SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
General Form for Registration of Securities
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
FORECROSS CORPORATION
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(Exact name of registrant as specified in its charter)
California 94-2823882
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification No.)
90 New Montgomery Street, San Francisco, California 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-1515
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10 of Forecross Corporation ("Forecross" or the "Company")
contains forward-looking statements within the meaning of the Private Litigation
Reform Act of 1995 (the "Litigation Reform Act") that are subject to risks and
uncertainties. Statements indicating that the Company "expects," "estimates" or
"believes" are forward-looking, as are all other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors that could cause actual results or events to
differ materially from those anticipated by the forward-looking statements
contained in this Form 10. Such factors include, but are not limited to, the
Company's unprofitable operating history and limited financial resources;
potential requirements for additional financing; volatility of the Company's
common stock; fluctuation of its quarterly operating results; existing and
potential competition; dependence on a small number of customers; market size;
no assurance of success of the Company's marketing strategy; dependence on year
2000 revenues; no assurance of the ability to continue product development as
required and in a timely manner; limited experience of management in the
management of growth; control by officers and directors; dependence on key
personnel; the ability to adequately protect its intellectual property; and
general economic and market conditions. The safe harbor provided by the
Litigation Reform Act does not apply to initial public offerings. Additional
information on these and other certain business concerns is included elsewhere
in this Form 10.
ITEM 1. BUSINESS
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GENERAL BUSINESS DESCRIPTION
Forecross is a software company that, together with its predecessor
corporations, has been in business since 1982. Forecross develops, markets and
sells sophisticated software and associated services to large organizations for
the automated conversion ("migration") of existing business software
applications to new computing environments. Forecross also develops, markets and
sells similar software and services to large organizations for the automated
assessment and renovation of non-year 2000-compliant business software
applications.
INDUSTRY BACKGROUND
In recent years, dramatic and fundamental changes have taken place in the
computer industry. These developments have had a significant impact on the way
in which business applications are developed, have extended the useful life of
existing applications and have presented unique challenges to Management
Information Systems ("MIS") departments.
SIGNIFICANT INDUSTRY DEVELOPMENTS
First, there has been a dramatic reduction in the cost of computer
processing power. This has led to the "downsizing" from larger "mainframe" and
"super-mini" computers to smaller computers capable of processing the same
amount of work at significantly lower cost.
Second, standard computing environments, referred to as "open systems"
architecture, have increasingly dominated the market. Previously, large scale
MIS organizations were forced to implement business applications using database
software and languages proprietary to particular vendors. Open systems
architecture has, to a significant extent, freed the MIS manager from this
constraint by permitting the components of an overall hardware and software
solution to be acquired from a number of different, and frequently competing,
vendors. Examples of these new standards include the UNIX operating system, the
database language called SQL and programming languages such as COBOL, C++ and
JAVA.
Third, with downsized, open systems hardware ("server") and personal
computers on the desk of each user ("client"), a new distributed architecture
called "client-server" has emerged. Previously, the computing facilities of most
MIS organizations consisted of "dumb" terminals connected to large mini or
mainframe computers. This new distributed client-server solution provides a more
effective way for MIS departments to scale their computing resources to the
changing needs of their businesses.
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Fourth, the network which each business establishes to connect clients and
servers for business applications has expanded over the past four years to
include connections to, and often web sites on, the Internet. The "world-wide
web" enables a business to connect all of its employees to each other and to the
company's vendors and customers easily and inexpensively. This unprecedented
level of connectivity is driving a rapid evolution in the way businesses
inter-relate.
Fifth, over the past few years the computer industry has been shaken by a
latent problem imbedded in many existing applications, known as the "year 2000
problem." Historically, computer disk space was extremely expensive and storage
capacity was very small. To lessen the cost impact and increase the available
capacity, dates in many applications were stored in an abbreviated form. For
example, 1997 was stored as '97' and programs assumed the century was '19' even
though it was not stored as part of the date. When presented with the
abbreviated date '00', many applications assume the complete date is 1900, when
it should be 2000, resulting in incorrect ordering, comparisons and
calculations.
Sixth, even though there has been a decrease in the cost of some computer
hardware, there has also been a reduction in many MIS budgets with no
corresponding reduction in the costs of software or technical personnel.
Finally, the broad-based application assessment that has been necessitated
by the year 2000 problem has brought unparalleled awareness to MIS management of
the attributes, costs and risks inherent in their business application
portfolios. What has been discovered is a hodge-podge of environmental and
development software that has resulted in: immense, yet unnecessary, complexity;
duplicated and high costs of ownership; and serious risks of future maintenance
failures caused by a lack of personnel knowledgeable in the older installed
software.
BUSINESS IMPACT
Existing systems represent a huge financial investment and are often
functionally rich and mission-critical to the business. Due to this, many
applications which would have been rewritten after three-to-five years are now
remaining in service for ten years or more. However, due to their underlying
technologies, they may not be meeting all of the needs of the organization. For
example, they may not be fully integrated with newer business applications, may
have data which is not easily accessible to users, may operate on technology
platforms which are no longer cost-effective, or may not have been designed to
correctly handle the year 2000 problem. Furthermore, personnel who understand
and can maintain applications developed using older technologies are becoming
more difficult to find and retain, and are, therefore, more expensive.
The challenge for businesses is to find a cost-effective way to upgrade
these sizable existing systems to be year 2000-compliant and to take advantage
of the new technologies which have a more readily available manpower pool, while
preserving all of their valuable functionality.
AVAILABLE SOLUTIONS
There are three options available to an MIS manager wishing to take
advantage of these developments and upgrade a system to be year 2000-compliant.
One option is to acquire commercially available application software
packages specifically designed to operate on the new technology platforms and to
be year 2000-compliant. However, a suitable package may not always be available
and, even when it is, the new software package will commonly require adaptation
to the distinctive business policies and practices of the user organization. In
addition to the initial cost of the package, these adaptations are frequently
expensive and may take too long to implement as well as require specialized
technical resources.
Another option is to rewrite the computer source code of the existing
possibly non-year 2000-compliant application to make it usable in the new
computing environment. This course is time consuming to implement, can be
error-prone, requires significant and specialized personnel resources not
routinely available, and may, therefore, be expensive and risky.
Both of these choices also involve the risk that business-specific rules
and functionality currently imbedded in the existing application will not be
accurately or completely incorporated into the adapted software package or the
rewritten application.
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The products of Forecross represent a third solution. The Company has
developed a proprietary and innovative technology for the automated migration
and assessment/renovation of existing applications. This allows businesses to
replace existing technologies (i.e., the system is re-hosted to a new technology
platform or made year 2000-ready) while leaving the application functionally
intact (see "-Products"). Consequently, this option usually has the lowest cost
and least risk associated with it. For the Company's experience competing
against these other solutions, see "Competition---Competitive Position".
MARKET
At its broadest, the potential worldwide market for Forecross products is
comprised of approximately 30,000 large computer-using organizations. Generally
referred to as "enterprise computing" users, they include the so-called Fortune
2,000 companies with annual revenues in excess of $100 million, and
comparably-sized government, financial services, healthcare, education and other
service organizations. Most of these organizations automated their major
business applications before the advent of the new technologies and, hence, find
themselves with a large inventory of crucial information systems based on
rapidly obsolescing technology.
Forecross initially focused its primary attention upon the portion of the
North American enterprise computing market that is comprised of approximately
1,000 users of Computer Associates Integrated Database Management System
(CA-IDMS) (based on information supplied in July 1996 by Computer Intelligence
Corporation, an industry research organization). CA-IDMS includes a database
management system (CA-IDMS/DB), user interface language (CA-IDMS/DC) and
fourth-generation language (CA-ADSO) which, together with certain other related
products, were originally developed and marketed by Cullinane Corporation, later
by Cullinet Corporation, and now by Computer Associates International. Based
upon reports in the industry press, Forecross believes that there is a growing
shift of enterprise computing users away from CA-IDMS and that over the next ten
years a substantial number of the 1,000 users will have decided to move to
newer, more cost-effective and flexible computing environments. The Company
estimates that outside North America there are an additional 1,000 CA-IDMS
organizations. These users also represent a potential market in which Forecross
has already had some initial success.
In addition to the CA-IDMS portion of the enterprise computing market,
there are also additional portions related to other proprietary technology
platforms. They include areas related to computer languages such as
CA-Easytrieve from Computer Associates (an estimated 7,000 users), CSP from IBM
Corporation (an estimated 1,000 users), CA-UFO from Computer Associates (an
estimated 1,500 users) and ADF from IBM Corporation (an estimated 1,000 users),
and databases such as IMS from IBM (an estimated 10,000 users) and Adabas from
SoftwareAG (an estimated 1,000 users). These additional areas create
opportunities for Forecross to develop other products and give the Company added
flexibility in responding to changes and developments in the marketplace.
One other market to which the Company has responded is the large market of
computer-using organizations affected by the year 2000 problem. A uniquely
large market has been created by the fact that virtually all 30,000 enterprise
computing organizations have one or more applications that are not year
2000-compliant and need to become so in the near future.
PRODUCTS
The Company has licensed and delivered its products and ancillary services
to customers throughout North America, and in Taiwan, France, Belgium, Germany,
and South Africa. Recent and current Forecross customers include Aetna Life
Insurance, Charles Schwab & Company, Inc., AT&T, Bank of America, Bank of
Montreal, Bear Stearns & Company, Brown Brothers Harriman & Co., Fujitsu, Ltd.,
Home Savings of America, IBM Corporation, Kimberly-Clark Corporation, New
Brunswick Telephone, Price Waterhouse, LLP, Royal Bank of Canada, and Union Gas.
Forecross products are designed to automate up to 100% of the conversion
and year 2000 assessment and renovation of an existing application. It has been
the experience of the Company that 95% or more of the business application
programs commonly found in large computerized organizations (see "-Market") can
be converted, assessed and renovated with full (100%) automation. The remaining
5% can usually be processed with a significant degree of automation (80% or
more), enough to make conversion with Forecross products a cost-effective and
lower risk alternative. Converted applications can be easily maintained, perform
well in the new environment, and, with the exception of the year 2000
corrections, are functionally equivalent to the original application. Each
Forecross product includes a significant number of customization options which
can be selected by the user to achieve specific conversion or renovation
objectives.
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UNDERLYING PROPRIETARY TECHNOLOGY
The Company's powerful and flexible technology known as the XCODE
architecture, has been refined over the last thirteen years and forms the
foundation for all Forecross products, tools, and associated services.
The proprietary XCODE architecture of Forecross supports all of the
functions ordinarily required to automate the conversion, assessment and
renovation of existing systems. This includes parsing the source code, storing
the code in a common repository, identifying areas of the code that require
technology or year 2000 upgrades, transforming the old technology and/or
non-year-2000-compliant elements of the source code and generating revised
source code for the operation of the application in the new year 2000-compliant
environment.
Forecross began developing its technology in 1982. The prototype for the
XCODE architecture was built in 1985 to permit a customer to convert a major
application from a proprietary language to COBOL. The first generation of XCODE
was developed and enhanced between 1985 and 1986, in connection with language
conversion projects undertaken for Price Waterhouse, LLP. This resulted in the
first version of the Convert/ADSO to COBOL product. In response to a
requirement of Chemical Bank of New York, a second generation of XCODE was
developed in 1987, resulting in the development of the first version of the
Convert/IDMS-DB to SQL product.
In 1990, Forecross developed the first version of Convert/IDMS-DC to CICS
in connection with a migration project undertaken for American President Lines.
In the same year, under a contract with IBM, the third generation of XCODE was
produced. In 1992-93, in connection with a project for Cincom Systems, Inc. of
Ohio, Forecross developed the Fastforward/VSAM to SUPRA database conversion
software. At that time, all the components of XCODE were redeveloped to operate
in a PC environment.
The XCODE architecture is modular in design. Modular architecture refers
to the design of a system into separate components that can be connected and
combined together in many different configurations. The strength of modular
architecture is that any one component can be replaced, added or moved without
altering the rest of the system. The Company's modular XCODE architecture is,
therefore, readily adaptable to the development of new migration and new year
2000 products. This lowers the cost, shortens the time and reduces the risk of
new product development.
COMMERCIALLY AVAILABLE PRODUCTS
Forecross has, to date, developed nine migration products. Migration
products are named by reference to the source language or database and the
target language or database:
- - Convert/IDMS-DC to CICS (user interface language conversion)
- - Convert/ADSO to COBOL (language conversion)
- - Convert/IDMS-DB to SQL (database conversion)
- - Convert/VSAM to SQL (database conversion)
- - Convert/CSP to COBOL (language conversion)
- - Redirect II COBOL/VS to COBOL II (language conversion)
- - IMSADF II to Cross System Product Migration Facility (language
conversion)
- - Convert/IMSADF II to APS/COBOL (language conversion)
- - Fastforward/VSAM to SUPRA (database conversion)
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Forecross is the owner of six of these products. Ownership of the following
products is shared: IMSADF II to Cross System Product Facility, which was
developed by Forecross, but is owned jointly with IBM; Convert/IMSADF II to
APS/COBOL, which was developed by Forecross, but is owned jointly with Bank of
America; and Fastforward/VSAM to SUPRA which was developed by Forecross pursuant
to a Development and License Agreement dated April 22, 1991, with Cincom
Systems, Inc. (the "Cincom Agreement") and is jointly owned by the Company and
Cincom. Forecross and IBM have joint marketing rights to the first product,
Forecross and Bank of America have joint marketing rights to the second product,
and Cincom has exclusive marketing rights to the third product. None of these
jointly owned products is presently material to the Company's business or its
near-term business plans.
Forecross has, to date, developed two year 2000 renovation products for
fifteen languages: Assess/2000 and Renovate/2000, which are integrated into the
Complete/2000 software solution. Languages currently supported by these
products include COBOL, C, C++, PL/I, CA-Easytrieve, PowerBuilder, CSP, IMSADF
II, CA-ADSO, CA-UFO, CLIST, APS, REXX, CA-Ideal and CA-Telon. Forecross is the
owner of these products.
PRODUCT DEVELOPMENT
The Company's strategy in developing new migration software and services
for existing applications is to respond to the particular needs of a specific
customer after research has determined that there is an identifiable potential
for further licensing of the product, and delivery of associated services to
other organizations. Before Forecross undertakes the development of a new
product, it generally requires that the customer agree to share the development
cost. One example of this strategy is the Convert/CSP to COBOL product which
was developed for Kimberly-Clark Corporation, under an agreement whereby
Kimberly-Clark contributed $300,000 of the total $350,000 in development costs.
Another example is the Convert/IMSADF II to APS/COBOL product which was
developed for and financed by Bank of America at a cost of $480,000.
One factor which greatly enhances the Company's ability to employ this
strategy is its proprietary XCODE architecture. The XCODE architecture enables
the Company to develop a new migration product in an average of approximately
six months of elapsed time, with three persons employed full-time on the
project. This is a considerably shorter and less costly development cycle than
traditional industry experience for products of comparable scope and complexity.
It also allows the Company to fund most or all of the development cost from the
license revenue generated by the initial development-funding customer.
Extension of the Complete/2000 products to support new languages has also
been greatly facilitated by the XCODE architecture. As requirements have
dictated, and may dictate in the future, new languages have been added to
Complete/2000 in an average of eight-weeks with two developers.
Research and development expenses were $1,006,768, $253,743, $358,133,
$457,394 and $159,807 in the years ended September 30, 1997, 1996 and 1995, and
the three months ended December 31, 1997 and 1996, respectively. Additional
expenses of $29,067, $352,633 and $29,067 in the years ended September 30, 1996
and 1995, and the three months ended December 31, 1996, respectively, were
incurred on products funded by customers and are included in cost of revenues.
There were no such costs in the year ended September 30, 1997 or the three
months ended December 31, 1997
PRODUCT LICENSING
MIGRATION PRODUCT LICENSING
Forecross grants its customers a non-exclusive, non-assignable license to
use its software, including programs, options, documentation, data and
information. While certain provisions in the license agreement (e.g., as to the
number of locations at which the licensed software may be used, and the extent
of the customer's right to receive upgrades and enhancements without charge)
vary according to the circumstances, certain general terms are common to all
such agreements. Each contains a warranty by Forecross against defects in
design, operation and usability in the customer's computer environment, and each
contains a covenant by the licensee not to attempt to decipher, develop source
code, copy, modify, duplicate, create or recreate all or any part of it except
to the extent required by its normal operating procedures. The licensee also
agrees to take reasonable steps to prevent access by anyone whose access is not
reasonably necessary and to ensure that authorized persons with access refrain
from duplicating, reproducing or disclosing information with respect to the
licensed software.
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The license is granted for the conversion of a specified number of
application programs, and may be terminated on fifteen days notice for
non-payment of amounts payable under it, on twenty-four hours notice by either
party if the other becomes insolvent or (except in certain circumstances) if
bankruptcy or other similar proceedings are commenced against it, or it makes an
assignment for the benefit of creditors. The agreement is also terminable upon
fifteen days notice in the event of a material breach being committed, unless
the breach is cured before the expiration date of the notice period.
ASSESSMENT AND RENOVATION LICENSING AND FACTORY SERVICES
Forecross offers product licensing for its Assess/2000 products. These
licenses are identical to the migration licenses described above with two
exceptions. First, they are granted for the assessment of an unlimited number
of application programs and related components. Second, they may be purchased
in single-user or multiple-user configurations, priced accordingly.
Forecross offers "factory renovation" services for customers of its
Complete/2000TM renovation software. Licenses are not currently offered.
Utilizing the factory renovation services, a customer sends its application code
to the Forecross factory where the code is renovated for year 2000-compliance,
compiled, then shipped back to the customer for testing and production
implementation. The factory uses a combination of procedures, processes and
software that allow for up to 100% automation of all phases of code renovation.
INTELLECTUAL PROPERTY
Forecross has chosen to protect the intellectual property value of its
products and its proprietary XCODE architecture through trade secret and
confidentiality provisions in its product licensing arrangements,
confidentiality agreements with its employees and through copyright protection
for system externals such as display formats and documentation. Additional
protection is provided by the complex nature of both the XCODE architecture, and
the products themselves. This approach is consistent with standard practice in
the industry, and provides reasonable assurance against misappropriation.
Software theft, which can be a serious problem in the consumer software market,
is relatively rare in the large-scale software products market. Large corporate
buyers tend not to engage in product piracy. The Company's products are also
protected against unauthorized use by imbedded and external access control
codes. There can be no assurance, however, that the protection relied upon by
the Company will be effective. Monitoring and identifying unauthorized use of
the Company's technology may prove difficult, and the cost of litigation may
impair the Company's ability to guard adequately against such infringement. The
commercial success of the Company may also depend upon its products not
infringing any intellectual property rights of others and upon no such claims of
infringement being made. Even if such claims are found to be invalid, the
dispute process could have a materially adverse effect on the Company's
business, results of operations and prospects.
MARKETING AND SALES STRATEGY
EXISTING APPLICATION MIGRATIONS
The developments in computer technology described above (see "-Industry
Background: Significant Industry Developments") have converged to produce the
need and create the opportunity to convert existing applications. Because of
this, the Company has had to experiment with a number of different techniques to
create market awareness of its technology and products, and to provide an easy
way for potential customers to evaluate and license its products.
Between 1989 and 1992, Forecross experimented with two different approaches
using third parties to market and sell its products. Neither proved successful.
Initially, Forecross entered into an exclusive marketing and sales agreement
with a large technology services firm principally engaged in providing
consulting services, including software conversion, for proposed fees rarely
below $1,000,000 per project. Since the Forecross license fee represented only a
small portion of the overall project fee, the firm had little incentive to
market Forecross products energetically, and the "bundling" of the Company's
software with the service provider's services obscured the fact that the
software could be licensed independently of those services. The agreement was
accordingly terminated, and in 1990, Forecross entered into a technology
transfer agreement relating to three specific software products (Convert/ADSO to
COBOL, Convert/IDMS-DC to CICS and Convert/IDMS-DB to SQL), and an exclusive
distribution agreement, with a start-up software company, AdvantEdge Systems
Group, Inc. ("ASG"). This initiative was also unsuccessful due principally to
the fact that the sales and marketing strategy adopted by ASG proved ill-adapted
to the market for Forecross products. The principal reason was that ASG sought
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to market the products exclusively as software offerings, without any related
consulting services that potential customers seemed to require. Due to lack of
funds, ASG discontinued operations early in 1992.
Following ASG's cessation of operations in 1992, Forecross resumed using
and licensing the technology originally transferred to ASG, with ASG's knowledge
and consent. The Company then, pursuant to an agreement with ASG (the "ASG
Agreement"), effective as of March 23, 1994, reacquired their original software
assets. Under the ASG Agreement, Forecross paid ASG $56,613 and, in addition,
agreed to pay royalties on the net software license revenue derived by the
Company from the three products that had been reacquired. The royalty rate is
30% until an aggregate of $600,000 in royalties has been paid. Upon royalty
payments of $600,000, the royalty rate dropped to 20% until January 1, 1995, and
10% thereafter. From 1994 through September 30, 1997, Forecross derived no
license revenues from the three products, and accordingly no royalties were
payable. The Company does not expect that significant future royalties will
become payable under the ASG Agreement, since they would only be payable on
License-Only sales (see below) of those three specific products, which have
represented and are expected to continue to comprise a maximum of 10% of the
total revenues of Forecross. Moreover, the gross margin on License-Only sales
is 90% before (and hence would be 60% after) payment of any royalties that might
become payable to ASG.
In view of its experience with selling its products through third parties,
Forecross decided in 1992 to develop and implement its own direct marketing and
sales strategy. The Company's marketing and sales strategy has several elements
designed to overcome the problems previously encountered. It has expanded
product offerings to include a broad range of service and license alternatives
that better adapt to meet the needs of the marketplace and serve to
differentiate Forecross from its competitors. Conventional techniques such as
trade publication notices, direct mail, telemarketing, and, most recently, its
own site (www.forecross.com) on the Internet are being used to bring the
Company's products and their benefits to the attention of prospective customers.
Additionally, Forecross has focused on building a reference base of satisfied
customers.
Recognizing that aversion to risk is one of the major characteristics of
the decision making process for many MIS organizations, Forecross has created a
strategy to simplify the process for potential customers to evaluate and invest
in its products. The Company has accordingly adopted a phased marketing
approach which allows a potential customer to pursue its interest in automated
migration in a series of measured steps, with each step in the process providing
demonstrable value.
The Company's principal marketing programs involve the Migration
Alternatives Planning Seminar ("MAPS") and either Factory Compile or
License-Only sales.
MAPS is an introduction, for a fee, to the conversion process through an
intensive two-day customer-site program for those considering a migration
project. Designed to address conversion issues, it includes formal technical
briefings, expert consulting, an evaluation of the risks, costs and benefits of
various alternatives and a feasibility analysis of the automated migration of a
selection of the customer's application software. MAPS is promoted by
telemarketing and is conducted by two senior members of the Forecross staff.
Evaluations of prior MAPS sessions suggest that many of the Company's MAPS
customers will decide to select Factory Compile or License-Only within twelve
months of the MAPS session.
Factory Compile is a comprehensive program in which the customer engages
Forecross to use its proprietary software on behalf of the customer to perform
the entire conversion process, thus relieving the customer of the requirements
for allocating the personnel and time necessary to learn to perform the
migration. The customer's role is limited to testing the converted application
in its new environment. The average Factory Compile project requires one senior
and two junior technical staff members for approximately four months.
License-Only is a program in which the customer licenses Forecross products
and, with training and additional optional consulting provided by Forecross,
performs the entire conversion process with its own personnel. As in the
Factory Compile program, the customer also tests the converted application in
the new environment. No customer has chosen the License-Only program in the
past few years, preferring to use the Company's automated factory facilities.
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Although there are no separately chargeable software license fees, Factory
Compile programs require the customer to sign a standard Forecross Product
License Agreement. In both programs (Factory Compile and License-Only), a
customer's use of Forecross products is limited to the conversion of a specified
maximum number of application programs, at which time the license expires.
YEAR 2000 RENOVATION
The year 2000 market may be viewed as consisting of marketing to provide
two distinct services: assessment and renovation. Presently, bids are often
sought for each phase independent of the other. There are more vendors who
provide automated or semi-automated software for assessment than for renovation,
and the fee charged for assessment is a small fraction of that for renovation.
Consistent with industry-wide pricing techniques, fees are based on a price per
line of code basis.
Because of the potentially massive scope of the year 2000 problem and the
relatively short period of time left in which to solve the problem (less than
700 days), Forecross has taken an approach to marketing its Complete/2000
products that is slightly different from its migration marketing. The year 2000
market has a more acute sense of urgency than the migration market. This factor
has caused most MIS directors of large organizations to seek outside assistance
from year 2000 consulting firms and software vendors in the identification and
resolution of the problem. Traditional marketing is, therefore, not effective
because it takes too much of the time remaining until the year 2000. In
addition, there are far too few solution providers to service all of the
potential customers in time and the potential customers are already seeking
assistance from the vendors.
To accommodate these differences, Forecross has adopted a two-pronged
strategy designed to rapidly reach the broadest possible market without having
to hire, train and manage a large sales, marketing and customer support staff.
For the assessment function, Forecross offers its Assess/2000 product through
non-exclusive license arrangements with consulting firms and other solution
providers who do not market similar software from other vendors. For the
renovation function, Forecross seeks and enters into contractual arrangements
with distributors who, for a fee, obtain exclusive marketing rights for
Complete/2000TM within a geographic territory. Exclusivity is for a term of one
year and is automatically extended for a subsequent year provided that the
distributor has caused at least a specified number of year 2000 contracts of at
least a specified value to be closed during the year. In exchange for marketing,
project management services and staffing for substantially all on-site work, the
distributor generally receives a fee equal to twenty-five percent (25%) of
collected revenues. In the case of one contract, under which a substantial
portion of the current year 2000 projects are conducted, the distributor's fee
is fifty percent (50%) of collected revenues until $1,500,000 has been received
by the distributor and twenty-five percent (25%) of revenue collected
thereafter. At the present time, Forecross has four distributors: Gardner
Solution 2000, L.L.C. in New York and New Jersey; Y2K Solutions, L.P. in Texas;
CY2K Solutions, L.L.C. in California; and, PY2K Solutions, L.L.C. in North
Carolina, South Carolina, Georgia and Florida. The President and Chief Executive
Officer of Gardner Solution 2000, L.L.C., is also the Chief Executive Officer of
Y2K Solutions, L.P., CY2K Solutions, L.L.C. and PY2K Solutions, L.L.C.
Additional distributorships are contemplated for the United States and
eventually various international locations. While Forecross may market its year
2000 products and services directly in territories not represented by
distributors, its strategy is to leverage its ability to penetrate the large
nationwide market by using a network of licensees and distributors. The Company
believes that it will receive a meaningful amount of follow-on renovation work
as a result of licensees' assessment efforts, as well as significant combined
assessment and renovation work from its full-service distributors.
In addition, the Company has formed alliances through teaming agreements
with consulting firms and service providers. As of December 31, 1997, Forecross
has signed teaming agreements with BDM International, Inc., Electronic Data
Systems Corporation (EDS), NCR Corporation and SCB Computer Technology, Inc.
SALES AND LICENSING REVENUES
From 1994 though 1996, the Company's revenues were generated primarily by
migration projects, with some revenues contributed by MAPS presentations.
During that period, the Company performed work on between ten and twenty
projects per year, of which four projects typically represented in excess of
fifty per cent of total revenues. In the fiscal year ended September 30, 1997,
the initial year 2000 assessment projects, sales of licenses to the Assess/2000
software, and fees associated with distributorships for Complete/2000TM products
and services accounted for forty-four percent of total revenue.
8
<PAGE>
COMPETITION
The marketplace for application migrations and year 2000 solutions is
served by both software and services vendors. Forecross is not aware of any
vendor, whether of software or services, who offers the degree of automated
conversion achievable through use of Forecross products.
SOFTWARE VENDORS
The principal focus of other software vendors has been on the development
and licensing of software which speeds the rewriting alternative for migration.
Examples of software delivering this type of migration solution assistance
include ViaSoft Inc.'s tools for application re-engineering, and Carleton
Corporation's software to support data migration. In both of these cases, as in
all others of which Forecross is aware, the software products do not provide the
near-complete and comprehensive automated conversion of business applications as
those performed by Forecross products.
In the year 2000 market, the principal focus of software vendors has been
on the semi-automated or automated analysis of applications written in the COBOL
language. Many vendors also assess other languages, but most use a rudimentary
text scanning approach similar to the "Find and Replace" function commonly found
in most word processing software today. With respect to renovation, there is a
growing number of software vendors whose products address COBOL, but Forecross
is aware of very few vendors who address any of the other dozen major languages
used in most large MIS organizations. The Company's Complete/2000TM product
already addresses fourteen of the non-COBOL languages, and others can be added
within eight to twelve weeks. Examples of software vendors delivering automated
or semi-automated assessment tools include ViaSoft, Inc., Micro Focus Group,
P.L.C., and Platinum Technologies, Inc. Vendors with automated or semi-automated
renovation products include Computer Associates International, Inc., Peritus
Software and Eleventh Hour Systems.
SERVICE SUPPLIERS
In both the migration and year 2000 renovation markets, service
organizations such as accounting firms and companies like BDM International,
EDS, IBM, Computer Horizons Corporation and Computer Task Group offer conversion
services. Automated conversion facilities provided by these service
organizations typically embrace between 25% and 80% of the source code, with the
balance of the conversion being performed manually, making it subject to the
inconsistency, high risk of error, high cost and delays that accompany any
manual conversion. Since these organizations are principally in the business of
supplying services, they tend to focus on turnkey projects costing several
millions of dollars which can, therefore, support the high manpower costs
involved.
Since the Company's software automates significantly more of the conversion
(95% to 100%) than can be achieved with other products, Forecross is able to
compete effectively with such service suppliers. The Company can price its
Factory Compile service offering (see "-Marketing and Sales Strategy") at or
below the prices quoted by the service suppliers because it can be presented to
the marketplace as the only solution which permits a significantly greater
degree of automation than is achievable otherwise, thereby reducing the costs,
time and risks of the project.
COMPETITIVE EXPERIENCE
The Company's experience in the competitive bidding process employed by
many of its prospective customers, leads it to believe that it has a price
advantage over a majority of the other bidders. Such bidders' costs are
typically higher due to their dependence on skilled people, as compared with the
Company's dependence on less costly automation. However, the Company has not
historically enjoyed the same degree of market recognition as many of its large
competitors, such as the national consulting or accounting firms against whom it
often competes.
Until the emergence of the year 2000 problem, some customers did not
embrace the idea that automation could help them solve their problem. Such
uncertainty would sometimes cause a customer to award a contract to the more
recognizable bidder, in spite of the higher price. This extra cost was often
viewed as an "insurance policy" against any problems in the future. The Company
has observed a shift in this trend over the past year. Automation of some or
all of the year 2000 solution has gained such widespread acceptance that many
customers now will not entertain bids which do not contain the use of automated
software tools. In addition, a number of the year 2000 solution vendors,
particularly those offering software tools, are small, heretofore unrecognized
companies. Potential customers of these tools and services are now more
accustomed to dealing with such vendors. The Company believes that it has the
capability to compete favorably because of these trends, and because it has
steadily built its reputation and name recognition over the same period of time.
COMPETITIVE POSITION
It is possible that other software or services companies may attempt to
develop new proprietary conversion software or service offerings or to enhance
existing proprietary conversion software, or service offerings, to compete
directly in the Company's chosen market. There are, in addition, certain other
elements of risk which bear upon the Company's competitive position (see
"-Certain Business Concerns: Additional Financing; Competition; Market Size; No
Assurance of Success of Marketing Strategy; Product Development; and Limited
Experience of Management in the Management of Growth"). Moreover, (as indicated
under "-Industry Background: Available Solutions") there are alternatives to
migration as a means of adapting to technological change, and there can be no
assurance that enterprise computing users will not prefer one of these
alternatives.
It is difficult for the Company to assess how many potential customers have
availed themselves of the other alternatives (i.e., the purchase of a new
software package that is year 2000 compliant and operates on new technology
platforms or rewriting the computer source codes), since Forecross does not
actively track prospects who fail to meet the Company's initial sales
qualification criteria. Among qualified prospects who ultimately do not purchase
from Forecross, the rewriting option generally prevails.
9
<PAGE>
CORPORATE HISTORY AND EMPLOYEES
CORPORATE HISTORY
The Company was formed on January 1, 1987 by a merger pursuant to the
provisions of the California Corporations Code of two predecessor corporations,
Jonescast, Inc., and its wholly owned subsidiary, Genasys Software Systems, Inc.
(subsequently renamed Genasys Technologies, Inc., and later changed to Forecross
Corporation), each incorporated under the laws of California in June, 1982. As a
result of the merger, Forecross succeeded to the business that had been carried
on by the predecessor corporations since 1982. References in this Form 10 to
Forecross Corporation, Forecross, or the Company should be taken to include a
reference to its predecessor companies.
EMPLOYEES
As of December 31, 1997, Forecross had 53 employees. Of these, thirteen
work primarily in the Factory or on customer Factory Compile projects, nine are
engaged primarily in research and development work, eight are in project
management, five are in technical support, five are in quality assurance, three
are in sales and marketing and ten are in finance and administration. All
employees are required to enter into a Confidentiality and Proprietary Rights
Agreement which requires that they not disclose any confidential information,
restricts their right to engage or have an interest in competing businesses, and
requires them to promptly disclose to Forecross the product of all work done by
them while employed by, and for, the Company, and to assign to the Company all
rights in such work product.
BACKLOG
Backlog was $3,395,000 at December 31, 1997 as compared to $1,940,000 at
December 31, 1996.
CERTAIN BUSINESS CONCERNS
UNPROFITABLE OPERATING HISTORY AND LIMITED FINANCIAL RESOURCES
The Company has not historically been profitable, and as of December 31,
1997, had suffered cumulative operating losses aggregating $6,208,793, and at
December 31, 1997, had a net capital deficiency and a net working capital
deficiency. These conditions raise substantial doubts about the ability of the
Company to continue as a going concern. During fiscal 1998, the Company expects
to meet its working capital and other cash requirements with cash derived from
operations, short-term receivables and other financing as required, and software
license and other fees from distributors desiring early access to the Company's
Complete/2000 product offerings. The Company must continue to improve the
efficiency of its operations to achieve and maintain positive cash flow from
operations and support the increased volume of contracts (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Liquidity and Capital Resources," and Note 1 of Notes to Financial Statements).
There is no assurance, however, that cash from operations and the other sources
described above will be achieved or will be sufficient for the Company's needs,
nor that the Company will be able to achieve profitability on a consistent
basis.
10
<PAGE>
ADDITIONAL FINANCING
Forecross may require additional funds to continue product development and
marketing, and to continue the expansion of its administrative and managerial
staff. The Company may seek such additional financing through private
placements and public offerings, including equity financing, and through
collaborative arrangements with others. If adequate funds are not available when
required or on acceptable terms, the Company may be required to delay, scale
back or eliminate its product development activities and sales and marketing
efforts. If this were to become necessary, it would adversely affect the
Company's business, results of operations and prospects (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Liquidity and Capital Resources").
VOLATILITY OF COMMON STOCK
The Company's stock price has been volatile since its initial public
offering on the Vancouver Stock Exchange in 1994. The Company believes that
factors such as awareness of the year 2000 problem, quarterly fluctuations in
the results of operations, announcements of new products by the Company or its
competitors, changes in revenue or earnings estimates by securities analysts,
changes in accounting principles or their application and other factors may
cause the market price of the Company's stock to continue to fluctuate, perhaps
substantially. In addition, stock prices of many technology companies fluctuate
widely for reasons that may be unrelated to operating results. Due to market
and securities analysts' expectations of continued growth and the higher
price/earnings ratio at which the Company's stock may trade, any shortfall in
meeting such expectations may have a rapid and significant adverse effect on the
price of the Company's stock in the future. Fluctuations in the Company's stock
may in turn adversely affect the Company's ability to attract and retain
qualified personnel, and to gain access to capital and financing if needed.
FLUCTUATION OF QUARTERLY RESULTS
The Company has experienced quarterly and other fluctuations in revenues
and operating results and expects these fluctuations to continue in the future.
