian and Talarian desires to sub-sublease such portion of
the Subleased Premises to Fenwick, on the terms, covenants and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, the parties hereto as agree as follows:
1. SUB-SUBLEASE. Talarian subleases to Fenwick and Fenwick hires from
Talarian a portion of the Subleased Premises consisting of approximately 8,179
square feet and more particularly described on Exhibit C hereto (the "Fenwick
Premises"). The Fenwick Premises shall be delivered to Fenwick on the
Commencement Date in "AS IS" condition with all faults, and Fenwick by
acceptance and delivery thereof, acknowledges that same to be in good order and
repair and in a tenantable condition. Notwithstanding the foregoing to the
contrary, Talarian shall cause all carpeting in the Fenwick Premises to be
cleaned prior to delivery of the Fenwick Premises to Fenwick.
2. TERM. The term of this Sub-Sublease shall commence on December 15,
1997 (the "Commencement Date") and shall expire on January 31, 1999, unless
sooner terminated as hereafter provided or as provided in the Master Lease (the
"Term"). The Term of this Sub-Sublease shall earlier terminate in the event of
the earlier termination for any cause whatsoever of the Sublease or of the
Master Lease. If Talarian terminates the Sublease under Paragraph 3 of the
Sublease, this Sub-Sublease will automatically terminate.
(a) Notwithstanding the foregoing, Fenwick agrees that in the
event of the failure or inability of Talarian for any reason to deliver
possession of the Fenwick Premises on or before the Commencement Date (i)
Talarian shall not be liable for any damage caused thereby; (ii) this
Sub-Sublease shall not be void or voidable; (iii) Fenwick shall not be liable
for rent until such time as Talarian delivers possession of the Fenwick Premises
to Fenwick in the condition required under paragraph 1 above; and (iv) the Term
shall not be extended by any such delay.
<PAGE> 2
(b) Notwithstanding the provisions of this Paragraph 2 to the
contrary, if Talarian had not delivered the Fenwick Premises to Fenwick in the
condition required under paragraph 1 above on or before December 31, 1997,
Fenwick shall have the right thereafter, until such possession is delivered to
Fenwick, to terminate this Sub-Sublease upon ten (10) days notice to Talarian.
Upon such termination, both parties shall be released from further liability
under this Sub-Sublease and all deposits and prepaid rent shall be returned to
Fenwick.
3. RENT.
(a) BASE RENT. Fenwick shall pay to Talarian during the Term as base
rent for the Fenwick Premises the sum of Twenty-Five Thousand Three Hundred
Fifty-Four Dollars ($25,354.00) per month, which amount shall be prorated for
each fractional month during the Term. The amounts payable pursuant to this
Paragraph 3(a) are hereinafter referred to as "Base Rent." Fenwick shall pay to
Talarian upon execution of this Sub-Sublease, in addition to the Deposit set
forth in Section 3(d) below, the first month's Base Rent in the amount of
$23,354.00 which shall be applied to the first month of the term (if the term
begins on the first day of a month) or to the first thirty-one days of the term
(if the term begins on any day other than the first day of a month). If the term
begins on other than the first day of a month, on the first day of the first
full month of the term, Fenwick shall pay to Talarian a sum equal to the
difference between the Base Rent due for the full month less the amount of
prepaid Base Rent credited hereunder to a portion of that month.
(b) PAYMENT. Base Rent and any other charges payable by Fenwick to
Talarian under this Sub-Sublease (collectively "Rent") shall be paid to Talarian
at the place set forth as Talarian's address for notices hereunder, or at such
other place as Talarian may from time to time designate by notice to Fenwick.
All such payments shall be made (i) with respect to Base Rent, on the first day
of each calendar month during the Term of this Sub-Sublease (except that the
Base Rent for the first month of the Term shall be due upon execution of this
Sub-Sublease), without prior notice or demand therefore and without any
deductions or offsets whatsoever; and (ii) with respect to all other payments,
fifteen (15) days prior to the date such payments are due to BroadVision under
the Sublease, or if no regular due date is specified under the Sublease, as
specified in Talarian's written notice to Fenwick (but in no event upon fewer
than fifteen (15) days prior written notice). All such amounts shall be prorated
as appropriate.
(c) LATE PAYMENTS. If any installment of Base Rent or any other amount
due from Fenwick under this Sub-Sublease shall not be received by Talarian
within five (5) days after the date the same is due and payable, Fenwick shall
pay to Talarian a late charge equal to six percent (6%) of such unpaid amounts.
Acceptance of such late charges by Talarian shall in no event constitute a
waiver of Fenwick's default with respect to such overdue amount nor shall such
acceptance prevent Talarian from exercising any of the other rights and remedies
granted to Talarian hereunder.
(d) DEPOSIT. Upon the execution of this Lease, Fenwick shall pay to
Talarian the sum of Twenty-Five Thousand Three Hundred Fifty-Four Dollars
($25,354.00) (the "Deposit") to be held as a non-interest bearing security
deposit for the full and faithful performance of each of Fenwick's obligations
under this Sub-Sublease. In the event Fenwick fails to perform or observe any of
the provisions of the Sub-Sublease to be performed or observed by Fenwick, then,
at the
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option of Talarian, Talarian may apply the Deposit or any portion thereof as may
be necessary to remedy any default in the payment of rent or otherwise remedy
any nonperformance by Fenwick, and Fenwick shall forthwith upon demand restore
the Deposit to the original amount specified. Any remaining portion of the
Deposit shall be returned to Fenwick within thirty (30) days of the date of
termination of this Sub-Sublease, provided that Fenwick shall have performed all
of the terms and conditions of this Sub-Sublease throughout the Term, and shall
have vacated the Fenwick Premises in accordance with each and every term and
condition of this Sub-Sublease.
(e) ABATEMENT. Notwithstanding anything in this Sub-Sublease to the
contrary, in the event that as a result of any restoration or repair to the
Office Building Project, the Building (as such terms are defined in the Master
Lease) or the Subleased Premises (whether as a result of a casualty event, act
of condemnation or otherwise), or due to any other cause whatsoever, Talarian is
entitled to any abatement of Rent under the Sublease, then to the extent that
the Fenwick Premises are damaged or destroyed or otherwise affected by the event
giving rise to the abatement, Fenwick shall be entitled to an equivalent
abatement of the Rent due under this Sub-Sublease.
4. USE. Fenwick shall use the Fenwick Premises only for purposes allowed under
the Master Lease and the Sublease and for no other purpose. Fenwick shall not do
or suffer anything to be done upon the Fenwick Premises which will cause injury
to the Fenwick Premises. Fenwick shall comply with all federal, state, and local
laws, ordinances, regulations and standards relating to its use of the Fenwick
Premises and its use, storage, sale and disposal of hazardous or toxic
substances, as such terms are defined in any such federal, state, or local law,
ordinance, regulation or standard. Fenwick shall not use or bring onto the
Fenwick Premises any hazardous or toxic substance other than such substances as
are customarily used in connection with general office purposes (which
substances shall be used strictly in compliance with applicable laws).
5. OPTIONS.
(a) TALARIAN OPTION TO RETAKE SPACE. Talarian shall have the option,
from time to time, by giving Fenwick sixty (60) days prior written notice, to
take back the aggregate of up to fifty percent (50%) of the Fenwick Premises for
its own use. Said notice may not be given prior to the beginning of the fourth
(4th) month following Fenwick's initial occupancy of the Fenwick Premises. In
the event Talarian exercises said option, this Sub-Sublease shall be amended to
reflect the remaining square footage being sub-subleased and the monthly Base
Rent amount due shall be modified to reflect an amount equal to $3.10 per square
foot per month multiplied by the remaining square footage that Fenwick shall
occupy after the retaking of space; provided if Fenwick has exercised any right
to extend the term, then the Base Rent shall be equal to the same amount that
Fenwick then is paying per square foot per month multiplied by the remaining
square footage that Fenwick shall occupy after the retaking of the space. In
addition, (i) any costs to move walls, provide separate exits or fire exits
associated with the retaking of space shall be borne by Talarian and (ii)
Talarian shall reimburse Fenwick for Fenwick's costs to move personal property
from the area of the Fenwick Premises retaken to another area of the Fenwick
Premises or to perform recabling required within the Fenwick Premises as a
result of the retaking by Talarian, provided Talarian's obligation under this
clause (iii) shall in no event exceed, in the aggregate, One Thousand Dollars
($1,000.00).
