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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended June 30, 1996
Commission file number: 0-21432
AUSPEX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0963760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 Great America Parkway,
Santa Clara, California 95054
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 986-2000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $301,014,862 as of September 15, 1996, based
upon the closing sale price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each officer and director and by each
person who owns 5% of more of the outstanding Common Stock have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive for other purposes.
The number of shares of Registrant's Common Stock outstanding as of
September 15, 1996 was 24,476,505.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
proxy statement for the Annual Meeting of Stockholders scheduled to be held on
December 6, 1996.
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TABLE OF CONTENTS
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PART I ................................................................................................. 4
ITEM 1. BUSINESS ........................................................................ 4
The Company...................................................................... 4
Products ........................................................................ 5
Markets and Customers............................................................ 6
Distribution..................................................................... 7
Customer Service and Support..................................................... 7
Manufacturing.................................................................... 8
Research and Development......................................................... 9
Competition...................................................................... 9
Intellectual Property and Licenses............................................... 10
Employees........................................................................ 10
Executive Officers of the Company................................................ 11
ITEM 2. PROPERTIES....................................................................... 13
ITEM 3. LEGAL PROCEEDINGS................................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............................. 13
PART II ................................................................................................. 14
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS..................................................... 14
ITEM 6. SELECTED FINANCIAL DATA......................................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................................ 15
Results of Operations........................................................... 15
Revenues........................................................................ 16
Gross Margin.................................................................... 17
Operating Expenses.............................................................. 17
Other Income ................................................................... 17
Provision for Income Taxes...................................................... 18
Quarterly Results of Operations................................................. 18
Factors That May Affect Future Results.......................................... 19
Liquidity and Capital Resources................................................. 21
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................... 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................... 22
PART III ................................................................................................ 23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................. 23
ITEM 11. EXECUTIVE COMPENSATION.......................................................... 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................................. 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 23
PART IV ................................................................................................ 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K..................................................................... 24
(A) 1. FINANCIAL STATEMENTS........................................................ 24
2. FINANCIAL STATEMENT SCHEDULES............................................... 24
3. EXHIBITS.................................................................... 25
(B) REPORTS ON FORM 8-K............................................................. 28
SIGNATURES............................................................................................... 29
POWER OF ATTORNEY........................................................................................ 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................. F-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
SUPPLEMENTAL SCHEDULES.................................................................................... S-1
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INTRODUCTORY STATEMENT
References made in this Annual Report on Form 10-K to "Auspex," the
"Company" or the "Registrant" refer to Auspex Systems, Inc. and its wholly owned
subsidiaries. AUSPEX, NS 5000, FUNCTIONAL MULTI-PROCESSING, FMP, FMK, FUNCTIONAL
MULTI-PROCESSOR, FUNCTIONAL MULTIPROCESSOR, and the Auspex logo design are
registered trademarks of the Company. FUNCTIONAL MULTIPROCESSING KERNEL,
FUNCTIONAL MULTIPROCESSING, NETSERVER, NS 7000, NS 6000, NS 5500, NS 3000,
DataGuard and ServerGuard are trademarks of the Company.
PART I
ITEM 1. BUSINESS
THE COMPANY
Auspex develops, manufactures, distributes and supports a line of
UNIX multi-protocol (NFS(1), FTP(2)) network file/data servers, known as
NetServers, that enhance the performance of large, multivendor client/server
networks. As client/server computing has become increasingly widespread, the
inherent limitations of data servers based upon general-purpose computer
architectures have come to be recognized as a serious impediment to overall
network performance and availability.
The network performance limitations which the NetServer was designed
to overcome are the direct result of applying traditional, general purpose
computing servers to the ever increasing challenge of storing, managing and
delivering network data. These performance limitations have become more acute as
the volume of network data has increased from the downsizing and offloading of
mainframe data, the consolidation of local area network data, and the emergence
of network data-intensive applications such as the Internet. As the amount of
data and users on a network increase, data servers based on conventional
workstation or minicomputer architectures must support considerably more
file/data, network and disk traffic than they were originally designed to
handle. The result is a serious deterioration in network performance. The
traditional solution has been to subdivide the network into multiple
subnetworks, each with its own data server, duplicate data files and associated
administrative costs.
In contrast to conventional architectures, the Company's proprietary
Functional Multiprocessing ("FMP") architecture, of which key aspects have been
patented by the Company, has been designed specifically to overcome these
limitations by optimizing the tasks which a network data server most commonly
executes--file/data transfer and disk operation. The performance advantages of
Auspex's FMP architecture enable a single NetServer to support large networks at
high data throughput rates. The NetServer's scalability permits customers to add
workstation clients to multiple data servers. The importance of these benefits
to large-scale client/server systems is demonstrated by the fact that over 80%
of Auspex's installed base of approximately 1,780 data servers supports networks
with 50-400 users.
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(1)NFS denotes the Network File System protocol, first promulgated by Sun
Microsystems, Inc. ("Sun Microsystems"), and since widely dopted by the
workstation market as a de facto standard for network file transfer.
(2)FTP (File Transfer Protocol) is a standard protocol comman used to
retrieve or store files on network file server. FTP is supported on Unix,
Windows, VMS, Macintosh and other popular desktop computers.
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Auspex's FMP design offers an architectural solution to the network
performance gap through distribution of all performance-limiting Network File
System ("NFS") functions to a specialized input/output ("I/O") subsystem of
dedicated file/data, network and disk processors. By isolating the host central
processing unit ("CPU") and UNIX operating system from the data server's
principal activity, the NetServer bypasses the internal bottleneck which slows
the throughput of general-purpose computer architectures performing similar
tasks. In addition, the isolation of the UNIX operating system and application
software from the data delivery function of the server significantly increases
the reliability of the systems. More processors and disk capacity may be added
to meet increasing user demand as networks expand.
Auspex believes the benefits of its FMP architecture -- high availability,
scalability and performance -- may be applied to industry standard protocols,
such as FTP, HTTP, and CIFS/SMB, opening new market opportunities in the future.
PRODUCTS
The Company develops, markets and supports a line of NFS network
data servers known as NetServers. The Company's newest NetServers, the NS 7000
NetServer Family, were introduced in fiscal 1996. The NS 7000/150 NetServers are
designed for small workgroups of up to 40 workstations; the NS 7000/250
NetServers are designed for departments supporting 40 to 150 workstations, while
the NS 7000 /650 NetServers meet the needs of large enterprise environments with
up to 800 workstations. All members of the NS 7000 Family can simultaneously
support applications such as database or high-speed, on-line system backup as
well as NFS I/O operations without one activity impairing the performance of the
other. NS 5000, NS 5500 and NS 6000 NetServers, predecessors of the NS 7000
Family, can be upgraded on-site to an NS 7000. A significant portion of the
Company's revenues are derived from product upgrades, which consist primarily of
additional processors (or upgrades of existing processors) and disk and tape
drives. The Company's strategy is to introduce new products and offer upgrades
to existing products periodically on an ongoing basis. It is possible that some
customers will cancel orders for existing products or delay orders in
anticipation of new product availability; should this occur, the Company's
revenues and operating results could be adversely affected.
A base NS 7000 NetServer configuration includes one network
processor, one storage processor and one host processor (CPU), along with I/O
cache memory and a rack for the first seven SCSI disk drives, typically of 4.29
gigabyte capacity each. The NetServer can be scaled by the addition of
function-specific processors, allowing customers to expand the product to
support their future requirements. The basic elements of the architecture's
hardware organization are described below:
Network processor. The network processor performs three
functions. The first is the processing of network protocols up to
and including the ONC/NFS level. The second is the processing of NFS
file requests, using a UNIX file system which has been extracted
from the UNIX operating system kernel. In this way, NFS operations
bypass the host processor entirely. In addition, a very large disk
buffer cache (I/O cache memory) is implemented on the network
processor. No processor instructions are stored in or retrieved from
this memory - the entire memory and enhanced backplane bandwith of
110 megabytes per second (MB/s) is devoted to I/O. Cache memory can
be added to a maximum of 256 MB per network processor. Each network
processor provides up to 6 Ethernet connections or up to 2 FDDI or
MLT3 connections. Each network processor provides up to six 10 BaseT
or two 100 BaseT Ethernet connections, up to two FDDI/MLT3
connections or two ATM (OC-3) connections.
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Storage processor. The NetServer storage processor
operates up to 6 parallel SCSI I/O channels simultaneously. These
are attached to disk arrays, containing up to 42 4.29-gigabyte
disks, for a total storage of 180 gigabytes. The storage processor
is responsible for virtual partition management on the storage
devices, write acceleration, channel management, disk and tape
control and data transfers to I/O cache memory.
Host processor. The host processor used in the NetServer
is based on the Sun SPARC architecture, which is compliant with the
Solaris UNIX operating system and its application binary interface.
NetServer prices range from approximately $45,000 to more than
$500,000, depending on the configuration. While system price varies considerably
according to the configuration purchased, the average sales price per system in
fiscal year 1996 for North American direct sales was approximately $194,000, and
for distributor and international sales, approximately $161,000. Lower average
sales prices per system for international distributor sales are attributable to
the fact that most servers sold through these channels are sold in smaller
configurations and at higher discounts.
In 1995, Auspex commenced shipment of its first software product,
DataGuard, that allows users to continuously access their data in the event of a
disruption associated with the UNIX host operating system. In March 1996, the
Company began shipping its second software product, ServerGuard. ServerGuard
operates between multiple Auspex servers providing the industry's first local
and wide area network-based fail-over and disaster recovery system for
uninterrupted service. Revenues from software licenses, which consisted
primarily of DataGuard, represented approximately three percent of Company's
revenues in fiscal 1996.
MARKETS AND CUSTOMERS
The majority of the Company's sales are currently made to customers
in the scientific, technical and engineering fields, in which UNIX workstation
and NFS-based network penetration is the greatest and the need for
high-performance data/file servers is the most critical. In addition to this
large and expanding multivendor, technical computing market, commercial
applications for UNIX-based systems are also increasing (e.g. financial
services, and internet service provider and corporate intranets). The Company
believes that its NetServer architecture is adaptable to commercial computing
environments and intends to pursue opportunities in these markets as they
develop. There can be no assurance, however, that the Company will be able to
adapt its NetServers to commercial computing market, or that it will be able to
penetrate such markets.
As of June 30, 1996, approximately 1,780 NetServers have been
installed for over 420 customers worldwide. Reflecting the NetServer's
particular suitability to the performance requirements of large-scale
client/server systems, networks supporting more than 50 users account for more
than 80% of Auspex's installed base. NetServers are used most commonly for the
following types of applications: software development, electronic computer-aided
design (ECAD) and electronic computer aided engineering (ECAE), scientific and
academic research, mechanical computer-aided design (MCAD), technical publishing
and financial and services. A growing number of customers are using NetServers
for other applications, such as Internet service providers, on-line content
providers, seismic and geophysical modeling, inventory control and multimedia
applications. Prior to fiscal 1994, 1995 and 1996, Auspex focused its marketing
efforts primarily on North America through its direct sales force and on the
Pacific Rim through its relationships with Fuji Xerox and Nissho Electronics.
During fiscal 1994, the Company established direct sales and support operations
in the United Kingdom, France and Germany, and strengthened its distribution
network in selected other European markets.
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Sales of products and services to the following customers accounted
for 10% or more of total revenues in the periods indicated: fiscal year 1994 --
Intel (14%); fiscal year 1995 -- Intel (15%); and fiscal year 1996 -- Intel
(10%) and Fuji Xerox Co., Ltd. (13%). In addition to direct purchases from the
Company, Intel or its affiliates have from time to time made significant
purchases of the Company's products through indirect channels. Intel and Fuji
Xerox are not obligated to purchase any minimum level of products from the
Company. Accordingly, there can be no assurance that sales of products and
services to these customers will not decline, either in absolute dollar amounts
or as a percentage of total revenues, in future periods.
DISTRIBUTION
The Company employs a multi-tiered distribution strategy which to
date has focused on product sales to end users in North America through a direct
sales force and to the Pacific Rim (primarily Japan) through an OEM and a
distributor. The Company has a direct sales force in the United Kingdom, France
and Germany, and employs distributors in other selected European markets.
Because the success of the Company's direct sales efforts in North
America is dependent in part upon a sophisticated analysis of the customer's
networking requirements, the Company's system engineers work closely with the
Company's sales representatives.
The Company's Pacific Rim distribution strategy includes OEM and
distribution agreements with Fuji Xerox and Nissho Electronics Corporation
("Nissho"), respectively, in Japan. The agreement with Fuji Xerox was renewed on
May 31, 1996 and will automatically renew for a one year period on every
subsequent May 31, unless one of the parties gives notice of termination at
least one year in advance. The purchase prices of products purchased by Fuji
Xerox under the agreement are subject to certain discounts. While Fuji Xerox is
not subject to any minimum purchase requirements, in the event that it fails to
reach the purchase targets mutually agreed upon each year, Auspex has the right
to make additional OEM appointments in Japan. Both Nissho and Fuji Xerox have
the right to sell products of the Company's competitors.
Auspex believes that the large installed base of UNIX systems in
Europe represents a significant opportunity for future NetServer sales. To
address this opportunity, the Company has direct sales and support facilities in
the United Kingdom, France and Germany. The Company has also entered into
agreements with distributors covering selected other markets in Europe. In the
fourth quarter of fiscal 1996, Auspex redefined its relationship with Bull S. A.
to a non-exclusive reseller, enabling the Company to continue development of its
own direct sales capability, as well as development of other reseller
relationships in France. Auspex cancelled plans with Bull S. A. to develop a
version of the NetServer based on the "Escala" Power PC architecture from Bull
S. A. and the AIX operating system from IBM. The Company has continued to invest
in sales and marketing efforts in Europe. The increased export activity in
Europe has resulted in profitable European operations in fiscal 1996.
CUSTOMER SERVICE AND SUPPORT
Auspex's corporate policies are based on a commitment to customer
satisfaction and product quality. Revenue on system sales to end users is not
recognized until the system has been shipped and installed and the customer has
indicated a level of satisfaction with the product's performance that meets or
exceeds predefined Company standards. Compensation for executive officers has
been based in part on customer satisfaction and achievement of quality goals.
The Company provides customer training and installs, maintains and
supports systems sold directly in North America and Europe. End-user customers
purchasing through indirect channels are generally serviced by the
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Company's distributors or OEMs. In all cases, however, customers have direct
access to Auspex service and support through a toll-free telephone hotline
available to customers, distributors and service partners. All customer service
call management and software support is handled directly by Auspex through its
technical support centers staffed twenty-four (24) hours a day, three hundred
sixty-five (365) days a year, by highly trained and experienced technical
support engineers.
In addition to the technical support center located in Santa Clara,
California, the Company has established a second U.S. support center in Cary,
North Carolina and European technical support centers in France and the United
Kingdom to handle service calls from its European customers. To supplement
direct service and support and to ensure the highest quality service while
containing costs, Auspex has entered into strategic service agreements with
Digital Equipment Corporation and NCR for on-site hardware support. The
Company's contracts provide end users with a warranty for parts and labor on its
products, generally for ninety (90) days. The Company's warranty policy for
product sales other than to end users depends on the requirements of the
particular distribution channel. The Company offers its customers service
agreements of varying duration. Service revenue is recognized ratably over the
contractual period as service is provided.
MANUFACTURING
Auspex's manufacturing operations, located in Santa Clara,
California, consist of product assurance, quality control and final product
assembly and test. The Company relies principally on Solectron Corporation, a
contract manufacturer, for subassembly and testing of certain key NetServer
components. Solectron Corporation has continued to operate under the terms of
its business relationship on a month-to-month basis. The Company's manufacturing
strategy has been to develop close relationships with its suppliers, exchanging
critical information and implementing joint quality training programs. This
manufacturing strategy minimizes capital investment and overhead expenditures
and creates flexibility by providing the capacity for rapid expansion. Although
the Company to date has not experienced any production difficulties resulting
from its reliance on Solectron, it is possible that production difficulties,
including capacity constraints and quality control issues, could arise in the
future, which could materially and adversely affect the Company's results of
operations.
Although the Company generally uses standard parts and components
for its products, a number of key components used in the Company's NetServer
products are currently available or purchased from sole or single sources. These
components include disk and tape drives, microprocessors, connectors, printed
circuit boards, cable assemblies, power supplies, ASICs and PALs. Some of the
suppliers of these components have divisions which compete with the Company. See
"Business -- Competition." The Company generally has agreements with its sole
source suppliers with terms ranging from one to five years and believes that
alternative sources of supply and assembly for most of its sole-source
components could be obtained within a commercially practicable period. As a
precaution, the Company carries extra inventory of some of its sole-source
components to provide additional time to develop an alternate source or redesign
the component. The lack of sufficient quantities of sole or single source
components, or the inability to develop alternative sources for these items,
could result in delays or reductions in product shipments which would materially
and adversely affect the Company's results of operations.
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RESEARCH AND DEVELOPMENT
The market for high-performance network data servers has been
characterized by rapid technological advances in both hardware and software
development. The Company believes that the speed of technological advancement in
its industry requires it to invest significant amounts in research and
development, and that in order to maintain its competitive position, the Company
must continue to enhance and improve its existing products as well as to develop
and successfully introduce new products. During fiscal 1996, the Company
introduced the new NetServer product line, the NS7000, with three new models,
the NS 7000/150, NS 7000/250 and NS 7000/650, which enable a customer to take
full advantage of proven enterprise-class server technology across the full
spectrum of workgroup, departmental and enterprise computing. The NS 7000, Model
650, doubled the high-end performance of the previous NS 7000. Additionally, the
Company introduced its second major software product - ServerGuard, the
industry's first high-availability solution providing file-system redundancy
across a network. The Company has received a patent based on the core
ServerGuard technology. Also during the year, the Company introduced additional
high-performance networking offerings - including 155 Mbs OC-3c ATM and Ethernet
100BaseT. While continuing to introduce major new product features, the Company
maintained its leadership position in network data server reliability. However,
there can be no assurance that these new products will continue to be successful
commercially. Furthermore, there can be no assurance that the Company will be
able to develop or introduce other new products in the future in a timely
manner, or that such products will be a commercial success. The Company intends
to continue to invest substantially in product development. Current research and
development efforts are directed at additional optional software products and at
extending the NetServer architecture, hardware designs, and software designs to
increase functionality, client protocol support, performance, capacity,
scalability, and availability.
As of June 30, 1996, 106 employees were engaged in research and
development activities. The Company's research and development expenses during
fiscal years 1994, 1995 and 1996 were approximately $10.9 million, $14.6 million
and $17.8 million, respectively. The amounts for fiscal years 1994 and 1995 are
net of cost reimbursements from IBM of $0.9 million and $0.1 million,
respectively. There were no cost reimbursements from IBM during fiscal year
1996. The Company anticipates that research and development expenses will
increase in absolute amounts and could increase as a percentage of total
revenues from current levels in future periods.
COMPETITION
The data/file server market is intensely competitive. Within the
NFS-compatible, UNIX data server market segment, manufacturers of general
purpose workstations, which also market their products for server applications,
represent the Company's primary source of competition. These manufacturers
include Sun Microsystems, Hewlett-Packard, Digital Equipment Corporation,
Silicon Graphics, Inc., and IBM. Sun Microsystems represents the Company's
principal source of competition. All of these competitors possess substantially
greater financial, technical and marketing resources than Auspex, as well as
substantially larger installed bases of products. In addition to existing
competitors, certain manufacturers of PC-based file servers such as Network
Appliances, Inc. (NAI), have entered the UNIX file server market. Auspex has
encountered some competition from NAI on the lower-priced end of its product
offering. While the Company believes that the price/performance characteristics
of its NetServers are competitive, increased competition could create pricing
pressures which could materially and adversely affect the Company's results of
operations.
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The Company derives a significant portion of its revenues from sales
of product upgrades to its installed base, including disk drives and tape
drives, and additional processors (or upgrades to existing processors) and
software. Although the Company has to date experienced limited competition in
the sale of upgrades, increased competition against these products may occur in
the future, and could materially and adversely affect the Company's revenues and
operating results.
Auspex believes that an important competitive factor is network data
server performance, measured in terms of overall system throughput and expressed
as a function of NFS input/output operations per second. Other important factors
include product reliability, availability, scalability, upgradeability, price,
overall cost of ownership and technical service and support. The Company's
ability to maintain its competitive position will depend, in addition to these
factors, upon its success in anticipating industry trends, investing in product
research and development, and effectively managing the introduction of new
products into targeted markets.
INTELLECTUAL PROPERTY AND LICENSES
The Company relies on a combination of patent, copyright, trademark
and trade secret laws, employee and third-party non-disclosure agreements and
other intellectual property protection methods to protect its proprietary
hardware, software and technological expertise. The Company believes, however,
that its continued success will depend principally on continuing innovation,
technological expertise, product pricing and distribution strength and to a
lesser extent on its ability to protect its proprietary technology. Furthermore,
there can be no assurance that the Company's current or future competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technology.
Auspex currently holds four U.S. patents for certain fundamental
aspects of its functional multi-processing ("FMP") data server architecture, and
two additional related patents. The Company has also filed additional patent
applications for other proprietary Auspex technologies, one of which has been
issued by the patent office.
The Company's NetServer's host processors and network processors
operate in conjunction with software licensed to the Company by Sun
Microsystems. These licenses are subject to periodic renewal and are coming up
for renewal December 1996 and September 1998.
EMPLOYEES
As of June 30, 1996, the Company employed 515 people, including 155
in sales, 25 in marketing, 106 in research and development, 66 in customer
satisfaction, 103 in manufacturing, and 60 in finance and administration. The
recruitment of experienced, highly skilled individuals is a top priority in an
exceptionally competitive recruiting environment. Equally important in this
environment is the retention of key talent. The Company has significantly
increased its recruiting activities and is reviewing all employee programs to
ensure the retention and continued development of its employees. None of the
Company's employees are represented by a labor union. The Company believes that
its relations with its employees are good.
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EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the
executive officers of the Company as of September 15, 1996:
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Name Age Position
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Bruce N. Moore 45 Chief Executive Officer, President and Director
Joseph G. Brown 46 Vice President of Worldwide Strategic Business Development
and Vice President of International Sales
Dennis E. Daniels 58 Vice President of Customer Satisfaction
Terry A. Dyckman 53 Vice President of Human Resources
Clive D. Foreman 44 Vice President of Engineering
Russell M. Lait 34 Vice President of Manufacturing
Bruce J. Nelson 44 Vice President of Technology
Frederick A. Nervo 56 Vice President, General Counsel and Assistant Secretary
Kent L. Robertson 55 Vice President of Finance and Chief Financial Officer
Michael B. Stevens 49 Vice President of North American Sales
Raymond M. Villeneuve 38 Vice President of Marketing
Laurence B. Boucher 53 Director
R. Stephen Cheheyl(1) 50 Director
W. Frank King(1)(2) 56 Director
David F. Marquardt(2) 47 Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Bruce N. Moore joined the Company in June 1995 as President,
Chief Operating Officer and a member of the Board of Directors reporting. In
December 1995, Mr. Moore assumed the additional role of Chief Executive Officer.
Mr. Moore joined Auspex from Diasonics Ultrasound, Inc., a provider of
diagnostic ultrasound equipment, where he held the position of President and
Chief Executive Officer. His eleven-year career at Diasonics included variou
senior management positions in marketing and business development.
Mr. Joseph G. Brown joined the Company in January 1994 as Vice
President of Marketing. He assumed the additional responsibility of Vice
President of International Sales in September 1994. In November 1995, Mr. Brown
was promoted to Vice President of Worldwide Strategic Business Development.