The Company believes that these fluctuations have been attributable to the
timing, size and nature of the Company's contracts with its customers; the
performance of its distributors; the timing of the introduction of new products
or services by its competitors; changes in the Company's operating expenses;
personnel changes; and fluctuations in economic and financial market conditions.
The timing, size and nature of the Company's contracts with its customers
are important factors in the Company's operating results. Many of these
contracts involve large dollar amounts, and the sales cycle is often lengthy and
unpredictable. Uncertainties include customers' budgetary constraints, the
timing of their budget cycles and their internal approval process. There can be
no assurance that the Company will be successful in closing such large contracts
on a timely basis or at all. As to the nature of the contracts, most of the
Company's migration contracts are for a fixed fee. The Company's projects for
year 2000 services are generally based upon a fixed price per line of code
assessed and/or renovated. Although the contracts contain provisions allowing
the Company to charge additional fees to its customers in the event that
unanticipated or 'out of scope' work must be done, the Company nevertheless
bears the risk of cost overruns and inflation. A significant percentage of the
Company's revenue that is derived from these contracts is recognized on the
percentage-of-completion method, which requires revenue to be recorded over the
term of the contract. A loss is recorded at the time when current estimates of
project costs exceed unrecognized revenue. The Company's operating results may
be adversely affected by inaccurate estimates of contract completion costs.
The Company's expense levels are based, in part, on its expectations as to
future revenue and are fixed, to a large extent, in the short term. As a result,
the Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenue relative to the Company's expectations would have an immediate and
material adverse effect on the Company's business.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that future revenue and operating results will not
vary substantially. It is also possible that in some future period, the
Company's operating results will be below the expectations of public market
analysts and investors. In either case, the price of the Company's common stock
could be materially adversely affected (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
11
<PAGE>
COMPETITION
Forecross is not currently aware of any direct competitors that license,
use or sell fully automated, near-complete migration software. While certain
vendors do offer or use such software, none of the products currently available
provides the near-complete and comprehensive automated conversion performed by
the Company's products. It is possible, however, that other software developers
and vendors may create such software directed at the Company's market. If this
should happen, or if the costs and risks associated with an enterprise rewriting
its business applications for the new technologies are otherwise significantly
reduced, it is possible that significantly fewer enterprises will choose the
migration alternative using the Company's products. The Company does have some
indirect competitors in the form of service organizations, such as the
accounting and computer consulting companies which provide a combination of
automated and manual conversion, and certain of these organizations have
significantly greater resources, both of capital and personnel, than the
Company, and much greater general name recognition (see " Business: Competition"
and "Business: Competitive Position").
In the year 2000 renovation market, the Company is aware of various
software vendors whose products currently address COBOL, one of the languages
addressed by the Company's products. The Company is aware of far fewer vendors
who currently address any of the other major non-COBOL languages addressed by
the Company's year 2000 products. It is possible, however, that these other
software vendors, many of whom have substantially more resources available to
them than the Company, may develop other products to compete with the non-COBOL
products offered by the Company (see "Business: Competition - Software
Vendors").
There can be no assurance that the Company's migration and year 2000
products and services will compete effectively with those of its current and
potential competitors, nor that future competition for product sales and
services will not have a material adverse effect on the business, results of
operations and financial condition of the Company (see "Business: Competition").
DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS
The Company's results of operations are attributable to a limited number of
orders, the average size of which exceeds $500,000. During the three months
ended December 31, 1997, Brown Brothers Harriman & Company (46%) and the
Company's Distributors, treated as one customer (22%) represented sixty-eight
percent (68%) of total revenues. During the three months ended December 31,
1996, Aetna Life Insurance Company (45%) and United Stationers Supply Company
(17%) represented sixty-two percent (62%) of total revenues. During the fiscal
year ended September 30, 1997, the Company's Distributors, treated as one
customer (19%), NCR Corporation (15%) and Aetna Life Insurance Company (11%)
represented forty-five percent (45%) of total revenues. During 1996, Bear
Stearns & Company, Inc. (20%), Humana Incorporated (14%), New Brunswick
Telephone (13%) and Aetna Life Insurance Company (10%) represented fifty-seven
percent (57%) of total revenues. During the year ended September 30, 1995, BDM
International, Inc. (26%), Union Gas (21%) and the City of Chicago (10%)
accounted for fifty-seven percent (57%) of total revenues. The loss or deferral
of one or more significant sale(s) or failure to collect on a significant
accounts receivable from any customer could cause substantial fluctuations in
the Company's results of operations (see Notes 2 and 3 of Notes to Financial
Statements). While the Company believes that the year 2000 market will offer it
the opportunity to expand the number of customers and projects in process at any
given time, there can be no assurance that it will be successful in its sales
efforts or that a weakening in customer demand would not have an immediate
material adverse effect on the Company.
MARKET SIZE
The market for Forecross migration products may be smaller than the
Company projects, whether because companies in the marketplace elect for
budgetary or other reasons not to pursue automated migration or any other form
of software conversion, or because they do so at a rate that is much lower than
Forecross expects (see "Business: Market"). If this should happen, it will have
a direct impact upon the rate of the Company's growth. Although the overall
market for renovation in the year 2000 renovation market is estimated to be very
large, the number of competing software products being offered and developed,
the number of service suppliers actively soliciting year 2000 projects and the
limited time available in which to address the year 2000 problem may serve to
limit the number of year 2000 renovation opportunities that the Company is able
to obtain.
12
<PAGE>
NO ASSURANCE OF SUCCESS OF MARKETING STRATEGY
Forecross has, over the years, experimented with a variety of approaches to
the marketing of its products. The Company's current strategy for its migration
products and services is based on direct marketing which has been in place for
approximately five years. While present indications are that the strategy is
well-adapted to the market which has been targeted by Forecross, there can be no
assurance that over the long term it will be successful. Successful
implementation of the marketing plan requires, among other things, sales and
marketing personnel with an ability to communicate clearly to potential
customers the ability of the Company to complete migration projects
successfully, and this requires an understanding of both the technology and the
marketplace. For the year 2000 renovation market, the Company's strategy has
been developed over the past year. While the Company has been able to sell
several licenses to its Assess/2000 product, several distributorships and
several assessment and renovation projects, the Company's experience in this
market is too limited at the current time to determine whether the strategy
being pursued for this market will be successful (see "Business: Marketing and
Sales Strategy").
DEPENDENCE ON YEAR 2000 REVENUES
The growth in the Company's revenues in fiscal 1997 resulted in large part
from increased demand for Assess/2000 and Complete/2000 services and licenses
as awareness of the year 2000 problem has grown. Year 2000 services and related
revenue increased from 8% in fiscal 1996 to 44% of the Company's total revenues
in fiscal 1997 and 54% of total revenues for the three months ended December 31,
1997. Should the demand for the Company's year 2000 solutions and products
decline significantly as a result of new technologies, competition or any other
factors, the Company's professional services fees and license revenues would be
materially and adversely affected. The Company anticipates that demand in the
year 2000 market will decline, perhaps rapidly, following the year 1999.
The Company has also experienced significant growth in its core migration
services. It is the Company's strategy to leverage customer relationships and
knowledge of customer application systems derived from its year 2000 services
solutions to continue to grow its migration and other products and services
offerings beyond the year 2000 market. However, there can be no assurance that
this strategy will be successful, and should the Company be unable to market
other products and services as demand in the year 2000 market declines, whether
as a result of competition, technological change or other factors, the Company's
business, results of operations and financial condition will be materially and
adversely affected.
LIABILITY EXPOSURE
The Company markets its products and services to customers for managing the
renovation of mission-critical computer software systems. As noted above in
"Dependence on Year 2000 Revenues", a large and increasing portion of the
Company's business is devoted to addressing the year 2000 problem, which affects
the performance and reliability of many mission-critical systems. The Company's
agreements with its customers typically contain provisions designed to limit the
Company's exposure to potential product and service liability claims. It is
possible, however, that the limitation of liability provisions contained in the
Company's customer agreements may not be effective as a result of existing or
future federal, state, local or foreign laws or ordinances or unfavorable
judicial decisions. Although the Company has not experienced any material
product or service liability claims to date, the sale and support of its
products and services may entail the risk of such claims, particularly in the
year 2000 market, which could be substantial in light of the use of its products
and services in mission-critical applications. The Company does not presently
maintain insurance coverage for its products and services and a successful
product or service liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
PRODUCT DEVELOPMENT
The development of complex, large-scale, multiple environment computer
software presents a difficult engineering challenge, and it is possible that
Forecross may not be able to continue to develop products responsive to market
requirements on a timely or cost-effective basis, or at all. If that should
happen, there is a risk that other competing products might be launched earlier
and capture a significant part of the market targeted by the Company. Because
of the time constraints posed by the year 2000 market, there is no assurance
that the Company will be able to develop products in a timely manner in order to
obtain sufficient projects using those products.
13
<PAGE>
LIMITED EXPERIENCE OF MANAGEMENT IN THE MANAGEMENT OF GROWTH
While the present management of the Company, having been its founders, have
been principally responsible for the growth of its business to date, they may
not be in a position to provide the full range of skills required to manage the
further growth of the Company's business, and it may be necessary to recruit
competent personnel to supplement their skills and experience. While the Company
believes that it will be able to recruit competent personnel with the required
skills, competition for such personnel is intense and there can be no assurance
that Forecross will be successful in finding, attracting and retaining them.
Failure to do so could have an adverse impact upon the Company's business.
CONTROL BY DIRECTORS AND OFFICERS
The current directors and officers of the Company beneficially own
approximately 34% of the Common Shares outstanding. As a result, the current
directors and officers of the Company will continue to exercise control over its
affairs.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has to a significant extent been dependent
on the skills of certain key personnel, including Kim O. Jones and Bernadette C.
Castello, the founders and principal shareholders and, respectively, the
President and Chief Executive Officer and the Senior Vice President and Chief
Financial Officer of the Company. The Company has not entered into employment
contracts with these or any other members of management or other employees. In
addition, competition for highly skilled technical, management, financial,
marketing and sales, and other personnel in the computer industry is intense.
Loss of the services of any of the Company's present key personnel, or an
inability to attract and retain needed additional personnel could have a
materially adverse effect upon the Company. In addition, the Company relies
upon qualified, experienced subcontractors to support both its migration
services and year 2000 renovation work. The inability to find and retain
sufficient qualified subcontractors may adversely impact the Company's
operations.
INTELLECTUAL PROPERTY PROTECTION
While the Company believes that its products and technologies are
adequately protected against infringement by confidentiality agreements,
licensing agreements, copyright laws and the complex nature of the products and
technologies themselves, there can be no assurance of effective protection.
Monitoring and identifying unauthorized use of the Company's technology may
prove difficult, and the cost of, distraction, and time required for litigation
may impair or completely frustrate the Company's ability to guard adequately
against such infringement.
GENERAL ECONOMIC AND MARKET CONDITIONS
Forecross products are designed for large organizations which typically
make significant investments in their MIS departments. Expenditures by such
organizations tend to vary in cycles that reflect overall economic conditions.
The business of the Company is, therefore, vulnerable to variations in economic
conditions generally, or to those variations which affect the economic prospects
of corporations and organizations in its target market, and which could affect
the capital spending or budget cycles of prospective customers. The time period
during which companies may address and correct their year 2000 issues is
limited. Consequently, such companies may feel an urgency to contract for
assessment and renovation services with other companies before the Company is
able to address a sufficient portion of the market through its direct marketing,
distributors, and licensed service providers. This could adversely affect the
Company's ability to obtain year 2000 renovation projects.
EFFECT OF YEAR 2000 PROBLEM UPON COMPANY OPERATIONS
Forecross, like any other company, owns or uses computer software that may
be impacted by the year 2000 problem. During 1998, the Company will perform a
review of the software it is currently using in order to identify any systems
that need to be made year 2000-compliant. It is anticipated that this review
will include a survey of vendors of software or services to the Company to
ensure that their software will also be year 2000-compliant. The Company intends
to ensure that all such software will be year 2000-compliant well in advance of
December 31, 1999. Management has not yet assessed the year 2000 compliance
expense and related potential effect on the Company's operations, although it
does not believe that the expense or effect will be material.
14
<PAGE>
ITEM 2. FINANCIAL INFORMATION
- -------- ----------------------
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the fiscal
years ended September 30, 1997, 1996 and 1995 and the balance sheet data at
September 30, 1997 and 1996 are derived from the audited financial statements
included elsewhere in this Form 10. The financial data for the years ended
September 30, 1994 and 1993 and the balance sheet data at September 30, 1995,
1994 and 1993 are derived from audited financial statements not included in this
Form 10. The financial data for the three month periods ended December 31, 1997
and 1996, and the balance sheet data at December 31, 1997, are derived from
unaudited financial statements included elsewhere in this Form 10. The balance
sheet data at December 31, 1996 is derived from unaudited financial statements
not included in this Form 10. The unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The information set forth below should be read in conjunction with the
audited financial statements and notes included elsewhere in this Form 10 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------------- --------------------------
1997 1996 1995 1994 1993 1997 1996
------------ ------------ ------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Services and maintenance . . $ 4,930,456 $ 2,199,672 $ 1,445,009 $ 1,785,035 $ 670,700 $ 1,247,988 $ 866,882
Software licenses and
distributorship fees . . . . . 1,038,330 200,000 10,071 - 157,350 256,296 -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total net revenues . . . . . 5,968,786 2,399,672 1,455,080 1,785,035 828,050 1,504,284 866,882
Cost of services and
maintenance. . . . . . . . . . 4,006,323 1,431,489 738,986 983,298 387,735 1,301,506 530,410
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross margin. . . . . . . . . . 1,962,463 968,183 716,094 801,737 440,315 202,778 336,472
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development . . 1,006,768 253,743 358,133 628,023 747,640 457,394 159,807
Sales and marketing. . . . . 850,764 711,545 685,360 682,454 529,368 189,539 208,394
General and administrative . 887,039 332,500 446,031 704,302 532,298 268,822 160,508
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses. . . . 2,744,571 1,297,788 1,489,524 2,014,779 1,809,306 915,755 528,709
------------ ------------ ------------ ------------ ------------ ------------ ------------
Loss from operations. . . . . . (782,108) (329,605) (773,430) (1,213,042) (1,368,991) (712,977) (192,237)
Other income (expense), net . . (68,855) (129,141) (37,720) (51,825) 16,826 (26,137) (44,917)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Loss before provision
for income taxes . . . . . . (850,963) (458,746) (811,150) (1,264,867) (1,352,165) (739,114) (237,154)
Provision for income taxes. . . (800) (2,300) (31,616) (800) (800) - -
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net loss. . . . . . . . . . . . $ (851,763) $ (461,046) $ (842,766) $(1,265,667) $(1,352,965) $ (739,114) $ (237,154)
============ ============ ============ ============ ============ ============ ============
Net loss per share. . . . . . . $ (0.07) $ (0.04) $ (0.08) $ (0.15) $ (0.25) $ (0.06) $ (0.02)
============ ============ ============ ============ ============ ============ ============
Dividends . . . . . . . . . . . - - - - - - -
============ ============ ============ ============ ============ ============ ============
Shares used in computing
per share data. . . . . . . . . 11,681,035 11,370,804 10,344,934 8,366,350 5,407,515 11,758,112 11,528,612
============ ============ ============ ============ ============ ============ ============
BALANCE SHEET DATA:
Cash and cash equivalents . . . $ 275,243 $ 99,427 $ 14,474 $ 332,683 $ 48,640 $ 155,862 $ 305,095
Working capital (deficit) . . . (41,587) (1,077,531) (890,040) (437,183) (472,104) (668,185) (118,710)
Total assets. . . . . . . . . . 3,301,051 726,896 410,801 1,010,628 547,680 3,333,527 1,322,096
Deferred revenue, long-term . . 1,432,317 - - - - 1,196,020 -
Long-term debt (net of current
portion). . . . . . . . . . . . - 223,923 262,593 280,393 284,864 312,687 -
Shareholders' deficit . . . . . (802,164) (1,120,649) (999,092) (551,434) (575,946) (1,493,278) (223,816)
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following summary of the Company's material activities for the years
ended September 30, 1997, 1996 and 1995, and the three month periods ended
December 31, 1997 and 1996, is qualified by, and should be read in conjunction
with more detailed information along with the financial statements and
accompanying notes to the financial statements included at the end of this Form
10. Each recipient of this Form 10 is urged to read this Form 10 in its
entirety.
The Private Securities Litigation Reform Act of 1995 (the "Litigation
Reform Act") provides a "safe harbor" for forward-looking statements. Certain
information included in this Form 10 contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect results in the future and, accordingly, such results
may differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to the Company's growth strategy, customer
concentration, outstanding indebtedness, dependence on expansion and other
activities of competitors, changes in federal or state laws and the
administration of such laws, protection of trademarks and other proprietary
rights and the general condition of the economy and its effect on the securities
markets. The safe harbor provided by the Litigation Reform Act does not apply to
initial public offerings. See "Certain Business Concerns."
BACKGROUND AND OVERVIEW
From the commencement of operations of its predecessor companies in June
1982, the goal of Forecross has been to focus a small group of skilled
technicians on providing automated solutions to the specialized niche
requirements of the MIS departments of medium to large enterprise computing
organizations seeking to adapt their business applications software to a
changing technology, economic and business environment.
From 1982 through 1988, the Company developed and licensed specialized
migration software products to service providers and other software vendors for
delivery to the MIS marketplace. The Company's customers during this period
included Price Waterhouse, LLP, KPMG Peat Marwick, IBM Corporation, On-Line
Software International, Inc., Pansophic Systems, Inc., Fujitsu, Ltd., Sterling
Software and Cincom Systems, Inc.
From 1989 through 1992, Forecross revenues were derived from software
development contracts with other software vendors, royalties from various
consulting firms, and software product license fees. At the same time, Forecross
continued to develop additional commercial migration software products.
From 1992 through 1997, Forecross developed and implemented a strategy of
utilizing internal sales and marketing resources instead of relying upon third
parties, and focused upon pursuing migration services contracts as compared to
the previous focus on development contracts. Major customers utilizing
migration services have included Bank of Montreal, Bear Stearns, Kimberly Clark,
New Brunswick Telephone and Union Gas.
In addition to the migration services contracts, and in response to its
customers' growing year 2000 migration demands and utilizing the technology it
had developed over the past fifteen years, during 1996 and 1997 the Company
introduced its Complete/2000(TM) software products and related services and
methodologies. In June 1996, the Company authorized its first exclusive
distributorship and sold its first software license for the Assess/2000 product.
Initial customer projects commenced during fiscal 1997. During 1997, additional
sets of Assess/2000 licenses were sold, additional exclusive distributorships
were authorized, and additional customer projects were signed and commenced.
Once collectibility of the distributor and license fees is reasonably assured,
and if there are no significant post-delivery obligations, the Company
recognizes the fees associated with the exclusivity and the software license
ratably over the period commencing with the date of the respective signing of
the agreements and ending on December 31, 1999. Revenues for technical and sales
training, maintenance and support are recognized ratably over the term of the
support period.
Forecross, like any other company, owns or uses computer software that may
be impacted by the year 2000 problem. During 1998, the Company will perform a
review of the software it is currently using in order to identify any systems
that need to be made year 2000-compliant. It is anticipated that this review
will include a survey of vendors of software or services to the Company to
ensure that their software will also be year 2000-compliant. The Company
intends to ensure that all such software will be year 2000-compliant well in
advance of December 31, 1999. Management has not yet assessed the year 2000
compliance expense and related potential effect on the Company's operations,
although it does not believe that the expense or effect will be material.
16
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Revenues for the year ended September 30, 1997 were $5,968,786 as compared
to $2,399,672 in 1996, an increase of 149%. This increase in revenues for the
year reflected several factors: first, the significant increase in its migration
services revenue ($3,326,172 in 1997 compared to $2,199,672 in 1996); second,
revenue from year 2000 assessment and renovation contracts and the revenue
recognized from Assess/2000 software licenses of $1,946,087 in 1997 as compared
to $200,000 in 1996; and third, revenue recognized from exclusive
distributorship agreements of $696,527 in 1997 compared to no comparable revenue
in 1996. Backlog was $4,281,000 at September 30, 1997, including approximately
$615,000 to be performed after fiscal 1998, as compared to $1,709,000 in 1996.
Gross margin was $1,962,463 and $968,183 in 1997 and 1996, respectively.
The gross margin percentage was 33% in 1997 and 40% in 1996. The gross margins
reflect the impact of both initial inefficiencies of additional personnel and
subcontractors hired during 1996 and 1997, and new methods of performing work on
both the migration services and year 2000 assessment and renovation projects,
which methods were introduced by the Company during 1996. While the methods
adopted for use at its main San Francisco facility were performing substantially
as planned during 1997, the Company did not realize the efficiencies and cost
savings anticipated for the off-site work performed primarily by subcontractors
on the migration services projects. As a result, the Company is in the process
of implementing some modifications to its procedures for pricing, performing and
controlling the migration services projects in order to improve the gross margin
on those projects.
During the three months ended September 30, 1997, the Company provided
reserves of $300,000 against revenues and cost of revenues, primarily against
revenues recorded under year 2000 projects. These reserves adversely impacted
the gross margin for the year ended September 30, 1997.
Research and development expenses increased to $1,006,768 in 1997 from
$253,743 in 1996, or 297% due to an increase in the number of personnel to
support the development activity associated with the Complete/2000 products,
enhancements to existing software products and the decreased use of some of the
research and development personnel on migration services contracts in 1997.
Sales and marketing expenses were $850,764 in 1997 as compared to $711,545
in 1996. The increase in 1997 was due primarily to commissions on the increased
sales, participation in trade shows and other costs associated with the initial
marketing of the Complete/2000 and Assess/2000 products and services.
General and administrative expenses were $887,039 and $332,500 in 1997 and
1996, respectively, reflecting additional personnel, increased use of legal,
audit, and other professional services, and increased insurance, telephone,
business and payroll taxes in 1997 to support the increased level of business
activity.
Net interest expense was $68,855 in 1997 as compared to $129,141 in 1996,
reflecting the decreased use in 1997 of short-term receivables financing to meet
its working capital needs, as well as the repayment of the Company's interest
bearing debt in March 1997.
The overall net loss for the year ended September 30, 1997 was $851,763 or
$0.07 per share compared with a loss of $461,046 or $0.04 per share for the year
ended September 30, 1996 (based on the weighted average number of shares
outstanding during the respective periods).
The provision for income tax expense is the tax payable for the period plus
the change during the period in deferred tax assets and liabilities. Due to the
uncertainty of realization, a valuation allowance has been provided to eliminate
the net deferred tax assets at September 30, 1997 and 1996 (see Notes 2 and 7 of
Notes to Financial Statements).
17
<PAGE>
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues for the year ended September 30, 1996 were $2,399,672 as compared
to $1,455,080 in 1995, an increase of 65%. This increase in revenues for the
year reflected two factors: first, the increase in bookings, together with the
increased size of the contracts, both of which began in the fourth quarter of
fiscal 1995, continued through 1996; second, in 1996 the Company recognized
$200,000 of revenue associated with the initial distributorship of its
Complete/2000 product. Backlog was $1,709,000 at September 30, 1996 as compared
to $1,107,000 in 1995.
Gross margin was $968,183 and $716,094 in 1996 and 1995, respectively. The
gross margin percentage was 40% in 1996 and 49% in 1995, reflecting the initial
inefficiencies incurred in hiring additional personnel and new sub-contractors,
and establishing a new method of performing the work on the increased volume of
contracts.
For the year, operating expenses decreased by $191,736 or 13% ($1,297,788
in 1996 compared to $1,489,524 in 1995). Research and development expenses
decreased to $253,743 in 1996 from $358,133 in 1995, or 29% due to a decrease in
the level of development activity and the increased use of some of the research
and development personnel on migration services contracts in the first half of
1996. Sales and marketing expenses increased by 4% ($711,545 in 1996 compared to
$685,360) as commissions on the increased sales, and trade show and other costs
associated with the Complete/2000 product offset savings achieved from a reduced
headcount in 1996. General and administrative expenses were $332,500 and
$446,031 in 1996 and 1995, respectively reflecting overall cost reduction
efforts implemented during the second half of 1995.
Net interest expense was $129,141 in 1996 as compared to $37,720 in 1995,
reflecting the use in 1996 of short-term receivables financing and increased use
of shareholder loans to meet its working capital needs.
The overall net loss for the year ended September 30, 1996 was $461,046 or
$0.04 per share compared with a loss of $842,766 or $0.08 per share for the year
ended September 30, 1995 reflecting the increased revenue in 1996.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
Revenues for the three months ended December 31, 1997 were $1,504,284 as
compared to $866,882 in 1996, an increase of 74%. This increase in revenues for
the period reflected several factors: first, revenue from year 2000 assessment
and renovation contracts and the amortization of Assess/2000 software licenses
of $766,774 in 1997 as compared to no comparable revenue in 1996; and, second,
revenue from the amortization of exclusive distributorship agreements of $52,608
in 1997 compared to no comparable revenue in 1996. Backlog was $3,395,000 at
December 31, 1997 as compared to $1,940,000 in 1996.
Gross margin was $202,778 and $336,472 in 1997 and 1996, respectively. The
gross margin percentage was 13% in 1997 and 39% in 1996. While the revenues from
the year 2000 products and services were substantial as indicated above, they
did not reach the level anticipated by the Company and industry in general. The
Company has added substantial resources to address the year 2000 market, and the
lower than anticipated level of revenue adversely impacted gross margins. In
addition, the Company has not realized the efficiencies and cost savings
originally anticipated for the off-site work performed primarily by
subcontractors on the migration services projects. As a result, the Company is
in the process of implementing some modifications to its procedures for pricing,
performing, and controlling the migration services projects in order to improve
the gross margin on those projects.
Research and development expenses increased to $457,394 in 1997 from
$159,807 in 1996, or 186% due to an increase in the number of personnel to
support the development activity associated with the Complete/2000 product,
enhancements to existing software products, and the decreased use of some of the
research and development personnel on migration services contracts in 1997.
Sales and marketing expenses were $189,539 in 1997 as compared to $208,394
in 1996. The Company's increased participation in year 2000 trade shows began
in 1996 and has continued through 1997 at approximately the same level. Year
2000 revenues typically are not subject to commission agreements that normally
apply to migration services projects. Distributor fees, for services performed
by distributors on year 2000 projects, are included in cost of revenues and
amounted to $ 197,655 for the three months ended December 31, 1997, with no
comparable expenses in 1996.
General and administrative expenses were $268,822 and $160,508 in 1997 and
1996, respectively, reflecting additional personnel, increased use of legal,
audit, and other professional services, and increased insurance, telephone,
business and payroll taxes in 1997 to support the increased level of business
activity.
Net interest expense was $26,137 for the three months ended December 31,
1997 as compared to $44,917 in 1996, reflecting the decreased use in 1997 of
short-term receivables financing to meet its working capital needs, as well as
the repayment of the Company's interest bearing debt in March 1997.
The overall net loss for the three months ended December 31, 1997 was
$739,114 or $0.06 per share compared with a loss of $237,154 or $0.02 per share
for the three months ended December 31, 1996 (based on the weighted average
number of shares outstanding during the respective periods).
LIQUIDITY AND CAPITAL RESOURCES
Through December 31, 1997, the Company had sustained recurring losses from
operations and, at December 31, 1997, had a net capital deficiency and a net
working capital deficiency. These conditions raise substantial doubts about the
ability of the Company to continue as a going concern (see Note 1 of Notes to
Financial Statements).
For the three months ended December 31, 1997, operations were funded
through cash balances remaining at September 30, 1997, cash derived from
short-term receivables financing, proceeds from the exercise of warrants to
purchase common stock, and a loan from a senior officer of the Company.
Operations for the year ended September 30, 1997 were funded through cash
derived from short-term receivables financing, the sale of common stock, the
sale of software licenses for Assess/2000 and funds associated with distributor
agreements.
Cash received from the sale of common stock and warrants, and the exercise
of warrants, amounted to $1,162,275, $328,422, $362,010, $48,000 and $1,132,725
in the years ended September 30, 1997, 1996 and 1995, and the three months ended
December 31, 1997 and 1996, respectively.
In October 1995, the Company entered into a factoring agreement with a
financial organization whereby the Company is able to obtain financing by
borrowing against its accounts receivable. At December 31, 1997, $373,862 was
outstanding under the agreement. At September 30, 1997, there was no
outstanding indebtedness under the agreement. The agreement may be terminated
by either the factor or the Company at any time.
The Company has relied periodically upon shareholder loans to fund
operations. These prior shareholder loans were repaid in full as of March 31,
1997.
In December 1997, the Company received a loan in the amount of $350,000
from a senior officer of the Company. The loan is for a term of two years, is
unsecured and will earn interest at a rate of 24% per annum.
In February 1998, the Company received a loan in the amount of $225,000
from another senior officer of the Company. The loan is for a term of two
years, is unsecured and will earn interest at a rate of 24% per annum.
In January 1997, the Company received a payment of $800,000 from Gardner
Solution 2000, L.L.C., under the terms of a Complete/2000(TM) solution exclusive
distributorship agreement announced July 2, 1996.
In March 1997, the Company received payments of $1,746,875, and in June
1997 received payments of $1,350,000, for the sale of software licenses for
Assess/2000, new exclusive distributor agreements, and software maintenance
agreements for Assess/2000.
18
<PAGE>
From the various sources of proceeds described above, together with the
increased revenues, the Company was able to repay all of its outstanding
interest bearing debt as of September 30, 1997, pay certain other liabilities,
and fund the capital expenditures required to support the increased level of
operations. As indicated above, during the three months ended December 31,
1997, and subsequent to December 31, 1997, the Company has utilized short-term
receivables financing and loans from senior officers of the Company to fund
operations. During the balance of fiscal 1998, the Company expects to continue
to meet its working capital and other cash requirements with cash derived from
its operations, short-term receivables and other financing as required, and
software license and other fees from distributors desiring early access to the
Company's Complete/2000 product offerings. In addition, the Company must
continue to improve the efficiency of its operations to achieve and maintain
positive cash flow from operations and support the increased volume of
contracts.
There can be no assurance, however, that cash from operations and the other
sources described above will be achieved or will be sufficient for the Company's
needs. Management believes that the loans from the senior officers of the
Company, combined with continued use of short-term receivables financing will be
sufficient to meet the Company's needs through June 1998. In the meantime,
management is continuing to closely monitor the Company's prospective year 2000
project volume to evaluate whether the existing sources of financing are
adequate to support the operations of the Company, or whether additional means
of financing, including debt or equity financing, may be required to satisfy its
working capital and other cash requirements.
The Company anticipates that its capital expenditures for the next twelve
months (calendar 1998) will be approximately $150,000 to $200,000, including
furniture and equipment for the Company's additional space that it leased in
March 1998. The Company has obtained lease financing for $50,000 to $75,000 of
furniture and equipment in connection with occupying that additional space.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board released SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, both of which are effective
for a fiscal year beginning after December 15, 1997. The Company believes that
these pronouncements will not have a material effect upon the financial
condition or results of operations of the Company (see Note 2 of Notes to
Financial Statements).
In 1997, the American Institute of Certified Public Accountants released
Statement of Position (SOP) 97-2, effective for fiscal years beginning after
December 15, 1997, which provides revised guidance for recognizing revenue on
certain software transactions. The Company has not yet evaluated the effect, if
any, that the new guidance will have on future operating results and financial
position (see Note 2 of Notes to Financial Statements).
ITEM 3. PROPERTIES
- -------- ----------
The Company's principal executive offices are located at 90 New Montgomery
Street, San Francisco, California 94105, where it occupies approximately 6,200
square feet of leased space under a lease which expires in February 2002. In
addition, the Company occupies approximately 900 square feet of leased space in
the same building under a lease which expires in May, 1998. Annual base rent
under the lease is approximately $150,000. The Company also maintains a small
sales office in San Diego, California. In November 1997, the Company signed an
agreement to occupy an additional 4,000 square feet of leased space in its
current location for a three-year period effective January 1, 1998. The Company
occupied the additional space in March, 1998. Annual base rent for the expansion
space is approximately $143,000 per year.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding shares of Common Stock as of December 31,
1997 by (i) each person known to the Company beneficially to own 5% or more of
the outstanding shares of its Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's executive officers named in the Summary
Compensation Table below, and (iv) all directors and officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Name of Owner Number of Shares Percent of Class
Beneficially Owned Beneficially Owned
- ------------------------------------- ------------------ ------------------
<S> <C> <C>
Kim O. Jones (1). . . . . . . . . . . 2,218,344 18.1%
Bernadette C. Castello (2). . . . . . 2,223,944 18.2%
Richard L. Currier, Jr. (3) . . . . . 5,000 0.0%
All directors and executive officers
as a group (3 persons) (4). . . . . . 4,447,288 36.3%
<FN>
(1) Includes 250,000 shares subject to stock option which is exercisable as of
December 31, 1997.
(2) Includes 250,000 shares subject to stock option which is exercisable as of
December 31, 1997.
(3) Includes 5,000 shares subject to stock option which is exercisable as of
December 31, 1997.
Mr. Currier's business address is P.O. Box 770-369, Park City, Utah 84060.
(4) Includes 505,000 shares subject to stock options which are exercisable as
of December 31, 1997.
</TABLE>
19
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
- -------- -----------------------------------
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Kim O. Jones. . . . . . . . 53 Chief Executive Officer, President and Director
Bernadette C. Castello. . . 44 Senior Vice President, Chief Financial Officer and Director
Richard A. Carpenter. . . . 55 Director
Richard L. Currier, Jr. (1) 52 Director
Ronald Herbst . . . . . . . 55 Director of Customer Care
Carl H. Johnson . . . . . . 52 Director of Project Management
Charles T. Nelson . . . . . 51 Director of Software Products
Kenneth J. Paris. . . . . . 51 Senior Database Specialist
Peggy A. Payne. . . . . . . 48 Director of Migration Services
<FN>
(1) Denotes member of audit committee.
</TABLE>
KIM O. JONES (53) founded Forecross together with Bernadette Castello in
1982 and has been in his present position since that time. Mr. Jones is the
chief architect of the Company's products. He has been active as a software
industry entrepreneur and industry participant since 1971. Prior to the
establishment of Forecross, Mr. Jones served from 1980 to 1982 as a Director and
Vice President of Computer Systems Design, Inc., of San Francisco, California,
in charge of software product development and marketing. In 1970 Mr. Jones
co-founded Genasys Systems, Inc., a software and services firm based in San
Francisco, California, for which he worked initially as Chief Technology Officer
and, later, as President until 1980. From 1967 to 1970, he was a Vice President
of Liberty National Bank of San Francisco, California, responsible for data
processing. Mr. Jones was a member of the Board of Directors of the American
Software Association, a division of the Information Technology Association of
America.
BERNADETTE C. CASTELLO (44) co-founded Forecross with Kim Jones in 1982 and
has been in her present position since that time. Ms. Castello manages the day
to day operations of the Company. From 1973 to 1977, Ms. Castello worked for
KPMG Peat Marwick in New York, designing and managing the installation and use
of some of the earliest automated applications in that firm. Thereafter, until
1980, she worked as an analyst in Peat Marwick's computer resources department.
From 1980 to 1982, when she left to found Forecross with Mr. Jones, Ms. Castello
was a Senior Consultant at Computer Systems Design, Inc. in San Francisco,
developing applications for the financial and manufacturing industries.
RICHARD A. CARPENTER (55) is the President of Carpenter Associates, a
consulting firm which provides strategic planning and product marketing
assistance to early stage software companies. Mr. Carpenter also serves as
Chairman of the Board of two companies which he co-founded: Corex Technologies;
and, Healthcourt Technologies. Prior to co-founding these companies, Mr.
Carpenter had co-founded Index Systems (now CSC/Index) in 1969, and Index
Technology (now part of Intersolv) in 1983 where he served as Chairman/CEO until
its merger with Sage Software in 1991 to form Intersolv Software. Mr. Carpenter
became a director in March 1998. Mr. Carpenter does not provide consulting
services to any direct or indirect competitor of the Company.