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(b) FENWICK OPTION TO RENEW TERM. Talarian grants to Fenwick the option
to extend the term of this Sub-Sublease for one period beginning February 1,
1999 and continuing through July 31, 1999 (the "First Extension Term"). If
Fenwick properly exercises its right to extend the term through the First
Extension Term, Fenwick may further extend the term of this Sub-Sublease for one
additional period beginning August 1, 1999 and continuing through January 31,
2000 (the "Second Extension Term"). If Fenwick properly exercises its right to
extent the term of this Sub-Sublease in accordance with this Paragraph 5(b), the
First Extension Term or the Second Extension Term, as the case may be, shall be
on all of the terms and conditions set out in this Sub-Sublease, except the Base
Rent shall be the then current market rate for similar properties in the
immediate area, but in no event less than the Base Rent per square foot that
Talarian is then paying under the Sublease. For purposes of this Sub-Sublease,
any reference to the Term shall include the First Extension Term and the Second
Extension Term provided that Fenwick has properly exercised its rights to extend
the term of this Sub-Sublease.
(i) The parties acknowledge that Talarian intends to use the
Fenwick Premises at some time during the Sublease term, but that the date for
Talarian use is not known at this time. Therefore, the right of Fenwick to
exercise its option under this Paragraph 5(b) is conditioned upon Talarian
delivering to Fenwick, not later than November 1, 1998 (for the First Extension
Term), or May 1, 1999 (for the Second Extension Term) written notice that
Talarian consents to Fenwick's exercise of its option rights. If no such written
notice is delivered to Fenwick prior to November 1, 1998, Fenwick shall have no
right to exercise its option for the First Extension Term or for the Second
Extension Term. If no such written notice is delivered to Fenwick prior to May
1, 1999, Fenwick shall have no right to exercise its option for the Second
Extension Term.
(ii) If Talarian delivers to Fenwick the notice described in
clause 5(b)(i) above within the appropriate time period, Fenwick may exercise
its option to extend the Term by, and only by, delivering to Talarian on or
before thirty (30) days before the then expiration of the Term written notice of
exercise ("Notice of Exercise"), which notice, in order to be effective, must
contain Fenwick's statement of the appropriate Base Rent to be paid during the
relevant Extension Term. The Base Year shall remain 1998.
(iii) If Fenwick properly exercises its option to extend the
Term, if Talarian does not agree with the proposed Base Rent stated in Fenwick's
Notice of Exercise, Talarian shall notify Fenwick in writing and the two parties
for a period of fifteen (15) days shall attempt to agree on the Base Rent to be
paid by Fenwick during the relevant Extension Term. If the parties are unable to
agree during the fifteen (15) day period, the Base Rent shall be determined by
Duffy D'Angelo and Brad Lyman; provided that, if one or both of such individuals
is unavailable to make sure determination, the party on whose behalf such
individual was to act shall have the right to choose a successor to such
individual, which successor shall have the qualifications set forth in the next
sentence. If Duffy D'Angelo and Brad Lyman (or, if applicable, their successors)
are unable to agree on Base Rent within thirty (30) days before the commencement
if the First Extension Term, or the Second Extension Term, as the case may be,
they shall agree upon a licensed commercial real estate broker or agent active
in the office leasing business in the Mountain View/Palo Alto/Los Altos area and
that person shall determine the Base Rent. If Brad Lyman and Duffy D'Angelo (or,
if applicable, their successors) are unable to agree on a third party to
determine the Base Rent, the Base Rent shall be determined by
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an arbitrator appointed by the American Arbitration Association in accordance
with the Rules of the American Arbitration Association. The costs of determining
the Base Rent for any Extension Period shall be borne one-half by Talarian and
one-half by Fenwick.
(iv) The provisions of the Master Lease, paragraph 39.4 are
specifically incorporated into this Paragraph 5(b).
6. SUB-SUBLEASE SUBJECT TO MASTER LEASE/SUBLEASE. This Sub-Sublease shall be
subject to all of the terms and conditions of the Sublease with the exception of
those items excluded pursuant to Paragraph 7(a) below, and from and after the
Commencement Date Fenwick covenants to perform all of the obligations if
"Subleassee" with regard to the Fenwick Premises under the Sublease accruing or
required to be performed during the Term of this Sub-Sublease to the extent said
terms and conditions are consistent with the provisions of this Sub-Sublease,
and only except as otherwise limited by Paragraph 7(a) below. Talarian shall be
responsible for all of the obligations of "Subleassee" under the Sublease (a)
accruing or required to be performed prior to the Commencement Date and (b)
except as otherwise provided in this Sub-Sublease or incorporated provisions of
the Sublease or the Master Lease, following the expiration or any partial
termination of the Sublease. This Sub-Sublease shall be subject to all the terms
and conditions of the Master Lease with the exception of those items excluded
pursuant to Paragraph 7(a). By agreeing to perform the duties of "Sublessee"
with regard to the Fenwick Premises, Fenwick also is agreeing for the benefit of
Talarian, during the term of this Sub-Sublease to perform all the obligations of
Talarian with regard to the Fenwick Premises under the Master Lease (which
obligations Talarian has assumed pursuant to Paragraph 6 of this Sublease).
7. INCORPORATION OF SUBLEASE.
(a) EXCLUSIONS. Except as otherwise provided in this Sub-Sublease, all
of the terms and conditions of the Sublease are incorporated herein as terms and
conditions of this Sub-Sublease, with references therein to "Sublessor" and
"Sublessee" to be deemed to mean and refer to, respectively, Talarian and
Fenwick herein, with references to the "Premises" to be deemed to mean and refer
to the "Fenwick Premises" and with references therein to "Sublease" to mean this
Sub-Sublease, and along with the sections and paragraphs set out in this
Sub-Sublease, shall be the complete terms and conditions of this Sub-Sublease;
provided, however, the following paragraphs of the Sublease are not incorporated
herein: 3(a), 3(c), 4(a), 4(d), 5, 7(c) and 8.
(b) SUBLEASE AMENDMENT. For the purposes of incorporation of the terms
and provisions of the Sublease into this Sub-Sublease, the following Sublease
provisions are hereby amended as follows (references are to paragraphs in the
Sublease):
4(b) Fenwick shall also pay, in addition to Base Rent, for each
Comparison Year during the term of this Sub-Sublease, Fenwick's Pro Rate
Share (as defined below) of any and all increases to the Building's
Operating Expenses and/or Real Estate Taxes over a 1998 Base Year, to
the extent that such increases are payable by Talarian pursuant to the
Sublease (the "Operating Expense Increases"); provided, however, that
Fenwick shall have no obligation to pay any such increases applicable to
the first twelve (12) months of the Sub-Sublease term. Fenwick's Pro
Rata Share, as determined from time to
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time, shall mean that percentage obtained by dividing the square footage
contained within the Fenwick Premises (the "Fenwick Numerator") by
16,359. If the square footage occupied by Fenwick during a calendar year
shall change, the Fenwick Numerator shall be the average number of
square feet occupied by Fenwick during such calendar year. The initial
Fenwick Pro Rata Share is fifty percent (50%).
(c) MASTER LEASE AMENDMENT. For the purposes of incorporation of the
terms and provisions of the Master Lease and the Sublease into this
Sub-Sublease, the following Master Lease provisions are hereby amended as
follows (references are to paragraphs in the Master Lease):
8. Master Landlord, BroadVision and Talarian shall be named
as additional insured on the liability insurance.
13. The three day cure provided for any monetary default is
reduced to two (2) days. The thirty (30) day cure period
provided for any non-monetary default is reduced to
twenty-five (25) days.
23. The addresses for notices shall be set out on the
signature page hereto.