Previous to joining the Company, Mr. Brown was Vice President of Marketing for
the UNIX Systems Group at Unisys Corporation from February 1992 to January 1994.
Prior to Unisys, Mr. Brown was Managing Director of Marketing at Interactive
Systems Corporation from September 1989 to December 1991.
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Mr. Dennis E. Daniels joined the Company in November 1991 as
Director of Field Operations in the Customer Satisfaction Department. Mr Daniels
was appointed Vice President of Customer Satisfaction and an officer of the
Company in May 1994. From July 1990 to November 1991, Mr. Daniels was Vice
President of Customer Support at Parallan Computer, Inc., a manufacturer of high
performance PC network servers.
Mr. Terry A. Dyckman joined the Company in March 1996 as Vice
President of Human Resources. Previous to joining the Company, he was Vice
President of Human Resources at Claris Corporation and Senior Director of Human
Resources at Apple Computer during a seven year tenure at Apple Computer, Inc.
Mr. Clive D. Foreman joined the Company in October 1994 as Vice
President of Engineering. From November 1989 to October 1994, Mr. Foreman was
employed at Interphase where he was responsible for creating and managing a
software product development lab and a new networking product line.
Mr. Russell M. Lait joined the Company in March 1988 as a member of
the Company's first design team. During his eight-year tenure with Auspex, Mr.
Lait has held various positions, including Director of Production and Test. He
was appointed Vice President of Manufacturing in August 1996.
Dr. Bruce J. Nelson joined the Company in March 1989 as Chief
Technologist where he was responsible for directing product strategy, benchmark
methodology, and technology forecasting. He was promoted to Vice President of
Technology in February 1995 and works with international and North American
customers to better understand their requirements and keep them apprised of the
Company's and the industry's technology directions. As Auspex's chief technical
spokesman, Mr. Nelson frequently travels worldwide to talk at conferences and to
customers about UNIX networking, data storage, application acceleration, and
performance evaluation.
Mr. Frederick A. Nervo is a founder of the Company and has served as
Vice President of Administration and Assistant Secretary since the Company's
inception in December 1987. His position changed to Vice President, General
Counsel in July 1995.
Mr. Kent L. Robertson joined the Company in April 1996. From June
1995 through April 1996, he was Executive Vice President, Chief Financial
Officer and Secretary for Genus, Inc. Prior to Genus, he spent two different
periods as Senior Vice President, Chief Financial Officer and Secretary of
Pyramid Technology Corporation. He first joined Pyramid in February 1987 and
returned again in January 1994. From March 1992 through December 1993, he was
Executive Vice President, Chief Financial Officer and Secretary for RasterOps
Corporation.
Mr. Michael B. Stevens joined the Company in September 1990 as an
Account Executive for the Pacific Northwest Area. He was promoted to Northwest
Regional Manager in January 1993 and again in February 1994 he was promoted to
Area director of Western Sales. Mr. Stevens, as Vice President of North American
Sales, has been responsible for the North American Sales Organization since
April of 1996.
Mr. Raymond M. Villeneuve joined the Company in July 1992 as an
Account Executive. He was promoted to Regional Sales Manager in July 1994 and to
Vice President of Marketing in November 1995. Previous to joining the Company,
he was with Silicon Graphics, Inc. for six years holding various positions,
including Account Manager, Sales Representative and OEM Program Manager. From
January 1991 until January 1995, Mr. Villeneuve was Vice President of Corporate
Development, a Director and an Officer at Innovative Products and Peripherals
Corporation.
12
<PAGE> 13
Mr. Laurence B. Boucher was a founder of the Company and served as
President, Chief Executive Officer and as a Director since the Company's
inception in December 1987. In February 1994, Mr. Boucher assumed the added role
of Chairman of the Board of Directors. In July 1995, he relinquished the role of
President upon the arrival of Mr. Bruce Moore, and in December 1995 he ceded the
role of Chief Executive Officer to Mr. Moore. In July 1996, Mr. Boucher stepped
down as Chairman of the Board, but remains a member of the Board of Directors.
Mr. R. Stephen Cheheyl has served as a Director of the Company since
April 1995. From October 1994 until he retired in December 1995, Mr. Cheheyl
served as Executive Vice President of Bay Networks, Inc., which was formed
through the merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics
Communications Inc. From December 1990 to October 1994, Mr. Cheheyl served as
Senior Vice President, Finance and Administration, of Wellfleet. He also serves
as a Director of Software 2000, Inc., ON Technology Corporation and Sapient
Corporation.
Dr. W. Frank King has served as a Director of the Company since
October 1994. Dr. King is President of Pencom Software, the Software Development
and Systems Integration Division of Pencom Systems Inc. Mr. King joined Pencom
in October 1992 to head the Company's Open Systems Services Operation.
Previously, Mr. King was Senior Vice President of the Software Business group at
Lotus Development Corp. He serves on the Board of Directors at Auspex, Weitek,
State of the Art, Ecalibur Technologies, SystemSoft, and Pencom Systems.
Mr. David F. Marquardt has served as a Director of the Company since
April 1989. Mr. Marquardt has been a General Partner of various Technology
Venture Investors entities, which are private venture capital limited
partnerships, since August 1980. Mr. Marquardt is a Director of Microsoft
Corporation.
ITEM 2. PROPERTIES
The Company is headquartered in Santa Clara, California, where it
leases an aggregate of approximately 162,000 square feet of space which houses
administrative, finance, sales and marketing, manufacturing, customer service
and product development activities. The lease for these facilities expires in
March 1998. The Company leases additional sales and support offices located in
the United States, Canada, the United Kingdom, France and Germany. The Company
believes that its facilities are adequate to meet the Company's current business
requirements, and that suitable additional space will be available as needed to
accommodate further physical expansion of corporate operations and for
additional sales and support offices. See also Note 4 of Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been approved for quotation on the
NASDAQ National Market under the symbol ASPX since the Company's initial public
offering in May 1993. The following table sets forth, for the periods indicated,
the range of high and low sales prices on the NASDAQ Composite, as reported in
The Wall Street Journal.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fourth Quarter of 1996 $24.625 $14.75
Third Quarter of 1996 $21.00 $14.00
Second Quarter of 1996 $18.25 $13.375
First Quarter of 1996 $18.25 $11.375
Fourth Quarter of 1995 $12.50 $8.625
Third Quarter of 1995 $10.50 $6.75
Second Quarter of 1995 $7.75 $5.125
First Quarter of 1995 $5.375 $4.25
</TABLE>
The Company believes that a number of factors including, but not
limited to, quarterly fluctuation in results of operations may cause the market
price of its common stock to fluctuate significantly. See "Management's
Discussion and Analysis - Factors That May Affect Future Results."
As of September 15, 1996, the approximate number of common
stockholders of record was 702.
The Company has not, to date, paid cash dividends on its capital
stock. The Company currently intends to retain earnings for use within its
business and does not anticipate paying cash dividends in the foreseeable
future.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------------
(In thousands, except per share amounts)
June 30, June 30, June 30, June 25, June 26,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net revenues............................... $162,640 $115,625 $83,280 $73,508 $51,464
Income before income taxes................. 29,597 15,912 9,786 10,046 5,573
Net income ................................ 19,830 12,411 8,318 8,126 4,904
Net income per share....................... 0.77 0.51 0.34 0.36 0.25
Total assets............................... 135,844 106,526 85,433 76,728 33,033
Long-term obligations...................... 30 159 399 799 2,184
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the year ended June 1996 of $162.6 million increased
41% over the fiscal year 1995 revenues. The Company has now achieved
profitability in each of the last five fiscal years. To date, the Company has
shipped approximately 1,780 data servers.
The following table sets forth for the fiscal years indicated the
percentage of total revenues represented by certain line items in the Company's
statement of operations:
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Revenues............................................ 100% 100% 100%
Costs of Revenues................................... 44 46 46
--- --- ---
Gross margin.............................. 56 54 54
--- --- ---
Operating Expenses:
Marketing and sales............................. 23 24 26
Research and development........................ 11 13 13
General and administrative...................... 5 5 5
--- --- ---
Income from operations.................... 17 12 10
Other Income ....................................... 1 2 2
--- --- ---
Income before income taxes................ 18 14 12
Provision for Income Taxes.......................... 6 3 2
--- --- ---
Net Income.......................................... 12% 11% 10%
=== === ===
</TABLE>
15
<PAGE> 16
REVENUES
Product revenue includes hardware sales of systems and upgrades as
well as software license fees. Reflecting its commitment to quality and customer
satisfaction, the Company recognizes revenues from sales of data servers to end
users only when the product has been shipped, installed, and the customer has
indicated a level of satisfaction with the product's performance that meets or
exceeds predefined Company standards. Revenues from sales of data servers to
distributors, integrators and OEMs, as well as product upgrade revenues, are
generally recognized when the product has been shipped. Revenues earned under
software license agreements with end users are generally recognized when the
software has been shipped and there are no significant obligations remaining.
Service revenue includes installation, maintenance, and training and is
recognized ratably over the contractual period or as the services are provided.
The following table sets forth the principal components of the
Company's revenue:
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Product revenue..................................... $146,913 $104,102 $75,138
Service and other revenue........................... 15,727 11,523 8,142
-------- -------- -------
Total revenues $162,640 $115,625 $83,280
======== ======== =======
</TABLE>
Product revenue increased $42.8 million or 41% in 1996 as compared
to 1995 and $29.0 million, or 39%, in 1995 as compared to 1994. These increases
were attributable to increased system shipments and increased sales of upgrades
to the Company's installed base. Revenue from product upgrades, which primarily
consists of additional processors (or upgrade of existing processors) and disk
and tape drives, decreased from the prior year as a percentage of total revenues
to 39% in 1996 from 44% in 1995 and increased to 44% in 1995 from 43% in 1994.
The decrease in product upgrade revenue as a percentage of total revenues
compared to 1995 primarily relates to an increase in system revenue due to
higher average system prices and increased system shipments. There can be no
assurance, however, that the Company's product revenue will continue to increase
in absolute dollar amounts or at the rate at which it has grown in recent fiscal
years.
The Company provides ongoing support and maintenance to its end-user
customers, distributors and OEMs generally under annual service agreements.
Service revenue as a percentage of total revenues remained flat in 1996 and 1995
at 10%, increasing from 9% in 1994.
The following table sets forth the Company's revenue by geographic
area (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
North America...................... $110,163 68% $85,251 74% $63,447 76%
Pacific Rim........................ 36,229 22% 21,390 18% 13,313 16%
Europe............................. 16,248 10% 8,984 8% 6,520 8%
-------- --- -------- --- ------- ----
$162,640 100% $115,625 100% $83,280 100%
======== ==== ======== ==== ======= ====
</TABLE>
Revenue from North America has increased $24.9 million in 1996 as
compared to 1995 and $21.8 million in 1995 as compared to 1994. The decrease in
North American revenue as a percentage of total revenue in 1996 as compared to
1995 was primarily due to the growth of Pacific Rim and Europe revenue.
Sales of products and services to Intel Corporation accounted for
10%, 15% and 14% for the years ended June 1996, 1995 and 1994, respectively.
Additionally, sales to Fuji Xerox Co., Ltd. accounted for 13% for the year ended
June 30, 1996. No other customer accounted for 10% or more of total revenues for
each of the three years in the period ended June 30, 1996. In addition to direct
purchases from the Company, Intel or its affiliates have from time to time made
significant purchases of the Company's products through indirect channels. Intel
and Fuji Xerox are not obligated to purchase any minimum level of products from
the Company. Accordingly, there can be no assurance that sales of products
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<PAGE> 17
and services to Intel or Fuji Xerox will not decline, either in absolute dollar
amounts or as a percentage of total revenues, in future periods.
GROSS MARGIN
The Company's gross margin was 56%, 54% and 54% in 1996, 1995 and
1994, respectively. Costs of revenues include material costs, manufacturing and
service overhead costs, installation and warranty expenses, obsolescence, the
cost of spare parts and other related costs. The improvement in margin in 1996
was attributable to engineering-related cost reductions in successive new
product designs, increased production volumes, and improved manufacturing and
service-related efficiencies.
OPERATING EXPENSES
Marketing and sales expenses increased $9.6 million in 1996 as
compared to 1995 and $6.9 million in 1995 as compared to 1994, and were 23%, 24%
and 26% of total revenues in 1996, 1995 and 1994, respectively. The increase in
absolute dollars relates to additional headcount in the North American direct
sales operations and the growth of direct sales operations of the Company's
International subsidiaries.
Research and development expenses, net of capitalized software
development costs, increased $3.2 million in 1996 as compared to 1995 and $3.7
million in 1995 as compared to 1994, and represented 11%, 13% and 13% of total
revenues in 1996, 1995 and 1994, respectively. The increase in net research and
development expenses in absolute dollars was due to an increase in headcount and
new product development. The decrease in net research and development as a
percent of total revenue in fiscal 1996 relates primarily to the increase in
revenues. Software development expenses have been accounted for in accordance
with Statement of Financial Accounting Standards No. 86, under which the Company
is required to capitalize software development costs after "technological
feasibility" is established. In the fourth quarter of fiscal 1994, the Company
initiated several software development projects which resulted in the
capitalization of $0.7 million in 1995 and $0.3 million in 1996. The amount of
capitalized software development costs in any given period may vary depending on
the exact nature of the development performed. The Company believes that in
order to remain competitive it will need to continue to make substantial
investments in new and enhanced products, and anticipates that research and
development expenses will increase in absolute amounts and could increase as a
percentage of total revenues from current levels.
General and administrative expenses increased $1.9 million in 1996
as compared to 1995 and $1.1 million in 1995 as compared to 1994 and remained
flat at 5% for the three years. The increase in general and administrative
expenses in absolute dollars primarily relates to increased staffing and
facilities costs to support the Company's growth.
OTHER INCOME
Other income and expense netted to income of $1.8 million, $2.0
million and $1.4 million in 1996, 1995 and 1994, respectively. Other income and
expense includes interest income, interest expense, and foreign exchange gains
and losses. Interest income was $1.8 million, $1.7 million and $1.4 million in
1996, 1995 and 1994, respectively. The increase in interest income in 1996 as
compared to 1995 primarily relates to an increase in the cash and short-term
investments balances.
17
<PAGE> 18
Provision for Income Taxes
As of June 30, 1996, the Company had gross deferred tax assets of
approximately $7.2 million. Management has determined, based on the Company's
history of prior operating earnings and its expectations for future years, that
the deferred tax asset is realizable. However, no assurances can be given that
sufficient taxable income will be generated in future years for the utilization
of the deferred tax asset.
The provision for income taxes was approximately $9.8 million in
1996, $3.5 million in 1995, and $1.5 million in 1994, representing effective tax
rates of approximately 33%, 22% and 15%, respectively. The Company expects that
its effective tax rate will increase in future periods as a result of increased
earnings.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly
financial information for the Company's last eight quarters. This unaudited
information has been prepared on the same basis as the audited information and
in management's opinion reflects all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the information
for the periods presented. Based on the Company's operating history and factors
that may cause fluctuations in the quarterly results, quarter-to-quarter
comparisons should not be relied upon as indicators of future performance.
Although the Company's revenues are not generally seasonal in nature, the
Company has experienced decreases in first quarter revenue versus the preceding
fourth quarter which is believed to result primarily from the capital purchase
cycle of the Company's customers.
The level of the Company's operating expenses are partially based on
its expectations of future revenue. The Company's results of operations may be
adversely affected if revenue does not materialize in a period as expected.
Since expense levels are usually committed in advance of revenues and because
only a small portion of expenses vary with revenue, the Company's net income may
be impacted significantly by lower revenue. The Company's revenue increased each
quarter in 1996 as compared to the same quarter in the prior year. This increase
was due principally to increased sales volume of the Company's products.
<TABLE>
<CAPTION>
1996 SUMMARY BY QUARTER
(In thousands, except per share amounts) First Second Third Fourth Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $33,536 $38,003 $43,333 $47,768 $162,640
Gross profit 18,294 21,166 24,202 27,012 90,674
Income before taxes 5,276 6,996 8,046 9,279 29,597
Net income 3,535 4,687 5,391 6,217 19,830
Net income per share $ 0.14 $ 0.18 $ 0.21 $ 0.24 $ 0.77
</TABLE>
<TABLE>
<CAPTION>
1995 SUMMARY BY QUARTER
(In thousands, except per share amounts) First Second Third Fourth Year
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 23,872 $26,441 $30,030 $35,282 $115,625
Gross profit 12,863 14,418 15,704 19,190 62,175
Income before taxes 2,654 3,301 4,324 5,633 15,912
Net income 2,070 2,575 3,373 4,393 12,411
Net income per share 0.09 0.11 0.14 0.18 0.51
</TABLE>
18
<PAGE> 19
FACTORS THAT MAY AFFECT FUTURE RESULTS
The last sentence in the second paragraph of the section entitled
"Operating Expenses," the last sentence of the second paragraph of the section
entitled "Provision for Income Taxes" and the last sentence of the fourth
paragraph under the section entitled "Liquidity and Capital Resources" contain
forward looking statements. The Company may also make oral forward looking
statements from time to time. Actual results may differ materially from those
projected in any such forward looking statements due to a number of factors,
including those set forth below. The Company undertaken no obligation to update
such information.
POTENTIAL SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate significantly from
quarter to quarter due to a combination of factors. These factors include the
timing of orders, the timing of new product introductions by the Company or its
competitors, and the mix of distribution channels through which the Company's
products are sold. The Company generally realizes higher gross margins on sales
of systems to end users and on single system sales than on systems sold through
distributors and OEM's and on multiple system sales. In addition, given the
relatively large sales price of most of the Company's systems, the loss or delay
in a given quarter of a relatively limited number of systems sales could
adversely effect the Company's revenues. Because the Company recognizes revenue
from sales to end users upon customer acceptance, timing of the installation of
the Company's products may also increase potential fluctuations in the Company's
quarterly results of operations.
INTENSELY COMPETITIVE MARKET
The market for the Company's products is intensely competitive. The
Company experiences substantial competition, principally from Sun Microsystems,
Hewlett-Packard Company, IBM and Digital Equipment Corporation, among others. In
addition, newer, smaller companies such as Network Appliance Inc. have
introduced products at the low end of the Company's target markets. Most of the
Company's competitors are better known and have substantially greater financial,
technological, production and marketing resources than the Company. While the
Company believes that the price/performance characteristics of its products are
competitive, price competition in the markets for the Company's products is
intense. Any material reduction in the price of the Company's products without
corresponding decreases in manufacturing costs and increases in unit volume
would negatively affect gross margins which could in turn have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company also derives a significant portion of its revenues from
sales of product upgrades to its installed base, including disk and tape drives
and additional processors. Increased competition for the Company's products that
results in lower product sales could also adversely impact the Company's
upgrades sales. In addition, decisions by customers not to increase capacity to
their current systems could adversely impact the Company's revenues and results
of operations. The Company's ability to maintain its competitive position will
depend, among other factors, upon its success in anticipating industry trends,
investing in product research and development, developing new products with
improved price/performance characteristics and effectively managing the
introduction of new products into targeted markets.
DEPENDENCE ON KEY PERSONNEL
Competition for employees with highly technical, management and
other skills is intense in the computer industry and is particularly intense in
the San Francisco Bay Area. The Company's failure to retain the services of key
personnel or to attract additional qualified employees could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SOFTWARE PRODUCT RISKS
With the release of its ServerGuard(TM) and DataGuard(TM) software
products, the Company has begun shipping software products in addition to its
line of network file servers. The Company also expects to release periodically
enhancements and new features for these products from time to time. Although the
Company performs extensive testing prior to releasing software products, such
products may contain undetected errors or bugs when first released. These may
not be discovered until the product has been used by customers in different
applications. Failure to discover product deficiencies or bugs could delay
19
<PAGE> 20
product introductions, require design modifications to previously shipped
products or cause unfavorable publicity, negatively impact system shipments, any
of which could result in a material adverse affect on the Company's business,
financial condition and results of operations.
NEW PRODUCTS
New product introductions by the Company or its competitors carry
the risk that customers will delay or cancel orders for existing products
pending shipment of the new products. The Company's strategy is to continue to
introduce new products and upgrades to existing products on an ongoing basis.
Any delays in the launch or availability of new products could have a material
adverse effect on the Company business, financial condition and results of
operations.
DEPENDENCE ON ESTABLISHED STANDARDS
The rapid emergences of new or alternate standards which replace or
diminish the market acceptance of UNIX operating systems or the Network File
System ("NFS"), on which the Company's products are currently based, could
materially adversely affect the Company's results of operations unless the
Company is able to incorporate any such standards in the Company's products in a
timely manner.
DEPENDENCE ON CERTAIN CUSTOMERS/DISTRIBUTORS
For fiscal year 1996 and 1995, direct sales of products and services
to Intel Corporation ("Intel") represented approximately 10% and 15%,
respectively, of the Company's revenues. In addition to direct purchases from
the Company, Intel or its affiliates have from time to time made significant
purchases of the Company's products through indirect channels. For fiscal year
1996 and 1995, sales to Fuji Xerox Company, Ltd. (Fuji Xerox),the Company's
exclusive private label OEM in Japan, represented approximately 13% and 9%,
respectively, of the Company's revenues. Also for fiscal year 1996 and 1995,
sales to Nissho Electronics ("Nissho"), the Company's distributor in Japan,
represented approximately 9% and 7%, respectively, of the Company's revenues.
Intel, Fuji Xerox and Nissho are not obligated to purchase any minimum level of
products from the Company. A significant reduction in product sales to Intel,
Fuji Xerox or Nissho would materially and adversely affect the Company's
business, financial condition and results of operations.
RISKS OF INTERNATIONAL SALES; EUROPEAN MARKET RISKS
During fiscal year 1996 and 1995, approximately 32% and 26%,
respectively, of the Company's total revenues were derived from markets outside
of North America, primarily in Japan. The Company expects that sales to the
Pacific Rim will continue to represent a significant portion of its business.
The Company also increased its sales and support and marketing efforts in
Europe. There can be no assurance that the Company's European operations will be
successful. The Company's international business may be affected by changes in
demand resulting from localized economic and market conditions. In addition, the
Company's international business may be affected by fluctuations in currency
exchange rates and currency restrictions as well as by risks such as trade
restrictions, increases in tariff and freight rates and difficulties in
obtaining necessary export licenses and meeting appropriate local regulatory
standards. For example, the Company has had to modify its products in minor
respects in Japan to comply with local electromagnetic emissions standards, and
must also comply with corresponding European Economic Community standards. In
marketing its products to the European Economic Community, the Company also must
face the challenges posed by a fragmented market complicated by local
distribution channels and local cultural considerations. For international
sales, the Company has largely relied on distributors, most of whom are entitled
to carry products of the Company's competitors.
20
<PAGE> 21
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; PENDING LITIGATION
The Company currently relies on a combination of patent, copyright,
trademark and trade secret laws and contractual provisions to protect its
proprietary rights in its hardware and software products. The Company currently
holds 6 U.S. patents and has filed applications for additional patents. The
Company has also filed applications for counterpart patents in foreign
countries, including Japan. There can be no assurance that the Company's present
or future competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. Further, there
can be no assurance that the Company's patent applications will result in issued
patents, or that the Company's issued patents will be upheld if challenged.
Additionally, there can be no assurance that third parties will not assert
intellectual property infringement claims against the Company in the future with
respect to current or future projects or that any such assertions may not
require the Company to refrain from the sale of its products, enter into royalty
arrangements or undertakes costly litigation.