RICHARD L. CURRIER, JR. (52) is the Chairman of Strategic Marketing, an
independent software marketing consulting firm based in Park City, Utah, which
supplies strategic sales and marketing consulting services to the software
industry. Mr. Currier has over 20 years of senior management experience in the
software industry, including positions as Chairman of Panoramic Inc., of San
Jose, California, and President of Walker Interactive Systems of San Francisco.
Mr. Currier's technical background includes service as Director of Data
Communications Software Development for Project Apollo of the National
Aeronautics and Space Administration, and as a consultant to the Departments of
Defense and Agriculture and the Executive Offices of the President of the United
States. Originally engaged as a consultant to provide advice on sales and
marketing strategies, Mr. Currier became a director of Forecross on October 1,
1993. He does not provide consulting services to any direct or indirect
competitor of the Company.
RONALD HERBST (55) joined the Company in December 1995 as Director of
Project Management and currently serves as Director of Customer Care. From
November 1993 through December 1995, Mr. Herbst was an independent software
consultant providing such services as conceptual and detailed system design and
implementation and system programming. From August 1993 through October 1993,
Mr. Herbst was Vice President, Research and Development for Dynamic Bytes, Inc.
From July 1989 through July 1993, Mr. Herbst served as Vice President, Windsor
Technologies, Inc. Mr. Herbst has over twenty years of senior management
experience serving the information technology industry.
CARL H. JOHNSON (52) joined the Company in March 1997 as Director of
Project Management. From 1993 to 1997, Mr. Johnson was Director, General
Accounts for Affiliated Computer Services, Inc. From 1988 to 1993, Mr. Johnson
was Manager, Corporate Applications for Amdahl Corporation. Mr. Johnson has
over twenty years of senior management experience serving the information
technology industry.
20
<PAGE>
CHARLES T. NELSON (51) joined Forecross in December 1991 and has served in
a variety of technical and research and development capacities. In June 1996,
Mr. Nelson was named Director of Software Products. Prior to joining Forecross,
Mr. Nelson had over twenty years' experience managing and supervising software
and hardware technical support activities for several large corporations.
KENNETH J. PARIS (51) Senior Database Specialist was with the Company from
1989 through March 1996, and rejoined the Company in October 1996. From March
1996 through September 1996, Mr. Paris served as an independent software
consultant to various companies, including Forecross. Prior to joining
Forecross in 1989, Mr. Paris spent eleven years with KPMG Peat Marwick, both as
Database Administrator and as director of database research and development for
the consulting department of KPMG Peat Marwick's National Technology Center.
From 1985 to 1986, Mr. Paris served as Director of Product Development at
Pansophic Systems, Inc. of Oak Brook, Illinois. He was also for six years a
member of the database committee of the American National Standards Institute
(ANSI) which developed the SQL standard. Mr. Paris was the initial Conference
Chairman and then President of the International DB2 Users Group.
PEGGY A. PAYNE (48) joined Forecross in May 1996 as Director of Migration
Services. From February 1993 through May 1996, Ms. Payne was Director of
Information Management and Technology for Revo Corporation. From July 1988 to
February 1993, Ms. Payne was manager, information systems for Westinghouse
Security Electronics. Ms. Payne has over twenty years of technical experience
and has served in various capacities for technical organizations including
Association of Corporate Computing Professionals, Bay Area MAPICS Users Group,
and Information Technology Executives Association.
ITEM 6. EXECUTIVE COMPENSATION
- -------- -----------------------
The following table sets forth the amount of all compensation paid by the
Company during each of 1997, 1996 and 1995 to the person serving as the
Company's Chief Executive Officer, and to the Company's most highly compensated
executive officer, other than the Chief Executive Officer, whose compensation
exceeded $100,000 during any such year (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- ---------------
Name and Principal Position Year Salary Bonus Securities All Other
- --------------------------- ---- ----------- ----------- Underlying Compensation
Option(#)(1)(2) ------------
---------------
<S> <C> <C> <C> <C> <C>
Kim O. Jones. . . . . . . . 1997 $ 156,511 $ 51,320 None None
Chief Executive Officer . . 1996 129,515 None 250,000 None
1995 127,400 None None None
Bernadette C. Castello. . . 1997 $ 156,511 $ 56,970 None None
Senior Vice President . . . 1996 129,515 None 250,000 None
1995 127,400 None None None
<FN>
(1) The stock options granted to the named officers are fully vested. The
options are exercisable at $1.43 per share and expire five years from the
date of grant.
(2) There are no other long-term incentive compensation plans which require
disclosure.
</TABLE>
Stock Option Grants in Last Fiscal Year. There were no grants of stock
options to either of the Company's Named Executive Officers during the fiscal
year ended September 30, 1997.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. The following table sets forth for each Named Executive Officer
information regarding stock option exercises during the fiscal year ended
September 30, 1997 as well as the fiscal year end value of unexercised options
for each such person:
21
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at 1997 Year End 1997 Year End
-------------------------- ---------------------------
Shares Acquired
Name on Exercise Value Received Exercisable Unexercisable Exercisable Unexercisable
- ------------- --------------- -------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Kim O. Jones. 0 0 250,000 0 $ 4,330,000 0
Bernadette C.
Castello . . 0 0 250,000 0 $ 4,330,000 0
</TABLE>
DIRECTOR COMPENSATION
Directors receive no compensation for service on the Board of Directors.
Mr. Currier is paid a retainer of $817 per month for consulting services in
connection with the Company's marketing strategy. Non-employee directors are
reimbursed for reasonable out-of-pocket expenses incurred in connection with the
attendance of Board meetings. Non-employee directors are entitled to participate
in the Company's 1994 Stock Option Plan. During the year ended September 30,
1996, Mr. Currier received a stock option grant for 5,000 shares at $4.75 per
share. During the year ended September 30, 1997 and during the three months
ended December 31, 1997, no options were granted to non-employee directors. In
connection with his election to the Board of Directors in March 1998, the
Company has indicated to Mr. Carpenter that it would apply to the Vancouver
Stock Exchange for authorization to grant him a stock option for 7,500 shares at
the fair market value at the time of the grant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- --------------------------------------------------
As of September 30, 1997 and December 31, 1997, the Company had the
following notes receivable from/payable to its officers:
Note receivable from Kim O. Jones, Chief Executive Officer, of $65,429,
with interest at 10%, due December 31, 1997. This represents the balance due
from amounts advanced at various times between 1987 and 1993 principally to
assist in the purchase of a principal residence by Mr. Jones. Accrued interest
receivable amounted to $24,536 at September 30, 1997. The note receivable and
accrued interest receivable were paid in full on December 31, 1997.
In July 1997, the Company loaned Kim O. Jones, Chief Executive Officer,
$35,000 in exchange for a note receivable bearing interest at 6.07% and due in
July 1998. The note receivable and accrued interest receivable were paid in full
in September 1997.
Note receivable from Bernadette C. Castello, Senior Vice President, of
$16,429, with interest at 10%, due December 31, 1997. This represents the
balance due from amounts advanced at various times between 1987 and 1993
principally to assist in the purchase of a principal residence by Ms. Castello.
Accrued interest receivable amounted to $6,161 at September 30, 1997. The note
receivable and accrued interest receivable were paid in full on December 15,
1997.
At September 30, 1997, travel advances of $37,013 to Bernadette C.
Castello, Senior Vice President, were converted to a note receivable with
interest at 5.7%, due in September, 1999.
As of September 30, 1996, the Company had several notes payable to Kim O.
Jones, Chief Executive Officer, totaling $6,800 plus $2,328 of accrued interest.
The notes bear interest at 12% and had various maturities through November 19,
1994. The notes and accrued interest were repaid in full in June, 1997.
In December 1997, the Company borrowed $350,000 from Kim O. Jones, Chief
Executive Officer, under an unsecured promissory note due December 30, 1999.
The note bears interest at 24.0% per annum.
At various times the Company has borrowed funds from Lawrence J. Schoenberg
and Associates ("Schoenberg"), an associate of Lawrence J. Schoenberg, a former
director of the Company. As of September 30, 1996, the Company had an
uncollateralized note payable to Schoenberg of $240,000, with interest at 14%.
Beginning in 1995, principal and interest payments of varying amounts were due
semiannually through October 1998. Through September 30, 1996, the Company had
made no principal or interest payments on this note. The Company also had at
September 30, 1996 an uncollateralized note payable to Schoenberg of $20,000,
with interest at 24% and principal and interest originally due April 29, 1995.
During 1996, the Company paid $25,000 against this note. As of September 30,
1996, accrued but unpaid interest on these two notes amounted to $188,023. As
of March 31, 1997, the Company paid in full the outstanding principal and
accumulated interest on both notes described above.
22
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
- -------- ------------------
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
- -------- -------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
- ----------------------------
As of December 31, 1997, the Company had issued and outstanding 11,763,612
shares of Common Stock held by 60 shareholders. The Company's Common Stock is
traded on the Vancouver Stock Exchange under the symbol FRX.U. Listed below are
the high and low bid prices (U.S. dollars) for the Company's Common Stock for
the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED HIGH LOW
- ------------------ ------ ------
<S> <C> <C>
12/31/97 . . . . . $20.00 $10.00
09/30/97 . . . . . $20.00 $11.65
06/30/97 . . . . . 25.00 13.05
03/31/97 . . . . . 16.95 6.00
12/31/96 . . . . . 7.00 3.00
09/30/96 . . . . . $ 6.87 $ 3.15
06/30/96 . . . . . 9.75 1.19
03/31/96 . . . . . 1.80 0.58
12/31/95 . . . . . 1.38 0.80
</TABLE>
The Company has not paid any dividends to date and does not anticipate that
any cash dividends will be declared in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
- --------- -------------------------------------------
The following table sets forth information regarding issuances of Common
Stock by the Company during the three years ended September 30, 1997 and during
the three months ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES GROSS PROCEEDS ($U.S.) NATURE OF CONSIDERATION
- ---------------- ----------------------- -----------------------
<C> <C> <S>
735,000 $ 294,000 Cash(1)
62,553 29,400 Services(2)
183,750 73,500 Cash(3)
551,250 330,750 Cash(4)
282,000 1,128,000 Cash(5)
14,000 39,550 Cash(6)
12,000 48,000 Cash(7)
23
<PAGE>
<FN>
1. In May 1995, these shares were sold in a private placement to
two individuals and three investment funds . The Company incurred $34,890 of
costs related to this sale, including the finder's fee of $29,400 discussed in
the following footnote 2.
2. These shares were issued to Eboracum Ltd., a placement agent, in lieu of
cash for services associated with the private placement in May 1995. The
$29,400 value of the services was a finder's fee equal to ten percent of the
gross proceeds of the private placement ($294,000), and the shares were valued
at a price equal to the average trading price in the ten days preceding the
announcement of the placement. The $29,400 value of these shares is included in
the total cost of $34,890 incurred in connection with the private placement.
3. These shares were issued in August 1995 upon the exercise of warrants
issued in connection with the private placement of 735,000 common shares in May
1995.
4. These shares were issued in November 1995 upon the exercise of warrants
issued in connection with the private placement of 735,000 common shares in May
1995.
5. These shares were issued in connection with a private placement completed
in December 1996 of Units consisting of one share of Common Stock and one
non-transferable share purchase warrant to purchase an additional share of
Common Stock for a period of two years from the date of issuance at an exercise
price of $4.00 per share in the first year and $4.60 per share in the second
year. The purchasers of the shares are family members of the president of the
Company. The Company incurred $5,275 of costs related to this sale.
6. These shares were issued during the fiscal year ended September 30, 1997
upon the exercise of stock options for 12,500 shares at $2.00 per share, and,
1,500 shares at $9.70 per share.
7. These shares were issued in October and November 1997 upon the exercise
of warrants issued in connection with the private placement of 282,000 shares in
December 1996.
</TABLE>
The Company has issued shares of its Common Stock to certain employees
(including officers) pursuant to compensation benefit plans of the Company. The
transactions described in this paragraph were exempt from the registration
requirements of the Securities Act based upon Rule 701 promulgated thereunder.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
- --------- -------------------------------------------------------
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, no par value, of which 11,763,612 were issued and outstanding as
of December 31, 1997. The holders of the Common Stock are entitled to one vote
per share at all meetings of shareholders, to receive dividends ratably, if, as
and when declared by the directors, and to participate ratably in any
distribution of property or assets on the liquidation, winding up or other
dissolution of the Company. The shares of Common Stock have no preemptive or
conversion rights. There are no provisions in the Articles of Incorporation or
By-Laws of the Company, nor any provisions of the laws of the State of
California to which the Company is subject, that would discourage a business
combination or other takeover of the Company.
See "Indemnification of Officers and Directors" for a discussion of the
indemnification and the limitation of liability of the Company's officers and
directors related to performance of their duties.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar in Canada for the Common Stock is The
Montreal Trust Company, British Columbia, Canada, which will continue to provide
such services as long as the Company's Common Stock is listed for trading on the
Vancouver Stock Exchange. The Company is currently reviewing possible
candidates to serve as the Transfer Agent and Registrar in the United States for
the Common Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- --------- ---------------------------------------------
The Company's Articles of Incorporation limit, to the maximum extent
permitted by the California General Corporation Law ("California Law"), the
personal liability of directors for monetary damages for breach of their
fiduciary duties as directors. The Company's Bylaws provide that the Company
shall indemnify its directors and officers and may indemnify its employees and
other agents to the fullest extent permitted by law.
California Law does not permit a corporation to eliminate a director's duty
of care, and the indemnification provisions contained in the Company's Articles
of Incorporation have no effect on the availability of equitable remedies, such
as injunction or rescission, for a director's breach of the duty of care.
The Company has entered into certain indemnification agreements with its
directors and officers (the "Indemnitee") that provide that the Company's
directors and officers shall be indemnified by the Company to the fullest extent
authorized by California law, as it now exists or may in the future be amended,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company)
actually and reasonably incurred by the Indemnitee in connection with an action
or proceeding against the Indemnitee by reason of the fact that Indemnitee is or
was a director, officer, employee or agent of the Company, or any subsidiary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, if the Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. No
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company in the
performance of Indemnitee's duty to the Company and its shareholders unless and
only to the extent that the court in which such action or proceeding is or was
pending shall determine upon application that, in view of all the circumstances
of the case, Indemnitee is fairly and reasonably entitled to indemnity for
expenses and then only to the extent that the court shall determine.
24
<PAGE>
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company which may give rise to
liability for the Company to provide indemnification, and the Company is not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------- -----------------------------------------------
The financial statements required by this item are set forth on pages F-1
through F-16 hereof.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- --------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
- --------------------------
On July 2, 1997, the Company received the resignation of its independent
auditor, Coopers & Lybrand, L.L.P. ("Coopers & Lybrand"). Prior to receipt of
the resignation, the decision to change auditors was not discussed, recommended
or approved by any committee of the Board of Directors or by the Board of
Directors. By resolution dated September 10, 1997, the Board of Directors of the
Company appointed BDO Seidman, L.L.P. ("BDO Seidman") as the new independent
auditor of the Company, effective September 10, 1997.
There have been no reservations in the auditor's reports of Coopers &
Lybrand for the last two fiscal years reported on by Coopers & Lybrand ended
September 30, 1996 and 1995. The auditor's reports of Coopers & Lybrand as of
and for the years ended September 30, 1996 and 1995 were modified to reflect
their conclusion that an uncertainty existed at those dates about the Company's
ability to continue as a going concern.
There were no disagreements of any kind with Coopers & Lybrand during the
two fiscal years reported on by Coopers & Lybrand ended September 30, 1996 and
1995.
Subsequent to the release of the Company's unaudited financial statements
for the quarter and six months ended March 31, 1997, Coopers & Lybrand advised
the Company that Coopers & Lybrand disagreed with the Company's accounting for
two specific transactions entered into in March 1997. Both transactions
involved the licensing of software and the granting of certain exclusive
marketing rights to two of the Company's distributors. It was the view of
Coopers & Lybrand that the Company did not have sufficient information to
support the allocation and recognition of revenue between the software licenses
and the exclusive marketing rights because the Company had never sold these two
elements separately. The Company believed that its reporting was appropriate and
consistent with advice, but Coopers & Lybrand continued to disagree.
Subsequent to the resignation of Coopers & Lybrand, BDO Seidman was
retained to advise the Company on a recommended method of accounting for the two
transactions in question as well as a subsequent similar transaction. BDO
Seidman has recommended a method of accounting whereby the total dollar amount
of the software license and distributor agreements will be amortized over
periods commencing with the dates of their respective signing and ending
December 31, 1999. The Company accepted this recommendation and accordingly
restated its interim financial statements for the period ended March 31, 1997.
The Company has authorized Coopers & Lybrand to fully respond to any inquiries
of BDO Seidman concerning the disagreement.
The Company has never been advised by Coopers & Lybrand that: (1) it does
not have the internal controls necessary for the development of reliable
financial statements; or (2) any information came to the attention of Coopers &
Lybrand that led it to conclude that it could no longer rely on management's
representations, or made it unwilling to be associated with financial statements
prepared by management; or (3) there was any need to increase the scope of its
audits.
The Company has been advised by Coopers & Lybrand that except for the
disagreement regarding the two specific transactions described above, nothing
has come to the attention of Coopers & Lybrand that in its opinion materially
impacts the fairness of previously audited financial statements for the fiscal
years ended September 30, 1996 and 1995.
25
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
- --------- ------------------------------------
(a) Financial Statements
1. Financial Statements. The following Financial Statements of Forecross
- -- --------------------
Corporation, and the Report of Independent Public Accountants are included at
pages F-1 through F-16 of this Registration Statement.
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
- -------------------------------------------------------------- ----------------
<S> <C>
Report of BDO Seidman, LLP,
Independent Certified Public Accountants . . . . . . . . . . F-1
Balance Sheets as of September 30, 1997 and 1996 and
December 31, 1997 (Unaudited). . . . . . . . . . . . . . . . F-2
Statements of Operations for each of the Three Years
in the Period Ended September 30, 1997, and the Three
Month Periods Ended December 31, 1997 and 1996 (Unaudited) . F-3
Statements of Shareholders' Equity (Deficit) for each of the
Three Years in the Period Ended September 30, 1997 and
the Three Month Period Ended December 31, 1997 (Unaudited) . F-4
Statements of Cash Flows for each of the Three Years
in the Period Ended September 30, 1997, and the Three Month
Periods Ended December 31, 1997 and 1996 (Unaudited) . . . . F-5
Notes to Financial Statements. . . . . . . . . . . . . . . . . F-6 through F-16
</TABLE>
1. Financial Statement Schedule. The following financial statement schedule
- -- ----------------------------
of Forecross Corporation for each of the three years ended September 30, 1997,
and the three month periods ended December 31, 1997 and 1996 (unaudited) is
filed as part of this Form 10 and should be read in conjunction with the
Financial Statements of Forecross Corporation.
Valuation and Qualifying Accounts S-1
(b) Index and Description of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- --------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation
3.2 By-Laws
10.1 Lease Agreement, dated January 1, 1997
between the Company and The Canada Life Assurance Company
10.2 Form of Indemnification Agreement entered into
between the Company and each of its officers and
directors
10.3 1993 Restricted Stock Purchase Plan
10.4 1994 Stock Option Plan and Form of Option Agreement
10.5* Exclusive Distributor Agreement between the
Company and Gardner Solution 2000, L.L.C., and
Amendment
10.6* Exclusive Distributor Agreement between the
Company and Y2K Solutions, L.P.,
10.7* Software License Agreement between the Company
and Y2K Solutions, L.P.
10.8 Factoring Agreement, dated October 30, 1995, between
the Company and Silicon Valley Financial Services
10.9 Lease Expansion Proposal dated November 17, 1997, between
the Company and The Canada Life Assurance Company
10.10 Factoring Modification Agreement, dated January 13, 1998, between the Company
and Silicon Valley Financial Services
10.11* Exclusive Distributor Agreement between the Company and CY2K Solutions, L.L.C.
10.12* Software License Agreement between the Company and CY2K Solutions, L.L.C.
10.13* Exclusive Distributor Agreement between the Company and PY2K Solutions, L.L.C.
10.14* Software License Agreement between the Company and PY2K Solutions, L.L.C.
16.1 Notice of Change of Auditor dated September 23, 1997, issued to all holders of
common shares of Forecross Corporation
26
<PAGE>
16.2 Letter dated September 23, 1997 from BDO Seidman, LLP to the British Columbia
Securities Commission and to the Vancouver Stock Exchange confirming the
accuracy of the information contained in the Notice of Change of Auditor of
Forecross Corporation dated September 23, 1997
16.3 Letter dated September 23, 1997 from Coopers & Lybrand, L.L.P. to the British
Columbia Securities Commission and to the Vancouver Stock Exchange confirming
the accuracy of the information contained in the Notice of Change of Auditor of
Forecross Corporation dated September 23, 1997
16.4 Letter dated September 23, 1997 from the Board of Directors of Forecross
Corporation to the shareholders of Forecross Corporation, the British Columbia
Securities Commission and the Vancouver Stock Exchange confirming the review of
the Board of Directors of the Notice of Change of Auditor and the related letter
dated September 23, 1997 from BDO Seidman, LLP and Coopers & Lybrand,
L.L.P.
27.1 Financial Data Schedule, September 30, 1997
27.2 Financial Data Schedule, December 31, 1997
<FN>
* The Company has requested that certain portions of the documents be given
confidential treatment. The entire documents, including the redacted portions,
have been filed with the SEC.
</TABLE>
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant
FORECROSS CORPORATION
April 08, 1998 BY: /S/ Bernadette C. Castello
---------------------------------
Bernadette C. Castello
Senior Vice President and Chief Financial Officer
28
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of Forecross Corporation
We have audited the accompanying balance sheets of Forecross Corporation as of
September 30, 1997 and 1996, and the related statements of operations,
shareholders' deficit and cash flows for each of the three years in the period
ended September 30, 1997. We have also audited the Schedule listed in the
accompanying index at Item 15. These financial statements and the Schedule are
the responsibility of Forecross Corporation's management. Our responsibility is
to express an opinion on these financial statements and the Schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and schedule
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
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present fairly,
in all material respects, the financial position of Forecross Corporation at
September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses from operations
and has net capital deficiencies and negative working capital at September 30,
1997. These conditions raise substantial doubt about the ability of the Company
to continue as a going concern. Management's plans as to these matters are also
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
San Francisco, California
December 12, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
FORECROSS CORPORATION
BALANCE SHEETS
September 30, December 31,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,243 $ 99,427 $ 155,862
Accounts receivable, including unbilled receivables of $1,754,691,
122,370, and $2,104,092, net of allowance of $300,340, $340 and
300,340, respectively (Note 3). . . . . . . . . . . . . . . . . . . . 2,112,982 392,805 2,427,103
Current portion of notes receivable from officers (Note 4) . . . . . . 112,504 - -
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 128,582 53,859 66,948
------------ ------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 2,629,311 546,091 2,649,913
Equipment and furniture, net (Notes 2, 4 and 5) . . . . . . . . . . . 540,804 79,601 589,056
Notes receivable from officers, net, less current portion (Note 4) . . 37,013 95,241 -
Notes receivable from others . . . . . . . . . . . . . . . . . . . . . 63,150 - 63,785
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,773 5,963 30,773
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,301,051 $ 726,896 $ 3,333,527
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 452,651 $ 475,633 $ 520,948
Accrued compensation and related benefits (Note 11). . . . . . . . . . 152,421 338,722 174,640
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 89,518 46,081 68,954
Accrued commissions and distributors' fees (Note 4). . . . . . . . . . 639,138 32,252 812,529
Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . - 156,834 -
Payable to factor (Note 6) . . . . . . . . . . . . . . . . . . . . . . - 120,000 373,862
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . 96,589 66,547 107,684
Current portion of notes payable to related parties (Note 4) . . . . . - 224,100 -
Notes payable-other. . . . . . . . . . . . . . . . . . . . . . . . . . - 10,000 -
Deferred revenue (Notes 2 and 4) . . . . . . . . . . . . . . . . . . . 1,240,581 153,453 1,259,481
------------ ------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 2,670,898 1,623,622 3,318,098
Deferred revenue, less current portion (Notes 2 and 4) . . . . . . . . 1,432,317 - 1,196,020
Notes payable to related parties, less current portion (Note 4). . . . - 223,923 312,687
------------ ------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 4,103,215 1,847,545 4,826,805
------------ ------------ ------------
Commitments and contingencies (Notes 2 and 12) . . . . . . . . . . . .
Shareholders' deficit (Notes 8, 9 and 10):
Common stock, no par value; authorized 20,000,000 shares; issued and
outstanding 11,751,612, 11,455,612 and 11,763,612, respectively . . . 4,667,515 3,505,240 4,715,515
Notes receivable from shareholders (Note 9). . . . . . . . . . . . . . - (7,973) -
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (5,469,679) (4,617,916) (6,208,793)
------------ ------------ ------------
Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . (802,164) (1,120,649) (1,493,278)
------------ ------------ ------------
Total liabilities and shareholders' deficit. . . . . . . . . . . . . $ 3,301,051 $ 726,896 $ 3,333,527
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
FORECROSS CORPORATION
STATEMENTS OF OPERATIONS
For the Years Ended For the Three Months Ended
September 30, December 31,
---------------------------------------- --------------------------
1997 1996 1995 1997 1996
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues (Notes 2, 3 and 4):
Services and maintenance . . . . . . . . $ 4,930,456 $ 2,199,672 $ 1,445,009 $ 1,247,988 $ 866,882
Software licenses and distributorship
fees. . . . . . . . . . . . . . . . . . 1,038,330 200,000 10,071 256,296 -
------------ ------------ ------------ ------------ ------------
Total net revenues . . . . . . . . . . 5,968,786 2,399,672 1,455,080 1,504,284 866,882
Cost of services and maintenance
(Notes 2 and 4) . . . . . . . . . . . . 4,006,323 1,431,489 738,986 1,301,506 530,410
------------ ------------ ------------ ------------ ------------
Gross margin . . . . . . . . . . . . . . 1,962,463 968,183 716,094 202,778 336,472
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development . . . . . . . . 1,006,768 253,743 358,133 457,394 159,807
Sales and marketing. . . . . . . . . . . 850,764 711,545 685,360 189,539 208,394
General and administrative . . . . . . . 887,039 332,500 446,031 268,822 160,508
------------ ------------ ------------ ------------ ------------
Total operating expenses . . . . . . . . 2,744,571 1,297,788 1,489,524 915,755 528,709
------------ ------------ ------------ ------------ ------------
Loss from operations . . . . . . . . . . (782,108) (329,605) (773,430) (712,977) (192,237)
Interest expense, net. . . . . . . . . . (68,855) (129,141) (37,720) (26,137) (44,917)
------------ ------------ ------------ ------------ ------------
Loss before provision for income taxes . (850,963) (458,746) (811,150) (739,114) (237,154)
Provision for income taxes (Note 7). . . (800) (2,300) (31,616) - -
------------ ------------ ------------ ------------ ------------
Net loss . . . . . . . . . . . . . . . $ (851,763) $ (461,046) $ (842,766) $ (739,114) $ (237,154)
============ ============ ============ ============ ============
Net loss per share . . . . . . . . . . . $ (0.07) $ (0.04) $ (0.08) $ (0.06) $ (0.02)
============ ============ ============ ============ ============
Shares used in computing per share data. 11,681,035 11,370,804 10,344,934 11,758,112 11,528,612
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
FORECROSS CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT
Notes Receivable
Common Stock from Accumulated Total
Shares Amount Shareholders Deficit Deficit
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1994. . . . . . 10,035,143 $2,879,600 $ (116,930) $(3,314,104) $ (551,434)
Issuance of common stock for
cash, net of stock issuance costs
of $34,890 (Note 8). . . . . . . . . . 735,000 259,110 - - 259,110
Issuance of common stock for
services (Note 8). . . . . . . . . . 62,553 29,400 - - 29,400
Issuance of common stock upon
exercise of warrants (Note 8) . . . . 183,750 73,500 - - 73,500
Repurchase of shares (Note 9). . . . . (112,084) (64,792) 64,792 - -
Payments received from
shareholders (Note 9) . . . . . . . . - - 33,098 - 33,098
Net loss . . . . . . . . . . . . . . . - - - (842,766) (842,766)
----------- ----------- -------------- ------------ ------------
Balances at September 30, 1995 . . . . 10,904,362 3,176,818 (19,040) (4,156,870) (999,092)
Issuance of common stock upon
exercise of warrants, net of stock
issuance costs of $2,328 (Note 8) . . 551,250 328,422 - - 328,422
Payments received from . . . . . . . . - - 11,067 - 11,067
shareholders (Note 9)
Net loss . . . . . . . . . . . . . . . - - - (461,046) (461,046)
----------- ----------- -------------- ------------ ------------
Balances at September 30, 1996 . . . . 11,455,612 3,505,240 (7,973) (4,617,916) (1,120,649)
Issuance of common stock for
cash, net of stock issuance costs of
$5,275 (Note 8) . . . . . . . . . . . 282,000 1,122,725 - - 1,122,725
Issuance of common stock upon. . . . . 14,000 39,550 - - 39,550
exercise of options (Note 10)
Payments received from
shareholders (Note 9) . . . . . . . . - - 7,973 - 7,973
Net loss . . . . . . . . . . . . . . . - - - (851,763) (851,763)
----------- ----------- -------------- ------------ ------------
Balances at September 30, 1997 . . . . 11,751,612 4,667,515 - (5,469,679) (802,164)
Issuance of common stock upon
exercise of warrants (Note 8)
(Unaudited) . . . . . . . . . . . . . 12,000 48,000 - - 48,000
Net loss (Unaudited) . . . . . . . . . - - - (739,114) (739,114)
----------- ----------- -------------- ------------ ------------
Balances at December 31, 1997
(Unaudited). . . . . . . . . . . . . . 11,763,612 $4,715,515 $ - $(6,208,793) $(1,493,278)
=========== =========== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FORECROSS CORPORATION
STATEMENTS OF CASH FLOWS
For the Years For the Three Months
Ended September 30, Ended December 31,
1997 1996 1995 1997 1996
------------ ---------- ---------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash resulting from:
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . $ (851,763) $(461,046) $(842,766) $ (739,114) $ (237,154)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Provision for uncollectible amounts. . . . . . 300,000 (3,160) 3,500 - -
Gain from forgiveness of notes payable . . . . - - (6,500) - -
Depreciation and amortization. . . . . . . . . 115,873 53,918 35,453 49,470 12,546
Changes in operating assets and liabilities-
Accounts receivable. . . . . . . . . . . . . . (2,020,177) (199,067) 274,886 (314,121) (283,672)
Other assets and accrued interest on notes
receivable from officers. . . . . . . . . . . (148,552) (9,021) (16,740) 91,345 (56,254)
Accounts payable and accrued liabilities . . . 471,082 233,974 (113,410) 254,138 (418,844)
Deferred compensation. . . . . . . . . . . . . (156,834) - (9,997) - -
Deferred revenue . . . . . . . . . . . . . . . 2,519,445 128,678 (43,897) (217,397) (40,088)
------------ ---------- ---------- ------------ ------------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . 229,074 (255,724) (719,471) (875,679) (1,023,466)
------------ ---------- ---------- ------------ ------------
Cash used in investing activities:
Purchase of equipment and furniture. . . . . . (577,076) (73,812) (15,482) (97,722) (60,310)
Loans to officers. . . . . . . . . . . . . . . (35,000) - - - -
Payments received on loans to officers . . . . 35,000 - - 81,858 (1,842)
Loans to key employees . . . . . . . . . . . . (62,057) - - - -
Payments received on loans to key employees. . 450 - - 300 -
------------ ---------- ---------- ------------ ------------
Net cash used in investing activities. . . . (638,683) (73,812) (15,482) (15,564) (62,152)
------------ ---------- ---------- ------------ ------------
Cash flows from financing activities:
Proceeds from factoring of accounts receivable 785,200 830,400 - 760,320 200,000
Repayment of borrowings under factoring
arrangement . . . . . . . . . . . . . . . . . (905,200) (710,400) - (386,458) -
Borrowings under note payable to officer . . . - - - 350,000 -
Borrowings under notes payable . . . . . . . . - - 185,000 - 70,000
Repayment of borrowings under notes payable . (458,023) (45,000) (163,364) (112,700)
Repayment of borrowings under notes payable
- -officers. . . . . . . . . . . . . . . . . . . (6,800) - - - -
Net proceeds from issuance of common shares . 1,162,275 328,422 362,010 48,000 1,132,725
Payments received from shareholders. . . . . . 7,973 11,067 33,098 - 1,262
------------ ---------- ---------- ------------ ------------
Net cash provided by financing activities. . 585,425 414,489 416,744 771,862 1,291,287
------------ ---------- ---------- ------------ ------------
Net increase (decrease) in cash. . . . . . . 175,816 84,953 (318,209) (119,381) 205,669
Cash at beginning of year. . . . . . . . . . . 99,427 14,474 332,683 275,243 99,427
------------ ---------- ---------- ------------ ------------
Cash at end of year. . . . . . . . . . . . . . $ 275,243 $ 99,427 $ 14,474 $ 155,862 $ 305,096
============ ========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FORECROSS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR DECEMBER 31, 1997 AND 1996 IS UNAUDITED)
1. THE COMPANY:
OPERATIONS:
Forecross Corporation ("Forecross" or the "Company") is a publicly held
California corporation whose common stock is traded on the Vancouver Stock
Exchange. The Company provides comprehensive automated conversion solutions for
migrating existing software applications to new computing platforms, including
downsized and client server environments. In addition, during fiscal 1996, the
Company introduced its Assess/2000 and Complete/2000 automated conversion
software products and related services and methodologies, which address the year
2000 problem. The year 2000 problem exists because many existing computer
programs use only two digits to identify a year in the date field. These
programs were designed and developed before the impact of the upcoming change in
the century was fully appreciated by their developers. If not corrected, many
computer applications could fail or create erroneous results. Forecross year
2000 software products assist in identifying, analyzing and correcting these
problems in a highly automated manner. The Company's migration services and
software products have been designed to meet the specialized requirements of
management information systems departments of medium-sized to large commercial
and governmental organizations. Forecross also licenses its Assess/2000
software product for use by customers and distributors (see Note 4). The
Company's customers include banks and other industrial and commercial
corporations in Canada, the United States and Europe.
BASIS OF PRESENTATION AND GOING CONCERN:
Through December 31, 1997, the Company had sustained recurring losses from
operations and, at December 31, 1997, had a net capital deficiency and a net
working capital deficiency. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern. During fiscal 1998, the
Company expects to meet its working capital and other cash requirements with
cash derived from operations, short-term receivables and other financing as
required, and software licenses and other fees from distributors desiring early
access to the Company's Complete/2000TM product offerings. The Company's
continued existence is dependent upon its ability to achieve and maintain
profitable operations by controlling expenses and obtaining additional business.
Management believes that as the number of concurrent conversion (migration and
year 2000) contracts increases, the Company will be able to utilize experienced
outside contractors and distributors (see Note 4) to perform many of the
non-management project functions to mitigate contract costs and improve its
gross margin. However, there can be no assurance that the Company's efforts to
achieve and maintain profitable operations will be successful. Additionally,
the Company is highly dependent on revenues from year 2000 contracts (see Note
2). The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The accompanying balance sheet as of December 31, 1997, the statements of
operations and cash flows for each of the three months ended December 31, 1997
and 1996, and the statement of shareholders' deficit for the three months ended
December 31, 1997 have not been audited. However, in the opinion of management,
they include all adjustments necessary for a fair presentation of the financial
position and the results of operations for the periods presented. The results
of operations for the three months ended December 31, 1997 are not necessarily
indicative of results to be expected for any future period.
DEPENDENCE ON YEAR 2000 REVENUES:
The growth in the Company's revenues in fiscal 1997 resulted in large part from
increased demand for Assess/2000 and Complete/2000 services and licenses as
awareness of the year 2000 century date conversion problem has grown. Year 2000
services and related revenue increased from 8% in the year ended September
30,1996 to 44% of the Company's total revenues in the year ended September
30,1997, and 4% and 54% of total revenues for the three months ended December
31, 1996 and 1997, respectively. Should the demand for the Company's year 2000
solutions and products decline significantly as a result of new technologies,
competition or any other factors, the Company's professional services fees and
license revenues would be materially and adversely affected. The Company
anticipates that demand in the year 2000 market will decline, perhaps rapidly,
following the year 1999.