(d) RECOURSE TO MASTER LANDLORD. Notwithstanding Paragraph 7(a) hereof,
it is understood and agreed that Talarian shall have no obligation or
responsibility to provide or perform any service, maintenance utility, repair,
alteration or other similar obligation which is the obligation of Master
Landlord or BroadVision to provide or perform pursuant to the terms of the
Master Lease or Sublease. If Fenwick shall notify Talarian that Master Landlord
or BroadVision is not supplying services to the Subleased Premises as required
under the Master Lease or Sublease, Talarian will promptly request Master
Landlord or BroadVision, as appropriate, to perform such services. Talarian
shall in no event be liable to Fenwick nor shall Fenwick's obligations under
this Sub-Sublease be impaired or reduced or the performance thereof excused
because of any failure or delay on Master Landlord's or BroadVision's part in
providing any such services or in making any repairs or alterations, or in
performing or observing any similar obligation of Master Landlord under the
Master Lease or BroadVision under the Sublease. If BroadVision or Master
Landlord shall default in its obligation to provide services or make repairs as
required under the Sublease or the Master Lease to the Subleased Premises,
Talarian at Fenwick's request shall exercise reasonable efforts to enforce
Talarian's rights against BroadVision (or to cause BroadVision to enforce its
rights against Master Landlord with respect to such service or repairs) but
Talarian shall have no obligation to bring any legal action or proceeding
against BroadVision. Notwithstanding the foregoing, (i) if as a result of
BroadVision's or Master Landlord's failure to provide services or make repairs
as required under the Sublease or applicable provisions of the Master Lease
Fenwick's use of the Fenwick Premises is materially and adversely affected for a
period of thirty (30) or more days, and (ii) if Talarian fails to bring a legal
action against BroadVision for such failure within ten (10) days after Fenwick's
written request to do so; then Fenwick may elect to terminate this Sub-Sublease
provided it provides Talarian with written notice of such termination within
thirty (30) days after the later to occur of (i) and (ii) above.
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(e) TALARIAN REPRESENTATIONS. Talarian represents to Fenwick, as of the
date hereof, (i) the Sublease and, to Talarian's knowledge, that Master Lease
are in full force and effect and (ii) that no default or event that, with the
passing of time or the giving of notice or both, would constitute a default,
constitute a default, exists on the part of Talarian or, to Talarian's
knowledge, BroadVision or the Master Landlord. However, possession of the
Sublease Premises had not been delivered to Talarian and Talarian has certain
rights to terminate the Sublease if the Sublease Premises are not delivered
within certain time periods described in the Sublease. Talarian agrees to
perform its obligations under the Sublease during the term of this Sub-Sublease,
provided this agreement shall not limit or impair Talarian's right to terminate
the Sublease or to negotiate modifications of the Sublease (including a later
occupancy date (if BroadVision fails to deliver the Sublease Premises within the
time periods required in the Sublease.
(f) FENWICK HAS READ MASTER LEASE AND SUBLEASE. Fenwick hereby
acknowledges that it has read and is familiar with the terms of the Master Lease
and Sublease, and agrees that this Sub-Sublease is subordinate and subject to
the Master Lease and Sublease.
8. ASSIGNMENT AND SUBLETTING. Fenwick shall not sublet the Fenwick Premises or
assign this Sub-Sublease without the prior written consent of Master Landlord
and BroadVision, to the extent such consent is required under the Master Lease
or Sublease. Fenwick shall not sublet the Fenwick Premises or assigns this
Sub-Sublease without the prior written consent of Talarian, which shall not be
unreasonably withheld.
9. PARKING/SIGNAGE.
(a) Fenwick shall have the non-exclusive use of four (4) parking spaces
per 1,000 square feet in the Fenwick Premises, subject to the applicable Rules
and Regulations under the Master Lease. Fenwick shall not be charged for
parking.
(b) Subject to limitations in the Master Lease and the Sublease,
Talarian shall permit Fenwick to install suite door signage consistent with
other signage in the Building. Tenant shall obtain permits as required by City
of Los Altos.
10. AFTER HOURS UTILITY USAGE. Fenwick requires after hours utility services.
Pursuant to Master Lease section 11.1 and 11.3, excessive services and after
hours services usage is "subject to advance request and reimbursement by Lessee
to Lessor of the cost thereof." The parties have not yet determined the ideal
mechanism to (i) provide both parties with access to the "override" switch that
provides after hours utilities or (ii) separately meter Fenwick's usage. It may
be that after hours services can be supplied to Fenwick only if they are
supplied to the entire Subleased Premises. Talarian agrees to provide access to
Fenwick to the mechanical switch that permits after hours services usage. The
cost of after hours utility usage shall be shared by Talarian and Fenwick
equitably in accordance with the after hours usage by each party (if a
cost-effective exact method of measuring the after hours utility usage of each
party cannot be determined). The parties will use their best efforts to enter
into a mutually acceptable agreement regarding an acceptable method of
determining the proper cost allocation of after hours utility charges.
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11. STATEMENTS OF TALARIAN RE: FENWICK PREMISES. Talarian has never occupied the
Subleased Premises and has provided Fenwick with all the information in
Talarian's possession regarding the Fenwick Premises. Without investigation
other than that of which Fenwick is aware, (i) to the best knowledge of
Talarian, the operating systems in the Fenwick Premises are in good working
order and repair and (ii) the Fenwick Premises comply with the requirements of
the American's With Disabilities Act (however, Talarian has had no "ADA" survey
made of the Fenwick Premises). Talarian is assuming no obligations with regard
to the Building operating systems or with regard to compliance with the
American's With Disabilities Act. Talarian agrees to use commercially reasonable
efforts to enforce the obligations of the Master Landlord to repair any
deficiencies in the Building operating systems, and to enforce the obligations
of the Master Landlord to repair any deficiencies with regard to California Code
of Regulations Title 24 and/or with regard to the American's With Disabilities
Act. The term " to the best knowledge of Talarian" is limited to matters within
the present actual knowledge of John Bowman, means only the conscious awareness
of facts or other information by Mr. Bowman, and does not include any knowledge
that may be imputed by constructive notice or other means or imply that any
inquiry has been undertaken.
12. MISCELLANEOUS.
(a) NOTICES. All notices or demands of any kind required or desired to
be given by Talarian to Fenwick or Fenwick to Talarian hereunder shall be in
writing and shall be sent by hand delivery or by a nationally recognized courier
service, in which event they shall be deemed given when the same are received,
or by depositing such notices or demands in the United States mail, certified or
registered, postage prepaid, return receipt requested, in which event it shall
be deemed given seventy-two (72) hours after such deposit. All notices or
demands shall be addressed to Talarian or Fenwick, as the case may be, at the
address set forth after the signatures to this Sub-Sublease.
(b) ENTIRE AGREEMENT. This Sub-Sublease represents the entire agreement
between the parties to this Sub-Sublease and supersedes all prior agreements
between the parties, whether written or oral. There are no representations
between Talarian and Fenwick other than those contained in this Sub-Sublease.
Any agreement hereafter made shall be ineffective to change, modify, waive or
discharge this Sub-Sublease in whole or in part unless such agreement is in
writing and signed by the party against whom enforcement of the change,
modification, waiver or discharge is sought.
(c) SUCCESSORS AND ASSIGNS. The terms, covenants and conditions
contained in this Sub-Sublease shall, subject to the provisions of this
Sub-Sublease relating to assignment and subletting, apply to, be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
(d) WAIVERS. No delay or omission in the exercise of any right or remedy
of either party upon any default by the other party shall impair such right or
remedy or be construed as a waiver of such default. The receipt and acceptance
by Talarian of delinquent rents or charges, or the acceptance of partial
payments of such rents or charges, shall not constitute a waiver of any other
default. No act or conduct of Talarian, including, without limitation, the
acceptance of keys to the Fenwick Premises, shall constitute an acceptance of
the surrender of the Fenwick
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Premises by Fenwick before the expiration of or sooner termination of the Term.
Only a written notice from Talarian to Fenwick shall constitute acceptance of
the surrender of the Fenwick Premises and accomplish a termination of this
Sub-Sublease prior to the scheduled expiration of the term hereof.
(e) TIME OF ESSENCE. Time is of the essence of this Sub-Sublease.
(f) ATTORNEY'S FEES. If any party commences an action against the other
party arising out of or in connection with this Sub-Sublease, the prevailing
party shall be entitled to recover from the nonprevailing party the cost and
expenses of such action, including reasonable attorneys' fees and court costs.
The "prevailing party" will be determined by the court before whom the action
was brought based upon the assessment of which party's major agreements or
positions taken in the suit or proceeding could fairly be said to have prevailed
over the other party's major arguments or positions on major disputed issues in
the court's decision.