The Company's adherence to industry standards with respect to its
products limits the Company's opportunities to provide proprietary features
which may be protected. In addition, the laws of various countries in which the
Company's products may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and short-term investments
increased $5.9 million as of June 30, 1996, compared to June 30, 1995, and
increased $2.5 million as of June 30, 1995, compared to June 30, 1994. The
Company generated approximately $16.3 million, $12.7 million and $4.6 million in
cash from operating activities in 1996, 1995 and 1994, respectively. The
increase of cash from operating activities in each year was due primarily to an
increase in net income in each year compared to the prior year.
The Company's principal investing activities consisted in the
purchase of property and equipment which were $15.4 million, $8.1 million and
$7.9 million in 1996, 1995 and 1994, respectively. These expenditures were
primarily for leasehold improvements, equipment for research and development,
manufacturing test equipment, office equipment and spare parts to support
customer service contracts. The Company currently has no significant capital
commitments, but anticipates capital expenditures of approximately $16.0 million
in fiscal year 1997, primarily for engineering, manufacturing and office
equipment, and spare parts support. The Company also used cash of $1.3 million,
$2.9 million and $24.1 million for the purchase of short-term investments in
1996, 1995 and 1994, respectively.
The Company's primary financing activities included proceeds from
the sale of common stock pursuant to employee benefit plans of $5.0 million,
$1.7 million and $.6 million in 1996, 1995 and 1994, respectively. In addition,
the Company made principal payments on capital leases of $.4 million, $.6
million and $.8 million in 1996, 1995 and 1994, respectively. In 1994, the
Company also repurchased its common stock totaling $3.8 million. This stock is
intended for use in connection with the Company's Employee Stock Purchase
Program.
As of June 30, 1996, working capital was $90.9 million as compared
with $67.9 million as of June 30, 1995. The Company anticipates that its current
cash and short-term investment balances and expected cash flow from operations
will be sufficient to meet its working capital and capital expenditure
requirements at least through fiscal 1997.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." The disclosure requirements of SFAS No. 123 are
effective as of the beginning of the Company's 1997 fiscal year. The
21
<PAGE> 22
Company does not expect the new pronouncement to have an impact on its results
of operations since the intrinsic value-based method prescribed by APB Opinion
No. 25 and also allowed by SFAS No. 123 will continue to be used for the
valuation of stock-based compensation plans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are incorporated by
reference herein from Part IV Item 14(a)1 and 2. The selected quarterly
supplementary data is included as part of Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE> 23
PART III
Certain information required by Part III is omitted from this Annual
Report on Form 10-K because the Registrant will file a definitive proxy
statement within one hundred twenty (120) days after the end of its fiscal year
pursuant to Regulation 14A (the "Proxy Statement") for its Annual Meeting of
Stockholders currently scheduled for December 6, 1996, and the information
included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated
by reference to the information under the heading "Election of
Directors--Nominees" in the Registrant's Proxy Statement.
Information regarding the executive officers of the Company is
incorporated by reference to the section of Part I of this Annual Report on Form
10-K entitled "Item 1--Business--Executive Officers of the Company".
Information regarding compliance with Section 16 of the Securities
Exchange Act of 1934, as amended, is incorporated by reference to the
information under the heading "Section 16(a) Beneficial Ownership Reporting" in
the Registrant's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of executive officers and
directors of the Company is incorporated by reference to the information under
the heading "Management--Executive Compensation" and "Management--Certain
Transactions" in the Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the information under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information under the caption
"Certain Transactions with Management" in the Registrant's Proxy Statement.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this Annual
Report on Form 10-K.
1. FINANCIAL STATEMENTS
The following consolidated financial statements of
Auspex Systems, Inc. are filed as part of this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Report of Arthur Andersen LLP, Independent
Public Accountants F-1
Consolidated Statements of Operations for the years
ended June 30, 1996, 1995 and 1994 F-2
Consolidated Balance Sheets as of June 30, 1996
and 1995 F-3
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules
for each of the three years in the period ending June
30, 1996, 1995 and 1994 are submitted herewith:
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Schedule II - Valuation and Qualifying Accounts S-1
and Reserves
(All other schedules are omitted because they are not
applicable or the required information is shown in
the Financial Statements or notes thereto.)
</TABLE>
24
<PAGE> 25
3. EXHIBITS
The following exhibits are included in this Annual
Report on Form 10K (numbered in accordance with Item 601
of Regulation S-K):
<TABLE>
<CAPTION>
Exhibit Description
Number
<S> <C>
3.2(1) Certificate of Incorporation of Registrant as amended and restated to date.
3.4(1) By-laws of Registrant as amended to date.
10.1(1)(2) 1988 Stock Option Plan and forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended to date.
10.2(1)(2) 1993 Directors' Stock Option Plan and forms of Option Agreements.
10.3(1)(2) 1993 Employee Stock Purchase Plan and forms of Agreements.
10.4(1)(2) 401(k) Plan, as amended to date.
10.5(1)(2) Summary of Executive Bonus Program.
10.6(1)(2) Form of Directors' and Officers' Indemnification Agreement.
10.7(1) Registration and Information Rights Agreement dated January 31, 1992.
10.8(1) Lease Agreement between the Registrant and The Prudential Insurance
Company of America dated October 20, 1992.
10.10(1)(3) OEM Agreement dated March 9, 1993 between the Registrant and
Fuji Xerox Company, Ltd.
10.11(1)(3) Distributor Agreement dated June 6, 1990 between the Registrant
and Nissho Electronics Corporation.
10.12(1)(3) Corporate Purchasing Agreement between the Registrant and
Intel Corporation dated June 10, 1991.
10.13(1)(3) Agreement between the Registrant and
Solectron Corporation dated May 20, 1991, as
amended on November 18, 1992.
10.14(1) U.S. OEM Discount Agreement between the Registrant and
Sun Microsystems, Inc. effective as of August 18, 1988, as amended
by Addendum dated September 8, 1988 and Addendum dated
September 14, 1989.
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
10.15(1) Source Code License between the Registrant and Sun Microsystems,
Inc. dated August 31, 1988, as amended on April 30, 1991,
February 11, 1992 and March 18, 1992.
10.16(1) NFS Software Agreement between the Registrant and Sun
Microsystems, Inc. dated September 29, 1988.
10.17(4),(5) Software Agreement between the Registrant
and AT&T Information Systems Inc. dated June
2, 1988, as amended by Supplement Number 1,
Supplement Number 2 dated August 5, 1988 and
Supplement Number 3 dated August 10, 1990,
as amended on June 28, 1993.
10.18(4),(5) Sublicensing Agreement between the Registrant and AT&T
Information Systems Inc. dated August 30, 1988, as amended on
June 28, 1993.
10.19(1) Software Agreement between the Registrant and UNIX
System Laboratories, Inc. dated April 29, 1992.
10.20(1) License Agreement with the Regents of the
University of California dated June 9, 1988,
as amended by Addendum dated October 21,
1988.
10.21(4) Amendment No. 4 to Development Agreement for File Server between
IBM and Registrant dated August 30, 1993.
10.22(4),(5) Support and Service Agreement for IBM 7051
Power Network Dataserver between IBM and
Registrant dated August 18,1993.
10.23(6),(7) Intel Corporation Purchase Agreement between Intel Corporation and
the Registrant dated March 22, 1994.
10.24(8) Warranty and Service Provider Agreement between the
Registrant and AT&T Global Information Systems dated
April 15, 1994.
10.25(8) SunSoft Technology License and Distribution Agreement between
the Registrant and SunSoft, Inc. dated December 17, 1993.
10.26(9) Preferred Shares Rights Agreement between the Registrant and The
First National Bank of Boston as Rights Agent dated April 19, 1995.
10.27 Amendment No. 1 to Lease Agreement between the Registrant and
WHC-SIX Real Estate dated June 8, 1995.
10.28 Amendment No. 2 to Lease Agreement between the Registrant and
WHC-SIX Real Estate dated February 28, 1996.
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Description
Number
<S> <C> <C>
10.29 Interactive SPARC Software and Sublicensing Agreement between Auspex
Systems, Inc. and Interactive Systems Corporation, dated November 15, 1991.
11.1 Calculation of earnings per share.
22.1 Subsidiaries of Registrant.
24.1 Consent of Arthur Andersen LLP, Independent Public Accountants
25.1 Power of Attorney (See Page 29.)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Registrant's Registration Statement on Form S-1, as amended
(File No. 33-60052), which was declared effective on May 11, 1993.
(2) Designates management contract or compensatory plan arrangements required
to be filed as an exhibit of this Annual Report on Form 10-K pursuant to Item
14(c).
(3) Confidential treatment granted by order effective May 11, 1993.
(4) Incorporated by reference to identically numbered exhibits filed in
connection with Registrant's Form 10-K for the fiscal year ended June 25, 1993
(File No. 33-60052).
(5) Confidential treatment granted by order effective January 14, 1994.
(6) Incorporated by reference to Exhibit 10.1 filed in connection with
Registrant's Form 10-Q for the quarter ended March 31, 1994 (File No. 0-21432),
which was filed on May 16, 1994.
(7) Confidential treatment granted by order effective July 7, 1994.
(8) Incorporated by reference to exhibits filed in connection with the
Registrant's Form 10-K for the fiscal year ended June 30, 1994 (File No.
0-21432), which was filed on September 28, 1994 and confidential treatment
granted by order effective December 5, 1994.
(9) Incorporated by reference to Exhibit 1 filed in connection with the
Registrant's Form 8-A which was filed on April 20, 1995.
27
<PAGE> 28
(B) REPORTS ON FORM 8-K:
No report on Report Form 8-K was filed during the last quarter of
the fiscal year ended June 30, 1996.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AUSPEX SYSTEMS, INC.
Date: September 27, 1996 By:/ s / BRUCE N. MOORE
-------------------- ---------------------
Bruce N. Moore, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce N. Moore and Kent L. Robertson,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of these
attorneys-in-fact, or his or her substitute or substitutes may do, or cause to
be done, by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/ s / BRUCE N. MOORE President and Chief Executive Officer and September 27, 1996
- ----------------------------- Director
(Bruce N. Moore)
/ s / KENT L. ROBERTSON Vice President of Finance and September 27, 1996
- ----------------------------- Chief Financial Officer
(Kent L. Robertson)
/ s / LAURENCE B. BOUCHER Director September 27, 1996
- -----------------------------
(Laurence B. Boucher)
/ s / R. STEPHEN CHEHEYL Director September 27, 1996
- -----------------------------
(R. Stephen Cheheyl)
/ s / W. FRANK KING Director September 27, 1996
- -----------------------------
(W. Frank King)
/ s / DAVID F. MARQUARDT Director September 27, 1996
- -----------------------------
(David F. Marquardt)
</TABLE>
29
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Auspex Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Auspex Systems,
Inc. (a Delaware corporation) and subsidiaries as of June 30, 1996 and 1995, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. 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 Auspex Systems, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements, and in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
San Jose, California
August 2, 1996
F-1
<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
- ----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Product revenue $146,913 $104,102 $75,138
Service revenue 15,727 11,523 8,142
----------------------------------------------------------
Total revenues 162,640 115,625 83,280
----------------------------------------------------------
Cost of Revenues
Cost of product revenue 62,126 46,617 33,250
Cost of service revenue 9,840 6,833 5,137
----------------------------------------------------------
Total cost of revenues 71,966 53,450 38,387
----------------------------------------------------------
Gross profit 90,674 62,175 44,893
----------------------------------------------------------
Operating Expenses
Marketing and sales 37,647 28,069 21,130
Research and development 17,843 14,621 10,945
General and administrative 7,431 5,567 4,438
----------------------------------------------------------
Total operating expenses 62,921 48,257 36,513
----------------------------------------------------------
Income from operations 27,753 13,918 8,380
----------------------------------------------------------
Other Income
Interest income 1,813 1,746 1,356
Interest expense (81) (55) (92)
Other income 112 303 142
----------------------------------------------------------
Total other income 1,844 1,994 1,406
----------------------------------------------------------
Income before provision for income taxes 29,597 15,912 9,786
Provision for Income Taxes 9,767 3,501 1,468
----------------------------------------------------------
Net Income $ 19,830 $ 12,411 $ 8,318
==========================================================
Net Income per Share $ 0.77 $ 0.51 $ 0.34
==========================================================
Weighted Average Common Shares and Equivalents 25,702 24,371 24,694
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share amounts)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,169 $ 17,568
Short-term investments 28,349 27,028
Trade receivables, net of allowances of $1,535 and $786,
respectively 37,848 27,553
Inventories 16,130 17,144
Prepaid expenses and other 12,447 4,273
------------------------------------
Total current assets 116,943 93,566
------------------------------------
Property and Equipment:
Computer and manufacturing equipment 27,850 20,077
System spares 13,107 8,643
Furniture and fixtures 3,351 2,559
Leasehold improvements 2,573 1,250
------------------------------------
46,881 32,529
Less --- accumulated depreciation and amortization (31,304) (23,472)
------------------------------------
Total property and equipment, net 15,577 9,057
------------------------------------
Other Assets 3,324 3,903
------------------------------------
Total assets $135,844 $106,526
====================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1996 June 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of capital lease obligations $ 106 $ 384
Accounts payable 6,165 7,413
Accrued liabilities 12,712 7,369
Income tax payable 440 5,209
Deferred revenue 6,578 5,293
----------------------------------
Total current liabilities 26,001 25,668
----------------------------------
Capital Lease Obligations 30 159
----------------------------------
Stockholders' Equity:
Common stock, $.001 par value -- 50,000,000 shares authorized; 24,527,188
and 23,615,319 shares issued, respectively;
24,360,507 and 23,301,126 shares outstanding, respectively 24 23
Additional paid-in capital 73,169 63,929
Notes receivable from sale of common stock (49) (267)
Retained earnings 36,841 17,011
Cumulative translation adjustment (172) 3
----------------------------------
Total stockholders' equity 109,813 80,699
----------------------------------
Total liabilities and stockholders' equity $135,844 $106,526
==================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Cumulative
For the three years ended ------------------- Paid-in Notes Earnings Translation
June 30,1996 Shares Amount Capital Receivable (Deficit) Adjustment Total
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 25,1993 23,151,618 $ 23 $65,732 $(469) $(3,718) $ -- $ 61,568
Issuance of common stock
to employees 451,811 -- 489 -- -- -- 489
Repayment of notes receivable -- -- -- 135 -- -- 135
Repurchase of previously exercised
stock options (105,613) -- (48) -- -- -- (48)
Repurchase of common stock (600,000) -- (3,841) -- -- -- (3,841)
at $5.25 - $7.875 per share
Translation adjustment -- -- -- -- -- 9 9
Net income -- -- -- -- 8,318 -- 8,318
-------------------------------------------------------------------------------------
BALANCE, JUNE 30,1994 22,897,816 23 62,332 (334) 4,600 9 66,630
Issuance of common stock
to employees 418,883 -- 1,601 -- -- -- 1,601
Repayment of notes receivable -- -- -- 67 -- -- 67
Repurchase of previously exercised
stock options (15,573) -- (4) -- -- -- (4)
Translation adjustment -- -- -- -- -- (6) (6)
Net income -- -- -- -- 12,411 -- 12,411
-------------------------------------------------------------------------------------
BALANCE, JUNE 30,1995 23,301,126 23 63,929 (267) 17,011 3 80,699
Issuance of common stock
to employees 1,065,632 1 4,829 -- -- -- 4,830
Repayment of notes receivable -- -- -- 218 -- -- 218
Repurchase of previously exercised
stock options (6,251) -- (4) -- -- -- (4)
Tax benefits related to exercise of
stock options 4,415 4,415
Translation adjustment -- -- -- -- -- (175) (175)
Net income -- -- -- -- 19,830 -- 19,830
-------------------------------------------------------------------------------------
BALANCE, JUNE 30,1996 24,360,507 $ 24 $73,169 $ (49) $36,841 $(172) $109,813
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30, 1996 June 30, 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 19,830 $ 12,411 $ 8,318
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8,885 8,030 7,449
Changes in assets and liabilities:
Increase in trade receivables (10,295) (10,628) (6,357)
(Increase) decrease in inventories 1,014 (4,513) (7,310)
Increase in prepaid expenses and other (8,174) (161) (1,607)
Increase (decrease) in accounts payable (1,248) (874) 2,695
Increase in accrued liabilities 5,343 1,576 505
Increase (decrease) in income tax payable (354) 5,185 24
Increase in deferred revenue 1,285 1,647 890
-----------------------------------------
Net cash provided by operating activities 16,286 12,673 4,607
-----------------------------------------
Cash Flows from Investing Activities:
Purchases of held-to-maturity short-term investments (37,818) (44,228) -
Proceeds from maturities of held-to-maturity short-term investments 30,858 41,348 -
Proceeds from sales of held-to-maturity short-term investments 4,591 - -
Proceeds from sales of available-for-sales short-term investments 1,048 - -
Increase in short-term investments - - (24,148)
Purchases of property and equipment (15,405) (8,052) (7,869)
(Increase) decrease in other assets 579 (3,225) (382)
-----------------------------------------
Net cash used in investing activities (16,147) (14,157) (32,399)
-----------------------------------------
Cash Flows from Financing Activities:
Principal payments on capital lease obligations (407) (571) (785)
Proceeds from sale of common stock, net 5,048 1,668 576
Repurchases of common stock (4) (4) (3,841)
-----------------------------------------
Net cash provided by (used in) financing activities 4,637 1,093 (4,050)
-----------------------------------------
Effect of Exchange Rate Changes on Cash (175) (6) 9
-----------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 4,601 (397) (31,833)
Cash and Cash Equivalents, Beginning of Year 17,568 17,965 49,798
-----------------------------------------
Cash and Cash Equivalents, End of Year $ 22,169 $ 17,568 $ 17,965
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 35
AUSPEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Auspex Systems, Inc. (the "Company") was incorporated in 1987 to develop,
manufacture, market, sell and support a line of high-performance UNIX
multi-protocol network file/data servers for the technical workstation market.
The Company's markets are principly in North America, Pacific Rim and Europe and
include customers in the technical and commercial computing market. See Note 8
for information on revenues by geographic area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
intercompany accounts and transactions.
ESTIMATES IN THE PREPARATION OF CONSOLIDATED 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 disclosures of
contingent assets and liabilitites 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.
FOREIGN CURRENCY TRANSLATIONS The functional currency of the Company's foreign
subsidiaries is the local currency. Accordingly, gains and losses resulting from
the translation of the subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
REVENUE RECOGNITION Product revenue includes hardware sales and software license
fees. Revenues from system sales to end users are generally recognized when the
equipment has been shipped, installed and accepted by the end user. Revenues
from system sales to distributors, integrators and OEMs, as well as product
upgrades, are generally recognized when the equipment has been shipped. Revenues
earned under software license agreements with end users are generally recognized
when the software has been shipped and there are no significant obligations
remaining. Service revenue includes installation, maintenance, and training and
is recognized ratably over the contractual period or as the services are
provided.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Substantially all cash
equivalents consist of investments in certificates of deposit, money market
deposits, and municipal bonds with maturities of three months or less.
Substantially all short-term investments consist of municipal bonds which the
Company intends to hold between three and twelve months.
In July 1994, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." In compliance with the standard, the Company's investment in debt
or equity securities which are available for sale are stated at fair value and
investments which are held-to-maturity are stated at amortization cost. Adoption
of SFAS No. 115 did not have a material impact on the Company's financial
position or results of operations.
F-6
<PAGE> 36
At June 30, 1996, the Company's available-for-sale securities had contractual
maturities that expire at various dates through October 1997. The fair value of
available-for-sale and held-to-maturity securities was determined based on
quoted market prices at the reporting date for those securities. At June 30,
1996 and 1995, the amortized cost basis, aggregate fair value and gross
unrealized holding gains (losses) by major security type are as follows (in
thousands):
<TABLE>
<CAPTION>
Amortized Aggregate Unrealized
June 30, 1996 Cost Fair Value Gains(Losses)
- ------------- --------- --------- -----------
<S> <C> <C> <C>
Available-for-Sale Securities:
Municipal bonds ............................... $35,137 $35,098 $(39)
Certificate of deposit.................. 61 61 --
------- -----
Total investments in securities $35,198 $35,159 $(39)
======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Amortized Aggregate Unrealized
June 30, 1995 Cost Fair Value Gains(Losses)
- ------------- ------- ------- -------------
<S> <C> <C> <C>
Available-for-Sale Securities:
Municipal bonds................................. $ 3,990 $ 4,028 $ 38
------- ------- ----
Held-to-Maturity Securities:
Certificate of deposit................... 182 182 --
Corporate debt securities ............... 4,990 5,007 17
Debt securities issued by U.S. Treasury
and other U.S. government agencies 5,989 5,994 5
Municipal bonds.......................... 18,722 18,834 112
------- ------- ----
29,883 30,017 134
------- ------- ----
Total investments in securities $33,873 $34,045 $172
======= ======= ====
</TABLE>
One available-for-sale security was sold in fiscal year 1996 with proceeds of
$1,048,000, providing a realized gain of $1,000 (the realized gain was
calculated using the 'specific identification' method).
In the fourth quarter of fiscal 1996, upon the Company's re-evaluation of its
investment portfolio, all of the Company's securities were re-classified from
held-to-maturity to available-for-sale for SFAS No. 115 purposes. During fiscal
1996, the Company sold prior to maturity securities previously classified as
held-to-maturity with an amortized cost aggregating $4,362,000. Total proceeds
from these sales were $4,591,000, with total interest and realized gain of
$229,000.
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURES The Company acquired certain
equipment under capital lease obligations at a cost of approximately $61,000 and
$312,000 in fiscal 1995 and 1994 respectively. No equipment was acquired during
fiscal 1996 under capital lease obligations. Cash paid for interest during
fiscal 1996, 1995 and 1994 was approximately $81,000, $55,000 and $92,000,
respectively. Cash paid for income taxes during fiscal 1996, 1995 and 1994 was
approximately $15,256,000, $1,073,000 and $2,250,000, respectively. Fiscal
1996, non-cash activity consisted of $4,415,000 from tax benefits related to
exercise of stock options.
CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash
investments and accounts receivables. The Company's cash investment policy
limits the amount of credit exposure to any one issuer and restricts purchase of
these investments to issuers evaluated as creditworthy. Concentrations of credit
risk in trade receivables is limited as a result of the large number of
customers comprising the Company's customer base and their dispersion across
many different industries and geographies.
F-7
<PAGE> 37
INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or
market, and include material, labor and manufacturing overhead. Inventories
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Purchased materials..................... $ 4,366 $ 7,089
Systems in process...................... 7,082 6,530
Finished goods.......................... 4,682 3,525
------- -------
$16,130 $17,144
======= =======
</TABLE>
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
and amortization are computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Computer and manufacturing equipment 1.5 to 2 years
System spares 2 years
Furniture and fixtures 3 years
Leasehold improvements Shorter of the lease term or estimated useful life
</TABLE>
SOFTWARE DEVELOPMENT COSTS The Company capitalizes software development costs in
compliance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalization of software development
costs begins upon the determination of technological feasibility. The
determination of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors including anticipated future gross product
revenues, estimated economic life and changes in hardware and software
technology. Software development costs capitalized during fiscal 1996, 1995 and
1994 amounted to $274,000, $729,000 and $67,000, respectively.
Amortization of capitalized software development costs begins when the products
are available for general release to customers and is computed on an individual
product basis and is the greater of the amount computed on a units-sold basis or
straight-line basis over the estimated economic life of the product.
Amortization of software development costs amounted to $220,000, and $28,000 for
the years ended June 30, 1996 and 1995, respectively. No amounts were amortized
in fiscal 1994.