The Company has also experienced significant growth in its core migration
services. It is the Company's strategy to leverage customer relationships and
knowledge of customer application systems derived from its year 2000 services
solutions to continue to grow its migration and other products and services
beyond the year 2000 market. However, there can be no assurance that this
strategy will be successful, and should the Company be unable to market other
products and services as demand in the year 2000 market declines, whether as a
result of competition, technological change or other factors, the Company's
business, results of operations and financial condition will be materially and
adversely affected.
The Company markets its products and services to customers for managing the
maintenance and redevelopment of mission-critical computer software systems. As
noted above, a large and increasing portion of the Company's business is devoted
to addressing the year 2000 problem, which affects the performance and
reliability of many mission-critical systems. The Company's agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product and service liability claims. It is possible, however,
that the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any material product or service
liability claims to date, the sale and support of its products and services may
entail the risk of such claims, particularly in the year 2000 market, which
could be substantial in light of the use of its products and services in
mission-critical applications. A successful product or service liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures;
contingent assets and liabilities at the date of the financial statements; and,
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. The most
significant estimates subject to future uncertainties are those relating to
calculations of percentage of completion for projects in process. It is at
least reasonably possible that the significant estimates used will change
within a year.
F-6
<PAGE>
CASH:
The Company maintains its cash balances with one financial institution. At
times, such balances may be in excess of the FDIC insurance limit.
EQUIPMENT AND FURNITURE:
Equipment and furniture is recorded at cost. Depreciation and amortization is
calculated using the straight-line method over the assets' estimated useful
lives, which range from three to five years.
CAPITALIZED SOFTWARE COSTS:
Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility is attained and
before the product is available for general release. No costs have been
capitalized for internally developed software products because the amount of
development costs eligible for capitalization was not significant.
The Company has capitalized certain purchased software technology rights (see
Note 4) which are included with other purchased software in fixed assets. Such
purchased technology rights are being amortized using a three year life.
Amortization of these purchased technology rights was $12,500 and $12,500 in the
year ended September 30, 1997 and the three months ended December 31, 1997,
respectively.
LONG-LIVED ASSETS:
Long-lived assets are assessed for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, and
comparable sales value, as appropriate. Assets to be held and used affected by
such impairment loss are depreciated or amortized at their new carrying amount
over the remaining estimated life; assets to be sold or otherwise disposed of
are not subject to further depreciation or amortization. In determining whether
an impairment exists, the Company uses undiscounted future cash flows compared
to the carrying value of the asset.
NET REVENUES AND COST OF SERVICES AND MAINTENANCE:
Revenues for migration services and year 2000 assessment or renovation projects
are recognized based on the percentage of completion method. Provisions for
estimated losses on uncompleted contracts are recognized in the period in which
the likelihood of such losses is determined. Reserves provided for estimated
adjustments of contract revenues are included as reductions of gross revenues.
Cost of revenues is primarily comprised of subcontractors' fees and salaries and
benefits of employees assigned to the contracts, and distributors' fees.
Subcontractors' fees, salaries and benefits are allocated based on the amount of
time devoted to each contract by the subcontractors and employees; distributors'
fees are accrued based on revenues earned for specific projects for which the
distributors provide services. Unbilled receivables represent revenue recognized
in excess of amounts billed. Amounts for billings in excess of revenue
recognized are included in deferred revenue.
The Company has authorized several exclusive distributor agreements for
specified areas for its Complete/2000 automated conversion software products and
related services and methodologies. Under the agreements, the distributor
retains exclusive rights for the territory for a specified period. In addition,
the Company licenses the rights to use its Assess/2000 software, which as of
December 31, 1997, had been sold primarily to the exclusive distributors above.
Once collectibility of the distributor and license fees is reasonably assured,
and if there are no significant post-delivery obligations, the Company
recognizes the fees associated with the exclusivity and the software license
ratably over the period commencing with the date of the respective signing of
the agreements and ending on December 31, 1999. Costs associated with the
licenses for Assess/2000 have been included in research and development expense
as such costs did not qualify for capitalization. Costs associated with the
marketing and negotiation of distributor customer proposals and/or sales
contracts have been included in sales and marketing expense.
Revenues for technical and sales training, maintenance and support are
recognized ratably over the term of the support period.
RESEARCH AND DEVELOPMENT EXPENSE:
Research and development costs are expensed as incurred. Research and
development expense includes both internally funded development and projects
funded in part by customers. In both cases, the Company retains ownership of
the resulting products, which are developed for resale to multiple customers;
both the initial and subsequent customers acquire licenses to use the developed
products. Revenues and research and development costs relating to products
funded by customers, included in revenues and cost of revenues on the
accompanying statements of operations, were as follows:
F-7
<PAGE>
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
------------------------ ------------
1997 1996 1995 1997 1996
----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
- - Revenues . . . . . . . . . . . $ - $ - $272,754 $ - $ -
- - Research and development costs $ - $29,067 $352,633 $ - $ -
</TABLE>
WARRANTY EXPENSE:
The Company provides a reserve for warranty costs based upon its estimate of
such related costs and expenses. The reserve is accrued ratably as revenues are
earned. The accrued warranty reserve is amortized over the related warranty
period for the respective contract, typically a period of three to six months.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The provision for income tax expense is the tax
payable for the period plus the change during the period in deferred tax assets
and liabilities.
NET LOSS PER SHARE:
Net loss per share data have been computed using only the weighted average
number of outstanding shares of common stock during each period, as all common
stock equivalents are anti-dilutive due to the losses.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, which supersedes Accounting Principles Board (APB) Opinion
No. 15, the existing authoritative guidance. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997, and requires
restatement of all prior-period earnings per share data presented. The new
statement modifies the calculations of primary and fully diluted earnings per
share and replaces them with basic and diluted earnings per share. Under SFAS
No. 128, basic earnings per share is computed by dividing income or loss
available to common shareholders by the weighted average number of shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity. Due to
the losses, there were no includable equivalents in any period presented.
Calculations under the new standard, which was adopted in the quarter ended
December 31, 1997, were the same as current calculations for all periods, since
all common stock equivalents were dilutive due to the losses.
Securities outstanding at December 31, 1997, the future potential dilutive
effect of which would be dependent upon the exercise price of the securities and
the market price of the Company's common stock at that time, include warrants to
purchase 270,000 shares of common stock and options to purchase 700,300 shares
of common stock. See Note 8 "Common Stock" and Note 10 "Stock Option Plan" for
details on these securities.
STOCK-BASED COMPENSATION:
Effective October 1, 1996, the Company adopted the disclosure provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, which requires pro forma
disclosure of net income and earnings per share as if the SFAS No. 123 fair
value method had been applied. The Company continues to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, for the preparation of its basic financial statements.
FINANCIAL INSTRUMENTS:
At September 30, 1997 and December 31, 1997, the Company's financial instruments
consist of cash, and accounts and notes receivable. The carrying value of cash
and accounts receivable approximate fair value based upon the liquidity and
short-term nature of the assets. The carrying value of notes receivable
substantially approximate fair value based upon current market interest rates,
the short-term maturity of certain of the notes and relative amounts owed.
RECLASSIFICATIONS:
Certain prior-year amounts have been reclassified to conform to current year
presentation.
OTHER RECENTLY ISSUED ACCOUNTING STATEMENTS:
During 1997, the Financial Accounting Standards Board also released SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130, which is effective for
fiscal years beginning December 15, 1997, establishes standards for reporting
and display of comprehensive income and its components in an entity's financial
statements. The objective of SFAS No. 130 is to report a measure of all changes
in the equity of an enterprise that result from transactions and other economic
events of the period. Comprehensive income is the total of net income and all
F-8
<PAGE>
other non-owner changes in equity. SFAS No. 130 does not address issues of
recognition or measurement for comprehensive income and its components, and
therefore, it will not have an impact on the financial condition or results of
operation of the Company upon adoption.
In 1997, the American Institute of Certified Public Accountants released
Statement of Position (SOP) 97-2, which provides revised guidance for
recognizing revenue on certain software transactions. The Company has not yet
evaluated the effect, if any, that the new guidance will have on future
operating results and financial position. This SOP is required to be adopted in
fiscal years beginning after December 15, 1997, and, thus, will be adopted by
the Company by the year ending September 30, 1999. The Company has not yet
decided whether to elect early application for the fiscal year ending September
30, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprises. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. The Company believes it operates under one business segment and has
already substantially complied with the required financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
F-9
<PAGE>
3. CONCENTRATIONS OF CREDIT RISK AND FOREIGN SALES:
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable as the majority of the
Company's customers are large, well-established companies. Three customers
accounted for approximately 36%, 14% and 12% of the accounts receivable balance
at December 31, 1997. Four customers accounted for approximately 23%, 17%, 13%
and 12% of the accounts receivable balance at September 30, 1997, and four
customers accounted for approximately 25%, 22%, 15% and 12% at September 30,
1996. Additionally, three customers, including revenues from the Company's
Distributors treated as resulting from one customer (see Note 4), accounted for
approximately 19%, 15% and 11% of total revenues for the fiscal year ended
September 30, 1997, four customers accounted for 20%, 14%, 13% and 10% for the
fiscal year ended September 30, 1996, and three customers accounted for 26%, 21%
and 10% of total revenues for the fiscal year ended September 30, 1995. Two
customers, including revenues from the Company's Distributors treated as
resulting from one customer, accounted for approximately 46% and 22% of total
revenues for the three months ended December 31, 1997. Two customers accounted
for approximately 45% and 17% of total revenues for the three months ended
December 31, 1996. Net revenues from Canadian and European customers were as
follows:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
------------------- ------------
1997 1996 1995 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Canada 9% 15% 29% 1% 3%
Europe 1% -- 10% 4% --
</TABLE>
4. RELATED PARTY TRANSACTIONS:
The Company has certain transactions with related parties in the ordinary course
of business as set forth below.
Notes receivable and payable:
- -------------------------------
Notes receivable and payable from officers consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
-------- --------- ----------
1997 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
10% Uncollateralized notes receivable from president, due
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . $ 65,429 $ 65,429 $ -
5.7 to 10% Uncollateralized notes receivable from Senior Vice
President, due in varying amounts through September 30, 1999 53,442 16,429 37,012
Accrued interest receivable. . . . . . . . . . . . . . . . . . 30,646 22,511 534
-------- --------- ----------
Total receivable from officers . . . . . . . . . . . . . . . 149,517 104,369 37,546
-------- --------- ----------
24% Uncollateralized notes payable to president, due
December 30, 1999 . . . . . . . . . . . . . . . . . . . . . . - - (350,000)
Uncollateralized notes payable to president. . . . . . . . . . - (6,800) -
Accrued interest payable . . . . . . . . . . . . . . . . . . . - (2,328) ( 233)
-------- --------- ----------
Total payable to officers. . . . . . . . . . . . . . . . . . - (9,128) (350,233)
-------- --------- ----------
Notes receivable from (payable to) officers, net . . . . . . . 149,517 95,241 (312,687)
Less current portion under original terms. . . . . . . . . . . 112,504 - -
-------- --------- ----------
$ 37,013 $ 95,241 (312,687)
======== ========= ==========
</TABLE>
F-10
<PAGE>
The Company had notes payable to other related parties as follows:
<TABLE>
<CAPTION>
September 30, December 31,
----------------- -----
1997 1996 1997
----- ---------- -----
<S> <C> <C> <C>
14% Uncollateralized note payable to a shareholder, paid in full
during 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 240,000 $ -
24% Uncollateralized note payable to a shareholder, paid in full
during 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . - 20,000 -
Accrued interest payable, paid in full during 1997 . . . . . . . - 188,023 -
----- ---------- -----
- 448,023 -
Less current portion under original terms. . . . . . . . . . . - (224,100) -
----- ---------- -----
$ - $ 223,923 $ -
===== ========== =====
</TABLE>
Software Licenses and Distributorships:
- -----------------------------------------
The Company has entered into agreements with several entities (the
"Distributors") for licenses and distributorship arrangements for its year 2000
software products, Assess/2000 and Complete/2000 , and related services. The
Distributors are related to each other through some common ownership and
management; a shareholder of the Company is a founding investor and officer of
each of the other entities.
At least one other shareholder of the Company is also an investor in at least
one of the Distributors. As of September 30, 1996, this shareholder pledged
150,000 shares of Company stock as collateral for $800,000 due under the terms
of the first of the contracts; the entire amount was collected in January 1997.
Under the distributorship agreements, the Distributors receive territorially
exclusive rights to market year 2000 renovation projects to be performed by the
Company using the Complete/2000 software, and year 2000 assessment projects to
be performed either by the Company or the Distributor using the Assess/2000
software. In exchange for marketing, project management services and staffing
for substantially all on-site work, the Distributor generally receives a fee
equal to 25% of collected revenues. The exclusivity rights under these contracts
are for a one-year period, but are renewable based on certain performance
conditions. The Distributors generally have separate agreements for license
rights for unlimited usage of the Assess/2000 product. In the case of one
contract, under which a substantial portion of the current year 2000 projects
operate, the Company performs both assessment and renovation for all projects
with the distributor providing project management, customer contact and on-site
work. Fees payable under this contract are 50% of collected revenues until
$1,500,000 has been received by the Distributor, and 25% of revenue collected
thereafter.
The licensing and distributorship fees received from the Distributors, totaling
$3,125,000 and $200,000 in 1997 and 1996, respectively, have generally been
deferred over the period from inception of the respective agreements to December
31, 1999. Of these amounts, approximately $256,000, $1,038,000 and $200,000
have been recognized in revenue during the three months ended December 31, 1997
and during the years ended September 30, 1997 and 1996, respectively, and
approximately $2,287,000 and $2,230,000 is deferred at September 30, 1997 and
December 31, 1997, respectively. Additional fees of approximately $672,000 for
training programs, annual software maintenance, and customer support were
received in 1997; of this amount, approximately $336,000 and $79,000 is deferred
at September 30, 1997 and December 31, 1997, respectively. The year 2000
project fee expense related to the distributor contracts, included in cost of
revenues in the accompanying statements of operations, was approximately
$853,000 for the year ended September 30, 1997 and $198,000 for the three months
ended December 31, 1997.
Purchased Software:
- -------------------
During the year ended September 30, 1997, the Company commissioned and purchased
a $150,000 data analysis module for use with its year 2000 software products.
The software developer is an entity owned in part by the senior vice president
of the Company, another employee of the Company, and another shareholder.
F-11
<PAGE>
5. EQUIPMENT AND FURNITURE:
Equipment and furniture is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
---------------------- -----------
1997 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Computer equipment and software . . . . . $ 700,554 $ 229,787 $ 784,986
Furniture and equipment . . . . . . . . . 244,570 145,772 247,860
---------- ---------- -----------
945,124 375,559 1,032,846
Accumulated depreciation and amortization (404,320) (295,958) (443,790)
---------- ---------- -----------
$ 540,804 $ 79,601 $ 589,056
========== ========== ===========
</TABLE>
6. PAYABLE TO FACTOR:
In October 1995, the Company entered into a recourse factoring agreement with a
financial organization whereby the Company is able to obtain financing of up to
80% of purchased trade accounts receivable. In addition to an administrative fee
of 1% of each invoice financed, the Company will incur interest at the rate of
2% per month on the outstanding gross amount of the receivables financed. The
Company's obligations under this agreement have been personally guaranteed by
the president and senior vice president of the Company who are significant
shareholders of the Company. At September 30, 1996, the Company's outstanding
indebtedness under the agreement was $120,000. There was no outstanding
indebtedness under the agreement as of September 30, 1997. At December 31,
1997, the Company's outstanding indebtedness under the agreement was $373,862.
The agreement may be terminated by either the factor or the Company at any time.
7. INCOME TAXES:
The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
---------------------- ------------
1997 1996 1995 1997 1996
----- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Current:
State. . . . . . . . . . . $ 800 $ 800 $ 800 $ - $ -
Foreign. . . . . . . . . . - 1,500 30,816 -. -.
----- ------ ------- ----- -----
Total provision for income
taxes . . . . . . . . . . $ 800 $2,300 $31,616 $ - $ -
===== ====== ======= ===== =====
</TABLE>
The effective income tax rate differs from the statutory federal income tax rate
primarily due to the full valuation allowance against the Company's deferred tax
assets arising from its net operating losses.
Significant components of the Company's net deferred tax balances are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------- ------------
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Accrual to cash adjustment . . . . . . . . . . $ 595,000 $ 446,000 $ 635,000
Net operating loss carryforwards . . . . . . . 1,431,000 1,191,000 1,685,000
State taxes, net of federal benefit, and other (109,000) (85,000) (99,000)
------------ ------------ ------------
Total deferred tax assets. . . . . . . . . . 1,917,000 1,552,000 2,229,000
Valuation allowance. . . . . . . . . . . . . . (1,917,000) (1,552,000) (2,229,000)
------------ ------------ ------------
Net deferred tax assets. . . . . . . . . . . $ - $ - $ -
============ ============ ============
</TABLE>
F-12
<PAGE>
Since the Company could not determine it was more likely than not that the
deferred tax assets would be realized, a 100% valuation allowance has been
provided to eliminate the deferred tax assets at September 30, 1997 and 1996 and
December 31, 1997. The increase in the valuation allowance was $365,000,
$715,000, $126,000, and $312,000 in the years ended September 30, 1997, 1996 and
1995 and the three months ended December 31, 1997, respectively. Of the 1996
increase, $448,000 represented a change in the expected federal rate at date of
realization from 20% to 34%.
At September 30, 1997, the Company has net operating loss carryforwards for
federal and California state income tax purposes of approximately $3,755,000 and
$1,876,000, respectively. These carryforwards expire in varying amounts between
1998 and 2012. Pursuant to the provisions of the Tax Reform Act of 1986,
utilization of these net operating loss carryforwards may be subject to an
annual limitation due to a greater than 50% change in the ownership of the
Company within a three-year period.
8. COMMON STOCK:
In May 1995, the Company sold 735,000 of its shares of common stock in a private
placement. The Company incurred $34,890 of costs related to this sale,
including services totaling $29,400 for which the Company issued 62,553 shares
of common stock in lieu of payment.
In connection with the May 1995 private placement, the Company issued 735,000
warrants to purchase additional shares of common stock at $.40 and $.60 per
share if exercised prior to August 31, 1995 and November 30, 1995, respectively.
In August 1995, warrants were exercised to purchase 183,750 shares at $.40 per
share. Warrants to purchase the remaining 551,250 shares of common stock at
$.60 per share were exercised in November 1995.
In December 1996, the Company sold 282,000 shares of its common stock in a
private placement resulting in proceeds of $1,128,000. The Company incurred
$5,275 of costs related to this sale. In connection with the sale, the Company
issued to the investors nontransferable warrants to purchase an additional
282,000 shares of common stock. The warrants are exercisable for a period of
two years, at a price of $4.00 per share during the first year and at $4.60 per
share during the second year. During the three months ended December 31, 1997,
warrants to purchase 12,000 shares of common stock were exercised resulting in
proceeds of $48,000.
9. RESTRICTED STOCK PURCHASE PLAN:
In June 1993, the Board of Directors approved the 1993 Restricted Stock Purchase
Plan (the "Plan"). The Plan allows employees and consultants to purchase shares
of the Company's common stock at a price not less than the fair value. The
maximum aggregate number of shares which may be sold under the Plan is 1,000,000
shares of common stock. During the year ended September 30, 1994, 50,000 shares
were sold under the Plan. No shares were sold under the Plan in 1997, 1996 or
1995, or during the three months ended December 31, 1997.
Shares purchased under the Plan are subject to a right of repurchase by the
Company at the original purchase price upon the termination of the purchaser's
employment or consulting relationship with the Company. Except for the initial
stock purchases in 1993, for which the vesting commenced on June 25, 1992, the
right to repurchase generally lapses at the rate of one-third (1/3) after one
year from the date of purchase, and one-thirty-sixth (1/36) of the original
number of shares purchased per month thereafter. At December 31, 1997, September
30, 1997 and September 30, 1996, no shares are subject to the Company's
repurchase option under this provision. No shares were repurchased during the
years ended September 30, 1997 or 1996, or during the three months ended
December 31, 1997. During 1995, the Company repurchased 112,084 shares under
this provision.
In partial consideration for stock purchased under the Plan, the Company
received promissory notes with an aggregate balance of $7,973 as of September
30, 1996. These notes were paid in full during 1997.
F-13
<PAGE>
10. STOCK OPTION PLAN:
In April 1994, the Board of Directors approved the 1994 Stock Option Plan,
whereby employees and consultants may be granted incentive and non-statutory
stock options. Depending on the employee's stock ownership percentage,
incentive stock options are granted with exercise prices ranging from 100% to
110% of the fair value of stock at the date of grant. Depending on stock
ownership percentage, non-statutory stock options are granted with exercise
prices ranging from 85% to 110% of the fair value of stock at the date of grant.
The maximum aggregate number of shares of common stock which may be optioned and
sold under the plan is 950,500. The term of each option is that stated in each
specific option agreement provided that the term does not exceed ten years from
the date of grant (five years in the case of an optionee already owning common
stock representing 10% or more of the voting power).
Stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------------------------------------------
AVAILABLE AGGREGATE WEIGHTED AVG.
FOR GRANT NO. OF SHARES PRICE PER SHARE PRICE EXERCISE PRICE
---------- -------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1994. . . . . 950,500 - - - -
Granted during 1995 . . . . . . . (42,500) 42,500 $ 2.00 $ 85,000 $ 2.00
---------- -------------- ---------------- ----------- ---------------
Balance, September 30, 1995 . . . 908,000 42,500 2.00 85,000 2.00
Granted during 1996 . . . . . . . (561,500) 561,500 1.43-4.75 1,007,125 1.79
Canceled during 1996. . . . . . . 10,000 (10,000) 2.00 (20,000) 2.00
---------- -------------- ---------------- ----------- ---------------
Balance, September 30, 1996 . . . 356,500 594,000 1.43-4.75 1,072,125 1.80
Granted during 1997 . . . . . . . (131,800) 131,800 9.70-19.00 1,809,010 13.73
Exercised during 1997 . . . . . . - (14,000) 2.00-9.70 (39,550) 2.83
Canceled during 1997. . . . . . . 8,500 (8,500) 2.00-4.75 (33,500) 3.94
---------- -------------- ---------------- ----------- ---------------
Balance, September 30, 1997 . . . 233,200 703,300 1.43-19.00 2,808,085 3.99
Granted during the three months
ended December 31, 1997 . . . . - - - - -
Exercised during the three months
ended December 31, 1997. . . . - - - - -
Canceled during the three months
ended December 31, 1997 . . . . 3,000 (3,000) 9.70 (29,100) 9.70
---------- -------------- ---------------- ----------- ---------------
Balance, December 31, 1997. . . . 236,200 700,300 $ 1.43-19.00 $2,778,985 $ 3.97
========== ============== ================ =========== ===============
</TABLE>
The following table summarizes information with respect to stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------- -------------------------------------
RANGE OF NUMBER OUTSTANDING WEIGHTED AVG. REMAINING WEIGHTED AVG. NUMBER EXERCISABLE WEIGHTED AVG.
EXERCISE PRICE AT DECEMBER 31, 1997 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE AT DECEMBER 31, 1997 EXERCISE PRICE
=============== ==================== ======================== =============== ==================== ===============
<S> <C> <C> <C> <C> <C>
1.43-$2.00 . . 517,500 2.90 $ 1.45 517,500 $ 1.45
4.75. . . . . . 55,500 3.67 4.75 55,500 4.75
9.70-12.70. . . 61,300 4.21 11.02 48,800 10.81
15.35-19.00 . . 66,000 4.70 16.51 49,913 16.42
- --------------- -------------------- ------------------------ --------------- -------------------- ---------------
1.43-19.00 . . 700,300 3.25 $ 3.97 671,713 $ 3.52
=============== ==================== ======================== =============== ==================== ===============
</TABLE>
F-14
<PAGE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its plan. Accordingly, no compensation cost has
been recognized for its stock option plan. Had compensation cost for the
Company's stock option plan been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net loss and net loss per
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
-------------------------- ----------------------
1997 1996 1997 1996
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . As reported $ (851,763) $ (461,046) $(739,114) $(237,154)
Pro forma $(1,849,349) $(1,038,641) $(779,406) $(486,550)
Net loss per share-basic and diluted As reported $ (0.07) $ (0.04) $ (0.06) $ (0.02)
Pro forma $ (0.16) $ (0.09) $ (0.07) $ (0.04)
</TABLE>
The fair value of the Company's stock option grants is amortized over the
vesting period. The average fair value of options granted during the years
ended September 30, 1997 and 1996 were $10.09 and $1.03, respectively. No stock
options were granted during the three months ended December 31, 1997 or 1996.
The fair value was estimated as of the date of grant using a modified
Black-Scholes option pricing method based upon the following weighted average
assumptions:
<TABLE>
<CAPTION>
Years Ended
September 30,
------------
1997 1996
----- -----
<S> <C> <C>
Expected life (years). . 2.5 2.5
Expected volatility. . . 125% 102%
Risk free interest rate. 6.22% 5.70%
</TABLE>
11. PROFIT SHARING AND RETIREMENT PLANS:
The Company has a 401(k) profit sharing plan covering substantially all
employees and matches employee salary deferrals up to a maximum of 4% of the
participant's eligible compensation. The Company's cost of the 401(k) profit
sharing plan was $66,670, $25,556 and $30,700 in the fiscal years ended
September 30, 1997, 1996 and 1995, and $6,557 and $4,305 in the three months
ended December 31, 1997 and 1996, respectively.
The Company also has a Money Purchase Pension Plan (Pension Plan). The Company
was required to contribute 10% of total participant compensation through
December 1992 and 6% of total participant compensation from January 1, 1993
through December 31, 1994. Effective January 1, 1995, contributions to the
Pension Plan were no longer required. There were no contributions to this Plan
during 1997 or 1996. The Company's cost of the Pension Plan was $12,736 in the
fiscal year ended September 30, 1995.
The Company was previously delinquent in the payment of its employer
contributions to the 401(k) plan and the Pension Plan. Under the terms of an
Employee Plans Voluntary Compliance Resolution Program, the Company paid the
past due contributions to the 401(k) plan ($59,778), the Pension Plan ($83,686)
and penalties ($60,406) on December 28, 1996, with final interest and penalties
($43,315) paid on September 11, 1997.
12. LEASE COMMITMENTS:
The Company leases office space and equipment under operating leases. Rent
expense under operating leases was $184,344, $125,820, $127,268, $67,894 and
$29,972 in the fiscal years ended September 30, 1997, 1996 and 1995, and the
three months ended December 31, 1997 and 1996, respectively. As of September 30,
1997, future minimum lease payments under operating leases are as follow:
F-15
<PAGE>
<TABLE>
<CAPTION>
Years Ending September 30,
- --------------------------
<S> <C>
1998 . . . . . . . . . . . $188,564
1999 . . . . . . . . . . . 148,344
2000 . . . . . . . . . . . 152,207
2001 . . . . . . . . . . . 154,525
2002 . . . . . . . . . . . 57,947
--------
$701,587
========
</TABLE>
In November 1997, the Company signed a letter of intent for additional space for
a four-year period beginning in January 1998, for approximately $143,000
annually. The rent expense for this additional space is excluded from the
preceding summary.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
------------------------- ----------------
1997 1996 1995 1997 1996
-------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Interest paid $290,648 $59,647 $8,144 $31,295 $54,813
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
September 30, December 31,
------- ----- ------- ----- -----
1997 1996 1995 1997 1996
------- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Common stock issued for professional services. . . . . $ - $ - $29,400 $ - $ -
Common stock repurchased through cancellation of notes
receivable from shareholders . . . . . . . . . . . . $ - $ - $64,792 $ - $ -
Outstanding travel advances converted to a note
receivable from the Senior Vice President. . . . . . $37,013 $ - $ - $ - $ -
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
FORECROSS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES AGAINST RECEIVABLES:
- --------------------------------
Additions -
---------------------
Balance, Charges to Revenues Deductions- Balance,
Beginning of or Costs and Write-offs End of
------------- ---------
Period Expenses (1) Charged to Reserve Period
------------- --------------------- ------------------- ---------
<S> <C> <C> <C> <C>
Year Ended September 30,
1997. . . . . . . . . . . . . . $ 340 $ 300,000 $ - $ 300,340
1996. . . . . . . . . . . . . . 3,500 - 3,160 340
1995. . . . . . . . . . . . . . - 3,500 - 3,500
Three Months Ended December 31,
1997. . . . . . . . . . . . . . 300,340 - - 300,340
1996. . . . . . . . . . . . . . 340 - - 340
<FN>
(1) Certain allowances related to contract estimations for amounts of revenue
recognized on percentage-of-completion basis are charged directly to revenues
</TABLE>
S-1
<PAGE>
Exhibit 3.1
CERTIFICATE OF CORRECTION
OF
RESTATED ARTICLES OF INCORPORATION
OF
FORECROSS CORPORATION
KIM 0. JONES and BERNADETTE C. CASTELLO certify that:
1. They are the President and Secretary of Forecross Corporation.
2. The name of the corporation is Forecross Corporation, and it is a
California corporation.
3. The instrument being corrected is entitled "Restated Articles of
Incorporation of Forecross Corporation", and said instrument was filed with the
Secretary of State of the State of California on June 25, 1993.
4. Article III of Paragraph 2 of said Restated Articles of Incorporation as
corrected, should read as follows:
"This corporation is authorized to issue one class of stock, designated
Common Stock. The total number of shares which this corporation is authorized to
issue is 20,000,000.
Upon the amendment and restatement of these articles to read as herein set
forth, each outstanding share of Common Stock shall be split up and converted
into 2,121.152 shares of Common Stock."
5. That said paragraph 2, as corrected, conforms the wording of the amended
article to that adopted by the board of directors and shareholders.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing certificate are true of
our own knowledge.
Executed at San Francisco, California on November 22, 1993.
/s/ Kim O. Jones
------------------------------------
Kim O. Jones, President
/s/ Bernadette C. Castello
------------------------------------
Bernadette C. Castello,
Secretary
<PAGE>
RESTATED ARTICLES OF INCORPORATION OF
FORECROSS CORPORATION
Kim O. Jones and Bernadette C. Castello certify that:
1. They are the President and Secretary, respectively, of Forecross
Corporation, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
I
The name of this corporation is Forecross Corporation.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations code.
III
This corporation is authorized to issue one class of stock, designated
Common Stock. The total number of shares which this corporation is authorized to
issue is 20,000,000.
Upon the amendment and restatement of these articles to read as herein set
forth, each outstanding share of Common Stock shall be split up and converted
into 2,118 shares of Common Stock.
IV
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. The
corporation is also authorized, to the fullest extent permissible under
California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code) , whether by bylaw, agreement or otherwise, for
breach of duty to the corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such matters as they are incurred.
-1-
<PAGE>
If, after the effective date of this Article IV, California law is amended
in a manner which permits a corporation to limit the monetary or other liability
of its directors or to authorize indemnification of, or advancement of such
defense expenses to, its directors or other persons, in any such case to a
greater extent than is permitted on such effective date, the references in this
Article IV to "California law" shall to that extent be deemed to refer to
California law as so amended."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of the shareholders in accordance with Sections
902 and 903 of the Corporations Code. The total number of outstanding shares of
the corporation is 2,534 shares of Common Stock. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding Common Stock of the
corporation.
/s/ Kim O. Jones
------------------------------------
Kim O. Jones, President
/s/ Bernadette C. Castello
------------------------------------
Bernadette C. Castello,
Secretary
The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.
Executed at San Francisco, California on June 17, 1993.
/s/ Kim O. Jones
------------------------------------
Kim O. Jones, President
/s/ Bernadette C. Castello
------------------------------------
Bernadette C. Castello,
Secretary
-2-
BYLAWS
OF
FORECROSS CORPORATION
<PAGE>
BYLAWS OF
FORECROSS CORPORATION
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES 1
1.1 PRINCIPAL OFFICE 1
1.2 OTHER OFFICES 1
ARTICLE II - MEETINGS OF SHAREHOLDERS 1
2.1 PLACE OF MEETINGS 1
2.2 ANNUAL MEETING 1
2.3 SPECIAL MEETING 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 3
2.6 QUORUM 4
2.7 ADJOURNED MEETING; NOTICE 4
2.8 VOTING 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING 6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING
CONSENTS 7
2.12 PROXIES 7
2.13 INSPECTORS OF ELECTION 8
ARTICLE III - DIRECTORS 9
3.1 POWERS 9
3.2 NUMBER OF DIRECTORS 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS 9
3.4 RESIGNATION AND VACANCIES 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE 10
3.6 REGULAR MEETINGS 11
3.7 SPECIAL MEETINGS; NOTICE 11
3.8 QUORUM 11
3.9 WAIVER OF NOTICE 12
3.10 ADJOURNMENT 12
3.11 NOTICE OF ADJOURNMENT 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 12
3.13 FEES AND COMPENSATION OF DIRECTORS 12
3.14 APPROVAL OF LOANS TO OFFICERS 13
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
ARTICLE IV - COMMITTEES 13
4.1 COMMITTEES OF DIRECTORS 13
4.2 MEETINGS AND ACTION OF COMMITTEES 14
ARTICLE V - OFFICERS 14
5.1 OFFICERS 14
5.2 ELECTION OF OFFICERS 15
5.3 SUBORDINATE OFFICERS 15
5.4 REMOVAL AND RESIGNATION OF OFFICERS 15
5.5 VACANCIES IN OFFICES 15
5.6 CHAIRMAN OF THE BOARD 15
5.7 PRESIDENT 16
5.8 VICE PRESIDENTS 16
5.9 SECRETARY 16
5.10 CHIEF FINANCIAL OFFICER 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS 17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS 17
6.2 INDEMNIFICATION OF OTHERS 18
6.3 PAYMENT OF EXPENSES IN ADVANCE 18
6.4 INDEMNITY NOT EXCLUSIVE 18
6.5 INSURANCE INDEMNIFICATION 19
6.6 CONFLICTS 19
ARTICLE VII - RECORDS AND REPORTS 19
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER 19
7.2 MAINTENANCE AND INSPECTION OF BYLAWS 20
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORD 20
7.4 INSPECTION BY DIRECTORS 21
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER 21
7.6 FINANCIAL STATEMENTS 21
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS 22
ARTICLE VIII - GENERAL MATTERS 22
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING 22
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS 23
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED 23
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued
Page
8.4 CERTIFICATES FOR SHARES 23
8.5 LOST CERTIFICATES 24
8.6 TRANSFER OF SECURITIES PURSUANT TO REGULATION S 24
8.7 CONSTRUCTION; DEFINITIONS 24
ARTICLE IX - AMENDMENTS 25
9.1 AMENDMENT BY SHAREHOLDERS 25
9.2 AMENDMENT BY DIRECTORS 25
-iii-
<PAGE>
BYLAWS
OF
FORECROSS CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation,
the annual meeting of shareholders shall be held on the first Tuesday of the
fourth calendar month following the end of the fiscal year of the corporation at
10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day. At
the meeting, directors shall be elected, and any other proper business may be
transacted.
<PAGE>
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the
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Corporations Code of California (the "Code"), (ii) an amendment of the articles
of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of
the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary
dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code, then the
notice shall also state the general nature of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
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2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote thereat constitutes a quorum for the transaction of business at
all meetings of shareholders. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice of
any such adjourned meeting shall be given to each shareholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of Sections
2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders.
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Any shareholder entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or, except
when the matter is the election of directors, may vote them against the
proposal; but, if the shareholder fails to specify the number of shares which
the shareholder is voting affirmatively, it will be conclusively presumed that
the share- holder's approving vote is with respect to all shares which the
shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the share- holder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal.