(g) COUNTERPARTS. This Sub-Sublease may be executed in counterparts,
each of which shall constitute an original and shall be binding upon all
parties, their successors and permitted assigns.
13. CONDITION PRECEDENT. Notwithstanding Paragraph 2 hereof, the Commencement
Date of this Sub-Sublease shall not occur until the Master Landlord and
BroadVision have consented to this Sub-Sublease in writing in form satisfactory
to Fenwick and Talarian. In the event that such consents are not obtained on or
before January 1, 1998, this Sub-Sublease shall have no further force and
effect; provided that, on or before January 5, 1998, Talarian shall return to
Fenwick all amounts previously paid by Fenwick to Talarian in connection with
this Sub-Sublease (including, without limitation, the amounts paid pursuant to
Paragraphs 3(a) and 3(d) above).
14. BROKERAGE. Each party warrants and represents to the other that such party
has not retained the services of any real estate broker, finder or any other
person whose services would form the basis for any claim for any commission or
fee in connection with this Sub-Sublease or the transactions contemplated
hereby, except for the following parties: Cornish & Carey Commercial ("C&C"),
representing Fenwick, and Colliers Parris International, Inc. ("CPI")
representing Talarian. Talarian shall pay to CPI any commission due to CPI in
connection with this Sub-Sublease pursuant to a separate agreement between
Talarian and CPI. C&C shall recover any commission due to it in connection with
this Sub-Sublease directly from CPI. Each party agrees to save, defend,
indemnify and hold the other party free and harmless from any breach of its
warranty and representation as set forth in the preceding sentence, including
the other party's reasonable attorneys' fees.
15. DISCLOSURE TO TALARIAN. Talarian acknowledges that Fenwick acts as legal
counsel for Talarian on various matters. Throughout the course of negotiations
of this Sub-Sublease, Talarian has been represented by separate counsel, the law
firm of McPharlin, Sprinkles & Thomas LLP. Pursuant to Rule 3-300 of the
California Rules of Professional Conduct, the parties hereto agree that the
terms of this transaction are fair and reasonable to Talarian. Talarian has
reached this conclusion, not based upon any representation by Fenwick of
Fenwick's counsel or agents, but on Talarian's own independent analysis, and
with the advice of its own counsel, the law firm of McPharlin, Sprinkles &
Thomas LLP. Talarian acknowledges that it has the right
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to the advice of an independent lawyer, and has availed itself of that
opportunity. By its signature below, Talarian hereby gives its written consent
to this Sub-Sublease and all of the terms and conditions contained herein.
16. In addition to Base Rent, sub-tenant shall pay GVE Distel Associates an
additional $600.00 per month for unlimited after hours utility usage. Payments
are due on the first, late on the 10th and subject to collection provisions in
the Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Sub-Sublease as of the
date first above written.
FENWICK & WEST LLP TALARIAN, INC.
By: /s/ By: /s/
------------------------------- ------------------------------------
Title: Managing Partner Title: President & CEO
---------------------------- ---------------------------------
Date: 11/18/97 Date: 11/19/97
----------------------------- ----------------------------------
Address For Notices: Address For Notices:
- ------------------------------------ -----------------------------------------
- ------------------------------------ -----------------------------------------
- ------------------------------------ -----------------------------------------
- ------------------------------------ -----------------------------------------
Attn: Attn:
----------------------------- ------------------------------------
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CONSENT OF SUBLESSOR
The undersigned, as Lessee and holder of all right and Interest of Lessee under
the Master Lease, hereby consents to the attached Sub-Sublease:
BROADVISION, INC., a Delaware Corporation
By: /s/
------------------------------------
Its: CFO
-----------------------------------
Dated: 11/18/97
---------------------------------
CONSENT OF MASTER LESSOR
The undersigned, as owner and holder of all right, title and interest of Master
Lessor under the Master Lease, hereby consents to the attached Sub-Sublease.
GVE DISTEL ASSOCIATES, a California
General Partnership
By: /s/
------------------------------------
Its: Managing General Partner
Dated: 12/6/97
---------------------------------
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FIRST AMENDMENT TO SUB-SUBLEASE
THIS FIRST AMENDMENT TO SUB-SUBLEASE ("First Amendment") is made and
entered into as of February 1, 1999 (the "Effective Date"), by and between
TALARIAN, INC., a California corporation, as sub-sublessor ("Talarian"), and
FENWICK & WEST LLP, a California limited liability partnership, as sub-sublessee
("Fenwick").
RECITALS:
A. Talarian and Fenwick are parties to that certain Sub-sublease dated
as of November 18, 1997 (the "Sub-sublease"), wherein Talarian sub-subleased to
Fenwick certain premises consisting of approximately 8,179 square feet (the
"Original Fenwick Premises") located at 333 Distel Circle, Los Altos,
California. The Original Fenwick Premises are more particularly described in the
Sub-sublease.
B. Talarian and Fenwick desire to amend the Sub-sublease, on the terms
and conditions set forth below, to (i) extend the Term of the Sub-sublease, and
(ii) provide for the termination of a portion of the Original Fenwick Premises.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Talarian and Fenwick hereby amend
the Sub-sublease and Talarian and Fenwick agree as follows:
1. Incorporation; Defined Terms. The Sub-sublease, including all
exhibits attached thereto, is incorporated into this First Amendment by this
reference. All capitalized terms used and not otherwise defined in this First
Amendment, but defined in the Sub-sublease, shall have the meaning set forth in
the Sub-sublease.
2. Extension of Term. The Term of the Sub-sublease, which was scheduled
to expire on January 31, 1999, (the "Scheduled Expiration Date"), is hereby
extended through May 31, 2000 (the "Revised Expiration Date"). The period of the
Term from the Scheduled Expiration Date through the Revised Expiration Date
shall be referred to herein as the "Extended Term." Fenwick's sub-sublease of
the Modified Fenwick Premises (as such term is defined in Paragraph 3 below)
during the Extended Term shall be on and subject to all the terms and provisions
of the Sub-sublease, as amended by this First Amendment.
3. Partial Termination of Original Fenwick Premises. As of the Effective
Date, (a) Fenwick has vacated that portion of the Original Fenwick Premises
consisting of approximately 2,045 square feet of space (the "Terminated
Premises"), as more particularly shown on Exhibit A attached hereto, and has
surrendered possession of the Terminated Premises to Talarian, and (b) Talarian,
at Talarian's sole cost and expense, has constructed demising walls separating
the Terminated Premises from the Modified
<PAGE> 13
Fenwick Premises. From and after the Effective Date the parties shall have no
further obligation to one another with respect to the Terminated Premises, and
references in the Sub-sublease to the "Fenwick Premises" shall be deemed to mean
the Original Fenwick Premises less the Terminated Premises (the "Modified
Fenwick Premises").
4. Base Rent; Fenwick's Pro Rata Share; After Hours Utilities.
(a) From and after the Effective Date, Fenwick shall pay monthly
Base Rent for the Modified Fenwick Premises in an amount equal to Nineteen
Thousand Sixteen Dollars ($19,016.00).
(b) From and after the Effective Date, Fenwick's Pro Rata Share
pursuant to Paragraph 7(b) of the Sub-sublease shall be Thirty-seven and one
half (37.5) percent.
(c) From and after the Effective Date, Fenwick shall pay directly
to Master Landlord an amount equal to Four Hundred Fifty Dollars ($450.00) per
month for unlimited after-hours utility usage. Such payments shall be due and
payable in accordance with the second sentence of Paragraph 16 of the
Sub-sublease.
5. Representations. Talarian represents to Fenwick that, as of the date
hereof, (a) the Sublease and, to Talarian's knowledge, the Master Lease are in
full force and effect, and (b) no default or event that, with the passing of
time or the giving of notice or both, would constitute a default, exists on the
part of Talarian or, to Talarian's knowledge, BroadVision or the Master
Landlord.
6. Deletions. Paragraph 5 (Options), the second sentence of Paragraph
7(e), and the last clause of the third sentence of Paragraph 7(e) (commencing
with the words "provided this agreement shall not limit...") are hereby deleted
from the Sub-sublease in their entirety.