ACCRUED LIABILITIES Accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Payroll, bonus and vacation ....... $ 6,066 $ 3,935
Other.............................. 6,646 3,434
------- -------
$12,712 $ 7,369
======= =======
</TABLE>
NET INCOME PER SHARE Net income per share is computed using the weighted average
number of shares of common stock, and dilutive common equivalent shares from
stock options using the treasury stock method. Fully diluted net income per
share is substantially the same as primary net income per share.
F-8
<PAGE> 38
3. LINE OF CREDIT:
In June 1996, the Company entered into a revolving line of credit agreement
with a bank under which it can borrow up to $15,000,000. The line of credit
bears interest at LIBOR plus 1.5% (7.6% at June 30, 1996) for increments in
excess of $250,000 and at the bank's reference rate on all other borrowings
(8.25% at June 30, 1996) and expires on March 31, 1997. At June 30, 1996 there
were no borrowings outstanding under the line of credit agreement. The line of
credit agreement contains certain financial covenants determined on a quarterly
basis.
4. LEASES:
Facilities and equipment are leased under various capital and operating leases.
Rent expense was approximately $2,564,000, $1,823,000 and $1,793,000, for fiscal
1996, 1995 and 1994, respectively. The Company did not enter into any new
capital leases in fiscal 1996. As of June 30, 1996, future minimum lease
payments under non-cancelable leases were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Years Ending June 30, Leases Leases
<S> <C> <C>
1997 ......................................... $ 109 $2,626
1998 ......................................... 30 1,807
1999.......................................... -- 153
2000.......................................... -- 99
2001.......................................... -- 28
----- ------
Total minimum lease payments............................... 139 $4,713
======
Less: Amount representing interest (6% to 15%) ........... (3)
-----
Present value of lease payments............................ 136
Less: Current portion .................................... (106)
-----
Long-term portion.......................................... $ 30
=====
</TABLE>
As of both June 30, 1996 and 1995, the cost of leased equipment was
approximately $1,401,000 with accumulated amortization of $1,391,000 and
$1,246,000, respectively.
5. CAPITAL STOCK:
During 1994, the Company repurchased approximately 600,000 shares of common
stock for approximately $3.8 million. The Company intends to use this stock for
re-issuance under the Employee Stock Purchase Plan. As of June 30, 1996, the
Company has reserved the following shares of authorized but unissued common
stock:
<TABLE>
<CAPTION>
<S> <C>
Stock option plan............................................. 6,264,527
Directors' stock option plan.................................. 159,000
Employee stock purchase plan.................................. 366,681
---------
6,790,208
=========
</TABLE>
F-9
<PAGE> 39
6. STOCK OPTION AND STOCK PURCHASE PLANS:
In 1988, the Company established the 1988 Stock Option Plan (the "Plan"). The
number of options and/or the exercise price are subject to adjustment for
certain changes in the Company's capitalization as specified in the Plan. The
Board of Directors may grant either incentive or non-statutory 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 value of the shares on the
date of grant, except that non-statutory options may be granted at 85% of such
fair value. Options shall expire no later than ten years from the date of grant
and generally vest ratably over five years. Options to purchase 833,817 shares
of common stock were exercisable at $.25-$23.13 per share as of June 30, 1996.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
Available Shares Price
<S> <C> <C> <C>
Balance at June 25, 1993......................... 1,457,067 2,294,467 $ .10 - $ 13.63
Granted.................................... (2,181,950) 2,181,950 $ 3.75 - $ 11.75
Exercised.................................. -- (388,650) $ .10 - $ 7.00
Canceled................................... 1,124,819 (1,124,819) $ .25 - $ 13.63
--------- --------- -------------
Balance at June 30, 1994......................... 399,936 2,962,948 $ .10 - $ 13.63
Authorized................................. 2,000,000 --
Granted.................................... (1,528,280) 1,528,280 $ 3.75 - $ 10.75
Exercised.................................. -- (196,237) $ .10 - $ 7.88
Canceled................................... 473,352 (473,352) $ .25 - $ 10.75
---------- --------- -------------
Balance at June 30, 1995......................... 1,345,008 3,821,639 $ .10 - $ 13.63
Authorized.................................. 2,000,000 --
Granted..................................... (1,663,150) 1,663,150 $12.13 - $ 23.13
Exercised................................... -- (902,120) $ .10 - $ 16.13
Canceled.................................... 554,697 (554,697) $ .25 - $ 19.38
---------- ---------- -------------
Balance at June 30, 1996......................... 2,236,555 4,027,972 $ .10 - $ 23.13
--------- --------- -------------
</TABLE>
During fiscal 1994, the Company canceled 850,300 options at $7.00 to $13.63 per
share and reissued the same number of options at the then current fair market
value of $6.50 per share. Employees who submitted their "initial" option grants
for repricing had their vesting schedules amended by either extending the
vesting period by six months or restarting the vesting as of the new grant date,
depending on the date of initial grant. Employees who submitted their
"subsequent" option grants for repricing did not have their vesting schedules
amended, but were restricted from exercising the options for six months.
NOTES RECEIVABLE FROM EMPLOYEES The Company has received as consideration from
certain officers of the Company promissory notes in connection with the exercise
of stock options. These notes bear interest at rates between 5.57% and 6.69% and
mature at various dates through April 1998. As of June 30, 1996, no officer had
outstanding notes totaling greater than $100,000.
DIRECTORS' OPTION PLAN In March 1993, the Company adopted the 1993 Directors'
Stock Option Plan (the "Directors' Plan"). The Directors' Plan provides for the
grant of non-statutory stock options to non-employee directors of the Company.
Directors are initially granted 16,000 options at the fair market value on the
date of grant. These options vest ratably over a four-year period, beginning at
the end of the first year. Additional options are granted annually and vest
after four years. As of June 30, 1996, options to purchase 60,000 shares of
common stock at $5.00 to $12.13 per share were outstanding under the Directors'
Plan, of which, options for 20,000 shares were exercisable. Options to purchase
99,000 shares are available for future grant under the Directors' Plan.
F-10
<PAGE> 40
EMPLOYEE STOCK PURCHASE PLAN In March 1993, the Company adopted the 1993
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 800,000 shares
of common stock for future issuance. Under the Purchase Plan, the Company's
employees, subject to certain restrictions, may purchase shares of common stock
at a price equal to 85% of the fair market value of the stock as of the first or
last day of the six-month offering period, whichever is lower. The Company
issued 146,175, 222,646 and 63,161 shares at an average price of $11.70, $5.03
and $4.25 per share in 1996, 1995 and 1994, respectively.
STOCKHOLDER RIGHTS PLAN During 1995, the Company established a stock purchase
rights plan (the "Rights Plan"), under which stockholders may be entitled to
purchase stock in the Company, or in an acquirer of the Company at a discounted
price in the event of certain efforts to acquire control of the Company. The
rights expire on the earliest of (a) April 19, 2005, (b) exchange or redemption
of the rights pursuant to the Rights Plan, or (c) consummation of a merger or
consolidation.
7. INCOME TAXES:
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Current:
Federal $10,319 $4,972 $1,847
State 1,739 1,365 287
------ ----- -----
12,058 6,337 2,134
------ ----- -----
Deferred (Prepaid):
Federal (2,039) (2,281) (480)
State (252) (555) (186)
------- ------ -----
(2,291) (2,836) (666)
------ ----- -----
Net tax provision $ 9,767 $3,501 $1,468
====== ===== =====
</TABLE>
The provision for income taxes is reconciled with the Federal statutory rate as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Provision computed at federal statutory rate............................... $10,359 $5,569 $3,327
State taxes, net of federal tax benefit.................................... 1,487 1,059 67
Change in valuation allowance.............................................. -- (2,261) (1,576)
Research and development and other credits................................. (700) (655) --
FSC commission............................................................. (871) (381) (132)
Foreign taxes and other.................................................... (508) 170 (218)
------- ------
Net tax provision.......................................................... $9,767 $3,501 $1,468
======= ====== ======
Net effective tax rate..................................................... 33% 22% 15%
======= ====== ======
</TABLE>
F-11
<PAGE> 41
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Depreciation and asset basis differences.................................... $2,030 $2,406
Reserves and accruals, not currently deductible for tax purposes............ 2,607 1,207
State taxes, not currently deductible for Federal tax purposes.............. 386 478
Other....................................................................... ,162 674
----- ------
Net deferred income tax asset............................................... $7,185 $4,765
====== ======
</TABLE>
8. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION:
The Company operates in a single industry segment, the design and manufacture of
high-performance UNIX multi-protocol network file/data servers for the technical
workstation market.
Export revenues consisted of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Pacific Rim......................... $36,229 $21,390 $13,313
Europe.............................. 16,248 8,984 6,520
Canada.............................. 5,986 3,201 1,656
------- ------- -------
Total export revenues $58,463 $33,575 $21,489
======= ======= =======
Percentage of total revenues 36% 29% 26%
======= ======= =======
</TABLE>
One customer accounted for 10%, 15% and 14% of total revenues in fiscal 1996,
1995 and 1994, respectively. An additional customer accounted for 13% of total
revenues in fiscal 1996. No other customers accounted for 10% or more of total
revenues in these years.
F-12
<PAGE> 42
SCHEDULE II
AUSPEX SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED CHARGED BALANCE
BEGINNING TO AGAINST AT END
DESCRIPTION OF PERIOD EXPENSES REVENUES DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE ALLOWANCES:
Year ended June 30, 1994 $ 1,105 $ -- $ -- $ (667) $ 438
Year ended June 30, 1995 438 30 318 -- 786
Year ended June 30, 1996 786 89 1,300 (640) 1,535
</TABLE>
S-1
<PAGE> 1
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment"), dated for reference purposes
only as June 8, 1995, is made and entered into by and between WHC-SIX REAL
ESTATE LIMITED PARTNERSHIP (as successor-in-interest to The Prudential Company
of America) ("Landlord"), and AUSPEX SYSTEMS, INC., a Delaware corporation
("Tenant").
RECITALS
A. Landlord's predecessor-in-interest and Tenant are parties to that
certain Lease dated October 20, 1992 ("Lease"), pursuant to which Landlord
leased to Tenant, and Tenant leased from Landlord, certain premises commonly
known as 5200 Great America Parkway, Santa Clara, California ("Existing
Premises"). Except as otherwise provided in this Amendment, all capitalized
terms used herein shall have the same meanings and definitions as set forth in
the Lease.
B. Landlord and Tenant desire to amend the Lease on the terms and
conditions set forth below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
1. EXPANSION SPACE.
1.1 DESCRIPTION. Commencing on the Expansion Space Commencement Date
(as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, certain additional space located in the Project, which
additional space ("Expansion Space") consists of a net rentable area of
approximately 24,650 square feet located on the second floor of Building B of
the Project and is commonly known as Suite 200, 2903 Bunker Hill Lane, Santa
Clara, California. Except as otherwise provided in this Amendment, commencing
on the Expansion Space Commencement Date, (i) whenever the term "Premises" is
used in the Lease, such term shall include the Expansion Space, (ii) whenever
the term "Building" is used in the Lease, such term shall include that portion
of Building B comprising the Expansion Space, and (iii) all terms and
conditions of the Lease shall apply to the Expansion Space as if it were part
of the original Premises demised to Tenant under the Lease.
1.2 TERM.
1.2.1 COTERMINOUS WITH EXISTING PREMISES. The Term of the Lease as
it relates to the Expansion Space shall commence on the Expansion Space
Commencement Date and, unless
1
<PAGE> 2
sooner terminated pursuant to the terms of the Lease, shall expire on the
Expiration Date of the Lease (i.e., March 31, 1998), subject to extension
pursuant to Section 1.2.3(b) below. For purposes of this Amendment, "Expansion
Space Commencement Date" shall mean the earliest of the following to occur: (i)
the date that the applicable local government authority approves the Expansion
Space Improvements (as defined below) as evidenced by a final signed-off
building permit or certificate of occupancy for the Expansion Space; (ii) the
date that Tenant occupies the Expansion Space (other than for purposes of
constructing the Expansion Space Improvements); or (iii) August 1, 1995. When
the Expansion Space Commencement Date is determined, the parties shall execute
a Commencement Date Memorandum, in a form substantially similar to EXHIBIT "E"
attached to the Lease, setting forth the Expansion Space Commencement Date.
1.2.2 EARLY ENTRY BY TENANT. Tenant shall be permitted to enter
the Expansion Space prior to the Expansion Space Commencement Date for the
purpose of constructing the Expansion Space Improvements. Such entry shall be
subject to all the terms and provisions of the Lease as if the Premises
included the Expansion Space, except that the payment of Base Rent with respect
to the Expansion Space pursuant to Section 1.3.1 below shall commence as of the
Expansion Space Commencement Date.
1.2.3 OPTIONS TO EXTEND.
(a) EXISTING PREMISES. Landlord and Tenant acknowledge that,
pursuant to Section 42 of the Lease, Tenant has a single option to extend the
term of the Lease ("Existing Option to Extend"), on the terms and conditions
set forth in said Section 42. Landlord and Tenant agree that the Existing
Option to Extend shall apply only to the Existing Premises (and not to the
Expansion Space), and that the term "Premises" as used in said Section 42 shall
mean only the Existing Premises.
(b) EXPANSION SPACE. Landlord hereby grants to Tenant a single
option to extend the Term of the Lease with respect to the Expansion Space, for
a period of three (3) years ("New Option to Extend"), for the period from April
1, 1998 to March 31, 2001. The New Option to Extend is granted to Tenant on the
same terms and conditions set forth in Section 42 of the Lease, except that (i)
Tenant's written notice of exercise must be given to Landlord not earlier than
July 1, 1997 and not later than September 30, 1997, (ii) the monthly Base Rent
payable by Tenant for the Expansion Space during said option period shall in no
event be less than the monthly Base Rent payable by Tenant with respect to the
Expansion Space during the final month of the initial Term, and (iii) for
purposes of applying the terms and conditions of Section 42 of the Lease to the
New Option to Extend, the term "Option" as used therein shall mean the New
Option to
2
<PAGE> 3
Extend and the term "Premises" as used therein shall mean only the Expansion
Space.
1.3 RENT.
1.3.1 BASE RENT. Commencing as of the Expansion Space Commencement
Date, Tenant shall pay, as monthly Base Rent for the Expansion Space, the sum of
Thirty Thousand Six Hundred Eighty-nine Dollars and Twenty-five cents
($30,689.25) per month. Said monthly Base Rent shall be payable by Tenant in the
same manner and at the same times as set forth in Section 4(a) of the Lease with
respect to the monthly Base Rent payable by Tenant for the Existing Premises and
shall be in addition to the monthly Base Rent payable by Tenant pursuant to
Section 4 of the Lease with respect to the Existing Premises. If the Expansion
Space Commencement Date is not the first day of the month, the foregoing monthly
Base Rent shall be prorated (based on a 30 day month) for such partial month.
Concurrently with Tenant's execution of this Amendment, Tenant shall pay to
Landlord the sum of Thirty Thousand Six Hundred Eighty-nine Dollars and
Twenty-five Cents ($30,689.25), which sum shall be applied by Landlord against
the Base Rent payable by Tenant for the Expansion Space for the first full
calendar month during which such Base Rent is payable by Tenant hereunder.
1.3.2 ADDITIONAL RENT.
(a) INCREASE IN OPERATING AND PROJECT EXPENSES. Tenant shall
pay, as additional rent relating to the Expansion Space, (i) Tenant's
Percentage Share (Building) of the total dollar increase, if any, in the
Operating Expenses paid or incurred by Landlord during each twelve (12) month
period following the Base Year (as defined below) (each such twelve (12) month
period being hereinafter referred to as a "Lease Year") over the Operating
Expenses paid or incurred by Landlord during the period commencing on the
Expansion Space Commencement Date and ending on the date that is twelve (12)
months thereafter (which period is hereinafter referred to as the "Base Year"),
and (ii) Tenant's Percentage Share (Project) of the total dollar increase, if
any, in the Project Expenses paid or incurred by Landlord during each Lease
Year over the Project Expenses paid or incurred by Landlord during the Base
Year. For purposes of this Section 1.3.2(a), Tenant's Percentage Share
(Building) shall be 50%, and Tenant's Percentage Share (Project) shall be 11%.
Said additional rent shall be in addition to the additional rent
payable by Tenant under Sections 5 and 6 of the Lease with respect to the
Existing Premises and any other additional rent payable by Tenant under the
Lease.
(b) OPERATING AND PROJECT EXPENSES. For purposes of this
Section 1.3.2, (i) the term "Operating Expenses"
3
<PAGE> 4
shall have the same meaning as set forth in Section 5(b) of the Lease, except
that, for purposes of applying such meaning to this Section 1.3.2, the term
"Premises" as used in such Section 5(b) shall mean Building B, and (ii) the
term "Project Expenses" shall have the same meaning as set forth in Section
6(b) of the Lease.
(c) ESTIMATES IN INCREASES. The additional rent payable by
Tenant under this Section 1.3.2 shall be paid on an estimated basis in the same
manner and at the same times as provided in Sections 5(d) and 6(e) of the Lease
with respect to the payment of Tenant's Percentage Share of Operating and
Project Expenses, except that, for such purposes, (i) the words "During
December of each calendar year during the Term," as used in the first sentence
of such sections shall be deleted and replaced with "During the last month of
the Base Year and each Lease Year during the Term,"; (ii) the term "calendar
year" as used in such sections shall be deleted and replaced with "Lease Year";
(iii) the term "December" as used in the second sentence of such sections shall
be deleted and replaced with "the last month of the Base Year or Lease Year, as
applicable"; and (iv) the terms "Operating Expenses" and "Project Expenses" as
used in such sections shall mean the increases in such expenses payable by
Tenant pursuant to this Section 1.3.2.
(d) ANNUAL ADJUSTMENT. Annual reconciliations between the
estimated payments of the additional rent payable by Tenant under this Section
1.3.2 and the actual payments due shall be made in the same manner and subject
to the same terms as provided in Sections 5(e) and 6(f) of the Lease with
respect to Tenant's Percentage Share of Operating and Project Expenses, except
that, for such purposes, (i) the term "calendar year" as used in such sections
shall be deleted and replaced with "Lease Year"; and (ii) the terms "Operating
Expenses" and "Project Expenses" as used in such sections shall mean the
increases in such expenses payable by Tenant pursuant to this Section 1.3.2.
(e) PRORATION FOR FINAL LEASE YEAR. If the Lease expires or
terminates on a date other than on the last day of a Lease Year, the additional
rent payable by Tenant under this Section 1.3.2 for such partial final Lease
Year shall be equal to the product obtained by multiplying (i) the additional
rent that would have otherwise been payable by Tenant under this Section 1.3.2
for such Lease Year had it consisted of a full twelve (12) month period, by
(ii) a fraction, the numerator of which is the number of days comprising such
final partial Lease Year and the denominator of which is 360.
1.3.3 "RENT". The term "Rent" as used in the Lease shall include,
without limitation, the Base Rent and additional rent payable by Tenant under
this Section 1.3.
4
<PAGE> 5
1.4 CONDITION OF THE EXPANSION SPACE.
1.4.1 "AS-IS" CONDITION. Landlord shall deliver the Expansion
Space to Tenant, and Tenant shall accept the Expansion Space from Landlord, in
its then-existing "as is" condition, and Landlord shall have no obligation to
make any alterations, improvements or additions of any kind to the Expansion
Space or Building B or to remove any alterations or improvements that may
currently exist within the Expansion Space. Except as provided in this
subsection (a) below, Landlord makes no representation or warranty, express or
implied, with respect to the Expansion Space or Building B. Tenant acknowledges
that it has made such legal and factual inquiries with respect to the condition
of the Expansion Space and Building B and the suitability of the Expansion Space
for the conduct of Tenant's business and has relied solely thereon in executing
this Amendment. Landlord warrants that the following improvements and systems
shall be in good operating condition as of the date that possession of the
Expansion Space is delivered to Tenant: (i) existing landscaping, sidewalks,
driveways and parking lots serving the Expansion Space, and (ii) elevators,
mechanical, electrical, plumbing, roof and roof systems serving the Expansion
Space. Tenant shall not be responsible for any costs associated with
investigation, design, permitting and construction to insure the Expansion
Space's restrooms and emergency exiting comply with the Americans with
Disabilities Act and applicable building codes.
1.4.2 IMPROVEMENTS BY TENANT. Landlord and Tenant acknowledge
that Tenant desires to cause certain improvements to be made to the Expansion
Space prior to its occupancy thereof ("Expansion Space Improvements"). Tenant
shall be permitted to make such Expansion Space Improvements, subject to the
following terms and conditions: (i) all costs and expenses relating to the
design and construction of the Expansion Space Improvements shall be borne
solely by Tenant without contribution of any kind by Landlord; (ii) Tenant
shall cause the Expansion Space Improvements to be constructed in accordance
with the plans and specifications approved by Landlord and in such manner as
will minimize interference with the occupancy and quiet enjoyment of the
Project by other tenants; (iii) the Expansion Space Improvements shall
constitute an "alteration" for purposes of the Lease and shall be subject to
the terms and conditions of subsections (a) and (b) of Section 10 of the Lease
(other than the second sentence of such subsection (a), the subject matter of
which is addressed by the approval condition set forth in subsection (iv)
below), and (iv) not less than ten (10) days prior to the date that Tenant
desires to commence the Expansion Space Improvements. Tenant shall provide
Landlord with the items and documentation described in Section 5(b) of Exhibit
"B" attached to the Lease (with the term "Tenant's Work" as used therein
meaning the Expansion Space Improvements and
5
<PAGE> 6
the names and addresses described in subsection (ii) of such Section 5(b)
including the names and addresses of Tenant's architect and project manager),
which items and documentation shall be subject to Landlord's written approval
(which approval shall not be unreasonably withheld). The acquisition of all
applicable governmental approvals, permits and certificates relating to the
construction of the Expansion Space Improvements and the subsequent occupancy
of the Expansion Space by Tenant shall be the sole responsibility of Tenant, at
its sole cost and expense, and Landlord makes no representation or warranty of
any kind with respect thereto. All Expansion Space Improvements shall
immediately become Landlord's property, and the parties agree that Tenant shall
not be required to remove any Expansion Space Improvements.
1.4.3 SURRENDER. For purposes of applying Section 19 of the Lease
to the surrender of the Expansion Space, the term "Commencement Date" as used
therein shall mean the Expansion Space Commencement Date.
1.5 MAINTENANCE AND REPAIR. Tenant shall have the same
maintenance and repair obligations with respect to the Expansion Space as are
imposed on Tenant under the Lease with respect to the Existing Premises, except
that Landlord, and not Tenant, shall be responsible for the matters described
in subsections (i) and (ii) of the second sentence of Section 11(a) of the
Lease as such matters relate to Building B (and all costs and expenses incurred
by Landlord in connection therewith shall be included as part of "Operating
Expenses" for purposes of Section 1.3.2 above).
1.6 UTILITIES AND SERVICES. Provided that there has been no Event
of Default, Landlord agrees to furnish or cause to be furnished, to the
Expansion Space the utilities and services described in the standards for
Utilities and Services, set forth in Exhibit "F" attached to the Lease (other
than the janitorial services described in Section 1(e) thereof), subject to the
conditions and in accordance with the standards set forth therein. Landlord
shall not be liable for, and Tenant shall not be entitled to any abatement or
deduction of Rent by reason of, no eviction of Tenant shall result from and,
further, Tenant shall not be relieved from the performance of any covenant or
agreement in this Lease because, of Landlord's failure to furnish any of the
foregoing when the failure is caused by accident, breakage, or repairs,
strikes, lockouts or other labor disturbance or labor dispute of any character,
governmental regulation, moratorium or other governmental action, inability
despite the exercise of reasonable diligence to obtain electricity, water or
fuel, or by any other cause beyond Landlord's reasonable control. Except for
those costs, expenses and charges that Tenant is specifically responsible for
the payment of pursuant to Exhibit "F" attached to the Lease (e.g., excess
costs), all costs, expenses and charges
6
<PAGE> 7
incurred by Landlord in connection with furnishing the utilities and services
described in such Exhibit "F" shall be included as part of "Operating Expenses"
for purposes of Section 1.3.2 above.