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All such waivers, consents, and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which, all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code,
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(iii)a reorganization of the corporation, pursuant to Section 1201 of
the Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, the notice shall be given
at least ten (10) days before the consummation of any action
authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) day before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior action by
the board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action by the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
to that action, or the sixtieth (60th) day before the date of such other action,
whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
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or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, then the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
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(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than three (3)
nor more than five (5). The exact number of directors shall be three (3) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold
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office until the expiration of the term for which elected and until a successor
has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased; or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of
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the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS: NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that directors address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3. 8 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except adjourn as provided in Section 3.10 of
these bylaws. Every act or decision done or made by a majority of the directors
present at a duly held meeting at which a quorum is present shall be regarded as
the act of the board of directors, subject to the provisions of Section 310 of
the Code (as to approval of contracts or transactions in which a director has a
direct or indirect material financial interest), Section 311 of the Code (as to
appointment of committees),
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Section 317(e) of the Code (as to indemnification of directors), the articles of
incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board
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of directors. This Section 3.13 shall not be construed to preclude any director
from serving the corporation in any other capacity as an officer, agent,
employee or otherwise and receiving compensation for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligation of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
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* This section is effective only if it has been approved by the shareholders in
accordance with Sections 315(b) and 152 of the Code.
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(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board
or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of directors or
the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also
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have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
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5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
non-existence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof. The secretary shall keep, or cause to be kept, at
the principal executive office of the corporation or at the office of the
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<PAGE>
corporation's transfer agent or registrar, as determined by resolution of the
board of directors, a share register, or a duplicate share register, showing the
names of all shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these by laws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that
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such person is or was an agent of the corporation. For purposes of this Section
6.1, a "director" or "officer" of the corporation includes any person (i) who is
or was a director or officer of the corporation, (ii) who is or was serving at
the request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional
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<PAGE>
rights to indemnification are authorized in the Articles of Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the allege cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and, addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses,
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and shareholdings during usual business hours on five (5) days' prior written
demand on the corporation, (ii) obtain from the transfer agent of the
corporation, on written demand and on the tender of such transfer agent's usual
charges for such list, a list of the names and addresses of the shareholders who
are entitled to vote for the election of directors, and their shareholdings, as
of the most recent record date for which that list has been compiled or as of a
date specified by the shareholder after the date of demand. Such list shall be
made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or five (5) days after the
date specified in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on
the written demand of any shareholder or holder of a voting trust certificate,
at any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of
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a voting trust certificate, at any reasonable time during usual business hours,
for a purpose reasonably related to the holder's interests as a shareholder or
as the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney and shall include the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to inspect
all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of
documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
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<PAGE>
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the, first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of
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directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only shareholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
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<PAGE>
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 TRANSFER OF SECURITIES PURSUANT TO REGULATION S
With respect to any shares of the corporation issued pursuant to the
exemption from the registration requirements of the Securities Act of 1933, as
amended, set forth in Regulation S, as amended, promulgated thereunder, the
corporation shall refuse to register on the corporation's stock registry any
transfer of securities not made in accordance with the provisions of Regulation
S, provided, however, that if the securities are in bearer form or foreign law
prevents the corporation from refusing to register securities transfers, other
reasonable procedures will be implemented to prevent any transfer of the
securities not made in accordance with the provisions of Regulation S.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
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ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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<PAGE>
CERTIFICATE OF ADOPTION OF
RESTATED BYLAWS
BY THE SECRETARY
OF
FORECROSS CORPORATION
The undersigned hereby certifies that she is the duly elected, qualified,
and acting Secretary of Forecross Corporation and that the foregoing Bylaws,
comprising twenty-five (25) pages, were adopted as the Bylaws of the corporation
on June 17, 1993 by the Board of Directors of the corporation and on June 17,
1993 by the shareholders of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 17th day of June, 1993.
/s/ Bernadette C. Castello
-----------------------------
Bernadette C. Castello
Secretary
90 NEW MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA
OFFICE LEASE
LANDLORD: THE CANADA LIFE ASSURANCE COMPANY
TENANT: FORECROSS CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
1. Parties ...................................................... 1
2. Premises ..................................................... 1
3. Term ......................................................... 1
4. Possession ................................................... 2
5. Rent ......................................................... 2
6. Security Deposit ............................................. 3
7. Tenant's Share Of Expenses And Taxes ......................... 4
8. Use .......................................................... 7
9. Compliance With Law .......................................... 8
10. Alterations ................................................. 8
11. Repairs ..................................................... 10
12. Liens ....................................................... 11
13. Assignment And Subletting ................................... 11
14. Indemnification ............................................. 13
15. Subrogation ................................................. 14
16. Insurance ................................................... 14
17. Services And Utilities ...................................... 15
18. Taxes On Tenant's Personal Property ......................... 17
19. Rules And Regulations ....................................... 17
20. Holding Over ................................................ 18
21. Entry By Landlord ........................................... 18
22. Damage And Destruction ...................................... 19
23. Default ..................................................... 20
24. Remedies In Default ......................................... 21
25. Eminent Domain .............................................. 22
26. Estoppel Certificate ........................................ 23
27. Authority Of Tenant ......................................... 24
28. Brokers ..................................................... 24
29. Default By Landlord ......................................... 24
30. Landlord's Option To Relocate Tenant ........................ 24
31. Renewal Option .............................................. 25
32. Expansion Option ............................................ 26
33. General Provisions .......................................... 27
<PAGE>
EXHIBIT LIST
Exhibit A Description of the Premises
Exhibit B Index of Defined Terms
Exhibit C Expense Exclusions
Exhibit D Rules and Regulations
<PAGE>
90 MONTGOMERY STREET
OFFICE LEASE
BASIC LEASE INFORMATION
Section I Date: November _, 1996
Section I Landlord: The Canada Life Assurance
Company
Address: 90 New Montgomery Street
Suite 1201
San Francisco, CA 94105
Contact: Ann McNee
Telephone: (415) 777-0952
Section 1 Tenant: Forecross Corporation
Address: 90 New Montgomery Street
Suite 700
San Francisco, CA 94105
Contact: Kim Jones
Telephone: (415) 543-1515
Section 2 Rentable Area of Premises: 6,181
Section 2 Rentable Area of Building: 113,605
Section 2 Rentable Area of
Office Space in Building: 110,326
Section 2 Load Factor: 1.1616
Section 2 Floor(s): Seventh
Section 2 Suite(s): 700
Section 3 Commencement Date: January 1, 1997
Section 3 Expiration Date: December 31, 2001
<PAGE>
Section 5 Base Rent:
<TABLE>
<CAPTION>
Base Rent Per
Rentable
Monthly,
Lease Years Square Foot
Installments
----------- -----------
- ------------
<S> <C> <C>
Years 1-3 $24.00 $12,362.00
(rent for first
month of lease
term waived)
Years 4 and 5 $25.00 $12,877.08
</TABLE>
Section 6 Security Deposit: $12,877.08
Section 7 Base Year: 1997
Section 7 Tenant's Tax
Share: 5.44%
Section 7 Tenant's
Expense Share: 5.60%
Section 8 Permitted Use
Other than as
General Office
Space: None
Section 16 Tenant's
Minimum
General Liability
Insurance: $1,000.000
Section 28 Brokers: CAC Group Inc.
Exhibits Attached: A, B, C and D
The foregoing Basic Lease Information is incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the specified information set forth above and shall be
construed to incorporate all of the terms provided under the particular section
of this Lease pertaining to such information. In the event of a conflict between
any Basic Lease Information and the remainder of this Lease, the remainder of
this Lease shall control.
<PAGE>
90 NEW MONTGOMERY STREET
OFFICE LEASE
1. PARTIES
This Lease, dated for reference purposes only as of the date set forth on
the first line of the Basic Lease Information, is made by and between Landlord
and Tenant specified in the Basic Lease Information.
2. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord that certain
space outlined in the floor plan(s) attached as Exhibit A, together with the
improvements now or hereafter located therein (the "Premises"), upon and subject
to the conditions set forth in this Lease. Landlord and Tenant agree that, for
purposes of this Lease, the Premises shall be deemed to have a Rentable Area
equal to the square footage specified in the Basic Lease Information. As used in
this Lease, the "Rentable Area" of the Premises shall be equal to the "Usable
Area" of the Premises ("usable area" shall be computed in accordance with the
American Standard Method of Measuring Floor Area in Office Buildings, ANSI
Z65.1-1980, published by the Building Owners and Managers Association)
multiplied by the load factor set forth in the Basic Lease Information. The
Premises are situated in that certain office building (the "Building") commonly
known as 90 New Montgomery Street, San Francisco, California, in the suite(s),
if any, and on the floor(s) specified in the Basic Lease Information. As used in
this Lease, the term "Building" includes the land upon which such office
building stands and the land and improvements surrounding such office building
and designated from time to time by Landlord as land or Common Areas (as defined
below) appurtenant to such office building, together with utilities, facilities,
drives, walkways and other amenities appurtenant to or servicing such office
building. The Rentable Areas of the Building and of the office space in the
Building are set forth in the Basic Lease Information. An index of all defined
terms used herein is set forth in attached Exhibit B.
3. TERM
The Premises are leased for a term (the "Term") to commence and end on the
dates respectively specified in the Basic Lease Information, unless the Term
shall sooner terminate as provided in this Lease. The dates upon which the Term
shall commence and terminate pursuant to this Section are called the
"Commencement Date" and the "Expiration Date," respectively.
<PAGE>
4. POSSESSION
(a) By the Commencement Date, Landlord shall (i) demolish the existing
partitions in the Premises shown on Exhibit A, (ii) repaint the Premises with
Building-standard paint and replace the carpet base therein, (iii) upgrade the
electrical panel on the seventh (7th) floor of the Building to provide
electrical circuits sufficient for Tenant's current use of the Premises, and
(iv) recarpet Suite 707 with Building-standard carpet (collectively, the
"Leasehold Improvement Work"). Landlord shall pay the cost of the Leasehold
Improvement Work up to a maximum expenditure of Sixteen Thousand Ninety Dollars
($l6,090)("Landlord's Maximum Contribution"). If the cost of the Leasehold
Improvement Work shall exceed Landlord's Maximum Contribution, then Tenant shall
pay the excess costs to Landlord upon demand and, if requested by Landlord,
prior to the commencement of the Leasehold Improvement Work. Notwithstanding the
foregoing, Landlord and Tenant shall each pay fifty percent (50%) of the cost of
upgrading the electrical panel pursuant to clause (iii) above irrespective of
whether the cost of the Leasehold Improvement Work exceeds Landlords's Maximum
Contribution, provided that the portion of such cost paid by Landlord shall be
debited against Landlord's Maximum Contribution.
(b) If, for any reason whatsoever, Landlord fails to substantially complete
the Leasehold Improvement Work by the Commencement Date, this Lease shall remain
in full force and effect, and Landlord shall have no liability to Tenant for any
loss or damage resulting from such failure, provided, however, that (i) Base
Rent under Subsection 5(a) and Additional Charges under Section 7 of this Lease
shall be abated for the period between the Commencement Date and the date on
which Landlord substantially completes the Leasehold Improvement Work, and (ii)
until Landlord has so substantially completed the Leasehold Improvement Work,
Tenant shall continue to pay Base Rent and Additional Charges in accordance with
the terms of the Original Lease (as hereinafter defined).
(c) The purpose of attached Exhibit A is only to show the approximate
location of the Premises in the Building, and such Exhibit is not meant to
constitute an agreement as to the construction or Rentable Area of the Premises,
as to the specific location of elements of the Common Areas, or as to the
specific location of the access ways to the Premises or the Building. Landlord
reserves the right, at any time and from time to time, to make alterations or
additions to, to construct other improvements in, and to alter the dimensions
and appearance of the Building and the Common Areas, provided that Landlord
shall have no right to alter the Premises during the Term.
5. RENT
(a) Beginning on the first day of the second month following the
Commencement Date, Tenant shall pay to Landlord as annual minimum rent for the
Premises the sum specified in the Basic Lease Information as "Base Rent." Base
Rent shall be payable in U.S. dollars on the first
<PAGE>
day of the Term and on or before the first day of each and every successive
calendar month thereafter. In the event the Term commences on a day other than
the first day of a calendar month, then the monthly Base Rent for such
fractional month shall be prorated on a daily basis based upon a thirty (30) day
calendar month. Base Rent shall be paid to Landlord, without any demand and
without any deduction or offset whatsoever, in lawful money of the United States
of America at the address for Landlord specified in the Basic Lease Information,
or to such other person or at such other place as Landlord may from time to time
designate by notice to Tenant.
(b) Tenant shall pay to Landlord as additional charges all fees, costs,
expenses, charges and other amounts required to be paid by Tenant under this
Lease other than Base Rent ("Additional Charges"). Additional Charges shall be
payable to Landlord at the place where the Base Rent is payable. Landlord shall
have the same remedies for a default in the payment of Additional Charges as for
a default in the payment of Base Rent. The terms "Base Rent" and "Additional
Charges" are sometimes collectively referred to herein as "Rent."
(c) If more than one (1) time during any twelve (12) consecutive month
period Tenant shall fail to pay to Landlord any Rent within two (2) business
days after the date on which such Rent is due and payable, then for each such
additional failure to pay any Rent, Tenant shall pay to Landlord a late payment
charge equal to four percent (4%) of the unpaid amount of such Rent, to
compensate Landlord for Landlord's additional administrative and other costs
resulting from each such additional failure by Tenant. This late payment charge
shall be paid to Landlord as Additional Charges together with the unpaid amount
of such Rent. Any payment of Rent to Landlord following service upon Tenant of a
three (3) day notice to pay Rent or quit shall be in the form of cash or a
certified or cashier's check.
6. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum (if any) specified in the Basic
Lease Information as the "Security Deposit." The Security Deposit shall be held
by Landlord as security for the full and faithful performance by Tenant of all
the provisions of this Lease. If Tenant defaults with respect to any provision
of this Lease, including, without limitation, provisions relating to the payment
of Rent, Landlord may, but shall not be required to, use, apply or retain all or
any part of the Security Deposit for the payment of any Rent or as compensation
to Landlord for any other loss or damage that Landlord may suffer by reason of
Tenant's default. If any portion of the Security Deposit is so used, applied or
retained, Tenant shall, within five (5) days after demand from Landlord, deposit
with Landlord funds sufficient to restore the Security Deposit to its original
amount. Landlord shall not be required to keep the Security Deposit separate
from Landlord's general funds, no trust relationship shall be created between
Landlord and Tenant with respect to the Security Deposit, and Tenant shall not
be entitled to interest on the Security Deposit. If Tenant shall fully and
faithfully perform
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every provision of this Lease, the remaining balance, if any, of the Security
Deposit shall be returned to Tenant (or at Landlord's option, to the last
assignee of Tenant's interest hereunder) within thirty (30) days after the
Expiration Date. In the event of termination of Landlord's interest in this
Lease, Landlord may transfer the Security Deposit to Landlord's successor in
interest and upon such transfer, Landlord shall be relieved of any and all
liability for or obligation with respect to the Security Deposit. Tenant shall
look solely to such successor in interest of Landlord for return of the
remaining balance, if any, of the Security Deposit. Tenant waives the provisions
of California Civil Code Section 1950.7(c) limiting Landlord's right to apply
the Security Deposit to remedy certain specified defaults only.
7. TENANT'S SHARE OF EXPENSES AND TAXES
(a) During the Term, Tenant shall pay to Landlord as Additional Charges
(i) Tenant's Expense Share (as defined below) of the total dollar
increase, if any, in Expenses (as defined below) attributable to
each Computation Year (as defined below) over Base Expenses (as
defined below) and
(ii) Tenant's Tax Share (as defined below) of the total dollar
increase, if any, in Taxes (as defined below) attributable to
each Computation Year over Base Taxes (as defined below).
(b) During the last month of the Base Year and each Computation Year or as
soon thereafter as practicable, Landlord shall give to Tenant notice of
Landlord's estimate of the total amounts that will be payable by Tenant under
Subsection 7(a) for the following Computation Year. On or before the first day
of each month during the following Computation Year, Tenant shall pay to
Landlord one-twelfth (1/12) of such estimated amounts, provided that if Landlord
fails to give such notice in the last month of the prior Computation Year then
Tenant shall continue to pay on the basis of the prior Computation Year's
estimate until the first day of the calendar month next succeeding the date when
such notice is given by Landlord. If at any time or times Landlord determines
that the amounts payable under Subsection 7(a) for the current Computation Year
will vary from Landlord's estimate given to Tenant, Landlord, by notice to
Tenant, may revise the estimate for such Computation Year, and subsequent
payments by Tenant for such Computation Year shall be based upon such revised
estimate.
(c) Following the end of each Computation Year, Landlord shall deliver to
Tenant a statement of amounts payable under Subsection 7(a) for such Computation
Year, prepared by Landlord and audited by an independent accounting firm
designated by Landlord. If such statement shows an amount owing by Tenant that
is less than the payments for such Computation Year previously made by Tenant,
and if no Event of Default (as defined below) is outstanding at the time such
statement is delivered, Landlord shall credit such amount to the next payments
of Rent falling due under this Lease or, if the Term has expired, shall refund
such amount to Tenant. If such statement shows an amount owing by Tenant that is
more than the payments for such Computation
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Year previously made by Tenant, Tenant shall pay the deficiency to Landlord
within thirty (30) days after delivery of such statement. The obligations
of Landlord and Tenant under this Subsection 7(c) shall survive the
Expiration Date, and, if the Expiration Date is a day other than the last
day of a Computation Year, the adjustment in Rent pursuant to this Section 7
for the Computation Year in which the Expiration Date occurs shall be
prorated in the proportion that the number of days in such Computation Year
preceding the Expiration Date bears to 365.
(d) As used in this Lease, the following terms shall have the
meanings specified:
(i) "Expenses" shall mean (A) all costs of management, operation,
maintenance and repair of the Building, including, without
limitation, costs for janitorial, maintenance, security and other
service contracts; charges for electricity, heat, ventilation,
air conditioning, light, power, water, sewer and waste disposal
and other utilities; charges or fees for utility connections and
equipment; costs for materials, supplies, equipment and tools;
costs for maintenance and repairs; insurance premiums and
license, permit and inspection fees; depreciation on personal
property; the fair market rental value of Landlord's and the
property manager's offices in the Building; that portion of
wages, salaries, employee benefits and payroll costs of personnel
engaged in the management, operation and maintenance of the
Building attributable to such personnel in connection with the
management, operation and maintenance of the Building; fees,
charges and other costs for management, consulting, legal,
accounting and other services performed by any independent
contractors engaged by Landlord or for any such services
performed by Landlord in connection with the Building; and any
other reasonable expenses incurred by Landlord which, under
generally accepted accounting principles, would be considered an
operating or maintenance expense of the Building; and (B) the
cost of any capital improvements made to the Building after its
construction, which capital improvements lead to a reduction in
other Expenses, or made to the Building after the date of this
Lease as a result of governmental orders, ordinances, codes,
rules and regulations that were inapplicable to the Building at
the time permits for its construction were obtained, such cost to
be amortized over the useful life of such capital improvements in
accordance with generally accepted accounting principles,
together with interest on the unamortized balance at a rate equal
to the lesser of (1) the rate of interest publicly announced by
Bank of America NT&SA in San Francisco, California, as its
"reference rate" (or any successor interest rate), plus two
percent (2%), which rate on the unamortized balance shall be
adjusted as of the effective date of any change in such reference
(or successor) rate, or (2) the highest rate permitted by law.
Notwithstanding the foregoing, Expenses shall exclude Taxes and
any costs set forth in attached Exhibit C. In the event the
Rentable Area of the office space in the Building is less than
ninety-five percent (95%) occupied during the Base Year or any
Computation Year, Expenses for the Base Year and each such
Computation Year shall be determined by adjusting the actual
costs under clauses (A) and (B) above for the Base Year and each
such Computation Year upward to equal Landlord's reasonable
estimate of the costs that would have been incurred under clauses
(A) and (B) if ninety-five percent (95%) of the total Rentable
Area
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of the office space in the Building had been fully occupied for
the entire Base Year and each such Computation Year. The
determination of Expenses shall be made by Landlord, shall be
audited by Landlord's independent public accounting firm as
provided in Section 7(c) and shall be final and binding on
Tenant, provided that Tenant shall have a reasonable opportunity
to review such determination prior to the time at which it
becomes final and binding.
(ii) "Taxes" shall mean all taxes, assessments and charges levied upon
or with respect to the Building (including, without limitation,
the Common Areas and all leasehold improvement work), any
personal property of Landlord used in the operation of the
Building, or Landlord's interest in the Building or in such
personal property. Taxes shall include, without limitation, all
general real property taxes and general and special assessments,
transit charges, housing fund assessments, service payments in
lieu of taxes and any tax, fee or excise on the act of entering
into this Lease or any other lease of space in the Building, on
the use or occupancy of all or any part of the Building, on the
rent payable under this Lease or any other lease of space in the
Building or on or in connection with the business of renting
space in the Building, that are now or hereafter levied or
assessed against Landlord by the United States of America, the
State of California, or any political subdivision, public
corporation, district or other political or public entity, and
shall also include any other tax, fee or excise, however
described, that may be levied or assessed as a substitute for, or
as an addition to, in full or in part, any other Taxes, whether
or not now customary or within the contemplation of the parties.
Taxes also shall include all reasonable legal, accounting,
consulting or other fees, costs and disbursements incurred in
connection with proceedings to contest, determine or reduce
Taxes. Taxes shall not include franchise, transfer, estate or
inheritance taxes, or income taxes measured by the net income of
Landlord from all sources, unless, due to a change in the method
of taxation, any of these taxes are levied or assessed against
Landlord as a substitute for, or as an addition to, in full or in
part, any other tax that would otherwise constitute a Tax.
(iii)"Base Year" shall mean the calendar year specified in the Basic
Lease Information.
(iv) "Base Expenses" shall mean the amount of Expenses for the Base
Year.
(v) "Base Taxes" shall mean the amount of Taxes for the Base Year,
provided, however, that if the Building is assessed on less than
a fully completed basis for the Base Year, then Base Taxes shall
mean the amount of Taxes that would have been payable with
respect to the Building for the Base Year if the Building had
been assessed on a fully completed basis for the Base Year, as
reasonably determined by Landlord.
(vi) "Tenant's Expense Share" shall mean the percentage figure so
specified in the Basic Lease Information. This percentage figure
has been obtained by dividing the Rentable Area of the Premises
by the total Rentable Area of the office space in the
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Building. In the event Tenant's Expense Share is changed during a
Computation Year by reason of a change in the Rentable Area of
the Premises or the office space in the Building, Tenant's
Expense Share shall thereafter mean the percentage figure
obtained by dividing the new Rentable Area, if any, of the
Premises by the new total Rentable Area, if any, of the office
space in the Building.
(vii)"Tenant's Tax Share" shall mean the percentage figure so
specified in the Basic Lease Information. This percentage figure
has been obtained by dividing the Rentable Area of the Premises
by the total Rentable Area of the Building. In the event Tenant's
Tax Share is changed during a Computation Year by reason of a
change in the Rentable Area of the Premises or the Building,
Tenant's Tax Share shall thereafter mean the percentage figure
obtained by dividing the new Rentable Area, if any, of the
Premises by the new total Rentable Area, if any, of the Building.
(viii) "Computation Year" shall mean each twelve (12) consecutive
month period commencing January 1 of each year during the Term
following the Base Year, provided that Landlord, upon notice to
Tenant, may change the Computation Year from time to time to any
other twelve (12) consecutive month period, and, in the event of
any such change, Tenant's Expense Share of Expenses over Base
Expenses and Tenant's Tax Share of Taxes over Base Taxes shall be
equitably adjusted for the Computation Years involved in any such
change.
8. USE
(a) Tenant shall use and continuously occupy the Premises for general
office purposes and any other purpose specified in the Basic Lease Information
and shall not use the Premises, or permit the Premises to be used, for any other
purpose.
(b) Tenant shall take no action, nor permit any action to be taken, in or
about the Premises that will in any way increase the existing rate of or affect
any fire or other insurance upon the Building or any of its contents, or cause
cancellation of any insurance policy covering all or any part of the Building or
any of its contents. Tenant shall take no action, nor permit any action to be
taken, in or about the Premises that will in any way injure, annoy, obstruct or
interfere with the rights of other tenants or occupants of the Building nor use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall neither commit nor suffer to be committed any
waste in, on or about the Premises.
(c) Tenant shall have a non-exclusive right to use the Common Areas,
provided, however, that Tenant's use of the Common Areas shall be subject to
such rules and regulations as Landlord shall make from time to time. The manner
and expense of maintaining, repairing and operating the Common Areas shall be at
the sole discretion of Landlord. As used in this Lease, the term "Common Areas"
shall mean the Building's pedestrian sidewalks, truckways, loading docks,
hallways, lobby, corridors, delivery
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areas, elevators, escalators and stairs outside of the leased areas, public
bathrooms and comfort stations, and all other areas or improvements that from
time to time may be provided by Landlord for the convenience and use of the
tenants of the Building and their respective sub-tenants, agents, employees,
customers and invitees and any other licensees of Landlord. Landlord reserves
the right, from time to time, to utilize portions of the Common Areas for
entertainment, art shows, displays, product shows, the leasing of kiosks or
any other uses that Landlord deems reasonable.
(d) Tenant shall have access to the Premises 24-hours a day, 7-days a week.
9. COMPLIANCE WITH LAW
Tenant shall neither use, nor permit the use of, the Premises in any way
that will conflict with any law, statute, ordinance or governmental rule or
regulation now in force or hereafter enacted or promulgated (collectively,
"Laws"). At its sole expense, Tenant shall promptly comply with all Laws, and
with the requirements of any board of fire insurance underwriters or other
similar body now or hereafter constituted, relating to or affecting the
condition, use or occupancy of the Premises, provided that nothing in this
Section 9 shall obligate Tenant to alter or make improvements to the Premises
except for alterations or improvements required to comply with any Laws or
requirements due to the use of the Premises by Tenant.
10. ALTERATIONS
(a) Tenant shall neither make nor permit to be made any alterations,
additions or improvements to all or any part of the Premises, or attach any
fixtures or equipment to the Premises (collectively, "Alterations"), without
Landlord's prior approval, which approval shall not be unreasonably withheld. If
Tenant desires that any Alterations be made, Tenant shall give notice to
Landlord of the nature and estimated cost of such Alterations. Within three (3)
business days after Landlord's receipt of such notice, Landlord shall give
notice to Tenant stating whether Landlord requires Tenant to provide Landlord
with detailed plans and specifications for the proposed Alterations.
(b) If Landlord requires Tenant to provide detailed plans and
specifications, the following procedures shall be followed: Tenant, at Tenant's
expense, shall have reasonably detailed plans and specifications for the
proposed Alterations prepared at Tenant's sole expense by a licensed architect
or space planner. Landlord shall approve or disapprove the proposed Alterations
within ten (10) business days after delivery of such plans and specifications to
Landlord. Failure of Landlord to respond within such ten (10) business day
period shall be deemed to be approval by Landlord of the proposed Alterations.
If Landlord disapproves the proposed Alterations, Landlord shall specify in
reasonable detail its reasons for such disapproval and the changes required in
order to secure its approval. In the event Landlord disapproves the proposed
Alterations, Tenant may revise the plans and specifications as necessary to
secure Landlord's approval or may elect to forego the proposed Alterations. If
Tenant elects to revise the plans and
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specifications. Landlord shall have a period of ten (10) business days following
submission of such revised plans and specifications to approve or disapprove the
proposed Alterations as provided above. If Landlord disapproves such revised
plans and specifications, the same procedure shall be followed as to further
revisions until Landlord's approval is given or is deemed to be given or until
Tenant elects to forego the proposed Alterations.
(c) If Landlord does not require Tenant to have detailed plans and
specifications prepared for the proposed Alterations pursuant to Subsection
10(b), then Landlord shall approve or disapprove the proposed Alterations within
five (5) business days of receipt of Tenant's initial notice of the nature and
estimated costs of the proposed Alterations pursuant to Subsection 10(a).
Failure of Landlord to respond within such five (5) business day period shall be
deemed to be approval by Landlord of the proposed Alterations.
(d) As a condition of approving the proposed Alterations, Landlord may
require Tenant to agree to remove all or any part of such Alterations no later
than the Expiration Date and to reimburse Landlord for any reasonable expenses
incurred by Landlord in reviewing the plans and specifications, including,
without limitation, the reasonable costs of any outside consultants retained by
Landlord for such purpose.
(e) If Landlord approves the proposed Alterations, the Alterations shall be
made in accordance with the detailed plans and specifications approved by
Landlord or, if no plans or specifications were required, in accordance with
Tenant's notice to Landlord under Section 10(a) and with any other reasonable
requirements imposed by Landlord. The Alterations shall be performed by Landlord
or, at Landlord's option, by a contractor selected by Tenant and reasonably
approved by Landlord. In either event, subject to Subsection 10(f), all
Alterations shall be made at Tenant's sole expense, and Tenant shall reimburse
Landlord for all expenses incurred by Landlord with respect to such Alterations,
including, without limitation, a reasonable charge for Landlord's overhead if
such Alterations are made by Landlord, or a reasonable charge for Landlord's
cost of inspecting the Alterations prior to and upon their completion if such
Alterations are made by Tenant's contractor. Tenant shall reimburse Landlord for
all such expenses within ten (10) days after receipt of any invoice from
Landlord. If Tenant's approved contractor constructs or installs the
Alterations, Tenant shall provide Landlord with copies of all required permits
and other governmental approvals for such Alterations, and Landlord shall have
the right from time to time to inspect such Alterations prior to or after their
completion. All Alterations shall immediately become Landlord's property and
shall remain in the Premises at the end of the Term without compensation to
Tenant, unless Landlord conditioned its approval of such Alterations on Tenant's
agreement to remove them, in which event Tenant shall by the Expiration Date
remove such Alterations and restore the Premises to their condition prior to the
installation of such Alterations.
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(f) Landlord shall provide Tenant with an allowance (the "Alterations
Allowance") of Twenty Five Thousand Dollars ($25,000) to be applied toward the
cost of Alterations made by, Tenant in the Premises pursuant to this Section 10,
provided, however, that such Alterations Allowance shall be available only to
pay actual construction costs and the costs of computer and telephone cabling
installed within the Premises (the "Approved Alterations"). Landlord shall make
disbursements of the Alterations Allowance to Tenant from time to time following
the completion of Approved Alterations and the delivery to Landlord of invoices,
lien releases and other documentation satisfactory to Landlord evidencing the
payment in full of the cost of such Approved Alterations. Notwithstanding
anything, herein to the contrary. Landlord shall have no obligation to make
disbursements of the Alterations Allowance after December 31, 1999, and any
portion of the Alterations Allowance that remains undisbursed as of such date
shall be deemed forfeited by and shall no longer be available to Tenant.
11. REPAIRS
(a) By occupying the Premises, Tenant accepts the Premises as being in the
condition in which Landlord is obligated to deliver the Premises under the terms
of this Lease, subject to Landlord's timely completion of the punchlist items
identified by Landlord and Tenant during their inspection of the Premises prior
to Tenant's occupancy pursuant to Subsection 4(a). At all times during the Term,
and at Tenant's sole expense, Tenant shall keep all of the Premises in good
condition and repair, except for ordinary wear and tear or damage by fire,
earthquake, act of God or the elements. Tenant waives all rights to make repairs
at the expense of Landlord or in lieu of such repairs to vacate the Premises as
provided by California Civil Code Sections 1941 and 1942 or any other Laws now
or hereafter in effect. Tenant shall at the end of the Term surrender the
Premises to Landlord in the same condition as when received, except for ordinary
wear and tear, damage by fire, earthquake, act of God or the elements, and
Alterations approved by Landlord. Landlord shall have no obligation and has made
no promise to alter, remodel, improve, repair, decorate or paint all or any part
of the Premises, except as specifically set forth in the Work Agreement and
Section 11 (b). Furthermore, Landlord has made no representations to Tenant
regarding the condition of the Premises or the Building, except as specifically
set forth in this Lease.
(b) Notwithstanding the provisions of Section 11 (a), Landlord shall repair
and maintain the structural portions of the Building, including the interior
walls, roof, basic plumbing, heating, air conditioning, ventilation and
electrical systems, installed or furnished by Landlord, unless the necessity for
such maintenance and repair is in any way caused by the negligence or
intentional misconduct of, or failure to observe or perform any provision of
this Lease by, Tenant, or Tenant's agents, servants, contractors, employees or
invitees, in which case Tenant shall pay to Landlord the reasonable cost of such
maintenance and repair. Landlord shall not be liable for any failure to make any
such repair or to perform any such maintenance unless Landlord receives notice
of the need for such repair or maintenance from Tenant and fails to make such
repair or perform
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such maintenance within a reasonable period of time following such notice by
Tenant. Rent shall not abate nor shall Landlord be liable as a result of any
injury to or interference with Tenant's business arising from the making of any
repair, or the performance of any maintenance, in or to any portion of the
Building or the Premises.
12. LIENS
Tenant shall keep the Premises and the Building free from any liens arising
out of any act or omission of Tenant, including, without limitation, any work
performed, materials furnished or obligations incurred by Tenant. Landlord shall
have the right to post and keep posted on the Premises any notices that may be
provided by law or that Landlord may deem to be proper for the protection of
Landlord, the Premises and the Building from such liens. Tenant shall give to
Landlord at least ten (10) days' prior notice of the date of commencement of any
Alterations on the Premises in order to permit the posting of such notices by
Landlord. Landlord may require, in Landlords's sole discretion, that Tenant, at
Tenant's sole expense, provide to Landlord a lien and completion bond in form
and substance satisfactory to Landlord in an amount equal to one hundred fifty
percent (150%) of the total estimated cost of any Alterations, to insure
Landlord against any liability for mechanics' and materialmen's liens and to
insure completion of work.
13. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all of
its interest in or rights with respect to the Premises or Tenant's leasehold
estate hereunder (collectively, "Assignment"), or permit all or any portion of
the Premises to be occupied by anyone other than Tenant, sublet all or any
portion of the Premises or transfer a portion of Tenant's interest in or rights
with respect to Tenant's leasehold estate hereunder (collectively, "Sublease"),
without Landlord's prior consent in each instance.
(b) If Tenant desires at any time to enter into an Assignment of this Lease
or a Sublease of all or any portion of the Premises, Tenant shall first give
notice to Landlord of such desire, which notice shall contain (i) the name and
address of the proposed assignee, subtenant or occupant, (ii) the nature of the
proposed assignee's, subtenant's or occupant's business to be carried on in the
Premises, (iii) the terms and provisions of the proposed Assignment or Sublease
and (iv) such financial information as Landlord may reasonably request
concerning the proposed assignee, subtenant or occupant.
(c) At any time within thirty (30) days after Landlord's receipt of the
notice specified in Subsection 13(b), Landlord may by notice to Tenant elect to
(i) terminate this Lease as to the portion (including all) of the Premises that
is specified in Tenant's notice, with a proportionate abatement in Base Rent
payable by Tenant, (ii) consent to the Sublease or Assignment, or (iii)
disapprove the Sublease or Assignment; provided, however, that if Landlord
elects not to exercise the option set forth in clause (i), Landlord
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shall not unreasonably withhold its consent to the Assignment or Sublease. As a
condition for granting its consent to any Assignment or Sublease, however,
Landlord may require that Tenant agree to pay to Landlord one-half of the amount
by which all sums payable to Tenant in connection with such Assignment or
Sublease exceed Rent payable by Tenant to Landlord hereunder (or a proportionate
amount of such Rent representing the portion of the Premises subject to a
Sublease if less than the entire Premises are subject to a Sublease). If
Landlord consents to the Sublease or Assignment within such thirty (30) day
period, Tenant may within ninety (90) days after Landlord's consent, but not
later than the expiration of such ninety (90) days, enter into such Assignment
or Sublease upon the terms and conditions set forth in the notice furnished by
Tenant to Landlord pursuant to Subsection 13(b).
(d) No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether arising before or after such Assignment or Sublease. The consent by
Landlord to any Assignment or Sublease shall not relieve Tenant from the
obligation to obtain Landlord's express consent to any other Assignment or
Sublease. Any Assignment or Sublease that fails to comply with this Section 13
shall be void and, at the option of Landlord, shall constitute an Event of
Default by Tenant under this Lease. The acceptance of Rent by Landlord from a
proposed assignee or subleasee shall not constitute the consent to such
Assignment or Sublease by Landlord.