7. Miscellaneous.
(a) Effect of Amendment. Except to the extent the Sub-sublease is
modified by this First Amendment, the remaining terms and provisions of the
Sub-sublease shall remain unmodified and in full force and effect (including,
without limitation, the terms and provisions of Paragraph 15 of the
Sub-sublease, which terms and provisions are hereby reaffirmed with respect to
this First Amendment). In the event of conflict between the terms of the
Sub-sublease and the terms of this First Amendment, the terms of this First
Amendment shall prevail.
(b) Entire Agreement. This First Amendment embodies the entire
understanding between Talarian and Fenwick with respect to its subject matter
and can be changed only by an instrument in writing signed by Talarian and
Fenwick.
2
<PAGE> 14
(c) Counterparts. This First Amendment may be executed in
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same First Amendment.
IN WITNESS WHEREOF, Talarian and Fenwick have executed this First
Amendment as of the day and year first set forth above.
LANDLORD: TENANT:
TALARIAN, INC., a California corporation FENWICK & WEST LLP, a California
Limited liability partnership
By: /s/ By: /s/
------------------------------- ----------------------------------
Title: V.P. Finance Title: Managing Partner
------------------------ ---------------------------
Date: 4/9/99 Date: April 7, 1999
------------------------- ----------------------------
3
<PAGE> 15
CONSENT OF SUBLESSOR
The undersigned, as Lessee and holder of all right and interest of
Lessee under the Master Lease, hereby consents to the attached First Amendment
to Sub-sublease between Talarian, Inc., as sub-sublessor, and Fenwick & West
LLP, as sub-sublessee, dated as of February 1, 1999.
BROADVISION, INC.,
a Delaware corporation
By: /s/
----------------------------------
Title: VP Corporate Controller
----------------------------
Date: 4-15-99
-----------------------------
CONSENT OF MASTER LANDLORD
The undersigned, as owner and holder of all right, title and interest of
Lessor under the Master Lease, hereby consents to the attached First Amendment
to Sub-sublease between Talarian, Inc., as sub-sublessor, and Fenwick & West
LLP, as sub-sublessee, dated as of February 1, 1999.
GVE DISTEL ASSOCIATES,
a California general partnership
By: /s/
----------------------------------
Title: Managing General Partner
----------------------------
Date: 4-17-99
-----------------------------
<PAGE> 1
EXHIBIT 10.20
TALARIAN SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
This Agreement, dated ("Effective Date"), is made between Talarian
("Talarian"), a California corporation doing business at 333 Distel Circle, Los
Altos, California 94022-1404, and ________ ("Licensee"), a corporation doing
business at .
RECITALS
A. Talarian is in the business of developing and marketing proprietary
software products which assist in the development of communications and data
management software.
B. Licensee is in the business of developing and marketing
_______________ .
C. Licensee desires to acquire, and Talarian desires to grant Licensee,
a right and license to use Talarian software to develop Licensee's software
application, to embed the runtime version of Talarian software in such software
applications, and to offer, distribute and sublicense such software applications
to Licensee's customers.
Talarian and Licensee agree as follows:
1. DEFINITIONS.
"SmartSockets Development System" means Talarian's proprietary
SmartSockets computer software programs and tools, in object code form only,
which enable a user to develop an application using SmartSockets. The
SmartSockets Development System is more fully described in Exhibit A. The
SmartSockets Development System includes any and all modifications, revisions
and enhancements to the SmartSockets Development System provided to Licensee
under this Agreement and under any SmartSockets maintenance contracts entered
into by Licensee with Talarian.
"SmartSockets Runtime" means those portions of the SmartSockets
Development System, in object code form only, which may be incorporated into and
distributed as part of a Bundled Product under the terms of this Agreement.
"SmartSockets Documentation" means the SmartSockets
Documentation, whether provided in printed form or on machine-readable media,
which is generally provided by Talarian to its licensees in conjunction with and
in support of the SmartSockets Development System or SmartSockets Runtime, all
as described in Exhibit A. The SmartSockets Documentation includes all
modifications, revisions and enhancements to the SmartSockets Documentation
provided to Licensee under this Agreement and under any SmartSockets maintenance
contracts entered into by Licensee with Talarian.
<PAGE> 2
"Talarian Products" means SmartSockets Development System,
SmartSockets Runtime, and SmartSockets Documentation.
"Licensee Product" means the computer software and/or hardware
and related documentation specified in Exhibit B, which is one or more stand
alone software products marketed by Licensee and created by Licensee without use
of the SmartSockets Development System, or obtained by Licensee from sources
other than Talarian, which may be combined with SmartSockets Runtime to
constitute a complete deliverable and executable Bundled Product.
"Bundled Product" means the combination of a Licensee Product and
SmartSockets Runtime, created by modifying a Licensee Product using the
SmartSockets Development System. The Licensee Product must be linked with
SmartSockets Runtime to produce a single executable product. The Licensee
Products will represent a significant functional and value enhancement to the
Talarian Products, such that the primary reason for an end user to license the
Bundled Products is other than the right to receive a license to use the
Talarian Products included in the Bundled Products. Without limiting the
generality of the foregoing, the Bundled Products may not be products that
compete with the Talarian Products, or any portion thereof.
"End User" means a direct or indirect customer of Licensee who is
authorized by an end user license agreement as specified in Section 3.1 to use a
Talarian Product for the End User's internal business purposes.
"Sublicensees" means a direct or indirect customer of Licensee
who is authorized by a Sublicensee agreement as specified in Section 3.2 to
distribute a Talarian Product as part of the Bundled Products for distribution
to End Users or other Sublicensees.
"Territory" means ________.
"Intellectual Property Rights" means patent rights, copyright
rights (including, but not limited to, rights in audiovisual works and moral
rights), trade secret rights, and any other intellectual property rights
recognized by the law of each applicable jurisdiction.
"Marks" means Talarian's trademarks, trade names, service marks,
and/or service names specified in Exhibit A.
2. LICENSES.
2.1 Grant of License.
(a) Licenses. Subject to all the terms and conditions of
this Agreement, Talarian hereby grants to Licensee, and Licensee hereby accepts
a non-exclusive, nontransferable license:
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<PAGE> 3
(i) to use a number of SmartSockets Development Systems
set forth in Exhibit A on the platform also set forth in Exhibit A and in
conjunction with Licensee Products, to develop, modify, reproduce, generate and
test Bundled Products;
(ii) to market, distribute (directly or through
Sublicensees) and sublicense SmartSockets Runtime, as part of the Bundled
Product, to End Users solely for their own internal business purposes in the
Territory during the term of this Agreement.
2.2 Reproduction. Subject to the terms of this Agreement,
Talarian grants Licensee a non-exclusive, non-transferable license during the
term of this Agreement to reproduce Talarian Products for distribution in
accordance with Section 2.1.
2.3 No Reverse Engineering. Licensee will not disassemble,
decompile, or reverse engineer any Talarian Products.
2.4 No Copying. Licensee will not copy or otherwise reproduce any
Talarian Products, in whole or in part, except for making reasonable numbers of
back-up copies or as expressly authorized by this Agreement.
2.5 No Unauthorized Derivative Works. Licensee will not modify
the Talarian Product in any manner, except as it may be expressly directed by
Talarian in writing.
2.6 No Sale of Services. Licensee will not use the Talarian
Products in any manner to provide service bureau, time sharing, or other
computer services to third parties.
2.7 Limited Rights. Licensee's rights in the Talarian Products
will be limited to those expressly granted in this Agreement.
3. OTHER AGREEMENTS, PRICING, AND MARKETING.
3.1 End User Agreement. Licensee may not distribute any Talarian
Products to any End User unless such End User is subject to an end user software
license agreement with Licensee that:
(i) protects Talarian's proprietary rights in the Talarian
Products to at least the same degree as the terms and conditions of this
Agreement;
(ii) requires that such End User not reverse engineer,
reverse compile or disassemble the object code for the Talarian Products;
(iii) requires such End User to comply fully with all
applicable laws and regulations in any of its dealings with respect to the
Talarian Products;
(iv) makes no representations or warranties on behalf of
Talarian; and
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<PAGE> 4
(v) does not grant any rights to such End User beyond the
scope of this Agreement.
Licensee will promptly provide Talarian with reasonable access to such
agreements following Talarian's request.