1.7 JANITORIAL SERVICES. Tenant shall obtain, and shall bear the
cost of, all janitorial services required by Tenant in the Expansion Space.
1.8 PARKING SPACES. For so long as Tenant leases the Expansion
Space, Tenant shall be entitled to use eighty (80) parking spaces in connection
therewith. Such use shall be on an unreserved and unassigned basis in common
with other tenants and occupants of the Property, shall be on those portions of
the Common Areas designated by Landlord and shall at all times be subject to
and in accordance with all the terms and conditions of the Lease.
2. BROKERS. Each party warrants and represents to the other that it
has had no dealings with any real estate broker or agent in connection with the
negotiation of this Amendment other than Cornish & Carey Commercial Real Estate
and Cooper Brady Commercial Real Estate (collectively, the "Brokers") (whose
commission is to be paid by Landlord pursuant to the terms of a separate
written agreement between Landlord and Brokers), and that it knows of no real
estate broker or agent other than Brokers who is or might be entitled to a
commission in connection with this Amendment. Each party shall indemnify and
hold harmless the other from and against any and all liabilities or expenses
arising out of claims made by any other broker or individual for commissions or
fees related to the use or alleged use of the services of any broker or
individual by the indemnifying party. The foregoing indemnity and hold harmless
obligations shall survive the expiration or sooner termination of the Lease.
3. FULL FORCE AND EFFECT. Except as otherwise modified by this
Amendment, the Lease shall remain unmodified and in full force and effect. In
the event of any conflict or inconsistency between the terms and conditions of
the Lease and the terms and conditions of this Amendment, the terms and
conditions of this
7
<PAGE> 8
Amendment shall prevail.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first written above.
LANDLORD
WHC-SIX Real Estate Limited Partnership, a
Delaware Limited Partnership
By: JER WHC-SIX Services, Inc., a Virginia
corporation, its Managing General Partner
By: /s/ Lawrence A. Corson
-----------------------------------
Name: Lawrence A. Corson
---------------------------------
Title: Vice President
--------------------------------
TENANT:
AUSPEX SYSTEMS, INC., a Delaware corporation
By: /s/ Fred Nervo
-----------------------------------
Name: Fred Nervo
---------------------------------
Title: VP & Gen. Counsel
--------------------------------
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SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment"), dated for reference purposes
only as February 28, 1996, is made and entered into by and between WHC-SIX REAL
ESTATE LIMITED PARTNERSHIP (as successor-in-interest to The Prudential Company
of America) ("Landlord"), and AUSPEX SYSTEMS, INC., a Delaware corporation
("Tenant").
RECITALS
A. Landlord's predecessor-in-interest and Tenant are parties to that
certain Lease dated October 20, 1992 ("Original Lease"), pursuant to which
Landlord leased to Tenant, and Tenant leased from Landlord, certain premises
commonly known as 5200 Great America Parkway, Santa Clara, California
("Existing Premises"), which Original Lease has been amended pursuant to the
terms of that certain First Amendment to Lease dated June 8, 1995 ("First
Amendment"), pursuant to which Landlord leased to Tenant, and Tenant leased
from Landlord, certain additional premises defined therein as the "Expansion
Space." For purposes of this Amendment, the term "Lease" shall mean the
Original Lease, as amended by the First Amendment. Except as otherwise provided
in this Amendment, all capitalized terms used herein shall have the same
meanings and definitions as set forth in the Lease.
B. Landlord and Tenant desire to amend the Lease on the terms and
conditions set forth below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
1. Additional Space.
1.1 Description. Commencing on June 15, 1996 ("Additional Space
Commencement Date"), Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, certain additional space located in the Project, which
additional space ("Additional Space") consists of a net rentable area of
approximately 8,074 square feet located on the first floor of Building B of
the Project, is commonly known as Suites 103 and 106, 2903 Bunker Hill Lane,
Santa Clara, California and is shown as cross-hatched on Exhibit "A" attached
to this Amendment. Except as otherwise provided in this Amendment, commencing
on the Additional Space Commencement Date, (i) whenever the term "Premises" is
used in the Lease, such term shall include the Additional Space, (ii) whenever
the term "Building" is used in the Lease, such term shall include that portion
of Building B comprising the Expansion Space and the Additional Space, and
(iii) all terms and conditions of the Lease shall apply to the Additional Space
as if it were part of the
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original Premises demised to Tenant under the Lease.
1.2 Term. The term of the Lease as it relates to the Additional Space
shall commence on the Additional Space Commencement Date and, unless sooner
terminated pursuant to the terms of the Lease, shall expire on December 25,
1999 ("Additional Space Expiration Date"). Landlord and Tenant acknowledge that
the Term of the Lease as it relates to the Existing Premises and the Expansion
Space is scheduled to expire on March 31, 1998, subject to extension as set
forth in Section 1.2.3 of the First Amendment. The Term of the Lease is hereby
extended, as it relates to the Additional Space only, to the Additional Space
Expiration Date. Tenant shall have no right or option whatsoever to extend the
Term of the Lease as it relates to the Additional Space beyond the Additional
Space Expiration Date, and the parties agree that the options to extend the
Term granted to Tenant under the Lease with respect to the Existing Premises
and the Expansion Space shall not apply to the Additional Space.
1.3 Rent
1.3.1 Base Rent. Commencing as of August 15, 1996 (Additional Space
Rent Commencement Date") and continuing through and including February 25,
1998, Tenant shall pay, as monthly Base Rent for the Additional Space, the sum
of $10,815.65 per month. Commencing as of February 26, 1998 and continuing
through and including the Additional Space Expiration Date, Tenant shall pay,
as monthly Base Rent for the Additional Space, the sum of $10,978.30 per month.
Said monthly Base Rent shall be payable by Tenant in the same manner and at the
same times as set forth in Section 4(a) of the Original Lease with respect to
the monthly Base Rent payable by Tenant for the Existing Premises and shall be
in addition to the monthly Base Rent payable by Tenant pursuant to Section 4 of
the Original Lease with respect to the Existing Premises and Section 1.3.1 of
the First Amendment with respect to the Expansion Space. On or before the
Additional Space Rent Commencement Date, Tenant shall pay to Landlord the sum
of $5,407.83 as the prorated monthly Base Rent payable by Tenant with respect
to the Additional Space for the month of August, 1996.
1.3.2 Additional Rent.
(a) Modification of First Amendment. Section 1.3.2 of the
First Amendment is hereby deleted in its entirety and replaced with the
following:
(a) Increase in Operating and Project Expenses. Tenant
shall pay, as additional rent relating to the Expansion Space, (i)
Tenant's Percentage Share (Building) of the total dollar increase, if
any, in the Operating Expenses paid or incurred by Landlord
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during each calendar year (and partial calendar year following the Base
Year (as defined below) over the Operating Expenses paid or incurred by
Landlord during the Base Year, and (ii) Tenant's Percentage Share
(Project) of the total dollar increase, if any, in the Project Expenses
paid or incurred by Landlord during each calendar year (and partial
calendar year) following the Base Year over the Project Expenses paid or
incurred by Landlord during the Base Year. For purposes of this Section
1.3.2, the term "Base Year" shall mean the period from August 1, 1995
through and including July 31, 1996. For purposes of this Section
1.3.2(a), Tenant's Percentage Share (Building) shall be 50%, and
Tenant's Percentage Share (Project) shall be 11%. Said additional rent
shall be in addition to the additional rent payable by Tenant under
Sections 5 and 6 of the Lease with respect to the Existing Premises and
any other additional rent payable by Tenant under the Lease.
(b) Operating and Project Expenses. For purposes of this Section
1.3.2, (i) the term "Operating Expenses" shall have the same meaning as
set forth in Section 5(b) of the Lease, except that, for purposes of
applying such meaning to this Section 1.3.2, the term "Premises" as used
in such Section 5(b) shall mean Building B, and (ii) the term "Project
Expenses" shall have the same meaning as set forth in Section 6(b) of
the Lease.
(c) Estimates in Increases. The additional rent payable by
Tenant under this Section 1.3.2 shall be paid on an estimated basis in
the same manner and at the same times as provided in Sections 5(d) and
6(e) of the Lease with respect to the payment of Tenant's Percentage
Share of Operating and Project Expenses, except that, for such purposes,
the terms "Operating Expenses" and "Project Expenses" as used in such
sections shall mean the increases in such expenses payable by Tenant
pursuant to this Section 1.3.2.
(d) Annual Adjustment. Annual reconciliations between the
estimated payments of the additional rent payable by Tenant under this
Section 1.3.2 and the actual payments due shall be made in the same
manner and subject to the same terms as provided in Sections 5(e) and
6(f) of the Lease with respect to Tenant's Percentage Share of Operating
and Project Expenses, except that, for such purposes, the terms
"Operating Expenses" and "Project Expenses" as used in such sections
shall mean the increases in such expenses payable by Tenant pursuant to
this Section 1.3.2.
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(e) Proration of Additional Rent for 1996 Calendar Year. With
respect to that portion of the Term commencing on August 1, 1996 and
continuing through and including December 31, 1996, Tenant shall pay as
additional rent pursuant to this Section 1.3.2 an amount equal to the
product obtained by multiplying (i) the sum of (A) Tenant's Percentage
Share (Building) of the total dollar increase, if any, in the Operating
Expenses paid or incurred by Landlord during the 1996 calendar year over
the Operating Expenses paid or incurred by Landlord during the Base
Year, and (B) Tenant's Percentage Share (Project) of the total dollar
increase, if any, in the Project Expenses paid or incurred by Landlord
during the 1996 calendar year over the Project Expenses paid or incurred
by Landlord during the Base Year, by (ii) a fraction, the numerator of
which is 5 and the denominator of which is 12. Such payment shall be
made by Tenant to Landlord within thirty (30) days following Landlord's
delivery of a statement therefor.
(f) Proration for Final Lease Year. If the Lease expires or
terminates on a date other than on the last day of a calendar year, the
additional rent payable by Tenant under this Section 1.3.2 for such
partial final calendar year shall be equal to the product obtained by
multiplying (i) the additional rent that would have otherwise been
payable by Tenant under this Section 1.3.2 for such calendar year had it
consisted of a full twelve (12) month period, by (ii) a fraction, the
numerator of which is the number of days comprising such final partial
calendar year and the denominator of which is 360.
(b) Additional Space. Effective as of the Additional Space Rent Commencement
Date, the additional rent obligations of Tenant pursuant to Section 1.3.2 of
the First Amendment (as modified pursuant to Section 1.3.2(a) above) shall
apply to the Expansion Space and the Additional Space, collectively. For
purposes of such application, effective as of the Additional Space Rent
Commencement Date, (i) the term "Expansion Space" as used in such Section 1.3.2
shall mean the Expansion Space and the Additional Space, collectively, (ii)
Tenant's Percentage Share (Building) shall be increased from 50% to 66.38%, and
(iii) Tenant Percentage Share (Project) shall be increased from 11% to 14.37%.
The term "Lease" as used in Section 1.3.2 of the First Amendment (as modified
pursuant to Section 1.3.2(a) above) shall mean the Original Lease.
1.3.3 "Rent". The term "Rent" as used in the
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Lease shall include, without limitation, the monthly Base Rent and additional
rent payable by Tenant under this Section 1.3.
1.4 Condition of the Additional Space.
1.4.1 "As-Is" Condition. Landlord shall deliver the Additional
Space to Tenant, and Tenant shall accept the Additional Space from Landlord, in
its then-existing "as is" condition, and Landlord shall have no obligation to
make any alterations, improvements or additions of any kind to the Additional
Space or Building B or to remove any alterations or improvements that may
currently exist within the Additional Space. Landlord makes no representation
or warranty, express or implied, with respect to the Additional Space or
Building B. Tenant acknowledges that it has made such legal and factual
inquiries with respect to the condition of the Additional Space and
Building B and the suitability of the Additional Space for the conduct of
Tenant's business and has relied solely thereon in executing this Amendment.
1.4.2. Improvements by Tenant. Landlord and Tenant acknowledge
that Tenant desires to cause certain improvements to be made to that portion of
the Additional Space comprising Suite 103 ("Suite 103 Improvements"). Tenant
shall be permitted to make such Suite 103 Improvements, subject to the
following terms and conditions: (i) all costs and expenses relating to the
design and construction of the Suite 103 Improvements shall be borne solely by
Tenant without contribution of any kind by Landlord, except as provided in
Section 1.4.4 below; (ii) Tenant shall cause the Suite 103 Improvements to be
constructed in accordance with the plans and specifications approved by
Landlord and in such manner as will minimize interference with the occupancy
and quiet enjoyment of the Project by other tenants; (iii) the Suite 103
Improvements shall constitute an "alteration" for purposes of the Lease and
shall be subject to the terms and conditions of subsections (a) and (b) of
Section 10 of the Original Lease (other than the second sentence of such
subsection (a), the subject matter of which is addressed by the approval
condition set forth in subsection (iv) below), and (iv) not less than ten (10)
days prior to the date that Tenant desires to commence the Suite 103
Improvements, Tenant shall provide Landlord with the items and documentation
described in Section 5(b) of Exhibit "B" attached to the Original Lease (with
the term "Tenant's Work" as used therein meaning the Suite 103 Improvements and
the names and addresses described in subsection (ii) of such Section 5(b)
including the names and addresses of Tenant's architect and project manager),
which items and documentation shall be subject to Landlord's written approval
(which approval shall not be unreasonably withheld). The acquisition of all
applicable governmental approvals, permits and certificates relating to the
construction of the Suite 103 Improvements and the subsequent occupancy of
Suite 103 by Tenant
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shall be the sole responsibility of Tenant, at its sole cost and expense, and
Landlord makes no representation or warranty of any kind with respect thereto.
All Suite 103 Improvements shall immediately become Landlord's property, and
the parties agree that Tenant shall not be required to remove any Suite 103
Improvements.
1.4.3 SURRENDER. For purposes of applying Section 19 of the
Original Lease to the surrender of the Additional Space, the term "Commencement
Date" as used therein shall mean the date that the Suite 103 Improvements have
been completed by Tenant.
1.4.4 LANDLORD'S CONTRIBUTION. Provided that Tenant complies
with the terms and provisions of subsections (ii), (iii) and (iv) of the second
sentence of Section 1.4.2 above, Landlord shall reimburse Tenant for the actual
out-of-pocket costs incurred by Tenant in connection with the construction of
the Suite 103 Improvements on or before August 15, 1996, up to, but not
exceeding, a total reimbursement by Landlord to Tenant of Twelve Thousand Nine
Hundred Thirty Dollars ($12,930) ("Suite 103 Allowance"). The Suite 103
Allowance shall be paid by Landlord (to the extent Tenant is entitled to the
same pursuant to the preceding sentence) within thirty (30) days following the
date that Tenant provides to Landlord (a) invoices and other documentary
evidence of the costs and expenses incurred by Tenant in connection with Suite
103 Improvements, and (b) written certification by Tenant's architect
confirming Tenant's compliance with the terms and provisions of subsections
(ii), (iii) and (iv) of the second sentence of Section 1.4.2 above, which
documentation and certification must be received by Landlord no later than
August 15, 1996 for Tenant to be entitled to the reimbursement described in
this Section 1.4.4.
1.5 MAINTENANCE AND REPAIR. Tenant shall have the same maintenance and
repair obligations with respect to the Additional Space as are imposed on
Tenant under the Lease with respect to the Existing Premises, except that
Landlord, and not Tenant, shall be responsible for the matters described in
subsections (i) and (ii) of the second sentence of Section 11(a) of the
Original Lease as such matters relate to Building B (and all costs and expenses
incurred by Landlord in connection therewith shall be included as part of
"Operating Expenses" for purposes of Section 1.3.2 above).
1.6 UTILITIES AND SERVICES. Provided that there has been no Event of
Default, Landlord agrees to furnish or cause to be furnished, to the Additional
Space the utilities and services described in the standards for Utilities and
Services, set forth in EXHIBIT "F" attached to the Original Lease (other than
the janitorial services described in Section 1(e) thereof), subject to the
conditions and in accordance with the standards set forth therein. Landlord
shall not be liable for, and Tenant shall not be entitled to any abatement or
deduction of Rent by reason of, no
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eviction of Tenant shall result from and, further, Tenant shall not be relieved
from the performance of any covenant or agreement in this Lease because, of
Landlord's failure to furnish any of the foregoing when the failure is caused
by accident, breakage, or repairs, strikes, lockouts or other labor disturbance
or labor dispute of any character, governmental regulation, moratorium or other
governmental action, inability despite the exercise of reasonable diligence to
obtain electricity, water or fuel, or by any other cause beyond Landlord's
reasonable control. Except for those costs, expenses and charges that Tenant is
specifically responsible for the payment of pursuant to EXHIBIT "F" attached to
the Original Lease (e.g., excess costs), all costs, expenses and charges
incurred by Landlord in connection with furnishing the utilities and services
described in such EXHIBIT "F" shall be included as part of "Operating Expenses"
for purposes of Section 1.3.2 above.
1.7 JANITORIAL SERVICES. Tenant shall obtain, and shall bear the cost
of, all janitorial services required by Tenant in the Additional Space.
2. FULL FORCE AND EFFECT. Except as otherwise modified by this Amendment,
the Lease shall remain unmodified and in full force and effect. In the event of
any conflict or inconsistency between the terms and conditions of the Lease and
the terms and conditions of this Amendment, the terms and conditions of this
Amendment shall prevail.
3. CONDITION TO AMENDMENT. Tenant acknowledges that the Additional Space
is presently subject to that certain Lease dated November 1, 1994, as amended
("Chip Express Lease"), by and between Landlord, as "Landlord," and Chip
Express Corporation, as "Tenant" ("Chip Express"). The effectiveness of this
Amendment is expressly conditioned on the full execution of an amendment to the
Chip Express Lease on or before March 15, 1996, by and between Landlord and
Chip Express, in a form acceptable to landlord in Landlord's sole discretion,
pursuant to which Landlord and Chip Express agree to terminate the Chip Express
Lease as to Additional Space effective on or before the Additional Space
Commencement Date. The foregoing condition ("Condition to Amendment") shall be
for the sole benefit of Landlord and may be waived only by Landlord, and then
only by a written waiver executed by Landlord. Landlord makes no representation
or warranty to Tenant of any kind that the Condition to Amendment will be
satisfied (or waived by Landlord) on or before March 15, 1996. If for any
reason the Condition to Amendment is not satisfied or waived by Landlord on or
before March 15, 1996, this Amendment shall automatically become null and void
and the Lease shall continue in full force and effect in accordance with its
terms. Tenant acknowledges and agrees that Landlord shall have no obligation
whatsoever to either
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satisfy or waive the Condition to Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first written above.
LANDLORD:
WHC-SIX REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: JER WHC-SIX SERVICES,
INC., a Virginia corporation,
its Managing General Partner
By: __________________________
SCOTT R. FITZGERALD
Vice President
TENANT:
AUSPEX SYSTEMS, INC., a
Delaware Corporation
By: ____________________________
Name: __________________________
Title: _________________________
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[FLOOR PLAN OF SUITE 106]
EXHIBIT "A"
(Page 1 of 2)
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[FLOOR PLAN OF SUITE 103]
EXHIBIT "A"
(Page 2 of 2)
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[INTERACTIVE LOGO]
SPARC SOFTWARE AGREEMENT
- -----------------------------------------------------------------------------
CONTENTS:
1. Definitions
2. Source Code Grant of Rights and Distribution Restrictions
3. Object Code Grant of Rights and Distribution Restrictions
4. Order and Delivery
5. Term and Termination
6. Payments
7. Records and Reports
8. Proprietary Information
9. Warranties/Limitation of Liability and Remedies
10. Maintenance and Support
11. Patent, Trade Secret and Copyright Indemnification
12. Force Majeure and Compliance With Laws
13. Export of Software Products
14. Miscellaneous
- -----------------------------------------------------------------------------
SPARC Software Agreement - 1 - 11/08/91
<PAGE> 2
INTERACTIVE Systems Corporation
SPARC (tm) SOFTWARE AGREEMENT
This SPARC Software Agreement, effective on the day both parties hereto have
executed it ("Effective Date"), is between
Auspex Systems inc.,
(hereinafter "Licensee") having offices located at
2952 Bunker Hill Lane
Santa Clara, CA 95054
and INTERACTIVE Systems Corporation, a Delaware Corporation (hereinafter
"INTERACTIVE"), with its principal place of business at 2401 Colorado Avenue,
Third Floor, Santa Monica, CA 90404.
Recitals
A. INTERACTIVE has developed, is the owner of and/or has the right to
license to Licensee certain computer software programs and materials
including such programs and materials furnished to INTERACTIVE by Sun
Microsystems, Inc. ("Sun").
B. Licensee desires to obtain a license to use, modify and distribute said
software in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration the receipt and adequacy
of which is hereby acknowledged, the parties do agree as follows:
1. DEFINITIONS
1. "Designated Equipment" means an equipment configuration comprising a
Licensee computer system made up of one or more closely coupled
SPARC Central Processing Units, or computer systems manufactured by
Sun, as identified in Exhibit A. Licensee shall have the right to
amend Exhibit A to cover new Licensee Computer Systems, as they
are introduced. Additional Internal Copies fees set forth in Section
7.2 of Exhibit A, provided that the required Object Code Sublicense
Fees set forth in Section 7.3 of Exhibit A are also paid for Object
Code Sublicenses. Licensee shall have the right to substitute a
different "Designated Equipment" at the Designated Site, provided
that: (i) prior written notification is given to INTERACTIVE, (ii)
the Software Products and any backup copies are removed from the
original Designated Equipment, and (iii) the new Designated
Equipment has been identified on Licensee's AT&T source code license
as equipment on which source code may be placed. Such substitution
of Designated Equipment shall be at no charge to Licensee.
2. "Designated Site" means the location of the Designated Equipment, as
identified in Exhibit A or any addenda thereto.
3. "Documentation" means users' manuals, programmers' guides and/or
system guides formatted with standard -ms macros and provided by
INTERACTIVE for use with the Software Products. It shall be the
responsibility of Licensee to reformat and reproduce the
Documentation for distribution to its customers with the Software
Products in object code form.
4. "Licensee('s) Computer System(s)" means any computer system
manufactured and marketed by Licensee incorporating the SPARC
Central Processing Unit.
5. "Proprietary Information" means that information which INTERACTIVE,
Sun, and their suppliers desire to protect against unrestricted
disclosure or competitive use and which is designated as such in
writing by INTERACTIVE or is disclosed orally and provided to
Licensee pursuant to this Agreement. All Proprietary Information
shall be properly marked or noted as such prior to disclosure.
Notwithstanding the foregoing, Licensee agrees that the source code
form of the Software Product(s) is confidential and any information
about the source code form of the Software Product(s) disclosed
orally to Licensee is deemed Proprietary Information without further
notice. Proprietary Information may include property of third
parties who have granted licenses to INTERACTIVE. (See Article 8 for
further details.)