(e) Any sale or other transfer, including, without limitation, one by
consolidation, merger or reorganization, of a majority of the voting stock of
Tenant (or of any guarantor of Tenant's obligations under this Lease), if Tenant
(or such guarantor) is a corporation, or any sale or other transfer of a
majority of the partnership interests in Tenant (or of any guarantor of Tenant's
obligations under this Lease), if Tenant (or such guarantor) is a partnership,
shall be an Assignment for purposes of this Section 13, except that transfers
which result in the formation of a new company controlled by the same principals
as the transferring company will not be an Assignment.
(f) Each assignee, sublease or other transferee, other than Landlord, shall
assume all obligations of Tenant under this Lease and shall be and remain liable
jointly and severally with Tenant for the payment of Rent, and for the
performance of all the provisions of this Lease; provided, however, that the
assignee, sublease or other transferee shall be liable to Landlord for rent and
additional charges only in the amount set forth in the Assignment or Sublease.
No Assignment shall be binding on Landlord unless the assignee or Tenant shall
deliver to Landlord a counterpart of the Assignment and an instrument in
recordable form that contains a covenant of assumption by the assignee
satisfactory in substance and form to Landlord, consistent with the requirements
of this Subsection 13(f), but the failure or refusal of the assignee to execute
such instrument of assumption shall not release or discharge the assignee from
its liability as set forth above.
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(g) In the event of any Assignment or Sublease by Tenant or in the event
Tenant requests Landlord's approval of any Assignment or Sublease, Tenant shall
pay Landlords's reasonable attorneys' fees, costs and disbursements incurred in
connection therewith.
14. INDEMNIFICATION
(a) If Tenant shall default in the performance of its obligations under
this Lease, Landlord, at any time thereafter and without notice, may remedy such
default for Tenant's account and at Tenant's expense, without thereby waiving
any other rights or remedies of Landlord with respect to such default.
(b) Tenant agrees to indemnify Landlord against and hold Landlord harmless
from any and all loss, cost, liability, damage and expense, including, without
limitation, penalties, fines and reasonable attorneys' fees, incurred in
connection with or arising from any cause whatsoever in, on or about the
Premises, except to the extent caused by the negligence or intentional
misconduct of Landlord, including, without limitation, (i) any failure by Tenant
to observe or perform any of the provisions of this Lease, (ii) the use or
occupancy or manner of use or occupancy of the Premises by Tenant or any person
claiming through or under Tenant, (iii) the condition of the Premises or any
occurrence or happening in or on the Premises from any cause whatsoever, or (iv)
any negligence or intentional misconduct, whether prior to, during or after the
Term, of Tenant or any person claiming through or under Tenant, or of the
contractors, agents, servants, employees, visitors or licensees of Tenant or any
such person, in, on or about the Premises or the Building. Tenant further agrees
to indemnify Landlord, Landlord's agents, and the lessor or lessors under all
ground or underlying leases, against and hold them harmless from any and all
loss, cost, liability, damage and expense, including, without limitation,
reasonable attorneys' fees, incurred in connection with or arising from any
claims of any persons by reason of injury to persons or damage to property
occasioned by any event referred to in the preceding sentence. (c) Except as
specifically provided to the contrary in this Lease, Tenant shall pay to
Landlord, within ten (10) business days after delivery by Landlord to Tenant of
bills or statements therefor: (i) sums equal to all expenditures made and
monetary obligations incurred by Landlord including, without limitation,
expenditures made and obligations incurred for reasonable attorneys' fees, in
connection with the remedying of any default by Tenant for Tenant's account
pursuant to the provisions of Subsection 14(a); (ii) sums equal to all losses,
costs, liabilities, damages and expenses referred to in Subsection 14(b); and
(iii) sums equal to all expenditures made and monetary obligations incurred by
Landlord, including, without limitation, expenditures made and obligations
incurred for reasonable attorneys' fees, in collecting or attempting to collect
Rent.
(d) Tenant waives all claims against Landlord for damage to any property or
for injury or death of any person in, upon or about the Premises or the Building
arising at any
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time and from any cause other than solely by reason of the negligence or
intentional misconduct Landlord or its employees or contractors.
(e) Tenant's obligations under this Section 14 shall survive the expiration
or sooner termination of the Term.
15. SUBROGATION
Landlord and Tenant each shall obtain from their insurers a waiver of all
rights of subrogation that the insurer of one party might have against the other
party under all policies of insurance maintained by either at any time during
the Term insuring or covering the Building or Premises or any improvements,
fixtures, equipment, furnishings or other property, including, without
limitation, salable goods, merchandise, and inventory, if any, in, on or about
the Premises.
16. INSURANCE
(a) Tenant agrees to carry and keep in force during the Term, at Tenant's
sole expense, the following types of insurance:
(i) Public Liability and Property Damage. Comprehensive general
liability insurance, including contractual liability, with a
minimum combined single limit of liability equal to the amount
set forth in the Basic Lease Information, insuring against any
and all liability for property damage and for injury to or death
of persons occurring in, on or about the Premises or arising out
of the maintenance, use or occupancy of the Premises. All such
comprehensive general liability insurance shall specifically
insure the performance by Tenant of its indemnity obligations
under Section 14(b) with respect to liability for injury to or
death of persons and for damage to property.
(ii) Workers' Compensation and Employers' Liability. Workers '
compensation and employers' liability insurance covering
employees for California Workers' Compensation benefits,
including employers' liability with limits for each accident in
an amount reasonably required by Landlord.
(iii)Tenant's Property. Insurance covering any and all fixtures,
equipment, furnishings and personal property of Tenant from time
to time in, on or about the Premises, providing protection
against all perils included within a standard "all risk form"
insurance policy, together with insurance against sprinkler
damage, vandalism, and malicious mischief. Such insurance shall
be in an amount not less than the full replacement cost of the
property insured without deduction for depreciation.
(iv) Policy Form. All policies of insurance provided for in this
Section 16 shall be issued by insurance companies with a general
policyholders' rating of not less than A and a financial rating
of XIII as rated in the most current available "Best's Insurance
Reports," and qualified to do business in the State of
California; and, except for
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workers' compensation and employers' liability, all such policies
shall name Landlord, and such other persons and entities as
Landlord specifies from time to time, as additional insureds.
Executed copies or certificates of all such policies of insurance
shall be delivered to Landlord at least ten (10) days prior to
the delivery of possession of the Premises to Tenant, and
thereafter copies or certificates of all renewals of such
policies of insurance within five (5) days prior to the
expiration of the term of each such policy. All comprehensive
general liability insurance policies shall contain a provision
that Landlord, although named as an insured, shall nevertheless
be entitled to recovery under such policies for any loss
occasioned to Landlord, its agents and employees by reason of the
negligence or willful act of Tenant. As often as any such policy
shall expire or terminate, renewal or additional policies shall
be procured and maintained by Tenant in like manner and to like
extent. All such policies of insurance shall provide that the
companies writing such policies shall give to Landlord thirty
(30) days' prior written notice (i) of any cancellation or lapse
of the policies or (ii) of the effective date of any reduction in
the amounts of insurance. All public liability, property damage
and other casualty policies shall be written as primary policies,
not contributing with and not in excess of coverage that Landlord
may carry.
(b) Landlord agrees to carry and keep in force during the Term, at
Landlord's sole expense, property insurance covering the Building and fixtures
therein in an amount reasonably determined by Landlord.
17. SERVICES AND UTILITIES
(a) Subject to the rules and regulations of the Building, Landlord agrees
to furnish to the Premises and the Building the following services and
utilities:
(i) Heating, ventilation, and air conditioning ("HVAC") shall be
provided to the Premises between the hours of 8:00 a.m. and 6:00
p.m., Monday through Friday, except for generally recognized
business holidays in San Francisco, California (such hours during
these days shall be referred to herein as "Standard Building
Hours"), in such amounts as are necessary for the comfortable use
and occupancy of the Premises as general office space, as
reasonably determined by Landlord. Additionally, upon reasonable
advance notice from Tenant, Landlord shall provide the Premises
with HVAC during other than Standard Building Hours, provided,
however, that Tenant shall separately reimburse Landlord for
Landlords's cost of providing such HVAC to the Premises during
other than Standard Building Hours.
(ii) Electricity for lighting and fractional horsepower office
equipment shall be provided to the Premises twenty-four (24)
hours per day, every day of the year, in such amounts as are
necessary for the use and occupancy of the Premises as general
office space, as reasonably determined by Landlord, provided,
however, that if Tenant requests HVAC during hours other than
Standard Building Hours, or if Tenant otherwise regularly uses
electricity during other than Standard Business Hours, Landlord
shall have the right
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to require Tenant to pay to Landlord as Additional Charges the
cost of Tenant's additional electricity usage during such hours,
as reasonably estimated by a utility company or by Landlord's
electrical engineer.
(iii)Janitorial service shall be provided to the Premises during
other than Standard Building Hours, at a level that is sufficient
for the use and occupancy of the Premises as general office
space, as reasonably determined by Landlord, but including trash
disposal, cleaning of all restrooms once on all normal business
days, and periodic washing of the inside and outside Building
windows.
(iv) Cold water for a coffee pot, water for reasonable drinking and
lavatory use shall be provided to the Premises and/or the floor
on which the Premises are located twenty-four (24) hours per day,
every day.
(v) Landlord shall provide services and utilities to the Building,
including the Common Areas, as necessary to operate and maintain
the Building in a manner substantially equivalent to the manner
in which comparable office buildings in San Francisco,
California, are operated and maintained.
(vi) Landlord shall provide security services for the Building that,
in Landlord's judgment, are required for the reasonable safety of
Tenant's property and employees.
(b) Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement of Rent or Additional Charges by reason of, (i) the inadequacy,
stoppage, interruption, or discontinuance of any of the services or utilities in
Subsection 17(a) above when caused by accident, breakage, repair, maintenance,
strike, lockout or other labor disturbance or labor dispute of any character, or
by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord or (ii) the limitation, curtailment, rationing or restriction on use of
water, electricity, gas or any other utility provided to the Premises or the
Building by any public utility company or governmental agency, provided that any
such service or utility affected as described in clause (i) or (ii) above shall
be restored by Landlord as soon as reasonably possible.
(c) Without the prior consent of Landlord, as provided below, Tenant shall
not install or use any equipment or machines in the Premises, including, without
limitation, computers, data processing machines, punch card machines, and
equipment or machines using in excess of 120 volts, that will in any way cause
Tenant to use electricity in the Premises in excess of the amount of electricity
that is commonly used by other tenants of the Building for the use and occupancy
of their respective premises as general office space. If Tenant desires to
install and use in the Premises any such equipment or machines that will cause
Tenant to use electricity in excess of the amount that is commonly used by other
tenants of the Building for the use and occupancy of their respective premises
as general office space, Tenant shall first procure the consent of Landlord to
the installation and use of such equipment or machines, which consent shall
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not be unreasonably withheld. If such consent is granted by Landlord, Landlord
shall have the right to cause an electrical current submeter to be installed in
the Premises, so as to measure the amount of electricity consumed for any such
use. Promptly upon demand by Landlord, Tenant shall reimburse Landlord, as
Additional Charges, for the cost of any such submeter, including, without
limitation, the cost of its installation, maintenance and repair, and for the
cost of all electricity consumed as shown by such submeter, at the rate charged
for such service by the local public utility furnishing the same, plus any
additional expense incurred by Landlord in keeping account of the electricity so
consumed. If separately submetered, the cost of electricity shall be excluded
from the calculation of Expenses for the purpose of computing Tenant's Share of
Expenses, except that the cost of electricity used in or with respect to the
Common Areas, as reasonably determined by Landlord, shall be included in such
calculation. If Landlord elects not to install a separate electric current
submeter, the cost of the electricity used by Tenant in excess of the amount
that is commonly used by other tenants of the Building for the use and occupancy
of their respective premises as general office space shall be established by an
estimate made by a utility company or, at Landlord's option, by an electrical
engineer selected by Landlord and reasonably approved by Tenant and shall be
paid to Landlord monthly as Additional Charges together with the Rent.
18. TAXES ON TENANT'S PERSONAL PROPERTY
Tenant agrees to pay, before delinquency, any and all taxes levied or
assessed during the Term upon Tenant's equipment, furniture, trade fixtures and
other personal property located in, on or about the Premises. In the event any
or all of Tenant's equipment, furniture, fixtures and other personal property
shall be assessed and taxed with the Building, Tenant shall pay to Landlord as
Additional Charges the taxes so levied with respect to such personal property
within ten (10) business days after delivery to Tenant by Landlord of a
statement setting forth the amount of such taxes applicable to Tenant's
property.
19. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and regulations
for the Building that are attached as Exhibit D. Landlord reserves the right
from time to time to make reasonable additions to and modifications of such
rules and regulations. Any such additions and modifications shall be binding on
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any such rules and regulations
by any other tenants or occupants of the Building, provided that Landlord shall
not discriminate among tenants or occupants of the Building in administering
such rules and regulations. No rule or regulation shall conflict with any term
of this Lease and if any such conflict should arise the terms of this Lease
shall control.
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20. HOLDING OVER
Any holding over by Tenant after the Expiration Date with the prior consent
of Landlord shall be construed to be a tenancy from month to month on all of the
terms, covenants and conditions herein specified but, unless otherwise agreed
upon in writing by Landlord and Tenant, at a monthly Base Rent equal to one
hundred fifty percent (150%) of the monthly Base Rent in effect immediately
prior to the Expiration Date. Acceptance by Landlord of Rent after the
Expiration Date without Landlord's prior consent to Tenant's holding over shall
not constitute a consent by Landlord to any such tenancy from month to month or
result in any other tenancy or any renewal of the Term. The provisions of this
Section 20 are in addition to, and do not affect, Landlord's right of re-entry
or other rights hereunder or provided by law, including, without limitation, the
right to recover damages for any period when Tenant holds over without
Landlord's prior consent.
21. ENTRY BY LANDLORD
Landlord reserves, and shall at all times have, the right to enter the
Premises to inspect the Premises; to supply janitorial service and any other
service to be provided by Landlord hereunder; to read any meters; to show the
Premises to prospective purchasers, lenders or tenants; to determine whether
Tenant is in compliance with all of its obligations hereunder; to post notices
of nonresponsibility; to erect scaffolding and other necessary structures in or
through the Premises where reasonably required by the character of the work to
be performed; to alter, repair and improve the Building, the Premises or any
part of either; to make additions to and build additional floors on the
Building; to alter, repair, or improve the size, arrangement or location of
entrances or passageways, doors and doorways, electrical, plumbing, heating,
ventilating and air conditioning equipment and systems, corridors, elevators,
stairs and toilets, and all other facilities serving the Building, wherever
located, and whether or not such alterations, repairs or improvements are
required by any governmental agency, entity, ordinance, rule or regulation; to
construct other buildings or improvements on land adjacent to the Building; and
to change the use of all or any part of the Building, other than the Premises,
provided that Landlord shall use reasonable efforts to minimize any interference
with Tenant's use and enjoyment of the Premises caused by any such entry. The
exercise by Landlord of any of the foregoing rights shall not be deemed an
actual or constructive eviction of Tenant, shall not result in any liability of
Landlord to Tenant except for the normal negligence or willful misconduct of
Landlord in the exercise of such rights and shall not entitle Tenant to any
reduction of Rent; provided, however, that in the event that the exercise by
Landlord of any of the foregoing rights shall result in a permanent actual
decrease in the rentable area of the Premises, then the Rent shall be reduced in
proportion to such decrease. Tenant waives any claim for damages for any injury
or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned by
such entry. For each of the foregoing purposes, Landlord shall at all times have
and retain a key with which to unlock all of the
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doors in, on and about the Premises (excluding doors to Tenant's vaults, safes
and similar areas designated in writing by Tenant in advance). Landlord shall
have the right to use any and all means that Landlord may deem proper to open
such doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of such means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from all or any, portion of the Premises.
22. DAMAGE AND DESTRUCTION
(a) If the Premises or the Building is damaged by fire, earthquake, act of
God, the elements or other casualty, Landlord shall promptly, but in no event
later than thirty (30) days following the occurrence of such damage, give notice
to Tenant stating the number of days, in Landlord's reasonable judgment, that
will be necessary to repair such damage. If such damage can substantially be
repaired within two hundred seventy (270) days after the damage occurred,
Landlord shall commence to repair such damage promptly and shall complete such
repairs as soon as reasonably possible thereafter, subject to the provisions of
this Section 22. During the making of such repairs by Landlord, this Lease shall
remain in full force and effect, except that if the damage is not the result of
the negligence or intentional misconduct of Tenant, its agents, contractors,
employees or invitees, Tenant shall be entitled to an abatement of Base Rent,
while such repair is being made, in the proportion that the Rentable Area of the
Premises rendered unusable by such damage bears to the total Rentable Area of
the Premises. If such damage cannot substantially be repaired within two hundred
seventy (270) days after the damage, as evidenced by a statement from Landlord's
architect or general contractor to such effect, Landlord and Tenant shall each
have the option, exercisable at any time within thirty (30) days after
Landlord's notice to Tenant as provided above, to terminate this Lease. This
option to terminate shall be exercised, if at all, by Landlord or Tenant giving
notice to the other party within such thirty (30) day period of its election to
terminate this Lease, with such termination to be effective as of a date
specified in such notice no later than thirty (30) days after the giving of such
notice to the other party. If both parties elect to terminate this Lease, the
termination date shall be the date specified in Landlord's notice. If either
Landlord or Tenant elects to terminate this Lease by giving such notice of
termination to the other party, this Lease and all interest of Tenant in the
Premises shall terminate on the date specified in such notice, and the Rent,
proportionately abated as provided above, shall be paid up to the date of such
termination, with Landlord refunding to Tenant any Rent previously paid for any
period of time subsequent to such date. If neither party elects to terminate
this Lease as provided above, Landlord promptly shall repair such damage, with
this Lease continuing in full force and effect, but with the Base Rent
proportionately abated as provided above. If Landlord is required to repair the
Premises or the Building under this Section 22, Landlord shall repair at its
cost any injury or damage to the Building and the leasehold improvements in the
Premises, and Tenant shall be responsible for and shall repair at its sole cost
all trade fixtures, equipment, furniture and other property of Tenant in the
Premises. Tenant waives any right to terminate this
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Lease under Sections 1932(2) and 1933(4) of the California Civil Code, or under
any similar Laws now or hereafter in effect. Tenant shall not be entitled to any
compensation or damages from Landlord for damage to any of Tenant's trade
fixtures, personal property or equipment, for loss of use of all or any part of
the Premises, for any damage to Tenant's business or profits, or for any
disturbance to Tenant caused by any casualty or the restoration of the Premises
following such casualty.
(b) Notwithstanding the provisions of Subsection 22(a) above, Landlord also
shall have the option to terminate this Lease, exercisable by notice to Tenant
within thirty (30) days of damage or destruction to the Premises or Building, in
each of the following instances:
(i) If more than fifty percent (50%) of the Rentable Area of the
Building is destroyed, regardless of whether the Premises are
damaged.
(ii) If the Premises are substantially damaged or destroyed during the
last twelve (12) months of the Term.
(iii)If the uninsured cost of repairing any damage or destruction
(excluding the amount of any applicable deductible, in the case
of an insured loss) exceeds ten percent (10%) of the full
replacement cost of the Building, including, without limitation,
all leasehold improvements therein.
23. DEFAULT
The occurrence of any one or more of the following events shall constitute
a default and breach of this Lease by Tenant (an "Event of Default"):
(a) The vacation or abandonment of the Premises by Tenant for a period of
five (5) days or longer.
(b) The failure of Tenant to pay any installment of Rent within five (5)
business days after such installment is due.
(c) The failure by Tenant to observe or perform any of the provisions of
this Lease to be observed or performed by Tenant, other than the failure
described in Subsection 23(b), where such failure shall continue for a period of
fifteen (15) days after notice of such failure by Landlord to Tenant; provided,
however, that if the nature of Tenant's default is such that more than fifteen
(15) days are reasonably required for its cure, then Tenant shall not be deemed
to be in default if Tenant commences such cure within such fifteen (15) day
period and thereafter diligently prosecutes such cure to completion.
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing of any action by or against Tenant
under any
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insolvency, bankruptcy, reorganization, moratorium or other debtor relief
statute, whether now or hereafter existing (unless, in the case of such action
taken against Tenant, the action is dismissed within sixty (60) days); or the
appointment of a trustee or a receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days after
such taking; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within ten (10)
days; or the admission by Tenant in writing of its inability to pay its debts as
they become due.
24. REMEDIES IN DEFAULT
Upon the occurrence of any Event of Default, Landlord may at any time
thereafter, with or without notice or demand, without limitation on Landlord's
exercise of any right or remedy that Landlord may have by reason of such Event
of Default, and in addition to any other right or remedy Landlord may have at
law or in equity:
(a) Terminate this Lease and recover damages as provided by Section 1951.2
of the California Civil Code, including, but not limited to, recovery of the
worth at the time of award of the amount by which the unpaid Rent for the
balance of the Term after the time of award exceeds the amount of rental loss
for the same period that Tenant proves could have been reasonably avoided, as
computed pursuant to subsection (b) of Section 1951.2;
(b) Continue this Lease in effect and enforce all of Landlord's rights and
remedies under this Lease, as provided by Section 1951.4 of the California Civil
Code, including, without limitation, the right to recover Rent as it becomes
due, for so long as Landlord does not terminate Tenant's right to possession;
acts of maintenance or preservation by Landlord, efforts by Landlord to relet or
sublet the Premises, or the appointment of a receiver upon Landlord's initiative
to protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession;
(c) Sublet all or any part of the Premises for such term or terms (which
may extend beyond the Term), at such rent and on such other terms as Landlord in
its sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises, all as attorney-in-fact for Tenant pursuant to
Subsection 24(f);
(d) Enter the Premises and remove therefrom all persons and property, store
such property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and sell such property and apply the proceeds therefrom
pursuant to applicable California law, all as attorney-in-fact for Tenant
pursuant to Subsection 24(f); and
(e) Take all steps necessary or appropriate to have a receiver appointed
for Tenant to take possession of the Premises, to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord as attorney-in-fact for Tenant pursuant to Subsection 24(f).
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Additionally. Landlord shall have the following rights, powers, and
remedies:
(f) For all purposes set forth in Subsections 24(c) through 24(e), Tenant
irrevocably appoints and constitutes Landlord as attorney-in-fact for Tenant,
with power of substitution. No taking possession of the Premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an election on Landlord's
part to terminate this Lease unless a written notice of such election is given
to Tenant. Notwithstanding any subletting by Landlord without termination under
Subsection 24(c), Landlord may at any time thereafter elect to terminate this
Lease for any previous Event of Default.
(g) In the case of any Event of Default in the payment of Rent, Landlord
shall receive interest on all unpaid Rent at a rate equal to the lesser of (i)
the rate of interest publicly announced by Bank of America NT&SA in San
Francisco, California, as its "reference rate" (or any successor interest rate),
plus five percent (5%), which rate on unpaid Rent shall be adjusted as of the
effective date of any change in such reference (or successor) rate, or (ii) the
highest rate permitted by law.
25. EMINENT DOMAIN
(a) If all of the Premises are condemned or taken in any manner for public
or quasi-public use, including, but not limited to, a conveyance or assignment
in lieu of a condemnation or taking, this Lease shall automatically terminate as
of the earlier of the date of the vesting of title or the date of dispossession
of Tenant as a result of such condemnation or taking. If a portion of the
Premises is so condemned or taken, this Lease shall automatically terminate, as
to the portion of the Premises so condemned or taken, as of the earlier of the
date of the vesting of title or the date of dispossession of Tenant as a result
of such condemnation or taking. If a portion of the Building is condemned or
taken so as to require, in the reasonable judgment of Landlord, a substantial
alteration or reconstruction of the remaining portions of the Building, this
Lease may be terminated by Landlord, as of the earlier of the date of the
vesting of title or the date of dispossession of Tenant as a result of such
condemnation or taking, by notice to Tenant within sixty (60) days following
notice to Landlord of the date on which such vesting or dispossession will
occur. If a material portion of the Premises is condemned or taken so as to
render the remaining portion unusable by Tenant, in Tenant's reasonable
judgment, this Lease may be terminated by Tenant, as of the earlier of the date
of the vesting of title or the date of dispossession of Tenant as a result of
such condemnation or taking, by notice to Landlord within sixty (60) days
following notice to Tenant of the date on which such vesting or dispossession
will occur.
(b) Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking for public or quasi-public use,
including, without limitation, any award made for the value of the leasehold
estate created by this Lease. No award for any partial or entire taking shall be
apportioned, and Tenant assigns to Landlord any award that may be made in such
condemnation or taking, together with any
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and all rights of Tenant now or hereafter arising in or to such award; provided.
however, that nothing contained herein shall be deemed to give Landlord any
interest in, or to require Tenant to assign to Landlord, any award made to
Tenant specifically for its relocation expenses, the taking of personal property
and fixtures belonging to Tenant, or the interruption of or damage to Tenant's
business.
(c) In the event of a partial condemnation or taking that does not result
in a termination of this Lease as to the entire Premises, Base Rent shall abate
in proportion to the portion of the Premises taken by such condemnation or
taking.
(d) If all or any portion of the Premises is condemned or taken for public
or quasi-public use for a limited period of time, this Lease shall remain in
full force and effect and Tenant shall continue to observe all of the terms,
conditions and covenants of this Lease; provided, however, that Base Rent shall
abate during such limited period in proportion to the portion of the Premises
that is rendered untenantable and unusable as a result of such condemnation or
taking. Landlord shall be entitled to receive the entire award made in
connection with any such temporary condemnation or taking.
(e) Tenant waives and releases any right to terminate this Lease under
Sections 1265.120 and 1265.130 of the California Code of Civil Procedure, or
under any similar Laws now or hereafter in effect.
26. ESTOPPEL CERTIFICATE
At any time and from time to time, and no later than ten (10) days after
notice from Landlord, Tenant shall promptly execute, acknowledge and deliver to
Landlord, and, at Landlord's request, to any prospective purchaser, ground
lessor, or mortgagee, a certificate certifying (a) that Tenant has accepted the
Premises (or, if Tenant has not done so, that Tenant has not accepted the
Premises and specifying the reasons for not accepting them); (b) the
Commencement and Expiration Dates; (c) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that this Lease is in
full force and effect as modified and stating the date and nature of each
modification); (d) the dates, if any, to which Rent has been paid; (e) whether
or not there are then existing any defenses against the enforcement of any of
the obligations of Tenant under this Lease (and, if so, specifying such
defenses); (f) whether or not there are then existing any defaults by Landlord
in the performance of its obligations under this Lease (and, if so, specifying
such defaults); and (g) such other matters as may be reasonably requested by
Landlord. Any such certificate may be relied upon by Landlord and by any
prospective purchaser, ground lessor or mortgagee considering the purchase of or
a loan on all or any part of the Building or any interest therein. If Tenant
fails to deliver any such certificate within ten (10) days of receipt, Tenant
agrees and acknowledges that Landlord, and any prospective purchaser, ground
lessor, or mortgagee, may rely on all information set forth in such certificate
as true and correct. Tenant shall indemnify Landlord against and hold Landlord
harmless from all costs, damages, expenses, liabilities and fees, including,
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without limitation, reasonable attorneys' fees and any consequential damages or
lost profits, arising from or in any way related to or connected with Tenant's
failure to deliver any such certificate within the time specified in this
Section 26.
27. AUTHORITY OF TENANT
If Tenant is a corporation or partnership, each individual executing, this
Lease on behalf of Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of Tenant, that Tenant is a duly
authorized and existing entity, that Tenant has qualified and is qualified to do
business in California, that Tenant has full right and authority to enter into
this Lease, and that this Lease is binding upon such corporation or partnership
in accordance with the terms of this Lease. Upon Landlord's request, Tenant
shall provide Landlord with evidence reasonably satisfactory to Landlord
confirming the foregoing representations and warranties.
28. BROKERS
Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, excepting only the
brokers specified in the Basic Lease Information, and Tenant knows of no other
real estate broker or agent who is entitled to a commission in connection with
this Lease. Tenant agrees to indemnity Landlord against and hold Landlord
harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgments, costs and expenses (including reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be owing
on account of Tenant's dealings with any real estate broker or agent other than
as specified in the Basic Lease Information.
29. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event later
than thirty (30) days after notice by Tenant to Landlord specifying the nature
of the obligation Landlord has failed to perform; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes such performance to completion.
30. LANDLORD'S OPTION TO RELOCATE TENANT
Landlord and Tenant agree that at any time after Tenant's execution of this
Lease, Landlord shall have the right, upon providing Tenant at least thirty (30)
days' prior notice, to provide Tenant with space on a higher floor with a
comparable view in the Building of approximately the same size and quality as
the Premises (including a comparable level of tenant improvements completed at
Landlord's cost) and to move Tenant to such new space. Landlord shall arrange
for moving Tenant and shall pay the costs of actually
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moving Tenant to such new space and incidental costs associated therewith (to
include, but not limited to, telephone installation and computer cabling). In
the event Landlord moves Tenant to such new space, this Lease and each and all
of its terms, covenants and conditions shall remain in full force and effect and
thereupon be deemed applicable to such new space, except that a revised floor
plan shall become part of this Lease and shall reflect the location of the new
space. If Tenant refuses to permit Landlord to move Tenant to such new space at
the end of such thirty (30) day period, Landlord shall have the right to
terminate this Lease by notice given to Tenant within ten (10) days following
the end of such thirty (30) day period, which termination shall be effective one
hundred twenty (120) days after the date of the original notice of relocation by
Landlord. Landlord will provide Tenant with thirty (30) days advance notice of
the actual date of relocation and will accomplish relocation without disruption
to Tenant's normal business operation.
31. RENEWAL OPTION
Tenant shall have one (1) option (the "Renewal Option") to extend the Term
for a period of five (5) years beyond the Expiration Date (the "Renewal Term").
The Renewal Option shall be effective only if an Event of Default is not then
occurring under this Lease, nor is any event then occurring which with the
giving of notice or the passage of time, or both, would constitute an Event of
Default hereunder, either at the time of exercise of the Renewal Option or the
time of commencement of the Renewal Term. The Renewal Option must be exercised,
if at all, by written notice from Tenant to Landlord given not more than twelve
(12) months nor less than nine (9) months prior to the expiration of the initial
Term. Any such notice given by Tenant to Landlord shall be irrevocable. If
Tenant fails to exercise the Renewal Option in a timely manner as provided for
above, the Renewal Option shall be void. The Renewal Term shall be upon the same
terms and conditions as the initial Term, except that (i) the annual Base Rent
during the Renewal Term shall be equal to the prevailing market rate for space
in the San Francisco Financial District comparable to the Premises in size,
condition, quality and type at the commencement of the Renewal Term, and (ii)
there shall be no further renewal option. As used herein, the term "prevailing
market rate" shall mean the base annual rental for such comparable space, taking
into account any additional rental and all other payments and escalations
payable hereunder and by tenants under leases of such comparable space. If
Tenant disputes Landlord's determination of the prevailing market rate, Tenant
shall so notify the Landlord within ten (1O) days following Landlord's notice to
Tenant of the prevailing market rate and such dispute shall be resolved as
follows:
(a) Within thirty (30) days following Tenant's notice to Landlord of
Tenant's dispute of Landlord's determination of the prevailing market rate,
Landlord and Tenant shall meet no less than two (2) times, at a mutually
agreeable time and place, to attempt to resolve any such disagreement.
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(b) If within this thirty (30) day period Landlord and Tenant cannot reach
agreement as to the prevailing market rate, they shall each select one appraiser
to determine the prevailing market rate. Each such appraiser shall arrive at a
determination of the prevailing market rate and submit his conclusions to
Landlord and Tenant within thirty (3O) days of the expiration of the thirty (30)
day consultation period described in paragraph (a) above.
(c) If only one appraisal is submitted within the requisite time period, it
shall be deemed to be the prevailing market rate. If both appraisals are
submitted within such time period, and if the two appraisals so submitted differ
by less than ten (10) percent of the higher of the two, the average of the two
shall be the prevailing market rate. If the two appraisals differ by more than
ten (1O) percent of the higher of the two, then the two appraisers shall
immediately select a third appraiser who will within thirty (30) days of his
selection make a determination of the prevailing market rate and submit such
determination to Landlord and Tenant. This third appraisal will then be averaged
with the closer of the two previous appraisals and the result shall be the
prevailing market rate.
All appraisers specified pursuant hereto shall be licensed real estate
brokers in the State of California with not less than five (5) years' experience
appraising office properties in the San Francisco Financial District. Each party
shall pay the cost of the appraiser selected by such party and one-half (1/2) of
the cost of the third appraiser plus one-half (1/2) of any other costs incurred
in connection with the appraisal.
32. EXPANSION OPTION
Tenant shall have one (1) option (the "Expansion Option") to lease Suite
720 in the Building (the "Expansion Premises"), comprising approximately 1,708
rentable square feet, upon the expiration or sooner termination of the existing
lease covering the Expansion Premises (the "Existing Lease"). Subject to the
terms of the immediately succeeding sentence, Tenant shall exercise the
Expansion Option by written notice (the "Expansion Exercise Notice") to Landlord
given not later than July 1, 1999 and shall commence occupancy in the Expansion
Premises on a date specified by Landlord, which date shall be on or about
February 1, 2000. Notwithstanding the foregoing, in the event that for any
reason the Existing Lease shall terminate prior to its stated expiration date,
then Landlord shall notify Tenant of such occurrence and of the revised date the
Expansion Premises shall be available for occupancy by Tenant, whereupon Tenant
shall have a period of fifteen ( 15) days after its receipt of such notice to
deliver the Expansion Exercise Notice to Landlord. The Expansion Option shall be
effective only if an Event of Default is not occurring under this Lease, nor is
any event occurring which with the giving of notice or the passage of time, or
both, would constitute an Event of Default hereunder, either at the time of
exercise of the Expansion Option or the time of commencement of this Lease with
respect to the Expansion Premises. Any Expansion Exercise Notice given by Tenant
to Landlord shall be irrevocable. If Tenant fails to exercise the Expansion
Option in a timely manner as provided for above, the Expansion
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Option shall be void. In the event Tenant exercises the Expansion Option as
provided herein, then Landlord and Tenant shall promptly execute an amendment to
this Lease adding the Expansion Premises to the premises demised hereby, except
that (i) the annual Base Rent for the Expansion Premises shall be equal to the
prevailing market rate for space in the San Francisco Financial District
comparable to the Expansion Premises in size, condition, quality and type at the
commencement of Tenant's occupancy of the Expansion Premises (as determined in
accordance with Section 31 above), (ii) Tenant's lease of the Expansion Premises
shall expire on the Expiration Date of this Lease, (iii) the Base Year for
Expenses and Taxes attributable to the Expansion Premises shall be the calendar
year in which Tenant's lease of the Expansion Premises commences, (iv) Tenant's
Expense Share and Tenant's Tax Share shall be increased proportionately, and (v)
Landlord shall provide Tenant with a tenant improvement allowance of Eight
Thousand Five Hundred Dollars ($8,500.00) for improvements in the Expansion
Premises.
33. GENERAL PROVISIONS
(a) Termination of Original Lease. Concurrently with the commencement of
the Term and the delivery of possession of the Premises to Tenant, the Office
Lease by and between Landlord and Tenant, dated as of February 12, 1988, shall
terminate and shall be of no further force or effect.
(b) Waiver. The waiver by Landlord or Tenant of the other party's failure
to perform or observe any provision of this Lease shall not be deemed to be a
continuing waiver of such provision or a waiver of any subsequent failure of
Landlord or Tenant to perform or observe the same or any other such provision,
and no custom or practice that may develop between the parties during the Term
shall be deemed a waiver of, or shall in any way affect, the right of Landlord
or Tenant to insist upon performance and observance by the other party in strict
accordance with the terms of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
failure of Tenant to perform or observe any provision of this Lease, other than
the failure of Tenant to pay the particular Rent so accepted, irrespective of
any knowledge on the part of Landlord of such preceding failure of Tenant at the
time of acceptance of such Rent.