3.2 Sublicensee Agreement. Licensee may distribute, and may grant
sublicenses of, SmartSockets Runtime to Sublicensees as part of the Bundled
Products for distribution and sublicensing of SmartSockets Runtime as part of
the Bundled Products to End Users, provided that each such Sublicensee executes,
or has already executed, a written Sublicensee agreement with Licensee that:
(i) protects Talarian's proprietary rights in the Talarian
Products to at least the same degree as the terms and conditions of this
Agreement;
(ii) requires that such Sublicensee not reverse engineer,
reverse compile or disassemble the object code for the Talarian Products;
(iii) requires such Sublicensee to comply fully with all
applicable laws and regulations in any of its dealings with respect to the
Talarian Products;
(iv) makes no representations or warranties on behalf of
Talarian; and
(v) precludes the use of the Talarian Products in a
service bureau, time sharing, or other non-licensed basis;
(vi) does not permit distribution or sublicensing of the
Talarian Products beyond the scope of this Agreement; and
(vii) requires such Sublicensee to enter into an end user
software license agreement with its End User that is consistent with the terms
and conditions of the end user software license agreement specified in Section
3.1.
Licensee will promptly provide Talarian with a copy of each such executed
agreement.
3.3 Pricing Freedom. Licensee is, and will remain, entirely free
to determine its End User and Sublicensees prices and fees in its own
discretion.
4. DEMONSTRATIONS, BENCHMARKS, AND EVALUATIONS. Licensee will be
responsible for demonstrations and benchmarks of Talarian Products to, and
evaluations by, its prospective customers. Assistance by Talarian in any
demonstrations or benchmarks will be at Talarian's discretion and at Talarian's
standard rates for its personnel. Licensee may, at no charge, reproduce a
reasonable number of copies of Talarian Products for use by Licensee solely for
the purpose of conducting demonstrations and benchmarks by Licensee personnel or
prospective customers.
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<PAGE> 5
5. DELIVERY. Talarian will deliver to Licensee a master copy of the
Talarian Products within days of the Effective Date. ----
6. PAYMENTS.
6.1 License Payments. Licensee will pay Talarian the
nonrefundable amounts according to the Fee and Payment schedule specified in
Exhibit C for Licensee's use and distribution of the Talarian Products. All
shipping or other transportation charges for delivery of the Talarian Products
to Licensee, including insurance and special packaging, will also be paid by
Licensee.
6.2 Payments for Maintenance, Support, Updates, and Enhancements
Licensee will pay Talarian the nonrefundable amounts according to the Fee and
Payment schedule specified in Exhibit C for maintenance and support services and
updates and enhancements for the Talarian Products from Talarian under Section
8.2.
6.3 Payment Terms. Licensee will make all payments to Talarian as
according to the Fee and Payment schedule specified in Exhibit C. Payments made
under this Agreement after their due date will incur interest at a rate equal to
1.5% per month or the highest rate permitted by applicable law, whichever is
lower.
6.4 Increases. The amounts specified in Exhibit C reflect
Talarian's current published prices. As Talarian's published list prices are
revised from time to time, the amounts specified in Exhibit C will be deemed
amended accordingly upon days prior written notice to Licensee.
6.5 Taxes. All amounts payable under this Agreement are exclusive
of all sales, use, value-added, withholding, and other taxes and duties.
Licensee will pay all taxes and duties assessed in connection with this
Agreement and its performance by any authority within or outside of the U.S.,
except for taxes payable on Talarian's net income. Talarian will be promptly
reimbursed by Licensee for any and all taxes or duties that Talarian may be
required to pay in connection with this Agreement or its performance.
7. REPORTS AND AUDITS.
7.1 Licensee's Records. Licensee will maintain complete records,
during and for three (3) years after the termination or expiration of this
Agreement, regarding the distribution and sublicensing of the Talarian Products
to each End User and Sublicensees.
7.2 Payment Reports. Within thirty (30) days after the close of
each quarter ending March 31, June 30, September 30 and December 31, Licensee
will deliver to Talarian a report which will provide all information reasonably
necessary for computation and/or confirmation of the payments, if any, due or
credited to Talarian for such quarterly period.
7.3 Audit. An independent certified public accountant selected by
Talarian may, upon reasonable notice and during normal business hours, inspect
the records of Licensee on which such reports are based. If, upon performing
such audit, it is determined that Licensee
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<PAGE> 6
has underpaid Talarian by an amount greater than five percent (5%) of the
payments due Talarian in the period being audited, Licensee will bear all
reasonable expenses and costs of such audit in addition to its obligation to
make full payment under Section 6.
8. MAINTENANCE, SUPPORT, AND TRAINING.
8.1 By Licensee. In addition to the provisions of Section 4,
Licensee will be responsible for providing the following support to its End
Users and Sublicensees: installing the Talarian Products as needed; training End
Users and Sublicensees; and providing all direct first level technical support
to End Users and Sublicensees, including but not limited to diagnosing problems
and using its reasonable efforts to provide solutions.
8.2 By Talarian. Except as provided otherwise in this Agreement
or in a separate written agreement, Talarian shall not be responsible for
providing support to Sublicensees or End Users. Subject to receipt by Talarian
of payments as specified in Section 6.2, Talarian will provide Licensee with:
(i) error corrections for the Talarian Products in
accordance with Talarian's standard maintenance and support policies and
procedures;
(ii) updates and enhancements for the Talarian Products to
the extent that Talarian generally provides such updates and enhancements to
Talarian's customers without separately charging for such updates and
enhancements;
(iii) access to Talarian's "hot-line" for inquiries from
Licensee relating to the Talarian Products between the hours of 8 a.m. and 5
p.m., Pacific Time, on Talarian's business days; and
(iv) training in accordance with the terms and conditions
and pricing specified in Licensors published price list, provided that Licensee
pays the travel and living expenses of Talarian's personnel in connection with
any out-of-town training requested by Licensee.
9. CONFIDENTIALITY.
9.1 Obligations. Licensee agrees:
(i) that it will not disclose to any third party or use
any Talarian Products or other technical information disclosed to it by Talarian
(collectively, "Confidential Information") except as expressly permitted in this
Agreement; and
(ii) that it will take all reasonable measures to maintain
the confidentiality of all Confidential Information in its possession or
control, which will in no event be less than the measures it uses to maintain
the confidentiality of its own information of similar importance.
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<PAGE> 7
9.2 Exceptions. "Confidential Information" will not include
information that:
(i) is in or enters the public domain without breach of
this Agreement;
(ii) Licensee lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation; or
(iii) Licensee develops independently, which it can prove
with written evidence.
9.3 Injunctive Relief. Licensee acknowledges that the Talarian
Products contain trade secrets of Talarian, the disclosure of which would cause
substantial harm to Talarian that could not be remedied by the payment of
damages alone. Accordingly, Talarian will be entitled to preliminary and
permanent injunctive relief and other equitable relief for any breach of this
Section 9.
10. PROPRIETARY RIGHTS.
10.1 Talarian's Ownership.
(a) The Talarian Products are and will remain the sole and
exclusive property of Talarian and its suppliers, if any, whether the Talarian
Products are separate or combined with any other products. Talarian's rights
under this subsection (a) will include, but not be limited to: (i) all copies of
the Talarian Products, in whole and in part; (ii) all Intellectual Property
Rights in the Talarian Products; and (iii) all modifications to, and derivative
works based upon, the Talarian Products.
(b) Subject to Section 10.4(b), Licensee will not delete
or in any manner alter the Intellectual Property Rights notices of Talarian and
its suppliers, if any, appearing on the Talarian Products as delivered to
Licensee. As a condition of the license rights granted to Licensee in this
Agreement, Licensee will reproduce and display such notices on each copy it
makes of any Talarian Product.
10.2 Licensee's Duties. Licensee will use its reasonable efforts
to protect Talarian's Intellectual Property Rights in the Talarian Products and
will report promptly to Talarian any infringement of such rights of which
Licensee becomes aware.
10.3 Third Party Infringement. Talarian reserves the sole and
exclusive right at its discretion to assert claims against third parties for
infringement or misappropriation of its Intellectual Property Rights in the
Talarian Products.