6. "Software Product(s)" means the computer programs identified in
Exhibit A, including the following:
a. The SunOS Operating System Software, Release 4.1.1/SPARC
("SunOS"), in source code and object code form, information
used or interpreted by such computer program and Documentation
relating to the use of such computer program. The SunOS
Operating System Software is derived from UNIX* System V
software licensed from AT&T Information Systems, Inc. ("AT&T")
and modified by Sun and is based, in part, on the Fourth
Berkeley Software Distribution licensed from The Regents of
the University of California. (*UNIX is a registered trademark
of AT&T.)
b. The C Compiler, Release 4.1.1/SPARC, in source code and object
code form, information used or interpreted by such computer
program and Documentation relating to the use of
SPARC Software Agreement - 2 - 11/08/91
<PAGE> 3
such computer program.
c. ONC/NFS Software, Release 3.9, in source code and object code form,
information used or interpreted by such computer program and
Documentation relating to the use of such computer program.
d. The FORTRAN Compiler, Release 1.2/SPARC, in source code and object
code form, information used or interpreted by such computer program
and Documentation relating to the use of such computer program.
e. SunView Software, Release 1.75. In source code and object code form,
information used or interpreted by such computer program and
Documentation relating to the use of such computer program.
The term Software Product(s) shall also include any Updates thereto. The
contents of the Software Products are more specifically set forth in
Exhibit B.
7. "SPARC" is a trademark of Sun used to designate Sun's proprietary
scalable processor architecture technology.
8. "SPARC Central Processing Unit" means a central processing unit
incorporating one or more SPARC semiconductor devices manufactured under
license from Sun.
9. "Update" means a derivative work, extension, enhancement, revision or
modification to any of the features of a Software Product made by Sun or
INTERACTIVE which Sun or INTERACTIVE, in their sole discretion, determine
to be an improvement of the Software Products's performance or
functionality.
10. "U.S. Dollars", "US$" or "$" shall mean Dollars of the United States of
America.
2. SOURCE CODE GRANT OF RIGHTS AND DISTRIBUTION RESTRICTIONS
1. Rights to Use, Modify and Compile, Conditional on payment by Licensee to
INTERACTIVE of a Source License Fee, INTERACTIVE grants to Licensee a
personal, nontransferable and nonexclusive license to use the Software
Products in source code form on the Designated Equipment at the
Designated Site. Such license includes the right to modify the Software
Products and to prepare derivative works based on the Software Products.
Licensee may also compile the Software Products from source code to
object code form and use it on the Designated Equipment. Licensee agrees
that INTERACTIVE, Sun, and their suppliers are the sole owners of all
right, title and interest in the Software Products, and nothing in this
Agreement shall be construed to give Licensee any ownership in the
Software Products. Licensee acknowledges and agrees that the Software
Products in source code form are Proprietary Information and are to be
treated as such in accordance with Article 8 of this Agreement.
2. Transfer to Backup Equipment. In the event, and only for so long as,
Licensee's Designated Equipment is inoperative, Licensee may transfer to
and use the Software Products on a backup Licensee Computer System which
shall, for this purpose only, be made up of one or more SPARC Central
Processing Units, or computer systems manufactured by Sun owned or leased
by Licensee at the Designated Site or another site, provided, however,
that if Licensee transfers the Software Products to such a backup system
at another site, Licensee shall inform INTERACTIVE of such transfer in
writing, describing such site and such other system.
3. Copying of Source Code for Internal Use. INTERACTIVE grants Licensee the
right to make additional copies of the Software Products in source code
form for Licensee's own internal use on Licensee's Computer Systems, as
described in Section 2.2 above, provided (a) Licensee remits, to
INTERACTIVE within fourteen days of Installation, the license fees
specified in Exhibit A for such additional copies; (b) Licensee provides
notice to INTERACTIVE's Legal Department of the serial number
("Additional Designated Equipment") and location ("Additional Designated
Site"), if any, of any such system holding the additional copy of the
Software Products in source code form; and (c) the equipment on which
such copies are used is licensed to use AT&T source code.
4. Copying of Source Code for Use by Third Parties. Conditional on payment
by Licensee to INTERACTIVE of a license fee for Distribution of Source
Code to Third Parties for each copy, Licensee may make copies of the
Software Products in source code form, after Licensee has modified the
Software Products for use solely on Licensee Computer Systems made up of
one or more SPARC Central Processing Units and may sublicense to such
third parties as are Licensee's customers (without giving such third
parties the right to further sublicense) such copies throughout the world
(subject to U.S. Government export restrictions and AT&T licensing
requirements), provided that (a) INTERACTIVE consents to each delivery
prior to shipment to Licensee's customer, which consent shall not be
unreasonably withheld, (b) Licensee's customer agrees to execute
INTERACTIVE's then-prevailing SPARC Software Agreement, and (c) at the
time of execution of the SPARC Software Agreement referenced in (b),
Licensee or its customer pays to INTERACTIVE the license fees set forth
in Exhibit A hereof. Notwithstanding the foregoing, Licensee shall have
no right to make copies of SunView 1.75 Software in source code form,
except as provided in Section 2.3 hereof, nor any right to provide copies
thereof to anyone.
5. Condition Precedent for Grant of License. Licensee shall deliver to
INTERACTIVE a copy of a fully executed AT&T source code license (attached
hereto as Exhibit D) which corresponds to the
SPARC Software Agreement - 3 - 11/08/91
<PAGE> 4
common source code licensed hereunder as a condition precedent to
INTERACTIVE's furnishing to Licensee the Software Products in source code
form and granting Licensee a license to use the Software Products in
source code form. Such AT&T source code license shall identify the
equipment on which Licensee intends to use all copies of the Software
Products in source code form. Licensee shall also deliver to INTERACTIVE
a fully executed AT&T commercial sublicensing agreement (attached hereto
as Exhibit E) which corresponds to the sublicensing rights licensed
hereunder as a condition precedent to INTERACTIVE's granting Licensee the
right to make and distribute copies of the Software Products. Licensee
shall pay all AT&T fees associated with such source code license and
commercial sublicensing agreement. Licensee represents and warrants that
such Licensee-AT&T Agreements are in full force and effect. Licensee
agrees to give INTERACTIVE prompt written notice of any notice served by
AT&T on Licensee that Licensee is in default under the Licensee-AT&T
Agreements or that the Licensee-AT&T Agreements have been terminated for
any reason.
6. Remote Access. Licensee agrees that if the Software Products in source
code form are installed on a Licensee Computer System (as permitted in
Section 2.3 hereof) to which remote access is possible, such Software
Products will be installed only on a limited access network where either
(a) access to the Software Products is limited to those of Licensee's
employees with a need to have access or (b) the Software Products are
protected through an equally protective encryption process.
7. Cross License. Licensee shall retain all right, title and interest in any
modifications and derivative works based on the Software Products
developed by or on behalf of Licensee, provided, however, Licensee
obtains no rights or interest, other than the licenses granted hereunder,
in the Software Products.
3. OBJECT CODE GRANT OF RIGHTS AND DISTRIBUTION RESTRICTIONS
1. Copying and Distribution of Object Code. Conditional on payment by
Licensee to INTERACTIVE of Object Code Sublicense Fees as stated in
Exhibit A, INTERACTIVE grants to Licensee a personal, nontransferable and
nonexclusive right to make copies of the derivative versions of the
Software Products as described in Section 2.1 in object code form and
to distribute internally and to furnish, either directly or through
Licensee's normal distribution channels, including OEM's, such copies of
the derivative versions of the Software Products described in Section 2.1
to customers anywhere in the world (subject to U.S. Government export
restrictions and the requirements of Article 13) for use solely on
Licensee Computer Systems made up of one or more SPARC Central Processing
Units. Licensee agrees to remit to INTERACTIVE the sublicense fees
specified in Exhibit A for each copy of the derivative versions of the
Software Products described in Section 2.1 in object code form used
internally or distributed by Licensee. Notwithstanding the provisions of
this Section 3.1, Licensee may use, and permit distributors to use,
copies of the derivative versions of the Software Products described in
Section 2.1 without fee solely for testing Licensee Computer Systems that
are to be delivered to customers.
2. Use by Licensee's Customer. Each Licensee customer shall execute an
object code license that (i) incorporates, in substance, the provisions
of the INTERACTIVE Object Code License, attached hereto as Exhibit C;
(ii) that substitutes Licensee instead of INTERACTIVE as the Licensor;
and (iii) contains any additions or modifications necessary to fulfill
Licensee's obligations under this Agreement; provided, however, that if
Sun permits Licensee to provide an object code version of the Software
Products to its customers with a shrink-wrap license, the requirement
that the customer execute an object code license shall be replaced with
the following: the license shall be fully visible to the end-user before
the package is opened, that the end-user accepts by opening the package
and that complies with applicable law relating to agreements of such
type. Subject to the terms of this Agreement Licensee will be responsible
for the translation of the INTERACTIVE Object Code License into the
language(s) used in the jurisdictions into which Licensee distributes the
Software Products in compliance with the terms of this Agreement.
3. Distribution by Licensee's Distributors. Should Licensee wish to
distribute the Software Products in object code form through its normal
distribution channels for use solely on Licensee Computer Systems made up
of one or more SPARC Central Processing Units, Licensee shall have
entered into a written agreement with each distributor or shall require
each distributor to enter into a written agreement with Licensee. At a
minimum such written agreement shall incorporate, in substance, the
relevant provisions of this Agreement regarding object code distribution
restrictions (Article 3), Proprietary Information (Article 8) and export
controls (Article 13). Licensee shall fully indemnify and hold
INTERACTIVE and/or its suppliers harmless from any losses, damages,
costs, or other liabilities incurred by such parties arising from
Licensee's appointment of such distributors.
4. Enforcement of Sublicenses. Licensee shall in good faith use reasonable
efforts to enforce the agreements described herein between itself and its
distributors and customers. If Licensee, in INTERACTIVE's sole
discretion, fails to enforce adequately any such agreement required by
this Article 3, INTERACTIVE may, in addition to any other remedies that
it may have, either terminate the agreement with such distributor or
customer or undertake enforcement directly on behalf of INTERACTIVE and
Licensee against the breaching customer or distributor. Licensee will pay
all costs incurred by INTERACTIVE, including but not limited to
attorneys' fees, in enforcing agreements with Licensee's distributors or
customers where Licensee has failed to do so.
SPARC Software Agreement - 4 - 11/08/91
<PAGE> 5
5. Legends. In addition to any copyright and other proprietary notices
required under Article 8 of this Agreement, Licensee or Licensee's
distributors shall include a prominently displayed legend crediting Sun
and, in the case of derivative software, INTERACTIVE (if INTERACTIVE so
requests) with the ownership, creation and development of the Software
Products on each copy of the Software Products distributed by Licensee
or Licensee's distributors. Such legend must be previously approved in
writing by INTERACTIVE or consistent with prior approved legends. All of
Licensee's or Licensee's distributors' promotional and marketing
materials which mention the Software Products shall include a similar
legend.
6. Limitation of Documentation Distribution. Licensee may distribute no
more than two (2) copies of the Documentation for every copy of the
Software Products in object code form distributed hereunder. Should
Licensee wish to distribute copies in excess of this limitation,
Licensee agrees to account to AT&T directly and to pay all fees due to
AT&T for such additional copies of Documentation.
4. ORDER AND DELIVERY
1. Order, Licensee may submit a written order for the Software Products to
INTERACTIVE for purposes of convenience only. INTERACTIVE rejects any
and all printed terms and conditions contained on any purchase order or
other ordering document submitted by Licensee now or hereafter which are
part of a general form or were not specifically negotiated with
INTERACTIVE for any transaction concerning the Software Products. The
parties' performance under this Agreement shall be governed exclusively
by the terms and conditions contained in this Agreement and any
amendment or extension of it signed by an authorized representative of
both parties.
2. Delivery, Installation and Risk of Loss. INTERACTIVE shall deliver the
Software Products to a common carrier, F.O.B. INTERACTIVE's facilities.
The Software Products will be deemed to be delivered, and Licensee
assumes all risk of loss or damage therefor, upon delivery of the
Software Products by INTERACTIVE to a common carrier. Licensee shall be
solely responsible for installation of the Software Products on the
Designated Equipment.
5. TERM AND TERMINATION
1. Term. Unless terminated earlier as provided hereunder, this Agreement
shall be perpetual with respect to the versions of the Software Products
current as of the Effective Date of this Agreement and any future
versions of the Software Products which the parties agree to incorporate
as part of this Agreement. Licensee's obligation to pay license fees or
royalties accrued prior to the expiration or termination of this
Agreement shall not be terminated by the expiration or termination of
this Agreement. The parties agree that the terms and conditions of this
Agreement shall be treated as confidential and shall not be disclosed
without the prior written consent of the other party, provided, however,
that each party may disclose the terms and conditions of the Agreement;
1. as required by any court or other governmental body;
2. as otherwise required by law;
3. to legal counsel of the parties;
4. in confidence, to accountants, banks, potential or actual investors
and other financing sources and their advisors;
5. in confidence, in connection with the enforcement of this Agreement
or rights under this Agreement; or
6. in confidence, in connection with a merger or acquisition or
proposed merger or acquisition, or the like.
2. Termination.
1. This Agreement may terminate if any of the following Events of
Default occur: (i) if either party fails to perform any material
obligation or materially fails to perform any obligation under this
Agreement, including repeated failure to promptly pay any amount(s)
due under the provisions of this Agreement; (ii) if Licensee
attempts to make an assignment in violation of Section 14.8
("Assignment Prohibited"); (iii) if either party becomes insolvent
or admits in writing its inability to pay its debts as they mature,
or makes an assignment for the benefit of creditors; (iv) if a
petition under any foreign, state, or United States bankruptcy act,
receivership statute, or the like, as they now exist, or as they may
be amended, is filed by either party; or (v) if such a petition is
filed by any third party or an application for a receiver of a party
hereto is made by anyone and such petition or application is not
resolved favorably to said party within sixty (60)days.
2. Upon an Event of Default by one party to this Agreement, the
non-defaulting party shall have the right at its option to terminate
this Agreement. Termination of this Agreement shall be effective (i)
unless otherwise specified herein, sixty (60) days after written
notice from the non-defaulting party pursuant to Section 14.2 hereof
specifying the default ("Default Notice") unless all default(s) are
cured within such sixty-day period; (ii) immediately upon such
notice if defaulting party's default is by its nature not curable
within sixty
SPARC Software Agreement -5- 11/08/91
<PAGE> 6
(60) days of Default Notice; (iii) immediately upon Default Notice if
Licensee or its distributors violate any provision of the following
sections if such violations are by their nature not capable of being
cured within sixty (60) days of the Default Notice: Articles 2 ("Source
code Grant of Rights and Distribution Restrictions"), 3 ("Object Code
Grant of Rights and Distribution Restrictions") and/or Section 14.8
("Assignment Prohibited"). However, in the event that INTERACTIVE's
suppliers provide a cure period for such a default, INTERACTIVE shall
pass through the same cure period to Licensee if permitted by the
supplier.
3. [Reserved]
4. Licensee understands that pursuant to agreement, INTERACTIVE's suppliers
may require INTERACTIVE to terminate this Agreement if Licensee fails to
fulfill any of its obligations under this Agreement pertaining to any
portion of the Software Products with respect to which INTERACTIVE's
suppliers have granted the right to further sublicense within sixty (60)
days of receipt from INTERACTIVE of a written notice specifying such
failure.
5. [Reserved]
6. Upon any termination, INTERACTIVE shall not have any obligation to
refund any monies paid to it pursuant to this Agreement and
INTERACTIVE's right to payment from Licensee on account of all licenses
and sublicenses granted when this Agreement was in effect shall not be
impaired.
7. [Reserved]
3. The following terms shall apply to termination of this Agreement for any
reason:
(i) No termination of this Agreement shall alter the ownership
rights of the parties described in Article 2 ("Source Code Grant of
Rights and Distribution Restrictions").
(ii) It is understood that any other obligations and rights which by
their nature extend beyond termination of this Agreement shall
survive according to their terms.
4. Continued Use of Software Products. In the event of termination of this
Agreement by INTERACTIVE for Licensee's material breach, the license and
rights granted hereunder to the Software Products shall immediately cease
and Licensee shall have no further rights to the Software Products in either
object code or source code form. Upon such termination, Licensee shall
within thirty (30) days immediately return or destroy all copies of the
Software Products in any form in its possession and certify to INTERACTIVE
that it has done so. Upon termination of this Agreement for other than
Licensee's material breach thereof, the license and rights granted hereunder
shall terminate and use of the Software Products in object code form and/or
source code form by Licensee shall be discontinued, except that Licensee may
continue to use the Software Products in source code form and object code
form but only for so long as Licensee remains obligated by written contract,
entered into prior to the date of termination to provide maintenance
services to its customers.
5. Discontinuance of Sublicenses. Upon termination of this Agreement, Licensee
shall discontinue issuing sublicenses for the Software Products. Sublicenses
for the Software Products in object code form already issued shall continue
in accordance with their terms and conditions.
1. Agreements with Licensee customers properly granted and executed
pursuant to this Agreement and prior to the expiration or termination of
this Agreement shall not be diminished or abridged by termination or
expiration of this Agreement. Agreements between Licensee and its
distributors may, at INTERACTIVE's sole option, continue according to
their terms following termination or expiration of this Agreement.
Licensee's distributors and customers shall thereafter report and pay
fees directly to INTERACTIVE or to its designee, and INTERACTIVE shall
be authorized to enforce any customer agreement and agreements between
Licensee and distributors in accordance with their terms. Should
INTERACTIVE's agreements with its suppliers terminate or expire,
Licensee shall thereafter report and pay fees directly to INTERACTIVE's
suppliers.
6. No Liability For Termination. Licensee agrees that it shall have no rights
under law or otherwise to receive any payment from INTERACTIVE for actual,
consequential, indirect, special or incidental damages, costs or expenses or
indemnification of any nature due to any expiration or termination of this
Agreement in compliance with the provisions of this Article 5, specifically
including without limitation commercial severance pay whether by way of loss
of future profits, expenditure for promotion of the Software Products or
other investments, labor claims, payment for goodwill generated or other
commitments made in connection with the business contemplated by this
Agreement or other similar matters. Licensee EXPRESSLY WAIVES AND RENOUNCES
ANY CLAIM TO COMPENSATION OR INDEMNITIES FOR ANY TERMINATION OF BUSINESS
RELATIONSHIP BY A FOREIGN BUSINESS ENTITY WHICH MAY EXIST UNDER THE LAWS OF
THE COUNTRY OF INCORPORATION OF Licensee.
SPARC Software Agreement 11/08/91
-6-
<PAGE> 7
6. PAYMENTS
1. Payment Terms. In consideration of the rights and licenses granted
herein by INTERACTIVE, Licensee shall pay to INTERACTIVE the license
fees and sublicense fees specified in Exhibit A. Terms for the
license fee for the first copy of Software Products are as stated in
Exhibit A. The other license fees and sublicense fees are payable in
accordance with Article 7 of this Agreement. All fees and any other
amounts paid hereunder shall be paid in U.S. Dollars.
2. Updates. The license fees specified in Exhibit A is for the current
release of the Software Products. Updates provided by INTERACTIVE
must be acquired separately at prices to be set by INTERACTIVE from
time to time under the terms of a separate support agreement.
3. Taxes. All payments required by this Agreement are exclusive of
taxes in the nature of sales, use, rental receipt, personal property
or other taxes which may be levied or assessed in connection with
this Agreement or Licensee's sublicensing of Software Products, and
Licensee agrees to bear and be responsible for the payment of all
such taxes. In the event that Licensee fails to remit such taxes to
INTERACTIVE at the time of any transaction, Licensee agrees to pay,
in addition to such taxes, any interest or penalties levied at a
later time by any taxing agency on the ground that such was a
taxable transaction. Licensee may contest such tax levy provided
that it posts a bond sufficient to hold INTERACTIVE harmless in the
event the results are unfavorable to Licensee. INTERACTIVE will pay
taxes solely based on INTERACTIVE's net income. Licensee will deduct
withholding taxes from payments to INTERACTIVE only if required by
local law, in which case Licensee must previously notify INTERACTIVE
of this requirement and promptly furnish INTERACTIVE with an
official receipt showing payment of the taxes to the appropriate tax
agency.
4. In the event that any fees payable under this Agreement are not paid
by Licensee when due, Licensee shall also pay a finance charge at
the rate of one and one half percent (1-1/2%) per month on any
unpaid balance or the maximum amount permitted under the laws of the
relevant jurisdiction whichever is less.
5. In the event that Licensee develops and distributes any derivative
software containing any portion of the Software Products, Licensee
shall pay INTERACTIVE the full per-copy license fees as stated in
Exhibit A for the Software Product(s) from which the derivative
software was developed for each copy of the derivative software
distributed.
6. In the event that Licensee shall be unable to make any payments to
INTERACTIVE as required under this Agreement as a result of
restrictions imposed on such payments by the laws of the relevant
jurisdiction, INTERACTIVE may, at its sole and exclusive option,
either terminate this Agreement immediately pursuant to Section
5.2.2 or agree to accept payment in local currency. In the event of
the latter, Licensee shall follow INTERACTIVE's instructions with
respect to such local currency payments.
7. RECORDS AND REPORTS
1. Records. Licensee shall keep full, true and accurate accounts,
either to be maintained or made available at INTERACTIVE's request
in a location in the United States acceptable to both parties, in
English, and in accordance with generally accepted United States
accounting practice, showing the amount of license fees and
sublicense fees payable to INTERACTIVE pursuant to this Agreement.
These accounts shall be available in human-readable form and
include:
a. The name and address of the owner or lessee of each Licensee
Computer System containing the Software Products in source code
form;
b. The location and serial number of each Licensee Computer System
containing the Software Products in source code form;
c. For each copy of the Software Products in source code form
distributed externally, a copy of fully executed source code
license; and
d. For each copy of the Software Products in object code form
distributed externally, a copy of a fully executed object code
license, unless such an agreement is not required by Sun.
e. a copy of each fully executed distributor agreement for the
Software Products.
2. Payment of License and Sublicense Fees. Within thirty (30) days of
the end of each calendar quarter, commencing with the quarterly
period during which the Software Products were delivered, Licensee
shall furnish INTERACTIVE with a report, along with any fees due
thereunder, specifying the number of copies of the Software Products
that have been put into use by Licensee or otherwise sublicensed or
put into use since the Effective Date of this Agreement or the last
such statement as the case may be.
3. Auditing. INTERACTIVE, its authorized representatives, or a
nationally recognized accounting firm may audit, at their own
expense, the books of Licensee in which is recorded information
relating to Articles 6 ("Payments") and 7 ("Records and Reports")
and information relating to the quantities of Software Products
shipped, distributed, transferred, or otherwise disposed of by
Licensee, and Licensee's records supporting its entries in those
books, provided that such audits
SPARC Software Agreement -7- 11/08/91
<PAGE> 8
are conducted no more often than annually on at least ten (10)
working days advance notice, during normal business hours and at the
place where such information is normally kept. If any such audit
discloses an underpayment of fees, Licensee shall immediately pay
INTERACTIVE the additional fees due, together with a finance charge
of one and one half percent (1-1/2%) per month for each month that
elapsed between the date upon which such fees became due under this
Agreement and the date that such fees were paid or the maximum
amount permitted under the laws of the relevant jurisdiction
whichever is less. In the event that any underpayment of fees is two
percent (2%) or more of the fees due since the later of the last
audit by INTERACTIVE or the date of this Agreement, as the case may
be, Licensee shall also reimburse INTERACTIVE for all expenses
reasonably incurred in the audit.
8. PROPRIETARY INFORMATION
1. Restriction. Licensee agrees that the Software Products constitute
valuable assets and are to be considered Proprietary Information and
that access to the Software Products in source code form must be
restricted to Licensee's employees with a need to have access.