(c) Notices. Any bills, statements, notices, demands, requests or other
communications given or required to be given under this Lease shall be effective
only if rendered or given in writing, sent by registered, certified, or express
mail or delivered personally, (i) to Tenant (A) at Tenant's address set forth in
the Basic Lease Information, if sent prior to Tenant's taking possession of the
Premises, (B) at Tenant's address at the Building, if sent subsequent to
Tenant's taking possession of the Premises, or (C) at any place where Tenant or
any agent or employee of Tenant may be found, if sent subsequent to Tenant's
vacating, deserting, abandoning or surrendering the Premises; (ii) to Landlord
at Landlord's address set forth in the Basic Lease Information; or (iii) to
Tenant or
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Landlord at such other address as either party may designate as its new address
for such purpose by notice given to the other in accordance with the provisions
of this Subsection 33(c). If Tenant is notified of the identity and address of
Landlord's mortgagee or underlying lessor, Tenant shall give to such mortgagee
or ground or underlying lessor notice of any default by Landlord under the terms
of this Lease, in writing sent by registered or certified mail, and such
mortgagee or ground or underlying lessor shall be given a reasonable opportunity
to cure such default prior to Tenant's exercising any remedy available to
Tenant.
(d) Examination of Lease. Submission of this instrument to Tenant for its
execution does not constitute a reservation or option for a lease, and this
instrument is not and shall not be deemed to be effective as a lease or
otherwise until its execution and delivery by both Landlord and Tenant.
(e) Captions. The captions of this Lease are for convenience of reference
only and shall have no effect upon the construction or interpretation of any
provision of this Lease.
(f) Definitions. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine. If Landlord or Tenant is more than one
entity, the obligations under this Lease imposed on Landlord or Tenant shall be
joint and several.
(g) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(h) Successors and Assigns. The terms, covenants and conditions contained
in this Lease shall bind and inure to the benefit of Landlord and Tenant and,
except as otherwise provided herein, their personal representatives, successors
and assigns; provided, however, that upon the sale, assignment or transfer by
Landlord named herein (or by any subsequent Landlord) of its interest in the
Building as owner or lessor, including any transfer by operation of law,
Landlord named herein (or any subsequent Landlord) shall be relieved from all
subsequent obligations and liabilities under this Lease, and all obligations and
liabilities subsequent to such sale, assignment or transfer (but not any
obligations or liabilities that have accrued prior to the date of such sale,
assignment or transfer) shall be binding upon the grantee, assignee or
transferee of such interest, and any such grantee, assignee or transferee, by
accepting such interest, shall be deemed to have assumed such subsequent
obligations and liabilities. A lease of the entire Building to a person other
than for such person's occupancy shall be deemed a transfer within the meaning
of this Subsection 33(h). Tenant agrees to execute any and all documents deemed
necessary or appropriate by Landlord to evidence the foregoing.
(i) Recordation. Tenant shall not record this Lease or a short form
memorandum of this Lease without the prior consent of Landlord.
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(j) Quiet Possession. Upon Tenant's paying the Rent reserved hereunder and
observing and performing all of the provisions of this Lease, Tenant shall have
quiet possession of the Premises for the entire Term, subject to all the
provisions of this Lease.
(k) Prior Agreements. This Lease contains all of the agreements of Landlord
and Tenant with respect to all matters covered or mentioned in this Lease, and
no prior agreements or understandings pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties or their successors in
interest. Tenant acknowledges that in executing and delivering this Lease,
Tenant is not relying on any verbal or written understanding, promise or
representation outside the scope of this Lease and not described or referred to
herein.
(l) Attorneys' Fees. In the event of any action or proceeding brought by
either party against the other under this Lease, the prevailing party shall be
entitled to recover all costs and expenses, including, without limitation, its
attorneys' fees, for such action or proceeding in such amount as the court or
arbitrator may adjudge reasonable. The prevailing party shall be determined by
the court or arbitrator based upon an assessment of which party's major
arguments made or positions taken in the action or proceeding could fairly be
said to have prevailed over the other party's major arguments or positions on
major disputed issues in the court's or arbitrator's decision. If Landlord is
named as a defendant in any suit brought against Tenant in connection with or in
any way arising out of this Lease or Tenant's use or occupancy of the Premises,
Tenant shall pay Landlord's costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred in such suit.
(m) Subordination; Attornment. Without the necessity of any additional
document being executed by Tenant for the purpose of effecting a subordination,
this Lease shall be subject and subordinate at all times to (i) all ground
leases or underlying leases that may now exist or hereafter be executed
affecting the Building or the land upon which the Building is situated, or both,
and (ii the lien of any mortgage or deed of trust that may now exist or
hereafter be executed in any amount for which the Building, the land upon which
the Building is situated, any ground leases or underlying leases of the Building
or such land, or Landlord's interest or estate in any of such items is specified
as security, provided that the lessees under such ground or underlying leases,
and the mortgagees or beneficiaries named in such mortgages or deeds of trust,
shall agree to recognize the interest of Tenant under this Lease in the event of
foreclosure, if Tenant is not then in default. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated to this
Lease any such ground leases or underlying leases or any such liens. In the
event that any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination, attorn
to and become the Tenant of the successor in interest to Landlord, at the option
of such successor in interest. Tenant covenants and agrees to execute and
deliver, upon
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demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect to
any such ground lease or underling lease or the lien of any such mortgage or
deed of trust.
(n) Names. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by Tenant in the Premises.
(o) Severability. Any provision of this Lease that shall prove to be
invalid, void, illegal or unenforceable shall in no way affect, impair or
invalidate any other provisions of this Lease, and such other provisions and
this Lease shall remain in full force and effect.
(p) Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies or
elections at law or in equity.
(q) Choice of Law. This Lease shall be governed by and construed in
accordance with the Laws of the State of California.
(r) Signs and Building Name. Tenant shall not place any sign upon the
Premises or Building without Landlord's prior consent. All signs to which
Landlord so consents and which are placed by Tenant upon or in the Premises
shall comply in all respects with size, design, lettering and material
guidelines established by Landlord for the Building. Landlord reserves the right
to change or alter such guidelines at such times and for such tenants as
Landlord may determine in its sole discretion. The name of the Building may be
changed from time to time in Landlord's sole discretion.
(s) No Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation of this Lease by Landlord and Tenant, shall not constitute
a merger of Tenant's estate and Landlord's estate, and, at the option of
Landlord, shall either (i) terminate any or all existing subleases or
subtenancies or (ii) operate as an assignment to Landlord of any or all such
subleases or subtenancies.
(t) Light and Air. Tenant covenants and agrees that no diminution or
shutting off of light, air or view that may result from the erection of any
structure (whether or not by Landlord) on property adjacent to the Building, and
no closing or shutting off of any windows in the Premises or the Building as a
result of the erection of any such structure, shall in any way affect this
Lease, entitle Tenant to any reduction of Rent hereunder or result in any
liability of Landlord to Tenant, of any type or nature whatsoever.
(u) Confidentiality. Tenant shall not disclose the terms of this Lease to
any unrelated third party except as required in the normal course of Tenant's
business (e.g., if necessary to obtain financing).
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(v) Landlord's Review. The review, approval, inspection or examination by
Landlord of any item to be reviewed, approved, inspected or examined by Landlord
under the terms of this Lease or the attached exhibits shall not constitute the
assumption of any responsibility by Landlord for either the accuracy or the
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review, approval, inspection or examination by Landlord
is for the sole purpose of protecting Landlord's interests in the Building and
under this Lease, and no third parties, including, without limitation, Tenant or
any person or entity claiming through or under Tenant, or the contractors,
agents, servants, employees, visitors or licensees of Tenant or any such person
or entity, shall have any rights arising out of any such review, approval,
inspection or examination.
LANDLORD: THE CANADA LIFE ASSURANCE
COMPANY
By:
------------------------------
Its:
-----------------------------
TENANT: FORECROSS CORPORATION,
a California corporation
By: /s/ Kim O. Jones
------------------------------
Its: President
------------------------------
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90 NEW MONTGOMERY STREET
OFFICE LEASE EXHIBIT A
FLOOR PLANS CONSISTING OF 1 PAGE
<PAGE>
EXHIBIT A
[ - FLOOR PLAN - ]
90 NEW MONTGOMERY
<PAGE>
90 NEW MONTGOMERY STREET
OFFICE LEASE
EXHIBIT B
INDEX OF DEFINED TERMS
DEFINITIONS SECTION OR
EXHIBIT
Additional Charges...................................... 5(b)
Advance Rent............................................ 5(c)
Alterations............................................. 10(a)
Alterations Allowance................................... 10(f)
Approved Alterations.................................... 10(f)
Assignment.............................................. 13(a)
Base Expenses........................................... 7(d)(iv)
Base Rent............................................... 5(a)
Base Taxes.............................................. 7(d)(v)
Base Year............................................... 7(d)(iii)
Basic Lease Information................................. 1
Building................................................ 2
Commencement Date....................................... 3
Common Areas............................................ 8(c)
Computation Year........................................ 7(d)(viii)
B-1
<PAGE>
DEFINITIONS SECTION OR
EXHIBIT
Event of Default.......................................... 23
Expenses.................................................. 7(d)(i)
Expiration Date........................................... 3
HVAC...................................................... 17(a)
Landlord.................................................. 1
Laws...................................................... 9
Lease..................................................... 1
Premises.................................................. 2
Rent...................................................... 5(b)
Rentable Area............................................. 2
Security Deposit.......................................... 6
Standard Building Hours................................... 17(a)
Sublease.................................................. 13(a)
Taxes..................................................... 7(d)(ii)
Tenant.................................................... 1
Tenant's Expense Share.................................... 7(d)(vi)
Tenant's Tax Share........................................ 7(d)(vii)
Usable Area............................................... 2
B-2
<PAGE>
90 NEW MONTGOMERY STREET
OFFICE LEASE
EXHIBIT C
EXPENSE EXCLUSIONS
Notwithstanding the provisions of Section 7(d)(i), no costs or expenses
incurred for the following shall be included in Expenses:
(a) Leasing commissions, attorneys' fees, and other expenses incurred in
connection with negotiations with prospective tenants.
(b) Costs (including permit, license and inspection fees) incurred in
improving, renovating, or decorating space for new tenants or existing tenants
who are extending the terms of their respective tenancies.
(c) Costs of any services or utilities sold or provided to tenants to the
extent Landlord is separately reimbursed for such costs by such tenants as an
Additional Charge over and above the base rent, as the same may be escalated,
payable under the lease with such tenant.
(d) Costs of the Building to the extent Landlord is reimbursed for such
costs by the retail tenants of the Building.
(e) Depreciation and amortization on the Building, except as otherwise
provided in clause (B) of Section 7(d)(i) of the Lease.
(f) Interest on debt or amortization payments on any mortgages or deeds of
trust.
<PAGE>
90 NEW MONTGONIERY STREET
OFFICE LEASE
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard. picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord first had and
obtained, and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering for all exterior windows. Tenant shall not
without prior written consent of Landlord cover or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress to and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
to any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Tenant who, or whose employees or invitees, shall
have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without prior notice to Landlord, and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building. Safes
or other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for
D-1
<PAGE>
loss of or damage to any such safe or property from any cause, and all damage
done to the Building by moving or maintaining any such safe or other property
shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep, or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or their
occupants of the Building by reason of noise, odors, and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or other tenants or birds be brought in or kept in or about
the Premises or the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises,
except for microwave cooking and hot water beverage service of the kind
typically permitted in the general office space of buildings in San Francisco
comparable to the Building, nor shall the Premises be used for the storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord, if
any.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes, and other office equipment affixed to the Premises shall be subject to
the approval of Landlord.
11. On Saturdays, Sundays, and legal holidays, and on other days between
the hours of 6:00 P.M. and 8:00 A.M. the following day, access to the Building,
or to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection both of property in the Building and of the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
13. No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord, which shall not be unreasonably withheld.
14. Tenant shall not disturb, solicit, or canvas any occupant of the
Building and shall cooperate to prevent same.
D-2
<PAGE>
15. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
16. Landlord shall have the right to control and operate the public
portions of the Building, and the public facilities and heating, as well as
facilities furnished for the common use of the tenants, in such manner as
Landlord deems best for the benefit of the tenants generally.
17. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress to and egress from the Premises.
D-3
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ______ day
of May 1997 by and between Forecross Corporation, a California corporation (the
"Company"), and __________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by Indemnitee in
connection with such action or proceeding if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that (i) Indemnitee
<PAGE>
did not act in good faith and in a manner which Indemnitee reasonably believed
to be in the best interests of the Company, or (ii) with respect to any criminal
action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement, in each case to the extent actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the best interests of the Company and
its shareholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of indemnitee's duty to the Company and
its shareholders unless and only to the extent that the court in which such
action or proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
l(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to Indemnitee). Notice shall
be deemed received three business days after the date postmarked if sent by
domestic certified or registered mail, properly addressed; otherwise notice
shall be deemed received when such notice
2
<PAGE>
shall actually be received by the Company. In addition, Indemnitee shall give
the Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) Procedure. Any indemnification provided for in Section 1 shall be made
no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's Articles of Incorporation or By-laws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action or proceeding in advance of its
final disposition) that indemnitee has not met the standards of conduct which
make it permissible under applicable law for the company to indemnify Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its shareholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of a
claim pursuant to Section 2(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated under
Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee,
the Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, which approval shall not be
unreasonably withheld, upon the delivery to Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable
3
<PAGE>
to Indemnitee under this Agreement for any fees of counsel subsequently incurred
by indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's By-laws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which
expands the right of a California corporation to indemnify a member of its board
of directors or an officer, such changes shall be, ipso facto, within the
purview of Indemnitee's rights and Company's obligations, under this Agreement.
In the event of any change in any applicable law, statute or rule which narrows
the right of a California corporation to indemnify a member of its Board of
Directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement shall
not be deemed exclusive of any rights to which Indemnitee may be entitled under
the Company's Articles of Incorporation, its By-laws, any agreement, any vote of
shareholders or disinterested directors, the California General Corporation Law,
or otherwise, both as to action in Indemnitee's official capacity and as to
action in another capacity while holding such office. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though he may
have ceased to serve in such capacity at the time of any action or other covered
proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action or proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee
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<PAGE>
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
6. Directors, and Officers' Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
directors' and officers' liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer. Notwithstanding the foregoing, the
Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the
Company.
7. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 7. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or
transactions from which a director may not be relieved of liability under the
California General Corporation Law; or
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required
5
<PAGE>
under Section 317 of the California General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors has approved the initiation or bringing
of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred
by the Indemnitee with respect to any proceeding instituted by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been paid
directly to Indemnitee by an insurance carrier under a policy of directors, and
officers' liability insurance maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Effectiveness of Agreement. To the extent that the indemnification
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the California General Corporation
Law, such provisions shall not be effective unless and until the Company's
Articles of Incorporation authorize such additional rights of indemnification.
In all other respects, the balance of this Agreement shall be effective as of
the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee or other agent of the Company, or was serving at the request
of the Company as a director, officer, employee or agent of another corporation
partnership, joint venture, trust or other enterprise, at the time such act or
omission occurred.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
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<PAGE>
(b) For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on Indemnitee with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants, or beneficiaries.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys, fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
16. Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of California as applied to
contracts between California residents entered into and to be performed entirely
within California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FORECROSS CORPORATION
By:
------------------------------------
Title:
----------------------------------
Address:
AGREED TO AND ACCEPTED:
INDEMNITEE:
- --------------------------------
(print name)
- --------------------------------
(signature)
Address:
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FORECROSS CORPORATION
1993 RESTRICTED STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide the Board of Directors of Forecross
Corporation (the "Company") with the authority and flexibility to authorize the
sale of Common Stock, from time to time, to employees and consultants on
favorable terms so as to attract and retain the best available personnel for
positions of responsibility within the Company, and to promote the success of
the Company's business.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or its Committee administering
the Plan, in accordance with Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall have the meaning as specified in Section 4(a) of the
Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" shall mean the Common Stock of the Company.
(f) "Company" shall mean Forecross Corporation, a California corporation.
(g) "Consultant" shall mean any person, including an advisor or director,
engaged by the Company or a Parent or Subsidiary to render services
and who is compensated for such services.
(h) "Employee" shall mean any person, including officers, employed by or
performing services for the Company or any Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
<PAGE>
(i) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the
Administrator;
(ii) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair
Market Value of a Share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange
with the greatest volume of trading in Common Stock) on the last
market trading day prior to the day of determination, as reported
in the Wall Street Journal or such other source as the
Administrator deems reliable; or
(iii)If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported,
the Fair Market Value of a Share of Common Stock shall be the
mean between the high bid and low asked prices for the Common
Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable.
(k) "Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(l) "Plan" shall mean this 1993 Restricted Stock Purchase Plan.
(m) "Share" shall mean a share of Common Stock, as adjusted in accordance
with Section 9 of the Plan.
(n) "Stock Purchase Agreement" shall mean an agreement in the form
approved by the Board to purchase Common Stock of the Company pursuant
to the Plan.
(o)"Stock Purchase Right" shall mean the right to purchase Shares under the
Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE>
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum aggregate
number of Shares which may be sold under the Plan is 300,000 shares of Common
Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.
If Shares are repurchased by the Company pursuant to a Stock Purchase
Agreement, such Shares, unless the Plan shall have been terminated, shall become
available for reissuance under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board or by a
committee designated by the Board. Once appointed, such Committee shall serve in
its designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the Consultants and Employees to whom Stock Purchase
Rights may be granted hereunder;
(iii)to determine whether and to what extent Stock Purchase Rights
are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price,
any waiver of forfeiture restrictions, and any restriction or
limitation regarding any Stock Purchase Right or the Shares
relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to construe and interpret the terms of the Plan;
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<PAGE>
(viii) to prescribe, amend and rescind rules and regulations relating
to the Plan;
(ix) to modify or amend each Stock Purchase Agreement (subject to
Section 10(c) of the Plan);
(x) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of a Stock Purchase Right
previously granted by the Administrator;
(xi) to determine the terms and restrictions applicable to Stock
Purchase Rights and any Shares; and
(xii)to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrators Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on Employees and
Consultants.
5. ELIGIBILITY
Stock Purchase Agreements may be entered into only with Employees and
Consultants. The Employee or Consultants receiving Shares shall have no rights
with respect to continuation of employment or consulting relationship nor with
respect to continuation of any particular Company business, policy or product.
6. TERM OF PLAN
The Plan shall become effective upon adoption by the Board; provided that
the Plan shall also be approved by the shareholders of the Company as provided
in Section 13 hereof. The Plan shall continue in effect for a term of 10 years
from such date of Board adoption unless sooner terminated under Section 10 of
the Plan.
7. CONSIDERATION AND TERMS OF EXERCISE
(a) Determination of Price. The price of Shares to be purchased, the terms
of payment and consideration to be paid for the Shares shall be determined by
the Board, provided, however, that the purchase price shall not be less than the
Fair Market Value on the date of grant.
(b) Payment. Payment for the Shares may be in installments or at one time,
and provision may be made for aiding any Employee or Consultant in paying for
the shares by promissory notes or otherwise.
(c) Loans and Guarantees. In addition, the Company may lend money to, or
guarantee any obligation of or otherwise assist any
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<PAGE>
Employee or Consultant in acquiring Shares under the Plan whenever, in the
judgment of the Board, such loan, guaranty or assistance may reasonably be
expected to benefit the Company. Such loan or guaranty or other assistance may
be with or without interest and may be secured or unsecured in such manner as
the Board shall approve.
8. EXERCISABILITY AND NON-TRANSFERABILITY OF STOCK PURCHASE RIGHT
Stock Purchase Rights acquired by the Employee pursuant to this Plan must
be exercised within 60 days after the date of grant of the Stock Purchase Right.
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner and shall expire immediately upon the
death of the Employee or Consultant or the termination of such person's
employment with or rendition of consulting services to the Company.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock which have been authorized for issuance under
the Plan shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive.
10. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment and Termination. The Board may amend, suspend, or terminate
the Plan from time to time in such respects as the Board may deem advisable.
(b) Shareholder Approval. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and ,desirable to comply with Rule
16b-3 or with the Code (or any successor rule or statute or other applicable
law, rule or regulation, including the requirements of any exchange or quotation
system on which the Common Stock is listed or quoted). Such shareholder
approval, if required, shall be obtained in such a manner and to such a degree
as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Shares already subject
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<PAGE>
to Stock Purchase Agreements, except as provided in said Stock Purchase
Agreements.
11. COMPLIANCE WITH LAWS AND REGULATIONS
Shares shall not be issued under this Plan unless the issuance and delivery
of such Shares shall comply with all relevant provisions of law, including
without limitation, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, state securities laws and the requirements
of any stock exchange or, market system upon which Shares may then be listed or
designated.
12. RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and
keep available, such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
13. SHAREHOLDER APPROVAL
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under applicable federal and state law.
14. GOVERNING LAW.
The Plan shall be governed by the laws of the State of California.
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FORECROSS CORPORATION
1994 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of Directors in
accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Forecross Corporation, a California corporation. (g)
"Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the
event the Company registers any class of any equity security pursuant
to the Exchange Act, the term Consultant shall thereafter not include
directors who are not compensated for their services or are paid only
a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Parent
or Subsidiary is not interrupted or terminated. Continuous Status as
an Employee or Consultant shall not be considered interrupted in the
case of: (i) any leave of absence approved by the Company, including
sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, no such leave
may exceed ninety (90) days, unless reemployment upon the expiration
of such leave is guaranteed by contract (including certain Company
policies) or statute; provided, further, that on the ninety-first
(91st) day of any such leave (where reemployment is not guaranteed by
contract or statute) the Optionee's Incentive Stock Option shall cease
to be treated as an Incentive Stock Option
<PAGE>
and will be treated for tax purposes as a Nonstatutory Stock Option;
or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient
to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported, as quoted on such exchange or system for the last
market trading day prior to the time of determination) as reported in
The Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is listed the Vancouver Stock Exchange
("VSE"), its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported, as
quoted on such exchange or system for the last market trading day
prior to the time of determination) as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
(iii)If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported,
its Fair Market Value shall be the mean between the high bid and
low asked prices for the Common Stock or; (iv) In the absence of
an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
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(p) "Optioned Stock" means the Common Stock subject to an Option.
(q) "Optionee" means an Employee or Consultant who receives an Option.
(r) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1994 Stock Option Plan.
(t) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 below.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 1,000,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon which the Company becomes
subject to the Exchange Act.
(i) Administration with Respect to Directors and Officers. With
respect to grants of Options to Employees who are also officers
or directors of the Company, the Plan shall be administered by
(A) the Board if the Board may administer the Plan in compliance
with Rule 16b-3 promulgated under the Exchange Act or any
successor thereto ("Rule 16b-3") with respect to a plan intended
to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee
shall be constituted in such a manner as to permit the Plan to
comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such
Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without
cause) and appoint new
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members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by Rule 16b-3
with respect to a plan intended to qualify thereunder as a
discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither
directors nor officers.
(iii)Administration With Respect to Consultants and Other Employees.
With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall
be administered by (A) the Board or (B) a committee designated by
the Board, which committee shall be constituted in such a manner
as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of
California corporate and securities laws, the securities laws of
British Columbia, of the Code, and of any applicable stock
exchange (the "Applicable Laws"). Once appointed, such Committee
shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan and,
in the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any stock exchange upon which the Common Stock is
listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance. with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from
time to time be granted hereunder;
(iii)to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder,
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(vii)to determine whether and under what circumstances an Option may
be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was
granted, provided that if and for so long as the Stock is listed
on the Vancouver Stock Exchange, such reductions shall be
approved in accordance with applicable policies of the Vancouver
Stock Exchange; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option may, if otherwise eligible, be granted
additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares underlying Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) in excess of $ 100,000, such excess shall
be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
(e) Upon the Company or a successor corporation issuing any class of common
equity securities required to be registered under Section 12 of the Securities
Exchange Act of 1934, as amended, or upon the Plan being assumed by a
corporation having a class of common equity securities required to be registered
under Section 12 of the Securities Exchange Act, the following limitations shall
apply to grants of Options to Employees:
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(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as
described in Section 12(a).
(iii)If an Option is cancelled (other than in connection with a
transaction described in Section 12), the cancelled Option will
be counted against the limit set forth in Section 5(e)(i). For
this purpose, if the exercise price of an Option is reduced, the
transaction will be treated as a cancellation of the Option and
the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option (A) granted to an
Employee who, at the time of the grant of such Incentive Stock
Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee other than an Employee described in the
preceding paragraph, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
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<PAGE>
(A) granted to a person who, at the time of the grant of such Option, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of the grant.
(B) granted to any person, the per Share exercise price shall be no less
than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise: Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
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<PAGE>
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the event that
an Optionee's Continuous Status as an Employee or Consultant terminates (but not
in the event of a change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant to Employee), other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Administrator, and only to the extent
that the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Notice of Grant). If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event of termination of an Optionee's
consulting relationship or Continuous Status as an Employee as a result of his
or her disability, Optionee may, but only within six (6) months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the day three months and one day following such termination. To
the extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
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<PAGE>
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the
Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Board shall notify the Optionee at least fifteen
(15) days prior to such proposed action. To the extent it has not been
previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or
9
<PAGE>
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger was not solely common stock of the successor corporation
or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option for each Share of Optioned Stock subject to the Option to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted, and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
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15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Options shall be evidenced by written agreements in such form as the
Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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<PAGE>
FORECROSS CORPORATION
STOCK OPTION AGREEMENT
1. Grant of Option. Forecross Corporation, a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1994 Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its term in
accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other termination of
employment, the exercisability of the Option is governed by Sections 7, 8 and 9
below, subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of expiration
of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
notice in the form attached as Exhibit A which shall state the
election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other
representations and agreements as to the holder's investment
intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan.
Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by
the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of this Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchased pursuant
to the exercise of this Option are listed on the Vancouver Stock Exchange,
Optionee shall concurrently with the grant of this Option, deliver to the
Company for filing with the Vancouver Stock Exchange a Declaration of Stock
Option Position in the form attached hereto as Exhibit B. In the event the
Shares purchasable pursuant to the exercise of this Option have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, Optionee shall, concurrently with the exercise of all or any
portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached to the Notice of Exercise.
4. Method of Payment. Payment of the Exercise Price shall be by cash or
check.
5. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Adjustments for Stock Splits, Recapitalizations.
(a) The Exercise Price and number of Shares subject to this Option (as set
forth on the Notice of Grant) shall be subject to adjustment as follows: If the
Company at any time (i) subdivides (by any stock split, stock dividend or
otherwise) the Common Stock into a greater number of shares, the Exercise Price
in effect immediately prior to such subdivision will be proportionately reduced
and the number of Shares issuable shall be proportionately increased, and (ii)
if the Company at any time combines (by reverse stock split or otherwise) the
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Shares issuable shall be proportionately decreased.
(b) If at any time while this Option is outstanding there shall be any
reclassification or conversion of the Common Stock into the another class of
securities (other than a subdivision or combination or shares provided for in
the preceding paragraph), the Optionee shall thereafter be entitled to receive,
during the term hereof and upon payment of the Exercise Price, the number of
shares of stock to which a holder of the Common Stock would have been entitled
upon such
2
<PAGE>
reclassification or conversion had the Optionee exercised this Option
immediately prior to such reclassification or conversion.
7. Termination of Option.
(a) Upon Dissolution, Liquidation or Merger. In the event of the proposed
dissolution or liquidation of the Company or a Change of Control, the Board
shall notify the Optionee at least fifteen (15) days prior to such proposed
action. To the extent it has not been previously exercised, the Option will
terminate immediately prior to the consummation of such proposed action.
(b) Upon Termination of Employment or Status as an Outside Director. In the
event of termination of Optionee's Continuous Status as an Employee or Outside
Director for any reason, including, without limitation, the total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
(c) Death of Optionee. In the event of the death of Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
8. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
9. Restriction on Transfer.
(a) The Optionee agrees that following the date of the exercise of this
Option, he or she shall not effect any sale or transfer of the Shares issued
pursuant to such exercise on the Vancouver Stock Exchange (the "VSE") without
first obtaining the prior written consent of the Board of Directors of the
Company (or any committee designated therefor), which consent shall be in the
sole discretion of the Board.
(b) All transferees of Shares or any interest therein shall be required as
a condition of such transfer to agree in writing in the form satisfactory to the
Company that they will receive and hold such Shares or interests subject to the
provisions of this Stock Option Agreement (the "Agreement"), including, insofar
as applicable, the restriction on resale set forth in this Section 10.
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<PAGE>
Any sale or transfer of the Company's Shares shall be void unless the provisions
of this Agreement are met.
(c) The restriction on resale imposed by this Section 10 shall terminate on
the second anniversary of the date of exercise of this Option. Upon termination
of the restriction, at the Optionee's request the Company shall issue a new
certificate representing the Shares without a legend referring to such
restriction.
10. Legends. Optionee understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by state or federal securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF, NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933".
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
11. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
12. Certain Business Combinations. In the event it is determined by the
Board of Directors, upon receipt of a written opinion of the Company's
independent public accountants, that the enforcement of any Section or
subsection of this Agreement would preclude accounting for any proposed business
combination of the corporation involving a Change of Control as a pooling of
interests, and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such transaction
that it be accounted for as a pooling of interests, that any such Section or
subsection of this Agreement shall be null and void.
4
<PAGE>
13. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal and state tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) Exercise of Incentive Stock Option. If this Option qualifies as
an Incentive Stock Option, there will be no regular federal
income tax liability or state income tax liability upon the
exercise of the Option, although the excess, if any, of the fair
market value of the Shares on the date of exercise over the
Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject
the Optionee to the alternative minimum tax in the year of
exercise.
(ii) Exercise of Nonqualified Stock Option. If this Option does not
qualify as an Incentive Stock Option, there may be a regular
federal income tax liability and a state income tax liability
upon the exercise of the Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If
Optionee is an employee, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to
the applicable taxing authorities an amount equal to a percentage
of this compensation income at the time of exercise.
(iii)Disposition of Shares. In the case of an Nonstatutory Stock
Option, if Shares are held for at least one year, any gain
realized on disposition of the Shares will be treated as
long-term capital gain for federal and state income tax purposes.
In the case of an Incentive Stock Option, if Shares transferred
pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also
be treated as long-term capital gain for federal and state income
tax purposes. If Shares purchased under an Incentive Stock Option
are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the fair
market value of the Shares on the date of exercise over the
Exercise Price.
(iv) Notice of Disqualifying Disposition of Incentive Stock Option
Shares. If the Option granted to Optionee herein is an Incentive
Stock Option, and if Optionee sells or otherwise disposes of any
of the Shares acquired pursuant to the Incentive Stock Option on
or before the later of (1) the date two years after the Date of
Grant, or (2) the date one year after transfer of such Shares to
the Optionee upon exercise of the Incentive Stock Option, the
Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to
income tax withholding by the Company on the compensation income
recognized by the Optionee from the early disposition by payment
in cash or out of the current earnings paid to the Optionee.
5
<PAGE>
14. Arbitration. Optionee agrees that any dispute or controversy arising
out of or relating to any interpretation, construction, performance or breach of
this Agreement, shall be settled by arbitration to be held in Saddle Brook, New
Jersey, in accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgement may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and Optionee shall each pay one-half of the costs and expenses of such
arbitration; each party shall separately pay its own counsel fees and expenses.
15. Miscellaneous.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law.
(ii) Severability. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall
remain enforceable.
NOTHING CONTAINED IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN
WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF STATUS AS AN OUTSIDE DIRECTOR OR OF EMPLOYMENT
BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S STATUS AS AN OUTSIDE DIRECTOR OR
EMPLOYMENT RELATIONSHIP AT ANY TO, WITH OR WITHOUT CAUSE.
6
<PAGE>
EXHIBIT A
EXERCISE NOTICE
Forecross Corporation
90 New Montgomery Street
San Francisco, California 94105
Attention: Secretary
1. Exercise of Option. Effective as of today,___________,19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
____________shares of the Common Stock (the "Shares") of Forecross Corporation
(the "Company") under and pursuant to the Company's 1994 Stock Option Plan, as
amended (the "Plan") and the [ ] Incentive [ ] Nonqualified Stock Option
Agreement dated (the "Option Agreement").
2. Representations of Optionee.
(a) Optionee acknowledges that Optionee has received, read and understood
the Plan and the Option Agreement and agrees to abide by and be bound by their
terms and conditions.
(b) In the event the Shares being purchased pursuant to the exercise of
this Option have not been registered under the Securities Act of 1933, as
amended, at the time this Option is exercised, Optionee shall, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto.
3. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
4. Tax Consultation. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
5. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this
<PAGE>
Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
6. Arbitration. Optionee agrees that any dispute or controversy arising out
of or relating to any interpretation, construction, performance or breach of
this Agreement, shall be settled by arbitration to be held in Saddle Brook, New
Jersey, in accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgement may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and Optionee shall each pay one-half of the costs and expenses of such
arbitration; each party shall separately pay its own counsel fees and expenses.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California excluding that body of law
pertaining to conflicts of law.
8. Severability. Should any provision of this Agreement be determined by a
court of law to be illegal or unenforceable, the other provisions shall
nevertheless remain effective and shall remain enforceable.
9. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
10. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. Delivery of Payment. Optionee herewith delivers to the Company the full
Exercise Price for the Shares.
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<PAGE>
12. Entire Agreement. The Plan, Notice of Grant/Option Agreement and, if
applicable, Investment Representation Statement are incorporated herein by
reference. This Agreement, the Plan, the Notice of Grant/Option Agreement and,
if applicable, Investment Representation Statement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: FORECROSS CORPORATION
___________________________ By:___________________________
Signature
___________________________ Its: ___________________________
Print Name
Address: Address:
____________________________ 90 New Montgomery Street
____________________________ San Francisco,
California 94105
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<PAGE>
EXHIBIT B
LISTINGS POLICY STATEMENT NO.1
FORMS
VSE 1-1A
DECLARATION OF STOCK OPTION POSITION
THIS FORM FOR COMPLETION BY OPTIONEE
RE:____________________
RE:___________incentive stock options in Forecross Corporation(No. of options)
(Company)
I, __________________, HEREBY CERTIFY that the aforesaid non-transferable
options have been granted to me in compliance with the requirements of the
V.S.E. Listings Policy Statement No. 1: and more particularly that at the time
of grant, I was not aware of any change in the affairs of the Company which
might have affected the trading price and had not been disclosed to the public.
If the Company is classified as a Venture Company as of the date of this
declaration, I confirm that I have not been granted a stock option in the said
Company within 2 years of the date of grant of the above-stated options. I
HEREBY FURTHER CERTIFY (complete either Part I or Part II as applicable):
PART I
THAT I have not been granted any director or employee incentive share options by
any other listed companies.
DATED the ____ day of __________, 19____ SIGNATURE ______________
PART II
THAT I hold as of the date of this Declaration existing incentive share options
which have been granted to me by the above named company or other listed
companies as follows:
Outstanding No. of
Balance as
Name of Shares Date of Date of at Date of
Listed Co. Optioned Exercise Grant Certificate
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Complete on separate sheet if insufficient space)
DATED the ____ day of __________, 19____ SIGNATURE ______________
Policy No. 1 December 14, 1990
Page 8 of 11
<PAGE>
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : ______________________
COMPANY : FORECROSS CORPORATION
SECURITY : COMMON STOCK
AMOUNT : ______________________
DATE : ______________________
In connection with the purchase of the above-listed Shares, the undersigned
Optionee represents to the Company the following:
(a) Optionee is an employee of the Company, is under a contract to provide
management services to the Company or is an Outside Director of the Company.
Optionee is aware of the Company's business affairs and financial condition and
has acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Optionee is acquiring the Shares
for investment for Optionee's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
United States Securities Act of 1933, as amended (the "Securities Act").
(b) Optionee understands that the Shares have not been registered under the
Securities Act, that no market presently exists for Shares, and that the Shares
may not be sold or transferred unless and until registered under the Securities
Act or unless, in the opinion of counsel, such transfer is exempt from the
registration requirements of the Securities Act.