10.4 Trademarks.
(a) If any advertisement or other marketing material used
by Licensee makes any statement as to the technical features or capabilities of
the Talarian Products beyond
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<PAGE> 8
the information provided to Licensee by Talarian, Licensee will first obtain the
written approval of Talarian prior to publishing such advertisement or material.
(b) Nothing in this Agreement grants Licensee any rights
in or to use any of the Marks. Talarian acknowledges that Licensee intends to
use Licensee's own trademarks in connection with Licensee's marketing of the
Talarian Products.
11. WARRANTY.
11.1 Power and Authority. Talarian warrants to Licensee that it
has sufficient right and authority to grant to Licensee all licenses and rights
that Talarian grants under this Agreement.
11.2 Performance Warranty. Talarian warrants, for a period of
thirty (30) days from the Effective Date, that the Talarian Product will
substantially conform to the applicable product documentation provided by
Talarian. The foregoing warranty does not apply to any Talarian Product that has
been modified, combined with other products (including the Licensee Product), or
used improperly. TALARIAN DOES NOT WARRANT THAT THE PRODUCT WILL MEET LICENSEE'S
OR END USER'S REQUIREMENTS, THAT THE PRODUCT WILL OPERATE IN THE COMBINATIONS
THAT LICENSEE MAY SELECT OR USE, THAT THE OPERATION OF THE PRODUCT WILL BE
UNINTERRUPTED OR ERROR FREE, OR THAT ALL ERRORS IN THE PROUDUCT WILL BE
CORRECTED.
11.3 Sole and Exclusive Remedy. FOR ANY BREACH OF THE WARRANTY
CONTAINED IN SECTION 11.2, LICENSEE'S SOLE AND EXCLUSIVE REMEDY WILL BE, AT
TALARIAN'S OPTION EITHER: (A) THE REPLACEMENT OR CORRECTION OF THE DEFECTIVE
PRODUCT WITHIN 30 DAYS OF BEING INFORMED OF THE BREACH OF WARRANTY; OR (B) THE
TERMINATION OF THIS AGREEMENT AND THE REFUND TO LICENSEE OF THE LICENSE FEE PAID
BY LICENSEE TO TALARIAN FOR SUCH DEFECTIVE TALARIAN PRODUCT UNDER THIS AGREEMENT
WITHIN 60 DAYS OF BEING INFORMED OF THE BREACH OF WARRANTY.
11.2 Disclaimer of Other Warranties. THE WARRANTIES IN THIS
SECTION ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT
NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NONINFRINGEMENT.
12. INDEMNITIES.
12.1 Distribution Indemnity. Subject to the terms of Section
12.2, Licensee agrees to indemnify Talarian against any third party claims
against Talarian for loss, damage, liability, or expense (including but not
limited to attorneys' fees) arising out of any acts or omissions of Licensee or
any Sublicensees in connection with their activities under this Agreement.
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<PAGE> 9
12.2 Infringement Indemnity.
(a) Duty to Indemnify and Defend.
(i) Talarian will indemnify Licensee against, and
will defend or settle at Talarian's own expense, any action or other proceeding
brought against Licensee to the extent that it is based on a claim that the use
of the Talarian Products as licensed in this Agreement infringes any copyright,
any U.S. patent issued as of the Effective Date, or that the Talarian Products
incorporate any misappropriated trade secrets.
(ii) Talarian will pay any and all costs, damages,
and expenses (including but not limited to reasonable attorneys' fees) awarded
against Licensee in any such action or proceeding attributable to any such
claim.
(iii) Talarian will have no obligation under this
Section as to any action, proceeding, or claim unless: (A) Talarian is notified
of it promptly; (B) Talarian has sole control of its defense and settlement; and
(C) Licensee provides Talarian with reasonable assistance in its defense and
settlement.
(b) Injunctions.
(i) If Licensee's use of any Talarian Products
under the terms of this Agreement is, or in Talarian's opinion is likely to be,
enjoined due to the type of infringement or misappropriation specified in
subsection (a) above, then Talarian may, at its sole option and expense, either:
(A) procure for Licensee the right to
continue using such Talarian Products under the terms of this Agreement; or
(B) replace or modify such Talarian Products
so that they are noninfringing and substantially equivalent in function to the
enjoined Talarian Products; or
(C) if options (A) and (B) above cannot be
accomplished despite the reasonable efforts of Talarian, then Talarian may both:
(1) terminate Licensee's rights and
Talarian's obligations under this Agreement with respect to such Talarian
Products, and
(2) refund to Licensee all ongoing
license fees paid by Licensee to Talarian for copies of such Talarian Products
to the extent that Licensee is contractually obligated to return to any End
Users their payments made to Licensee or Sublicensees for such copies.
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<PAGE> 10
(c) Sole Remedy. THE FOREGOING ARE TALARIAN'S SOLE AND
EXCLUSIVE OBLIGATIONS, AND LICENSEE'S SOLE AND EXCLUSIVE REMEDIES, WITH RESPECT
TO INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS.
(d) Exclusions. Talarian will have no obligations under
this Section 12.2 with respect to infringement or misappropriation arising from
(i) modifications to the Talarian Products that were not authorized by Talarian,
(ii) Talarian Product specifications requested by Licensee, or (iii) the use of
the Talarian Products in combination with products not provided by Talarian.
13. LIMITATIONS OF LIABILITY.
13.1 Total Liability. TALARIAN'S TOTAL LIABILITY TO LICENSEE
UNDER THIS AGREEMENT WILL BE LIMITED TO THE PAYMENTS RECEIVED BY LICENSOR FROM
LICENSEE UNDER THIS AGREEMENT.
13.2 Exclusion of Damages. IN NO EVENT WILL TALARIAN BE LIABLE TO
LICENSEE FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY, OR
OTHERWISE, AND WHETHER OR NOT TALARIAN HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE.
13.3 Failure of Essential Purpose. The parties have agreed that
the limitations specified in this Section 13 will survive and apply even if any
limited remedy specified in this Agreement is found to have failed of its
essential purpose.
14. TERM AND TERMINATION.
14.1 Term. The term of this Agreement will begin on the Effective
Date and will continue for one (1) year unless terminated earlier in accordance
with the provisions hereof.
14.2 Events of Termination. Either party will have the right to
terminate this Agreement if:
(a) the other party breaches any material term or
condition of this Agreement and fails to cure such breach within thirty (30)
days after written notice;
(b) the other party becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors; or
(c) the other party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
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14.3 Effect of Termination.
(a) Upon termination or expiration of this Agreement,
Licensee will (except as specified in subsection (b) below) immediately return
to Talarian or (at Talarian's request) destroy all copies of the Talarian
Products and other Confidential Information in its possession or control, and an
officer of Licensee will certify to Talarian in writing that Licensee has done
so.
(b) Upon termination or expiration of this Agreement,
Talarian will have the option, in its sole discretion, of:
(i) electing, at any time, to offer maintenance and
support for the Talarian Products directly to End Users and/or Sublicensees in
accordance with Talarian's standard terms and conditions for such services; or
(ii) permitting Licensee to continue to provide
maintenance and support for the Talarian Products to its End Users and/or
Sublicensees upon the terms and conditions of Section 8.1 and continue to use
copies of the Talarian Products, to the extent needed to provide such services,
pursuant to a limited license agreement to be entered between Talarian and
Licensee promptly following such termination or expiration.
14.4 No Damages for Termination. NEITHER PARTY WILL BE LIABLE TO
THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL
DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN
ACCORDANCE WITH ITS TERMS. LICENSEE WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY
COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER
THE LAW OF THE TERRITORY OR OTHERWISE, OTHER THAN AS EXPRESSLY PROVIDED IN THIS
AGREEMENT. Neither party will be liable to the other on account of termination
or expiration of this Agreement for reimbursement or damages for the loss of
goodwill, prospective profits or anticipated income, or on account of any
expenditures, investments, leases or commitments made by either party or for any
other reason whatsoever based upon or growing out of such termination or
expiration.
14.5 Nonexclusive Remedy. The exercise by either party of any
remedy under this Agreement will be without prejudice to its other remedies
under this Agreement or otherwise.
14.6 Survival. The rights and obligations of the parties
contained in Sections 9 (Confidentiality), 10 (Proprietary Rights), 13
(Limitations of Liability), and 14.3(b) (Effect of Termination), and the
licenses granted to End Users, by Licensee and Sublicensees prior to the
Agreement's termination or expiration effective date will survive the
termination or expiration of this Agreement.