Licensee acknowledges that by virtue of this Agreement, Licensee
acquires only the right to use the Proprietary Information under the
terms and conditions of this Agreement for so long as it is in
effect and does not acquire any rights of ownership or title in the
Proprietary Information. Licensee is obligated to use the same
degree of care in protecting the Proprietary Information as Licensee
exercises in protecting Licensee's own most valuable proprietary
information but in no event less than a reasonable degree of care.
2. Exceptions. Notwithstanding any provisions herein concerning
non-disclosure and non-use of the Proprietary Information, Licensee
shall have no liability for disclosure or use of any information
which:
a. is now or hereafter becomes, through no act or failure to act
on the part of Licensee, generally known in the electronics
industry;
b. is known to Licensee at the time of receiving such information
without an obligation of confidentiality;
c. is hereafter furnished to Licensee by a third party as a matter
of right without restriction of disclosure;
d. is independently developed by Licensee provided that the person
or persons developing such information have not had access to
the same information as that received from INTERACTIVE; or
e. is disclosed pursuant to judicial order or governmental
regulation, provided that Licensee gives reasonable prior notice
thereof to INTERACTIVE.
3. Unauthorized Copying Prohibited. Except as provided in this
Agreement, Licensee shall not use, make, have made, distribute or
disclose any copies of the Proprietary Information, in whole or in
part, without the prior written authorization of INTERACTIVE,
provided, however, that Licensee shall be able to maintain a backup
or archival copy of the Software Products during the term of this
Agreement without any additional payments hereunder.
4. Advising Employees and Suspected Violations. Licensee shall inform
its employees having access to the Proprietary Information in
writing of Licensee's limitations, duties and obligations regarding
non-disclosure and copying of the Software Products and shall obtain
or have obtained their agreement, in a form agreeable to
INTERACTIVE, to comply with those limitations, duties and
obligations. Licensee shall maintain records of its employees having
access to the Software Products in source code form. Upon reasonable
notice to Licensee, INTERACTIVE may audit such records. Licensee
agrees to provide notice to INTERACTIVE immediately after learning
of or having reason to suspect a breach of any of the proprietary
restrictions set forth in this Article 8, and to pursue, at
Licensee's expense, the recovery of the Proprietary Information
taken by Licensee's employees, former employees, distributors or
customers.
5. Returning Proprietary Information. Except as provided in Article 5
("Term and Termination"), within thirty (30) days after termination
of this Agreement, all materials containing Proprietary Information
are to be returned to INTERACTIVE through a common carrier selected
by INTERACTIVE, F.O.B. Designated Site, or destroyed on
INTERACTIVE's written instructions.
6. Proprietary and Copyright Notices - Source Code. Licensee agrees to
reproduce and apply all copyright notices and any other proprietary
rights notices (set forth on or in the Software Products as
delivered by INTERACTIVE) to all copies of Software Products in
source code form, in whole or in part.
7. Copyright - Object Code. Each copy of Software Products in object
code form, or any portion thereof, shall include an appropriate
copyright notice. Such copyright notice may be the copyright notice
or notices appearing on or in the Software Products on which such
object code copy is based, or if copyrightable changes are made in
developing such object code copy, an appropriate substitute
copyright notice approved by INTERACTIVE.
SPARC Software Agreement - 8 - 11/08/91
<PAGE> 9
8. Third Party Contributions. Any notice acknowledging a contribution
of a third party appearing in the Software Products shall be
included in corresponding portions of the Software Products made by
Licensee or its distributors.
9. Trademark. No license, right or interest in any INTERACTIVE, Sun, or
AT&T trademark, trade name or service mark is granted hereunder.
Neither Licensee nor any of Licensee's customers or distributors may
use any such trademarks, trade names or service marks without prior
written consent of the owner of such marks or names.
10. Survival. Notwithstanding any termination of this Agreement pursuant
to Article 5, the obligations set forth in this Article 8 and 19
shall survive this Agreement.
9. WARRANTIES/LIMITATION OF LIABILITY AND REMEDIES
1. Warranties. INTERACTIVE hereby warrants that it has the right to
grant a license to Licensee to use, copy and create derivatives of
the Software Products.
2. Disclaimer. INTERACTIVE does not warrant that the Software Products
are error-free. The Software Products are provided AS-IS.
INTERACTIVE makes only the warranties specified in this Article 9
and under this Agreement makes no warranty directly to Licensee's
distributors or customers. By way of example, but not of limitation,
INTERACTIVE makes no other representations or warranties express or
implied as to any matter whatsoever including but not limited to any
warranties of merchantability or fitness for any particular purpose.
INTERACTIVE's sole liability with respect to any claim by Licensee
or a third party or account of, or arising from, the use of Software
Products is stated in Article 9 ("Warranties/Limitation of Liability
and Remedies"). In no event shall the liability of INTERACTIVE under
this Agreement exceed the amount paid by Licensee to INTERACTIVE
with respect to the Software Products in which the material
deviation was found. If for any reason a court determines that
INTERACTIVE is liable to a distributor or customer for an error in
the Software Products, the remedy of the distributor or customer
against INTERACTIVE shall be the lesser of a refund of the fee paid
by the party claiming the defect or such party's actual damages.
3. Limitation of Liability.
1. INTERACTIVE and its suppliers' maximum cumulative liability to
Licensee under any provision of this Agreement or any
transaction contemplated by this Agreement shall be limited to
the sublicense fees actually paid by Licensee to INTERACTIVE for
the particular Software Product(s) which caused the damages. The
existence of claims or suits against more than one Software
Product(s) licensed under this Agreement will not enlarge or
extend the limit. Licensee releases INTERACTIVE from all
obligations, liabilities, claims or demands in excess of the
limitation. The parties to this Agreement acknowledge that other
parts of this Agreement rely upon the inclusion of this Section
9.3.1. In no event will INTERACTIVE or its suppliers be liable
for any lost revenues or profits or other special, indirect or
consequential damages, even if INTERACTIVE has been advised of
the possibility of such damages.
2. In any action to enforce the provisions of this Agreement,
including actions to declare the rights of the parties, the
prevailing party shall be entitled to reasonable attorney's
fees.
3. Licensee retains sole responsibility for all software,
firm-ware, information, or data contained in or integrated with
the Software Products or stored on any Licensee Computer System
upon which the Software Products is resident, and INTERACTIVE
and its suppliers shall not be liable for any damages to such
property caused by the use of the Software Products.
4. Licensee agrees to indemnify and holds INTERACTIVE harmless from
and against any liabilities, damages, losses or expenses
(including reasonable attorneys' fees) which may be incurred by
INTERACTIVE on account of Licensee's breach of any provisions of
this Agreement, of the breach by Licensee's distributors of the
written agreement required by this Agreement, or a breach by any
End-User of any provision of any Object Code License, provided
that Licensee shall not be liable for incidental, consequential
or similar damages or lost profits arising due to a customer or
distributor breach.
5. EXCEPT FOR ANY DAMAGES ARISING FROM DISCLOSURE BY LICENSEE OF
ANY SOURCE PROVIDED TO LICENSEE HEREUNDER, AND EXCEPT AS
EXPRESSLY STATED HEREIN, INTERACTIVE, ITS SUPPLIERS, AND
LICENSEE SHALL NOT BE LIABLE FOR INCIDENTAL, COLLATERAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION
LOSS OF USE OR PROFITS, LOSS OF GOOD WILL, WORK STOPPAGE, DATA
LOSS, COMPUTER FAILURE OR MALFUNCTION, CLAIMS BY ANY PARTY OTHER
THAN LICENSEE, OR ANY AND ALL OTHER SIMILAR DAMAGES OR LOSS IN
CONNECTION WITH ANY CLAIM ARISING FROM THE RIGHTS TO THE
SOFTWARE PRODUCTS GRANTED IN THIS AGREEMENT EVEN IF THE PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. INTERACTIVE
SHALL HAVE NO LIABILITY OR RESPONSIBILITY FOR SOFTWARE
PRODUCT(S) ALTERED, MODIFIED, OR CONVERTED BY LICENSEE OR A
THIRD PARTY, DAMAGES RESULTING FROM ACCIDENT, ABUSE, OR
MISAPPLICATION OR FOR PROBLEMS DUE TO THE MALFUNCTION OF
HARDWARE OR SOFTWARE NOR SUPPLIED BY INTERACTIVE.
SPARC Software Agreement - 9 - 11/08/91
<PAGE> 10
4. INTERACTIVE's suppliers make no representations or warranties,
expressly or impliedly.
5. The parties acknowledge that other parts of this Agreement rely upon
the inclusion of Article 9 ("Warranties/Limitation of Liability and
Remedies").
10. MAINTENANCE AND SUPPORT
This Agreement covers only the release of the Software Products available
as of the date of delivery of the Software Products by INTERACTIVE.
Maintenance, in the form of Updates, revisions and new releases to the
Software Products and support in the use of the Software Products are not
provided under this Agreement. Licensee may purchase maintenance and
support for the Software Products under a separate support agreement,
except INTERACTIVE does not provide maintenance or support for SunView 1.75
Software. The distribution of Updates provided under a separate support
agreement as part of the Software Products in object code form, or as an
upgrade to previously distributed Software Products in object code form,
may trigger a per copy upgrade sublicense fee. Any upgrade sublicense fee
shall be set forth in INTERACTIVE's invoice upon the annual renewal of said
separate support agreement.
11. PATENT, TRADE SECRET AND COPYRIGHT INDEMNIFICATION
1. INTERACTIVE will defend, at its expense, any action brought against
Licensee to the extent that it is based on a claim that the use of the
Software Products within the scope of this Agreement infringes any
United States patent, trade secret or copyright. INTERACTIVE will
indemnify Licensee from any costs, damages and fees incurred by
Licensee which are attributable to such claim, provided that Licensee
notifies INTERACTIVE promptly in writing of the claim or threatened
claim. Licensee shall permit INTERACTIVE to defend, compromise or
settle the claim and provide all available information, assistance and
authority to enable INTERACTIVE to do so, provided INTERACTIVE
reimburses Licensee for such activity. Licensee shall have no authority
to settle any claim on behalf of INTERACTIVE.
2. Should the Software Products become or, in INTERACTIVE's reasonable
opinion, be likely to become the subject of a claim of infringement of
a patent, trade secret or copyright, INTERACTIVE may (i) procure for
Licensee, at no cost to Licensee, the right to continue to use the
Software Products, (ii) replace or modify the Software Products, at no
cost to Licensee, to make such non-infringing, provided that the same
function is performed by the replacement or modified Software Products,
or (iii) if the right to continue to use cannot be procured or the
Software Products cannot be replaced or modified, terminate the license
to use such Software Products, remove the Software Products, and where
a specific fee was paid by Licensee, grant Licensee credit thereon as
depreciated on a straight-line five (5) year basis.
3. INTERACTIVE shall have no liability for any claim of patent, trade
secret or copyright infringement based on the (i) use of other than the
then latest release of the Software Products from INTERACTIVE, if such
infringement could have been avoided by the use of the latest release
of the Software Products and such latest version had been made
available to Licensee, but Licensee, with knowledge of actual or
possible infringement, chose to retain the prior version, or (ii) use
or combination of the Software Products with software, hardware or
other materials not provided by INTERACTIVE.
4. THIS ARTICLE STATES THE ENTIRE LIABILITY OF INTERACTIVE WITH RESPECT TO
INFRINGEMENT OF PATENTS, TRADE SECRETS AND COPYRIGHTS BY THE SOFTWARE
PRODUCTS OR ANY PARTS OR USE THEREOF AND INTERACTIVE SHALL HAVE NO
ADDITIONAL LIABILITY WITH RESPECT TO ANY ALLEGED OR PROVEN
INFRINGEMENT.
12. FORCE MAJEURE AND COMPLIANCE WITH LAWS
1. If the performance of this Agreement or any obligation hereunder,
except the making of payments hereunder, is prevented, restricted or
interfered with by reason of fire, flood, earthquake, explosion or
other casualty or accident, strikes or labor disputes, inability to
procure or obtain delivery of parts, supplies or power, war or other
violence, any law, order, proclamation, regulation, ordinance, demand
or requirement of any governmental agency, or any other act or
condition whatsoever beyond the reasonable control of the affected
party, the party so affected, upon giving prompt notice to the other
party, shall be excused from such performance; provided, however, that
the party so affected shall take all reasonable steps to avoid or
remove such cause of nonperformance and shall resume performance
hereunder with dispatch whenever such causes are removed. If any of
these causes shall continue to prevent or delay performance for more
than one hundred and twenty (120) calendar days, INTERACTIVE may
terminate this Agreement, effective immediately, upon notice to
Licensee and in compliance with the provisions of Article 5 applicable
to termination not based upon the breach of this Agreement by Licensee
or INTERACTIVE.
2. Licensee agrees to obtain at its own expense any permit or approval it
may need for the performance of its obligations under this Agreement in
the relevant jurisdiction or any instrumentality thereof. Licensee will
comply with all legal requirements that apply to this Agreement.
Licensee will, at its own expense, fulfill any approval, registration
or notification requirement that, in INTERACTIVE's judgment, is
necessary to fulfill these requirements. If Licensee does not fulfill
these requirements to INTERACTIVE's satisfaction, INTERACTIVE may
terminate this Agreement, effective immediately upon written notice to
Licensee.
SPARC Software Agreement -10- 11/08/91
<PAGE> 11
3. Licensee acknowledges that certain laws of the United States may
result in the imposition of sanctions on INTERACTIVE and its
employees in the event that INTERACTIVE, directly or indirectly,
offers promises, or makes payments to government officials or others
for the purpose of influencing decisions favorable to INTERACTIVE.
Licensee covenants and represents that it has not made, authorized,
offered or promised to make or give and will not make, authorize,
offer or promise to make or give any money or anything of value to
any government official, political party, political official,
candidate for political office, or to any person, while knowing or
having reason to know that all or a portion of such money or thing
of value will be offered, given or promised, directly or indirectly,
to any of the foregoing, for purposes of influencing any act or
decision of the foregoing or inducing the foregoing to use his or
its influence with a government or instrumentally thereof to affect
or influence any act or decision of such government or
instrumentality. Licensee covenants and represents that none of its
officers, directors, or employees is an official or employee of the
government of the relevant jurisdiction or any governmental agency
or instrumentality of the relevant jurisdiction and that Licensee
shall not retain any such individual during the term of the
Agreement.
13. EXPORT OF SOFTWARE PRODUCTS
1. Consent of INTERACTIVE Required. Except as provided in Article 2.4,
Licensee agrees that it will not, without the prior consent of
INTERACTIVE, export, directly or indirectly, the Software Products
in source code form to anyone outside the United States or outside
the national jurisdiction in which the Designated Site is located.
2. Export Controls. Regardless of any disclosure made by Licensee to
INTERACTIVE of an ultimate destination of the Software Products,
Licensee will not export or transfer, whether directly or
indirectly, the Software Products, the Proprietary Information or
any system containing such Software Products or Proprietary
Information, to anyone outside the United States of America without
first complying strictly and fully with all export controls which
may be imposed on the Software Products by the United States
Government or any country or organization of nations within whose
jurisdiction Licensee operates or does business. In particular,
Licensee understands that U.S. export control laws do not, without
prior permission from the U.S. Department of Commerce, permit the
transfer or export of the abovementioned products to nationals from
or residing in: Albania, Bulgaria, Cuba, Czechoslovakia, Estonia,
Hungary, Cambodia (Kampuchea), Laos, Latvia, Libya, Lithuania,
Mongolian People's Republic, North Korea, Poland, Romania, Union of
Soviet Socialist Republic, Vietnam, People's Republic of China, and
Afghanistan or other countries as come under restriction by action
of the U.S. Government, without first obtaining permission from the
appropriate U.S. Government authorities.
3. Should Licensee or its distributors elect to furnish the Software
Products to customers in countries other than the United States,
Licensee shall undertake a review of business conditions and laws
and enforcement practices in such foreign jurisdictions and shall
modify Licensee's agreements (including without limitation the
translation of such agreements into the appropriate foreign language
used in the conduct of business in the relevant jurisdiction) with
its distributors and customers as necessary to assure INTERACTIVE
and its suppliers receive the scope of rights and enforcement
coverage to which they would have been entitled had such agreements
been executed in the United States.
14. MISCELLANEOUS
1. Publicity. Licensee hereby grants INTERACTIVE the right to advertise
that Licensee has licensed and will support the Software Products,
upon execution of this Agreement. If Licensee elects to incorporate
the Software Products in any current or future products, INTERACTIVE
has the right to advertise that Licensee has selected the Software
Products for use with these products, as soon as such products have
been publicly announced by Licensee. INTERACTIVE grants Licensee the
right to advertise that Licensee has licensed and will support the
Software Products.
2. Notices. All notices, requests or demands given to or made upon the
parties shall be in writing and shall be deemed to have been given
upon telecopy or facsimile (if confirmed by registered airmail),
personal delivery with written acknowledgement of receipt or upon
deposit in first-class registered, airmail with postage pre-paid and
return receipt requested. The address of the parties(until written
notice of change shall have been given) shall be as follows:
SPARC Software Agreement - 11 - 11/08/91
<PAGE> 12
INTERACTIVE: INTERACTIVE Systems Corporation
2401 Colorado Avenue, 3rd Floor
Santa Monica, CA 90404
U.S.A.
Attention: Legal Department
Phone: (213) 453-8649
Fax: (213) 828-6453
Licensee: Auspex Systems, Inc.
--------------------------------------------------------
2952 Bunker Hill Lane
--------------------------------------------------------
Santa Clara, CA 95404
--------------------------------------------------------
--------------------------------------------------------
Attention: John Row
--------------------------------------------
Phone: 408/492-0900 ext. 131
--------------------------------------------
Fax: 408/492-0909
--------------------------------------------
Any notice shall be deemed to have been received as follows: (1)
personal delivery and airmail upon receipt; and (ii) facsimile the day
sent. Nothing contained herein shall justify or excuse failure to give
oral notice for the purpose of informing the other party thereof when
prompt notification is appropriate, but such oral notice shall not
satisfy the requirement of written notice.
3. Invalid Provision. If any term or provision of this Agreement is found
to be invalid under any applicable statute or rule of law, then that
provision shall automatically be adjusted to conform to the
requirements for validity, and as so adjusted, shall be deemed a
provision of this Agreement. In the event that such provision is of a
nature that it can not be so adjusted, this Agreement shall remain in
full force and effect and the provision shall be deemed deleted. In
either event, the remaining provisions shall be construed and
interpreted to the maximum extent possible to carry out the intentions
of the parties as expressed in this Agreement.
4. Entire Agreement. This Agreement, including all Exhibits, which are
hereby incorporated by reference, constitutes and expresses the entire
agreement and understanding between the parties and supersedes all
previous communications, representations or agreements, whether
written or oral, with respect to the subject matter hereof.
5. Modifications in Writing. This Agreement may not be modified, amended,
rescinded, canceled or waived, in whole or part, except by a written
instrument signed by authorized representatives of the parties.
6. Governing Law; Venue. The validity, construction and performance of
this Agreement and legal relations between the parties to this
Agreement shall be governed and construed in accordance with the laws
of the State of California, excluding that body of law applicable to
choice of law and excluding the United Nations Convention on Contracts
for the International Sale of Goods. If applicable. The parties
consent and submit to the exclusive jurisdiction and venue of the
State and Federal Courts located in Los Angeles County, State of
California, to determine the validity, construction and performance of
this Agreement and the legal relations between the parties. Nothing in
this Section will prevent INTERACTIVE from seeking injunctive relief
against the Licensee from any judicial or administrative authority.
The parties agree that Los Angeles, California, U.S.A., is both the
place of making and the place of performance of this Agreement for all
purposes.
7. Attorneys' Fees. Subject to the provisions of Section 9.3, in addition
to any other relief, the prevailing party in any action arising out of
this Agreement shall be entitled to reasonable attorneys' fees and
costs.
8. Assignment Prohibited. Neither this Agreement nor any rights granted
hereunder, nor any of the Software Products or the Proprietary
Information gained as a result of this Agreement, may be sold, leased,
assigned, sublicensed or otherwise transferred, in whole or in part,
by Licensee except in case of a merger, sale, or acquisition of all or
substantially all of Licensee's stock. If any parent, subsidiary or
affiliate of Licensee desires to enjoy the rights granted by this
Agreement to Licensee, such parent, affiliate or subsidiary must enter
into a separate written agreement with INTERACTIVE, or receive written
permission from INTERACTIVE, to be included in the definition of
"Licensee" hereunder.
9. [Reserved]
10. Nothing in this Agreement shall be deemed to authorize or empower
Licensee, its subsidiaries, agents or distributors to act as agents
for INTERACTIVE or to conduct business in the name of INTERACTIVE.
15. This Agreement does not and shall not be construed to supercede or limit
rights that Licensee may have under prior executed agreements between
Licensee and Sun to modify the SunOS source and distribution rights of
binaries utilizing the modified code.
SPARC Software Agreement - 12 - 11/08/91
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the Effective Date.
INTERACTIVE: Licensee:
/s/ FW Simmons /s/ Fred Nervo
By:________________________________ By:_____________________________________
FW Simmons Fred Nervo
Name:______________________________ Name:___________________________________
Vice President V.P., Administration
Title:_____________________________ Title:__________________________________
11/15/91 November 14, 1991
Date:______________________________ Date:___________________________________
SPARC Software Agreement - 13 - 11/08/91
<PAGE> 14
EXHIBIT A
1. Licensee:
Name: Auspex Systems, Inc.
Address: 2952 Bunker Hill Lane
Santa Clara, CA 95404
2. Designated Site:
Division: Auspex Systems, Inc.
Address: 2952 Bunker Hill Lane
Santa Clara, CA 95404
3. Designated Equipment:
Model: SUN 4/280 Model 960
Serial #: 823E1591
4. Additional Designated Sites:
Division: ______________ Division: ______________ Division: ______________
Address: ______________ Address: ______________ Address: ______________
______________ ______________ ______________
______________ ______________ ______________
5. Additional Designated Equipment:
Model: ______________ Model: ______________ Model: ______________
Serial #: ______________ Serial #: ______________ Serial #: ______________
6. Software Products*
SunOS, ONC/NFS, C, Language Base
* The Software Products include only the items listed above for which
Licensee has paid all applicable fees.
7. License Fees and Sublicense Fees:
In consideration of the rights granted herein, Licensee agrees to remit to
INTERACTIVE a one-time source license fee for the first copy of the
Software Products in source code form installed on the Designated
Equipment and other license fees described below:
1. Source License
Licensee shall pay INTERACTIVE source license fees of US$220,000 for the
following Software Products:
Product Source License
SunOS, ONC/NFS, C, $220,000
Language Base
* Available separately, but included in base SunOS source code license
fees. Currently provided on an "as-is", unsupported basis.
Licensee shall pay INTERACTIVE the source license fees according to the
following schedule or within thirty (30) days after approval of the
Agreement by any relevant governmental agencies:
75% - prior to the shipment of the source code.
25% - within thirty (30) days following the shipment of the
source code.
2. Additional Internal Copies and Copies Distributed to Third Parties
Each Copy
Each Additional Distributed to
SPARC Software Agreement - 14- 11/08/91
<PAGE> 15
Product Internal Copy Third Parties
SunOS, ONC/NFS, C, $5,000 $175,000
Language Base
3. Object Code Sublicense Fees
The following describes the per-copy sublicense fee for each copy of a
Software Product in object form exclusive of any discount offered (See
Item 8 below.):
Low-End 1-2 Unlimited High-End
Product System Users Users System
SunOS, ONC/NFS, C, $500 $1,000 $2,000 (Note 4)
Language Base
Notes:
(1) A low-end system is a SPARC board-level product or a 1-2 user system
with a retail price of less than $8,000 including disk drive,
keyboard and display.
(2) The terms "1-2 Users" and "Unlimited Users" shall be defined the same
way as terms are defined in the schedule for UNIX System V Release
3.0 or any amendment thereto negotiated by Licensee with AT&T.
(3) A high-end system is an unlimited user system with a retail price
greater than $100,000.
(4) INTERACTIVE retains the right to revise fees at any time (provided
that such fee revision is generally required of other similar
customers) by giving Licensee a prior, written 90-day advance notice
stating the effective date of such increase. However, if Licensee
elects to participate in the Commitment Level Discount program, such
fee increases shall not become effective until accrued fees exceed
the amount of Licensee's Minimum Commitment in force at the time of
such fee increase announcement.
8. Object Code Sublicense Discount Schedules
INTERACTIVE offers two discount schedules, one based on a step pricing model
(Attachment A to Exhibit A) and the other based on a commitment level model
(Attachment A1 to Exhibit A).
SPARC Software Agreement - 15 - 11/08/91
<PAGE> 16
ATTACHMENT A TO EXHIBIT A
STEP PRICING DISCOUNTS
I. Step Pricing Discounts
The object code sublicense fees shall be discounted based on the cumulative
gross sublicense fees paid by the Licensee. The sublicense fees are to be
paid at the end of the quarter in which the applicable Software Product is
shipped as described in Article 7.
CUMULATIVE GROSS
SUBLICENSE FEES DISCOUNT
First $500,000 0%
$500,001-$1,000,000 25%
$1,000,001-$2,000,000 50%
Greater than $2,000,000 *
* By special written quotation from INTERACTIVE.
II. Quarterly Reporting and Payment
As specified in Section 7.2, Licensee shall supply INTERACTIVE with
quarterly reports stating the number of full or partial copies of the
Software Products which have been put into use by Licensee or distributed
or otherwise disposed of under License sublicense agreements during the
immediately preceding quarter.
With this report, to the extent that the accrued object code sublicense
fees for the preceding quarter exceed the prepayment amount, Licensee
shall pay INTERACTIVE the amount of such excess.
SPARC Software Agreement - 16- 11/08/91
<PAGE> 17
ATTACHMENT A1 TO EXHIBIT A
COMMITMENT LEVEL DISCOUNTS
I. Commitment Level Discounts
The committed amounts are to be paid in eight quarterly installments with
the first payment due upon the signing of this Agreement.
SUBLICENSE FEE
COMMITMENT LEVEL DISCOUNT
$500,000 10%
$1,000,000 25%
$2,000,000 40%
Greater than $2,000,000 *
* By special written quotation by INTERACTIVE.
The object code sublicense fees shall be discounted based on the level of
cumulative gross sublicense fees committed to by the Licensee. Licensee
agrees to pay, as described below, an initial Minimum Commitment of
$____________________ U.S. Dollars for the Software Product(s) licensed
under this Agreement. Each Minimum Commitment payment is due on the date
specified.
Unless other arrangements are approved by INTERACTIVE, Licensee shall
provide INTERACTIVE with an irrevocable letter of credit or other financial
instrument satisfactory to INTERACTIVE in an amount equal to the Initial
Minimum Commitment designated above, minus the amount paid by Licensee
towards such Initial Minimum Commitment upon Licensee's signing of this
Agreement. If at any time Licensee makes a subsequent Minimum Commitment
pursuant to Part IV of this Attachment A1, such subsequent Minimum
Commitment shall also be covered by such letter of credit or other
financial instrument.
II. Minimum Commitment Payment Schedule
<TABLE>
<CAPTION>
CUMULATIVE AMOUNT
DATE PAYMENT AMOUNT OF PAYMENTS
<S> <C> <C>
Signing of this (The greater of either
Agreement (Payment $62,500 or 1/8th of the
due upon signing) Minimum Commitment
US $_____________ US $_____________
Three (3) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
Six (6) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
Nine (9) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
Twelve (12) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
Fifteen (15) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
</TABLE>
SPARC Software Agreement - 17- 11/08/91
<PAGE> 18
<TABLE>
<S> <C> <C>
Eighteen (18) months (The remaining balance
following signing or the greater of either
of this Agreement $62,500 or 1/8th of the
Minimum Commitment
US $_____________ US $_____________
Twenty-one (21) (The remaining balance
months following or the greater of either
signing of this $62,500 or 1/8th of the
Agreement Minimum Commitment
US $_____________ US $_____________
</TABLE>
III. Quarterly Reporting against Minimum Commitment
As specified in Article 7.2, Licensee shall supply INTERACTIVE with
quarterly reports stating the number of full or partial copies of the
Software Products which have been distributed or otherwise disposed of
under Licensee sublicense agreements during the immediately preceding
quarter.
With this report, to the extent that the accrued object code sublicense
fees for the preceding quarter exceed the then-cumulative amount of
payments, Licensee shall pay INTERACTIVE the amount of such excess. To
the extent that such excess exceeds the accrued object code sublicense
fees, such excess shall be known as prepaid object code sublicense fees
and shall be recoupable against future object code sublicense fees but
not refundable.
IV. Subsequent Minimum Commitments
Once all copies authorized by the Inital Minimum Commitment have been put
into use by Licensee, Licensee must issue a supplementary Purchase Order
for a subsequent Minimum Commitment (each new Minimum Commitment must be
a minimum of $500,000) to extend Licensee's right to distribute object
copies of the Software Products. In no event shall Licensee knowingly ship
copies of the Software Products in excess of the amount of the then-
current pre-paid object code sublicense fees. Per copy object code
sublicense fees for subsequent Minimum Commitments shall be set at
INTERACTIVE's then-standard rates.
SPARC Software Agreement - 18 - 11/08/91
<PAGE> 19
EXHIBIT B
SUNOS, C COMPILER AND ONC/NFS BUNDLE
- SunOS 4.1.1/SPARC (as ported to the Sun-4/260 or a future equivalent
Sun computer system)
- C Compiler including the Language Base
- ONC/NFS
- Language Base
- SPARC Assembler (and Peephole Optimizer)
- Linker
- C Libraries
- Debugger
- C Compiler
- C Front End
- Global Optimizer and Code Generator for C
- Lint (C Program Type Checker)
FORTRAN 1.2 COMPILER
- FORTRAN Front End
- Global Optimizer and Code Generator for FORTRAN
- FORTRAN Libraries
- VMS FORTRAN Extensions
SUNVIEW 1.75
- Sun Tools
sunview cmd tool shelltool
adjacentscreens clear_functions defaultsedit
iconedit input_from_defaultsoverview selection_svc
stty_from_defaults swin switcher
lockscreen perfmeter tektool
gfxtool
fontedit get_selection
toolplaces clock
textedit traffic
- SunWindows Kernel Support
- SunWindows Libraries
- Pixfect Libraries
SOURCE CODE THAT IS NOT INCLUDED IN SUNOS 4.1.1/SPARC
- Code that support Sun's graphics hardware, peripherals and other special
purpose acceleration hardware
- Code that supports architectures other than SPARC architecture
- Diagnostics specific to Sun systems
- Code that supports Sun's floating point hardware unrelated to the SPARC
architecture
- Graphics libraries that support CGI, GKS and SunCore
- Release and install code specific to Sun systems
- Obsolete code (no longer supported by Sun)
- PCFS kernel support code (PC File System)
- Code not owned or controlled by Sun
SPARC Software Agreement - 19 - 11/08/91
<PAGE> 20
EXHIBIT C
INTERACTIVE SYSTEMS CORPORATION
OBJECT CODE LICENSE
Licensee:
Agreement #:
- ----------------------------------- -------------------------------------
Purchase Order #
- ----------------------------------- -------------------------------------
Date:
- ----------------------------------- -------------------------------------
Maximum Simultaneous Users:
- ----------------------------------- -------------------------------------
1. DEFINITIONS
1. "Designated Equipment" means an equipment configuration comprising
(System Manufacturer's computer system) and associated equipment.
2. "Designated Site" means the location of the Designated Equipment or such
subsequent location pursuant to Article 2.4.
3. "Software Products" means those data processing programs set forth in
the INTERACTIVE U.S. Price List for which Licensee has purchased on
Object Code License and any derivative works thereof, including
modifications, enhancements and extensions, made by or for INTERACTIVE
and its suppliers and including flow charts, logic diagrams, program
listings, operating instructions and user manuals.
4. "Proprietary Information" means that information which INTERACTIVE
and/or INTERACTIVE's suppliers desire to protect against unrestricted
disclosure or competitive use and which is designated as such in writing
by INTERACTIVE or is disclosed orally and within thirty (30) days
thereafter is reduced to tangible form pursuant to this License. All
Proprietary Information shall be properly marked or noted as such prior
to disclosure. Proprietary Information may include property of third
parties who have granted licenses to INTERACTIVE.
5. "USER" means a time-sharing terminal for entry of information and
display or printing of information, such terminal being serviced on a
time-sharing basis by the Designated Equipment under control of the
Software Products.
2. LICENSE GRANTED
1. Subject to the conditions herein, and upon initial use of the Software
Products on the Designated Equipment, INTERACTIVE hereby grants to
Licensee a perpetual, nontransferable, nonexclusive, limited license to
use the Software Products in a machine-readable form on the Designated
Equipment at the Designated Site. Title to all copies of the Software
Products remains in INTERACTIVE or in third parties from whom
INTERACTIVE has acquired license rights. No license is granted for use
of the Software Products on other than the Designated Equipment, except
as expressly provided in this License. No license, right or interest in
any trademark, trade name or service mark of INTERACTIVE or any third
party from whom it has acquired license rights is granted under this
License. The maximum number of simultaneous Users for the Designated
Equipment shall be as specified in the heading above.
2. This License, the Software Products and any other information provided
by INTERACTIVE to Licensee and any licenses and rights granted to
Licensee hereunder, may not be sold, leased, assigned, sublicensed or
otherwise transferred, in whole or in part, by Licensee, except as
provided in Article 2.3 below.
3. In the event that, and only for so long as, Licensee's Designated
Equipment is not operative, Licensee may transfer to and use the
Software Products on backup equipment at the Designated Site or some
other site, provided Licensee informs INTERACTIVE of such transfer in
writing.
4. Licensee may relocate the Designated Equipment, provided Licensee
informs INTERACTIVE of
SPARC Software Agreement - 20 - 11/08/91
<PAGE> 21
the subsequent location in writing, which shall be then considered the
Designated Site.
5. The parties agree that Licensee shall be able to develop Licensee
proprietary software with interfaces to the Software Products to be
utilized by Licensee in conjunction with the Software Products. Examples
are pre-processors, post-processors and software which utilizes data
files generated by the Software Products. Such Licensee proprietary
software shall remain the property of Licensee.
6. Licensee shall not disassemble or decompile the Software Products.
7. The Software Products and its copyrights are owned by INTERACTIVE
and/or its suppliers.
3. DELIVERY, INSTALLATION, ACCEPTANCE AND RISK OF LOSS
1. INTERACTIVE shall deliver the Software Products to a common carrier,
F.O.B. INTERACTIVE facilities. Licensee assumes all risk of loss or
damage upon delivery of the Software Products by INTERACTIVE to a common
carrier.
2. Licensee agrees that acceptance shall occur upon delivery of the
Software Products by INTERACTIVE to Licensee or a common carrier.
3. Licensee shall be solely responsible for installation of the Software
Products on the Designated Equipment.
4. TERM AND TERMINATION
1. The effective date of this License shall be the date of the initial use
of the Software products on the Designated Equipment and its term is
perpetual, subject to the termination provisions of this Article.
2. INTERACTIVE may terminate this License upon thirty (30) days' written
notice to Licensee, if Licensee fails to comply with any of the material
terms and conditions of this License and if such failure to comply is
not corrected within the said (30) day notice period.
3. Upon termination of this License, use of the Software Products by
Licensee shall be discontinued. In such event, the license and rights
granted hereunder shall expire and Licensee shall have no further rights
or access to the Software Products.
4. Upon termination, Licensee shall destroy the Software Products and all
copies or portions thereof.
5. PAYMENTS
In consideration of the license and rights in the Software Products granted
by INTERACTIVE and in consideration of INTERACTIVE's performance of its
obligations hereunder, Licensee agrees to pay to INTERACTIVE the License fee
specified in INTERACTIVE's invoice.
6. COPYRIGHT PROTECTION
Licensee shall reproduce and apply any copyright notices included on or in
the Software Products to any copies thereof, in whole or in part, in any
form. The Software Products are protected by United States copyright laws and
international treaty provisions. Licensee therefore agrees to treat the
Software Products like any other copyrighted material (e.g., a book or
musical recording).
7. PROPRIETARY INFORMATION
1. INTERACTIVE hereby states that the Software Products constitutes a
valuable asset and is to be considered Proprietary Information.
2. Licensee shall treat the Proprietary Information in the same manner as
it treats its own proprietary information.
3. Licensee shall not use, disclose, make or have made any copies of the
Proprietary Information, in whole or in part, without the prior written
authorization of INTERACTIVE, provided however, that Licensee shall be
able to maintain backup or archival copies of the Software Products
during the term of this License.
4. Licensee shall make reasonable efforts to notify and inform its
employees having access to the Proprietary Information of Licensee's
limitations, duties and obligations regarding non-disclosure and copying
of the Software Products. Proprietary Information shall be used only by
employees and authorized agents of Licensee and only at the Designated
Site, except as provided under this License.
5. Notwithstanding any provisions herein concerning non-disclosure and
non-use of the Proprietary Information, Licensee shall have no
obligations for disclosure or any use of any such information which (a)
is already known to Licensee, (b) is or becomes publicly known through
publication, inspection of product or otherwise and through no wrongful
act of Licensee, (c) is received from third party without similar
restriction and without breach of this License, (d) is shown by
SPARC Software Agreement - 21 - 11/08/91
<PAGE> 22
documentary evidence to have been independently developed by Licensee,
(e) is disclosed to a third party by or on behalf of INTERACTIVE without
a similar restriction on the third party's rights, or (f) is approved
for release or use by written authorization of INTERACTIVE.
6. Within thirty (30) days after termination of this License, all materials
containing the Proprietary Information are to be returned to
INTERACTIVE, through a common carrier selected by INTERACTIVE, F.O.B.
Designated Site, or destroyed on INTERACTIVE's written instructions.
7. Notwithstanding any termination pursuant to Article 4, the obligations
set forth in this Article shall survive this License.
8. WARRANTIES
1. INTERACTIVE hereby warrants that it has the right to grant a license to
use the Software Products to Licensee and that it has the right and
power to enter into this License.
2. 8.2 The warranties set forth in this Article are expressly subject to
the limitations of Article 10.
9. PATENT, TRADE SECRET AND COPYRIGHT INDEMNIFICATION
1. INTERACTIVE sill defend, at its expense, any action brought against
Licensee to the extent that it is based on a claim that the use of the
Software Products within the scope of this License infringes any United
States patent, trade secret or copyright. INTERACTIVE will indemnify
Licensee from any costs, damages and fees incurred by Licensee which are
attributable to such claim, provided that Licensee notifies INTERACTIVE
promptly in writing of the claim. License shall permit INTERACTIVE to
defend, compromise or settle the claim and provide all available
information, assistance and authority to enable INTERACTIVE to do so,
provided INTERACTIVE reimburses Licensee for such activity. Licensee
shall have no authority to settle any claim on behalf of INTERACTIVE.
2. Should the Software Products become or, in INTERACTIVE's opinion, be
likely to become the subject of a claim of infringement of a patent,
trade secret or copyright, INTERACTIVE may (i) procure for Licensee, at
no cost to Licensee, the right to continue to use the Software products,
(ii) replace or modify the Software Products, at no cost to Licensee, to
make such non-infringing, provided that the same function is performed
by the replacement or modified Software Products, or (iii) if the right
to continue to use cannot be procured or the Software Products cannot be
replaced or modified, terminate the license to use such Software
Products, remove the Software Products, and where a specific fee was
paid by Licensee, grant Licensee credit thereon as depreciated on a
straight-line five (5) year basis.
3. INTERACTIVE shall have no liability for any claim of patent, trade
secret or copyright infringement based on the (i) use of other than the
then latest release of the Software Products from INTERACTIVE, if such
infringement could have been avoided by the use of the latest release of
the Software Products and such latest version had been made available to
Licensee, but Licensee, with knowledge of actual or possible
infringement, chose to retain the prior version, or (ii) use or
combination of the Software Products with software, hardware or other
materials not provided by INTERACTIVE.
4. THIS ARTICLE STATES THE ENTIRE LIABILITY OF INTERACTIVE WITH RESPECT TO
INFRINGEMENT OF PATENTS, TRADE SECRETS, AND COPYRIGHT BY THE SOFTWARE
PRODUCTS OR ANY PARTS OR USE THEREOF AND INTERACTIVE SHALL HAVE NO
ADDITIONAL LIABILITY WITH RESPECT TO ANY ALLEGED OR PROVEN INFRINGEMENT.
5. LIMITATION OF LIABILITY. Notwithstanding any other provision of this
Agreement, INTERACTIVE's maximum liability for damages shall be limited
to the initial Source License Fee paid by Licensee for the particular
Software Product which caused the damages. In no event will INTERACTIVE
be liable for any lost revenues or profits or other special, indirect or
consequential damages, even if INTERACTIVE has been advised of the
possibility of such damages.
10. LIMITATION OF LIABILITY
1. EXCEPT AS SPECIFICALLY SET FORTH IN ARTICLE 8, INTERACTIVE DOES NOT MAKE
ANY EXPRESS OR IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE
WARRANTIES OF DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
SOME STATES DO NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY
LASTS, SO THE ABOVE LIMITATIONS MAY NOT APPLY TO LICENSEE. THIS WARRANTY
GIVES LICENSEE SPECIFIC LEGAL RIGHTS AND LICENSEE MAY ALSO HAVE OTHER
RIGHTS WHICH VARY FROM STATE TO STATE.
2. In no event will INTERACTIVE be liable for any lost revenues or profits
or other special, indirect or consequential damages, even if INTERACTIVE
has been advised of the possibility of such damages.
3. Except for the indemnification provisions of Article 9, INTERACTIVE's
maximum liability for damages shall be limited to the license fees paid
by Licensee under this License for the particular Software Products
which caused the damages.
SPARC Software Agreement - 22 - 11/08/91
<PAGE> 23
11. FORCE MAJEURE
If the performance of this License or any obligation hereunder, except the
making of payments hereunder, is prevented, restricted, or interfered with
by any reason of fire, flood, earthquake, explosion or other casualty or
accident, strikes or labor disputes, inability to procure or obtain delivery
of parts, supplies or power, war or other violence, any law, order,
proclamation, regulation, ordinance, demand or requirement of any
governmental agency, or any other act or condition whatsoever beyond the
reasonable control of the affected party, the party so affected, upon
giving prompt notice to the other party, shall be excused from such
performance to the extent of such prevention, restriction or interference;
provided, however, that the party so affected shall take all reasonable
steps to avoid or remove such cause of nonperformance and shall resume
performance hereunder with dispatch whenever such causes are removed.
12. TAXES
All payments required under Article 5 or otherwise under this License are
exclusive of taxes and Licensee agrees to bear and be responsible for the
payment of all such taxes (except for taxes based upon INTERACTIVE's
income) including, but not limited to, all sales, use, rental receipt,
personal property or other taxes which may be levied or assessed in
connection with this License.
13. EXPORT
Regardless of any disclosure made by Licensee to INTERACTIVE of an ultimate
destination of the Software Products, Licensee shall not re-export or
transfer, whether directly or indirectly, the Software Products, the
Proprietary Information or any system containing such Software Products or
Proprietary Information, to anyone outside the United States of America
without first obtaining a license from the U.S. Department of Commerce or
any other agency or department of the United States Government, as required
and obtaining the prior written approval of INTERACTIVE.
14. GOVERNING LAW
This License is made under and shall be governed by and construed in
accordance with the laws of the State of California, United States of
America (except that body of law controlling conflicts of law). Any suit
hereunder shall be brought in the federal or state courts in the Northern
District of California and Licensee hereby submits to the personal
jurisdiction thereof.
15. U.S. GOVERNMENT RESTRICTED RIGHTS
This Software Products and documentation is provided with RESTRICTED RIGHTS.
Use, duplication, or disclosure by the Government is subject to restrictions
as set forth in FAR Section 52.227-14 (Alternate III) or subparagraph
(c)(1)(ii) of the clause at DFAR 252.227-7013, Rights in Technical Data and
Computer Software. Contractor/manufacturer is INTERACTIVE Systems
Corporation, 2401 Colorado Avenue, Santa Monica, CA 90404.
16. THIRD PARTY BENEFICIARY
All provisions of this Agreement are also intended for the benefit of
INTERACTIVE and its suppliers, which can enforce this Agreement without
requiring the prior consent of Licensee.
SPARC Software Agreement - 23 - 11/08/91
<PAGE> 24
EXHIBIT D
Licensee-AT&T Source Code License
[To be supplied by Licensee prior to signing of contract]
SPARC Software Agreement - 24 - 11/08/91
<PAGE> 25
EXHIBIT E
Licensee-AT&T Commercial Sublicensing Agreement
[To be supplied by Licensee prior to signing of contract]
SPARC Software Agreement - 25 - 11/08/91
<PAGE> 1
EXHIBIT 11.1
AUSPEX SYSTEMS, INC. & SUBSIDIARIES
STATEMENT OF COMPUTATION OF COMMON
AND COMMON EQUIVALENT SHARES
(In thousands except per share amounts)
<TABLE>
<CAPTION>
For The Three Years Ended
----------------------------------------------------------
June 30, June 30, June 30,
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Net Income..................................................... $19,830 $12,411 $8,318
Weighted average common shares outstanding..................... 23,701 23,029 23,219
Weighted average common equivalent shares
Weighted average preferred stock outstanding................. -- -- --
Common stock options......................................... 2,001 1,342 1,475
Total weighted average common shares and equivalents........... 25,702 24,371 24,694
======= ====== ======
Net income per share........................................... $0.77 $0.51 $0.34
======= ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF AUSPEX SYSTEMS, INC.
(AS OF 06/30/96)
<TABLE>
<CAPTION>
Date of
Name Incorporation Place of Incorporation
<S> <C> <C>
Auspex International, Inc. 07/19/93 California/USA
Systemes Auspex, Inc. 07/02/93 Quebec, Canada
Auspex Limited 08/23/93 Reading/United Kingdom
Auspex GmbH 09/24/93 Munich/Germany
Auspex S.A. 12/23/93 Paris/France
</TABLE>
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements No. 33-67100, 33-76640, and 333-00886 on Form S-8.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
San Jose, California
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 22,169
<SECURITIES> 28,349
<RECEIVABLES> 39,383
<ALLOWANCES> 1,535
<INVENTORY> 16,130
<CURRENT-ASSETS> 116,943
<PP&E> 46,881
<DEPRECIATION> 31,304
<TOTAL-ASSETS> 135,844
<CURRENT-LIABILITIES> 26,001
<BONDS> 30
0
0
<COMMON> 24
<OTHER-SE> 109,789
<TOTAL-LIABILITY-AND-EQUITY> 135,844
<SALES> 146,913
<TOTAL-REVENUES> 162,640
<CGS> 62,126
<TOTAL-COSTS> 71,966
<OTHER-EXPENSES> 62,832
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 29,597
<INCOME-TAX> 9,767
<INCOME-CONTINUING> 19,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,830
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