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15. COMPLIANCE WITH LAW. Each party agrees to comply with all applicable
laws, rules, and regulations in connection with its activities under this
Agreement. Each party shall comply with all applicable international, national,
state, regional and local laws and regulations in connection with its activities
under this Agreement. Without limiting the foregoing, Licensee acknowledges that
all Talarian Products, including documentation and other technical data, are
subject to export controls imposed by the U.S. Export Administration Act of
1979, as amended (the "Act"), and the regulations promulgated thereunder.
Licensee shall not export or reexport (directly or indirectly) any Talarian
Products or documentation or other technical data therefor without complying
with the Act and the regulations thereunder.
16. PUBLICITY. Talarian may include Licensee's name in Talarian's
customer list. Talarian may also use Licensee's name and the names of the
Bundled Products in Talarian promotional literature and marketing materials,
provided that Talarian will obtain Licensee's prior approval, such approval will
not be unreasonably withheld.
17. GENERAL.
17.1 Assignment. This Agreement will bind and inure to the
benefit of each party's permitted successors and assigns. Licensee may not
assign this Agreement, by operation of law or otherwise in whole or in part,
without Talarian's written consent, which consent will not be unreasonably
withheld. Any attempt to assign this Agreement without such consent will be null
and void.
17.2 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of California applicable to
agreements entered into, and to be performed entirely, within California between
California residents. Any suit hereunder will be brought solely in the federal
or state courts in the Northern District of California and Licensee hereby
submits to the personal jurisdiction thereof.
17.3 Severability. If any provision of this Agreement is found
invalid or unenforceable, that provision will be enforced to the maximum extent
permissible, and the other provisions of this Agreement will remain in force.
17.4 Force Majeure. Except for payments due under this Agreement,
neither party will be responsible for any failure to perform due to causes
beyond its reasonable control (each a "Force Majeure"), including, but not
limited to, acts of God, war, riot, embargoes, acts of civil or military
authorities, denial of or delays in processing of export license applications,
fire, floods, earthquakes, accidents, strikes, or fuel crises, provided that
such party gives prompt written notice thereof to the other party. The time for
performance will be extended for a period equal to the duration of the Force
Majeure, but in no event longer than sixty (60) days.
17.5 Notices. All notices under this Agreement will be deemed
given when delivered personally, sent by confirmed facsimile transmission, or
sent by certified or registered U.S. mail or nationally-recognized express
courier, return receipt requested, to the address shown below or as may
otherwise be specified by either party to the other in accordance with this
section.
-12-
<PAGE> 13
17.6 Independent Contractors. The parties to this Agreement are
independent contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. Neither party will have
the power to bind the other or incur obligations on the other's behalf without
the other's prior written consent.
17.7 Waiver. No failure of either party to exercise or enforce
any of its rights under this Agreement will act as a waiver of such rights.
17.8 Entire Agreement. This Agreement and its exhibits are the
complete and exclusive agreement between the parties with respect to the subject
matter hereof, superseding and replacing any and all prior agreements,
communications, and understandings (both written
-13-
<PAGE> 14
and oral) regarding such subject matter. This Agreement may only be modified, or
any rights under it waived, by a written document executed by both parties. The
parties have caused this Agreement to be executed by their duly-authorized
representatives as of the Effective Date.
17.9 Source Code Escrow. Licensee acknowledges that Talarian has
deposited the source code for the Talarian Products into an escrow account
pursuant to that certain Software Deposit Agreement between Talarian Corporation
and National Safe Depository ("NSD"), dated October 9, 1992 ("Escrow
Agreement"). Licensee will have the right to enroll as a beneficiary of the
Escrow Agreement upon payment to NSD of the applicable fees. Licensee will have
the right to file for release of such source code in accordance with the terms
of the Escrow Agreement upon the occurrence of any "Event of Default" as defined
therein.
IN WITNESS WHEREOF, this Agreement has been duly executed by authorized
representatives of the parties hereto.
Licensee: Talarian:
------------------------ --------------------------------
By: By:
------------------------------- --------------------------------------
Name: Name:
----------------------------- ------------------------------------
Title: Title:
---------------------------- -----------------------------------
Date: Date:
----------------------------- ------------------------------------
Address: Address:
-------------------------- ---------------------------------
Facsimile: Facsimile:
------------------------ -------------------------------
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<PAGE> 15
EXHIBIT A
All SmartSockets software and documentation, including but not limited to:
SMARTSOCKETS DEVELOPMENT SYSTEM
1. SmartSockets Development Interfaces and Libraries
C/C++
Java (native)
ActiveX Components
2. SmartSockets Run-time and Development Components
Rtserver
Rtmonitor
And the following products under development or consideration, if and when
released:
3. Secure SmartSockets
Secure SmartSockets (Kerberos Integration)
Integration of other security products (e.g., RSA, other PKI technology)
4. SmartSockets Queuing Products (currently under development)
SmartQueue
SmartQueue for IBM MQSeries
SmartQueue for MSmq
Note: Documentation supplied contains the definitive description of the
components of the SmartSockets Development System.
SMARTSOCKETS DOCUMENTATION
Hard copy
FrameMaker and HTML files
Training material
SCOPE OF LICENSE
1. Number of SmartSockets Development Systems:
2. Development Platform:
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<PAGE> 16
EXHIBIT B
Licensee Products
-16-
<PAGE> 17
EXHIBIT C
Payments
1. INITIAL LICENSE FEES.
a. AMOUNT:
b. DUE DATE:
2. LICENSE FEES.
a. AMOUNT:
b. DUE DATE:
3. MAINTENANCE AND SUPPORT FEES.
a. AMOUNT: $ _____ annually
b. DUE DATE:
Initial Period: Thirty days after Effective Date.
Subsequent Periods: Ninety days prior to the
commencement of the support period.
c. LAPSE: Licensee may reinstate maintenance and support
services after a lapse by paying a reinstatement fee equal
to the maintenance and support fees for the lapsed period
plus the annual maintenance and support fees set forth in
3(a).
4._____UPDATES AND ENHANCEMENTS.
5._____TRAINING.
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<PAGE> 1
EXHIBIT 21.01
Subsidiaries of the Registrant.
Talarian Ltd. Incorporated in the United Kingdom
<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG, LLP, INDEPENDENT AUDITORS
The Board of Directors
Talarian Corporation:
We consent to the use of our form of report included herein and to the
references to our firm under the heading "Experts" and "Selected Consolidated
Financial Data" in the prospectus.
Mountain View, California
April 11, 2000
<PAGE> 1
EXHIBIT 23.03
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors
GlobalCast Communications, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Mountain View, California
April 11, 2000
<PAGE> 1
EXHIBIT 23.04
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors
WhiteBarn, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Chicago, Illinois
April 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TALARIAN CORPORATION'S PROSPECTUS ON FORM S-1 FOR THE YEAR ENDED
SEPTEMBER 30, 1999 AND THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-2000
<PERIOD-START> OCT-01-1998 OCT-01-1999
<PERIOD-END> SEP-30-1999 DEC-01-1999
<CASH> 1,820 1,917
<SECURITIES> 0 0
<RECEIVABLES> 2,641 1,976
<ALLOWANCES> 245 245
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,482 3,889
<PP&E> 2,344 2,361
<DEPRECIATION> (1,752) (1,850)
<TOTAL-ASSETS> 6,784 5,972
<CURRENT-LIABILITIES> 5,722 5,106
<BONDS> 1,296 1,217
8,644 8,768
0 0
<COMMON> 4 4
<OTHER-SE> (9,502) (10,072)
<TOTAL-LIABILITY-AND-EQUITY> 6,784 5,972
<SALES> 5,912 1,829
<TOTAL-REVENUES> 9,040 2,794
<CGS> 164 60
<TOTAL-COSTS> 1,117 324
<OTHER-EXPENSES> 11,175 3,842
<LOSS-PROVISION> 60 0
<INTEREST-EXPENSE> 17 25
<INCOME-PRETAX> (3,329) (1,397)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,329) (1,397)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,329) (1,397)
<EPS-BASIC> (1.23) (0.40)
<EPS-DILUTED> (1.23) (0.40)
</TABLE>