(c) Optionee acknowledges and understands that the Shares constitute
"restricted securities" under the Securities Act and have been issued in
reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of Optionee's investment intent as
expressed herein. In this connection, Optionee understands that, in the view of
the United States Securities and Exchange Commission, the statutory basis for
such exemption may be unavailable if Optionee's representation was predicated
solely upon a present intention to hold these Shares for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Shares, or for a period of one
year or any other fixed period in the future. Optionee further understands that
the Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Optionee further acknowledges and understands that the Company is under no
obligation to register the Shares.
<PAGE>
(d) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of exercise of the Option by the Optionee, such exercise will be exempt
from registration under the Securities Act. In the event the Company later
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including among other things: (1) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
United States Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of exercise of the Option, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (2) the availability of
certain public information about the Company, (3) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934), and (4) the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.
(e) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(f) Optionee agrees, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of capital stock of the Company held by Optionee (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's
2
<PAGE>
securities for one hundred eighty (180) days from the effective date of such
registration, and (2) further agrees to execute any agreement reflecting (1)
above as may be requested by the underwriters at the time of the public
offering; provided, however, that the Optionee shall be relieved of the
foregoing obligation unless the officers and directors of the Company who own
the stock of the Company also agree to similar restrictions.
(g) Optionee understands and agrees that the Company shall cause the
legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
(h) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(i) Refusal to Transfer. The Company shall not be required (i) to transfer
on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement the Company's Articles of
Incorporation or the Company's Bylaws or (ii) to treat as owner of such Shares
or to accord the right to vote or pay dividends to any purchaser or other
transferee to whom such Shares shall have been so transferred.
______________________________
Signature
______________________________
Print Name
Date: ___________, 19____
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
FIRST AMENDMENT OF EXCLUSIVE DISTRIBUTOR AGREEMENT
THIS FIRST AMENDMENT OF EXCLUSIVE DISTRIBUTOR AGREEMENT (this "Amendment") is
made this 29th of September, 1996 to be effective as of June 28, 1996 by and
among FORECROSS CORPORATION, a California corporation ("Licensor"), Gardner
Solution 2000, LLC, a California LLC ("Distributor"), and GREGORY STOCK
("Gregory Stock").
RECITALS
A. WHEREAS, Licensor and Distributor entered into a written "Exclusive
Distributor Agreement" on June 28, 1996 (the "Original Written Agreement");
B. WHEREAS, Licensor and Distributor have determined that the Original Written
Agreement did not and does not accurately reflect the economic substance of
the agreement between the parties in that it failed to provide for (i) the
detailed allocation of the consideration paid by Distributor, (ii) the
security for certain of the payments to be made by Distributor, and (iii)
the license of the Products given by Licensor to Distributor for
Distributor's internal use and for demonstration to potential end users.
C. WHEREAS, Licensor and Distributor desire to amend the Original Written
Agreement so as to accurately reflect the substance of the agreement
between the parties and to make other technical corrections.
D. WHEREAS, Gregory Stock desires to assist Distributor, an entity of which is
a 50% owner, in securing the Distributor's obligation to make certain
payments to the Licensor as provided herein.
THEREFORE, in consideration of their mutual continued performance under the
Original Written Agreement, the Licensor and Distributor agree, and in
consideration for continued performance by Licensor, which performance will
benefit Gregory Stock through his ownership of Distributor, Gregory Stock
agrees, as follows:
AGREEMENT
1. Licensor and Distributor agree to amend and restate Section 3.3 of the
Original Written Agreement (all further Section references shall be to the
Original Written Agreement unless otherwise stated) in its entirety and so
that as amended, Section 3.3 reads in full as follows:
"3.3 In consideration of the appointment by Licensor of Distributor as the
exclusive Distributor and in further consideration of support,
licenses, training and other promises contained herein, Distributor
shall pay Licensor cash fees as follows:
<PAGE>
1. [***] as a one-time non-refundable fee for the license granted
pursuant to Section 4.3 herein;
2. [***] as a one-time non-refundable fee for exclusivity for a
period of one year starting on June 28, 1996 (the date of
"Commencement");
3. [***] as a one-time non-refundable fee for technical and sales
training and support for a period on one year starting on the
date of Commencement; and
4. [***] per year as a non-refundable annual fee for software
maintenance and enhancements in each of the ten years starting on
the date of Commencement."
2. Licensor and Distributor agree to add a new Section 3.4 to read in full as
follows:
"3.4 The fees described in Section 3.3 will be payable as follows:
1. The [***] in one-time non-refundable fees described in paragraph
(1) of Section 3.3 above shall be due and payable upon execution
of the Agreement.
2. The [***] in one-time non-refundable fees described in paragraphs
(2), (3) and (4) of Section 3.3 above shall be due and payable
before the expiration date of one year from the date of
Commencement.
3. Licensor and Distributor agree to add and Gregory Stock consents to such
addition and agrees to be bound by a new Section 3.5 to read in full as
follows:
"3.5 The fees described in paragraphs (2), (3) and (4) of Section 3.3 will
be secured by that certain [****] shares of the Licensor's outstanding
common stock in the name of Gregory Stock on the books and records of
the Licensor (the "Security Shares") as follows:
1. Distributor and Gregory Stock shall cause the original share
certificate or certificates evidencing the Security Shares to be
delivered to Licensor immediately upon execution of this
Amendment.
2. The Security Shares shall be held by Licensor as a general and
continuing collateral security (the "Security") for the payment,
fulfillment and performance of all indebtedness of Distributor
described in paragraphs (2), (3) and (4) of Section 3.3 above
(the "Secured Obligation").
<PAGE>
3. In the event the Distributor (i) fails to pay any or all of the
Security Obligation prior to the expiration of the one year
period beginning on the date of Commencement and (ii) after
receiving notice of such failure does not remedy any such failure
within a period of ten (10) days (hereinafter a "Default"), the
Licensor shall be entitled:
(a) to sell at public or private sale, lease, or otherwise
realize upon, deal with or dispose of the Security Shares,
or any of them, in any manner allowed by Section 9504 of the
California Commercial Code, and
(b) to exercise any other rights, powers and remedies available
to Licensor at law, in equity, or by statutory enactment.
4. When the Security Obligation is completely satisfied, fulfilled
and performed, the Security Shares shall be released and
delivered to Gregory Stock, free and clear of the Security.
5. Gregory Stock shall have the authority, until Default, to
exercise and enjoy all voting rights attaching to the Security
Shares or any of them and any distributions made on the Security
Shares shall be delivered to the Licensor hereunder as additional
security on the same terms as the Security Shares.
6. With reference to the security interest herein above refereed
to, the Distributor and [****] hereby acknowledge and agree that:
(a) value was given by Licensor to Distributor and thereby to
Gregory Stock
(b) Gregory Stock has rights in the Security Shares; and
(c) Gregory Stock intends, and acknowledges Licensor's intention
that such security interest shall attach upon the execution
and delivery by Gregory Stock of this Agreement.
7. This Security shall not limit or affect Licensor's legal or
equitable remedies for breach of any obligations under this
Agreement or any other Agreement. Notwithstanding any security
interest granted herein, Licensor may proceed against the
Security Shares and/or Distributor for breach of the Secured
Obligations."
4. Gregory Stock represents and warrants to Licensor that as of the date of
Commencement and through and including the date of execution of this
Amendment, Gregory Stock owns all right, title and interest in the Security
Shares free and clear of any third party security interest, lien or
representations and warranties in connection with this Amendment.<PAGE>
5. Licensor and Distributor agree to add a new Section 3.6 to read in full as
follows:
"3.6 Distributor shall not during the term of this Agreement represent or
offer to represent or market, sell or distribute, in the Territory,
computer software products that compete directly with the Products."
6. Licensor and Distributor agree that notwithstanding the language of the
amendment to the Original Written Agreement made by Section 3 immediately
above, the tender and delivery of the therein defined "Security Shares" on
the date of the execution of this Amendment shall be deemed to be a tender
and delivery of the Security Shares as of June 28, 1996.
7. Licensor and Distributor agree to add a new Section 4.3 to read in full as
follows:
"4.3 Licensor hereby grants to Distributor for its internal use and for
demonstration to potential end users, ONE nonexclusive,
non-assignable, non-transferable license to use the Products, subject
to the terms and conditions specified in and pursuant to a license
agreement between Licensor and Distributor in substantially the form
as attached hereto as Exhibit "A." Notwithstanding anything contained
in such Exhibit "A" to the contrary, the Distributor shall not make or
distribute to third parties copies of the Products nor allow such
Products to be used for the benefit of any other party except in
connection with the demonstration of the Products."
8. Licensor and Distributor agree to add a new Exhibit "A" to the Original
Written Agreement in a form identical to that Exhibit "A" attached hereto.
9. Licensor and Distributor agree to amend and restate the first sentence of
Section 6.3 in its entirety and so that as amended, the first sentence of
Section 6.3 reads in full as follows:
"Distributor shall be responsible for its own expenses and costs in
fulfilling its duties under this Agreement, including without limitation
office rent, salaries and commissions of office help and sales people in
its employ, license, taxes, insurance, automotive costs, transportation and
living expenses."
10. Licensor and Distributor agree to delete the reference to "paragraph 7.2"
in the penultimate clause of Section 10 and replace it so such reference
reads in full as "paragraph 6.3".
11. Licensor and Distributor agree (i) that this Amendment and the Original
Written Agreement shall together constitute one agreement which is the
complete exclusive statement thereof between the parties and (ii) that
together they supersede and merge all prior proposals and understandings
and all other agreements, whether oral or written, between the parties
relating to the subject matter hereof. To the extent the Original Written
Agreement is not modified or
<PAGE>
amended by this Amendment, it is by this reference, expressly incorporated
herein as if set forth in full. Neither the Amendment nor the Original
Written Agreement may be modified or altered except by written instrument
duly executed by the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date set forth above.
GARDNER SOLUTION 2000, LLC FORECROSS CORPORATION
a Delaware LLC a California corporation
/s/ Donald R. Gardner /s/ Bernadette C. Castello
- ----------------------------- ---------------------------------
Donald R. Gardner, President Bernadette C. Castello, Sr. Vice President
AS TO SECTIONS 3 AND 4 ONLY:
/s/ Gregory Stock
- -----------------------------
Gregory Stock
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
THIS EXCLUSIVE DISTRIBUTOR AGREEMENT (this "Agreement") by and between Forecross
Corporation (hereinafter "Licensor"), a California corporation having its
principal offices at 90 New Montgomery Street, San Francisco, CA 94105; and
Gardner Solution 2000, L.L.C. (hereinafter "Distributor"), a Delaware Limited
Liability Company having its principal offices at 4133 Stanford, Dallas, Texas
75225 is entered into this 28th day of June, 1996:
WHEREAS, Licensor is the owner of certain computer programs and methodology
together with all upgrades, improvements and enhancements defined herein as the
"Products" and "Services", which Products and Services are used to assist
customers in making their computer applications capable of correctly processing
dates in the year 2000 and beyond ("Year 2000") ;
WHEREAS, Distributor has special knowledge concerning the general business needs
of prospects in the "Territory" defined herein and familiarity with a number of
such prospects;
WHEREAS, Licensor wishes to appoint Distributor as its exclusive marketing
representative for the solicitation of license agreements and service agreements
relating to the Products and Services, and authorize Distributor to provide
certain services relating to such marketing efforts; and
WHEREAS, Distributor is willing to accept such appointment and to undertake to
provide such services under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SCOPE
The Products and Services covered by this Agreement are Licensor's Complete/2000
automated conversion software products, related services and methodologies and
consist of computer programs, any updates thereto and conversion services
offered generally to end-users by Licensor under the terms and conditions of its
then current license agreement. Licensor offers enhancement and error-correction
services with respect to the Products under the terms and conditions of service
agreements created for each end-user.
2. APPOINTMENT OF DISTRIBUTOR
Subject to the terms and conditions hereof, Licensor hereby designates and
appoints Distributor, for the term of this Agreement, as its exclusive marketing
agent and representative for the solicitation of license agreements and service
agreements related to the Products and Services from, and the delivery of such
Services to end-users in the Territory. Distributor hereby accepts such
designation and appointment.
3. DUTIES OF DISTRIBUTOR
3.1 Distributor agrees, for the term of this Agreement, that it shall
promote and market the Products to prospective end-users by:
1. Identifying prospects within the Territory that may benefit from
use of the Products and Services
2. Contacting prospects and conducting sales presentations of the
Products and Services
<PAGE>
3. Performing systems analysis of the end-users' applications and
providing to Licensor information to assist Licensor in preparing
proposals to prospects
4. Assisting Licensor in preparing and obtaining the prospects'
execution of license agreements and service agreements
5. Forwarding executed license agreements and service agreements to
Licensor.
6. Serving as a point of contact for necessary communications
between end-users and Licensor with respect to the Products and
Services
7. Providing on-site Services and support, including project
management, working with customer to create date selection and
expansion rules, installing and turning over to customer the data
expansion programs and converted application programs
8. Performing all obligations of Distributor under accepted service
agreements
9. Providing account management
3.2 Distributor shall use its best efforts to generate Year 2000 business
acceptable to Licensor. Distributor shall diligently and continuously
sell, distribute and promote the Products and Services and shall make
and maintain adequate arrangements for the distribution of Products
and Services. Distributor shall report to Licensor about Distributor's
marketing activities and shall provide forecasts to Licensor as may be
reasonably requested.
3.3 Distributor agrees that, in consideration of the appointment by
Licensor of Distributor as the exclusive Distributor for the Products
and Services in the Territory, Distributor shall pay Licensor a
license fee of [****] as follows: [****] immediately upon signing of
this Agreement ("Commencement"), and [****] within thirty (30) days
after Commencement. Additionally, Distributor shall not during the
term of this Agreement represent or offer to represent or market, sell
or distribute, in the Territory, computer software products that
compete directly with the Products. In the event that the [****]
payment is not made within [****] of Commencement, Distributor shall
forfeit the prior payment and this agreement shall terminate.
4. LICENSE AGREEMENTS AND SERVICE AGREEMENTS
4.1 Distributor shall have the authority to solicit the signature of
end-users on Licensor's license agreements and service agreements
which have been jointly prepared by Licensor and Distributor for
end-users. Distributor has and shall exercise no authority to make any
alterations in such agreements or to execute or accept such agreements
on behalf of Licensor. Distributor shall inform all end-users that
such agreements must be forwarded to Licensor for acceptance and
execution by Licensor in order for such agreement to be binding on
Licensor.
4.2 Distributor has and may exercise no authority to make statements or
representations concerning the Products that exceed or are
inconsistent with the marketing materials and technical specifications
provided to Distributor by Licensor. Distributor has and may exercise
no authority to bind Licensor to any undertaking or performance with
respect to the Products. Licensor has and may exercise no authority to
make statements or representations concerning the Distributor which
exceed or are inconsistent with this Agreement. Licensor has and may
exercise no authority to bind Distributor to any undertaking or
performance with respect to the Products or Services, other than as
mutually agreed by Licensor and Distributor in writing in Licensor's
service agreement for an end-user. Notwithstanding the foregoing, in
the event that a prospective end-user contacts Licensor to request
Products or Services and Distributor elects not
<PAGE>
to pursue the prospective end-user, Licensor shall be free to
negotiate independently with the end-user for the provision of
Products or Services.
5. UNDERTAKING OF LICENSOR
Licensor shall:
1. Use best efforts to promote the Products including with national and
local advertising as it deems appropriate.
2. Provide to Distributor's technical and sales staff technical and sales
training with respect to the Products and Services, to consist of one
two-week training course offered at Licensor's field training center
or at Distributor's facilities. Licensor shall provide such training
at its own cost, but Distributor shall be responsible for travel and
living expenses incurred by its employees.
3. Provide reasonable quantities of marketing materials, including
descriptive brochures and promotional materials suitable for
unrestricted distribution, and licenses and other contractual
documents.
4. Evaluate the qualifications of prospective end-users solicited by
Distributor. Licensor may condition acceptance of license agreements
and service agreements on an end-users' payment in advance of all or
part of applicable license fees and service fees.
5. Perform all obligations of Licensor under accepted license agreements
and service agreements.
6. Invoice and collect amounts payable under each license agreement and
service agreement accepted by Licensor.
7. Provide Product development, enhancement, and product problem
resolution as Licensor deems appropriate, but in all events sufficient
to enable Licensor and Distributor to perform their obligations under
accepted license agreements and service agreements.
8. Provide migration factory management and operations.
9. Provide Products and Services in a manner which does not lead to added
delays, costs or expenses to Distributor
10. Use its best efforts to increase Product and Service capacity, and
improve the quality of its Products and Services
11. Licensor shall use its best efforts, consistent with its past
practices, to protect all of its intellectual property rights,
including without limitation trade secrets, know-how, patents,
copyrights and trademarks, and take strict precautions to protect the
confidential and proprietary status of all current and future
information relating to the Products and Services.
6. COMPENSATION
6.1 Until Distributor has received [****] in fees under this Agreement,
Distributor shall receive a fee equal to [****] of the revenue
actually collected by Licensor under license agreements and service
agreements solicited by Distributor and accepted by Licensor.
Thereafter, Distributor shall receive a fee equal to [****] percent of
the revenue actually collected by Licensor under license agreements
and service agreements solicited by Distributor and accepted by
Licensor. At Licensor's expense, Distributor agrees to reasonably
cooperate with Licensor and reasonably assist in the collection of
accounts receivable under license agreements
<PAGE>
and service agreements forwarded to Licensor by Distributor, provided
however that Distributor shall not be required to commence or
prosecute any litigation in connection with any such collection
assistance. Payment of Distributor's compensation shall be made by
Licensor within [****] after receipt of revenues by Licensor. Payment
shall be accompanied by a detailed accounting of the basis for such
payment, identifying the source and amount of applicable revenues so
received by Licensor.
6.2 Distributor shall have the right, at its sole expense, to examine
the books and records of Licensor to verify Licensor's calculation of
the compensation due to Distributor. Such examinations may be made no
more frequently than once every six months and may cover only the
prior two years books and records. All such examinations shall be
conducted by a certified public accountant upon not less than two
business days prior written notice to Licensor, during Licensor's
regular business hours.
6.3 Distributor shall be responsible for its own expenses and costs in
fulfilling it duties under this Agreement, including without
limitation office rent, salaries and commissions of office help and
sales people in its employ, licenses, taxes, insurance, automotive
costs, transportation and living expenses. Distributor shall supply
appropriate commercial and general liability insurance needed to
fulfill its duties under this Agreement. Distributor indemnifies and
holds harmless Licensor from any claims, costs, losses or damages,
including attorneys' fees, resulting from workers' compensation
claims, or other claims of or relating to Distributor's employees.
7. TERRITORY
The territory of this Agreement shall be the states of New York and New Jersey,
which includes all business from [****] worldwide. Other than [****], ownership
of all multi-territory end-users will be determined by Licensor. Any disputes
arising out of this paragraph will be settled solely by Licensor.
8. TERM AND TERMINATION
8.1 The term of this Agreement shall commence upon the date of execution
of this Agreement and shall continue for [****] thereafter unless
sooner terminated in accordance with the provisions hereof. This
Agreement may be thereafter extended only by written instrument
executed by both parties.
8.2 Licensor may terminate this Agreement upon written notice to
Distributor in the event of the breach of any material obligation
hereunder by Distributor that is not cured by Distributor after
receipt from Licensor of [****] written notice calling attention to
such breach and demanding cure thereof. In the event of such
termination for cause, Licensor's sole obligation to Distributor shall
be to pay compensation accrued for revenues collected prior to the
date of termination.
8.3 Distributor may terminate this Agreement upon written notice to
Licensor in the event of the breach of any material obligation
hereunder by Licensor that is not cured by Licensor after receipt from
Distributor of [****] written notice calling attention to such breach
and demanding cure thereof. In the event of such termination for
cause, Licensor's obligation to Distributor shall be to pay
compensation accrued for revenues collected prior to the date of
termination.
8.4 Upon termination of this Agreement for any reason, Distributor shall
within [****] of such termination return to Licensor all copies of the
Products, including demonstration copies, and all copies of technical
materials, brochures, marketing materials, and the like. Distributor
shall further provide to Licensor copies of Distributor's prospect
files and end-user correspondence files.
<PAGE>
Upon the termination of this Agreement for any reason, Distributor shall
immediately cease using all trademarks, services marks, software and
documentation of Licensor.
9. INDEMNITIES
9.1 Licensor hereby indemnifies Distributor from and against any and all
claims, demands, or actions arising out of any material breach by
Licensor of any of the terms of any license agreements or service
agreements.
9.2 Distributor hereby indemnifies Licensor from and against any and all
claims, demands, or actions arising out of Distributor's activities or
performance outside the express authorization provided Distributor
under this Agreement or any license agreements or service agreements
or any breach of Distributor's obligations hereunder.
9.3 The indemnities contained in this Section 10 shall be conditioned upon
the indemnifying party's receiving (1) prompt written notice of any
claims, demands, or actions for which indemnity is sought; (2)
cooperation in the defense by the party seeking indemnity; and (3)
control of the defense and/or settlement of such claim, demand, or
action as to which indemnity is sought.
10. LIMITATIONS OF LIABILITY
In no event shall either party hereto be entitled to special, indirect, or
consequential damages, including lost profits, for breach of this Agreement.
Remedies shall be limited to claims for amounts due hereunder, for
indemnification as provided for herein or for actual damages resulting from any
such breach. However, the foregoing limitation of remedies shall not apply to
any action by Licensor for infringement of any intellectual property right by
Distributor; any action based on or with respect to unauthorized publication,
disclosure, or use of Confidential Information or trade secrets of Licensor; or
any claim pursuant to paragraph 7.2 (employee claims) of this Agreement; or any
action based on Licensor's rights in copyrights, trademarks, or trade names or
other proprietary rights in the Products.
11. TRADEMARK
Except for purposes of identification of Products, no right, title, interest, or
license in or to any trademark or service mark of Licensor is granted to
Distributor under this Agreement. Distributor may on its business cards state
that Distributor is an authorized distributor for the licensing of the Products
of Licensor. Distributor shall not contest the validity of such marks or
Licensor's exclusive ownership of them. During the term of this Agreement,
Distributor shall not adopt, use, or register, whether as a corporate name,
trademark, service mark or other indication of origin, any such marks, or any
word or mark confusingly similar to them in any jurisdiction.
12. ENHANCEMENTS AND DISCOVERIES
If Distributor makes any discoveries, devices or other tangible or intangible
improvement relating to Products or Services, Distributor shall immediately
disclose same to Licensor, and hereby assigns all rights, title and interest in
same to Licensor. Distributor shall secure assignment agreements with its
employees to ensure that same can be assigned to Licensor.
13. CONFIDENTIALITY
"Confidential Information" shall mean any information disclosed by Licensor to
Distributor, in writing, orally, by inspection of tangible objects or by
inspection of source code, object code or operation of any Product, including
without limitation, any product, technical, manufacturing, process, marketing,
financial, business or other information, ideas or know-how.
<PAGE>
Confidential Information may also include information disclosed to Licensor by
third parties. Confidential Information shall not include information which: (i)
was generally known and available in the public domain at the time it was
disclosed, or becomes generally known and available in the public domain through
no fault of the receiving party, its employees, agents, successors or assigns;
(ii) was known to the Distributor at the time of the disclosure; (iii) was
independently developed by Distributor without the use of or reliance on any
Confidential Information, as shown by written records contemporaneously with
such independent development; (iv) becomes known to Distributor from a third
party who has no obligation of confidentiality to the Licensor.
Distributor shall not disclose Confidential Information to any third party
unless authorized in advance in writing, except (i) to potential and actual
end-users of the Products and Services in connection with Distributor's
marketing of the Products and Services and performance of its duties and
obligations under this Agreement, (ii) in response to a subpoena or other legal
process, and (iii) as may otherwise be required by applicable law. Distributor
shall not disclose Confidential Information to its employees, except on a "need
to know" basis where such disclosure is necessary and required to exercise it
rights and perform its obligations under this Agreement. Distributor shall not
disclose Confidential Information to any employee of Distributor unless such
employee has signed a non-use and non-disclosure agreement in content at least
as protective as the provisions hereof, prior to any disclosure of Confidential
Information to such employee. Distributor shall take reasonable measures to
protect the secrecy of and avoid disclosure and unauthorized use of the
Confidential Information. Without limiting the foregoing, Distributor shall take
at least those measures that it takes to protect its own most highly
confidential information. Distributor shall not reverse engineer, disassemble or
decompile any prototypes, software or other tangible objects which embody the
Confidential Information and which are provided to Distributor hereunder.
Distributor shall immediately notify Licensor in the event of any unauthorized
use or disclosure of the Confidential Information. This obligation in this
paragraph shall survive the expiration or termination of this Agreement for any
reason.
Upon termination of this Agreement for any reason, Distributor shall promptly
return all Confidential Information received from Licensor.
14. NO FRANCHISE
Neither this Agreement, nor any terms and conditions contained herein, shall be
construed as creating a partnership, joint venture or agency relationship or as
granting a franchise as defined in 16 CFR Section 436.2(a), or applicable state
law. The price and payment described in this Agreement shall be construed as a
royalty fee for the rights granted in this Agreement, and not as a franchise
fee.
15. UCC
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER ORAL OR
WRITTEN, WHETHER EXPRESS OR IMPLIED, OR ARISING BY STATUTE, CUSTOM, COURSE OF
DEALING OR TRADE USAGE, WITH RESPECT TO THE PRODUCTS OR SERVICES, OR OTHERWISE
IN CONNECTION WITH THIS AGREEMENT. LICENSOR SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED WARRANTIES OR CONDITIONS OF TITLE, MERCHANTIBILITY, SATISFACTORY QUALITY
AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES OF NON-INFRINGEMENT.
<PAGE>
16. STATUS OF DISTRIBUTOR'S PERSONNEL
Distributor shall be responsible for the wages, hours, and conditions of
employment of Distributor's personnel during the term of and under this
Agreement. Nothing herein shall be construed as implying that employees of
Distributor are employees of Licensor.
17. NOTICES
All notices, demands, or consents required or permitted under this Agreement
shall be in writing and shall be delivered personally or sent by certified or
registered mail, postage prepaid, to the appropriate party at the address set
forth in the first paragraph of this Agreement or at such other address as shall
be given by either party to the other in writing.
18. CHOICE OF LAW
This Agreement shall be deemed to be made in the State of California and in all
respects shall be interpreted, construed, and governed by and in accordance with
the laws of the State of California. The venue for any law suits involving
disputes under this Agreement shall be in the Northern District of California or
the County of San Francisco. The prevailing party in any such dispute shall be
entitled to recover its costs and reasonable attorneys' fees.
19. WAIVER OF RIGHTS
The waiver by either party of any term or provision of this Agreement shall not
be deemed to constitute a continuing waiver thereof nor of any further or
additional rights such party may hold under this Agreement.
20. NO ASSIGNMENT; ENFORCEABILITY
This Agreement is personal to Distributor and is not assignable without the
prior written consent of Licensor. Any attempt to assign, transfer, or
subcontract any of the rights, duties, or obligations of this Agreement without
such consent is void. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
21. ARBITRATION
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
<PAGE>
22. COMPLETE AGREEMENT
The parties agree that this Agreement is the complete and exclusive statement
thereof between the parties and that it supersedes and merges all prior
proposals and understandings and all other agreements, whether oral or written,
between the parties relating to the subject matter hereof. This Agreement may
not be modified or altered except by a written instrument duly executed by the
parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
set forth below.
GARDNER SOLUTION 2000, L.L.C. FORECROSS CORPORATION
/S/ Donald R. Gardner /s/ Bernadette C. Castello
- --------------------------------------- ----------------------------
(authorized signature) (authorized signature)
Donald R. Gardner Bernadette C. Castello
- --------------------------------------- ----------------------------
(name) (name)
Manager / President Senior Vice President
- --------------------------------------- ----------------------------
(title) (title)
6/28/96 6/28/96
- --------------------------------------- ----------------------------
(date) (date)
[GRAPHIC OMITTED]
FORECROSS
EXCLUSIVE DISTRIBUTOR AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
THIS EXCLUSIVE DISTRIBUTOR AGREEMENT (this "Agreement") by and between Forecross
Corporation (hereinafter "Licensor"), a California corporation having its
principal offices at 90 New Montgomery Street, San Francisco, CA 94105; and Y2K
Solutions, L.P., a Texas Limited Partnership having its principal offices at
4133 Stanford, Dallas, Texas 75225 is made and entered into as of and dated this
25th day of March, 1997 ("Commencement Date"),:
WHEREAS, Licensor is the owner of certain computer programs and methodology
together with all upgrades, improvements and enhancements defined herein as the
"Products" and "Services", which Products and Services are used to assist
customers in making their computer applications capable of correctly processing
dates in the year 2000 and beyond ("Year 2000") ;
WHEREAS, Distributor has special knowledge concerning the general business needs
of prospects in the "Territory" defined herein and familiarity with a number of
such prospects;
WHEREAS, Licensor wishes to appoint Distributor as its exclusive marketing
representative for the solicitation of customer contracts relating to the
Products and Services, and authorize Distributor to provide certain services
relating to such marketing efforts; and
WHEREAS, Distributor is willing to accept such appointment and to undertake to
provide such services under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SCOPE
The Products and Services covered by this Agreement are Licensor's Complete/2000
automated conversion software products, related services and methodologies and
consist of computer programs, any updates thereto and conversion services
offered generally to customers by Licensor under the terms and conditions of its
then current customer contracts. Licensor offers enhancement and
error-correction services with respect to the Products under the terms and
conditions of service agreements created for each customer.
2. APPOINTMENT OF DISTRIBUTOR
Subject to the terms and conditions hereof, Licensor hereby designates and
appoints Distributor as its exclusive marketing agent and representative for the
solicitation of customer contracts related to the Products and Services from,
and the delivery of such Services to customers in the Territory. Distributor
hereby accepts such designation and appointment.
3. DUTIES OF DISTRIBUTOR
3.1 Distributor agrees, for the term of this Agreement, that it shall
promote and market the Products and Services to prospective customers
by:
<PAGE>
1. Identifying prospects within the Territory that may benefit from
use of the Products and Services
2. Contacting prospects and conducting sales presentations of the
Products and Services
3. Performing systems analysis of the customers' applications and
providing to Licensor information to assist Licensor in preparing
proposals to prospects
4. Assisting Licensor in preparing and obtaining the prospects'
execution of customer contracts
5. Forwarding executed customer contracts to Licensor
6. Serving as a point of contact for necessary communications
between customers and Licensor with respect to the Products and
Services
7. Providing on-site Services and support, including project
management, working with customer to create date selection and
expansion rules, installing and turning over to customer the data
expansion programs and converted application programs
8. Performing all obligations of Distributor under accepted customer
contracts
9. Providing account management
3.2 Distributor shall use its best efforts to generate Year 2000 business
acceptable to Licensor. Distributor shall diligently and continuously
sell, distribute and promote the Products and Services and shall make
and maintain adequate arrangements for the distribution of Products
and Services. Distributor shall report to Licensor about Distributor's
marketing activities and shall provide forecasts to Licensor as may be
reasonably requested.
3.3 Distributor shall not during the term of this Agreement represent or
offer to represent or market, sell or distribute, in the Territory,
computer software products or services that compete directly with the
Products or Services.
3.4 In consideration for the grant of exclusivity within the Territory
defined herein, Distributor shall pay a fee to Licensor of [***].
4. CUSTOMER CONTRACTS
4.1 Distributor shall have the authority to solicit the signature of
customers on Licensor's customer contracts which have been jointly
prepared by Licensor and Distributor for customers. Distributor has
and shall exercise no authority to make any alterations in such
agreements or to execute or accept such agreements on behalf of
Licensor. Distributor shall inform all customers that such agreements
must be forwarded to Licensor for acceptance and execution by Licensor
in order for such agreement to be binding on Licensor.
4.2 Distributor has and may exercise no authority to make statements or
representations concerning the Products or Services that exceed or are
inconsistent with the marketing materials and technical specifications
provided to Distributor by Licensor. Distributor has and may exercise
no authority to bind Licensor to any undertaking or performance with
respect to the Products or Services. Licensor has and may exercise no
authority to make statements or representations concerning the
Distributor which exceed or are inconsistent with this Agreement.
Licensor has and may exercise no authority to bind Distributor to any
undertaking or performance with respect to the Products or Services,
other than as mutually agreed by Licensor and Distributor in writing
in Licensor's contract for an customer. Notwithstanding the foregoing,
in the event that a prospective customer contacts Licensor to request
<PAGE>
Products or Services and Distributor elects not to pursue the prospective
customer, Licensor shall be free to negotiate independently with the customer
for the provision of Products or Services.
5. UNDERTAKING OF LICENSOR
Licensor shall:
1. Use best efforts to promote the Products and Services including
national and local advertising as it deems appropriate.
2. Provide to Distributor's technical and sales staff technical and sales
training with respect to the Products and Services, to consist of one
two-week training course offered at Licensor's field training center or
at Distributor's facilities. Licensor shall provide such training at
its own cost, but Distributor shall be responsible for travel and
living expenses incurred by its employees.
3. Provide reasonable quantities of marketing materials, including
descriptive brochures and promotional materials suitable for
unrestricted distribution, and licenses and other contractual
documents.
4. Evaluate the qualifications of prospective customers solicited by
Distributor. Licensor may condition acceptance of customer contracts on
a customers' payment in advance of all or part of applicable license
fees and service fees.
5. Perform all obligations of Licensor under accepted customer contracts.
6. Invoice and collect amounts payable under each customer contract
accepted by Licensor.
7. Provide Product development, enhancement, and product problem
resolution as Licensor deems appropriate, but in all events sufficient
to enable Licensor and Distributor to perform their obligations under
accepted customer contracts.
8. Provide migration factory management and operations.
9. Provide Products and Services in a manner which does not lead to added
delays, costs or expenses to Distributor.
10. Use its best efforts to increase Product and Service capacity, and
improve the quality of its Products and Services.
11. Use its reasonable best efforts, consistent with its past practices, to
protect all of its intellectual property rights, including, without
limitation, trade secrets, know-how, patents, copyrights and
trademarks, and take strict precautions to protect the confidential and
proprietary status of all current and future information relating to
the Products and Services.
6. COMPENSATION
6.1 Distributor shall receive a fee equal to [***] of the revenue actually
collected by Licensor under customer contracts solicited by
Distributor and accepted by Licensor. At Licensor's expense,
Distributor agrees to reasonably cooperate with Licensor and
reasonably assist in the collection of accounts receivable under
customer contracts forwarded to Licensor by Distributor, provided,
however, that Distributor shall not be required to commence or
prosecute any litigation in connection with any such collection
assistance. Payment of Distributor's compensation shall be made by
Licensor within [****] after receipt of revenues by Licensor. Payment
shall be accompanied by a detailed accounting of the basis for such
payment, identifying the source and amount of applicable revenues so
received by Licensor.
3
<PAGE>
6.2 Distributor shall have the right, at its sole expense, to examine the
books and records of Licensor to verify Licensor's calculation of the
compensation due to Distributor. Such examinations may be made no more
frequently than once every six months and may cover only the prior two
years books and records. All such examinations shall be conducted by a
certified public accountant upon not less than two business days prior
written notice to Licensor, during Licensor's regular business hours.
6.3 Distributor shall be responsible for its own expenses and costs in
fulfilling it duties under this Agreement, including, without
limitation, office rent, salaries and commissions of office help and
sales people in its employ, licenses, taxes, insurance, automotive
costs, transportation and living expenses. Distributor shall supply
appropriate commercial and general liability insurance needed to
fulfill its duties under this Agreement. Distributor indemnifies and
holds harmless Licensor from any claims, costs, losses or damages,
including attorneys' fees, resulting from workers' compensation
claims, or other claims of or relating to Distributor's employees.
7. TERRITORY
The territory of this Agreement shall be the states of Texas. Any disputes
arising out of this paragraph will be settled solely by Licensor.
8. TERM OF EXCLUSIVITY AND EXTENSION OF EXCLUSIVITY
The period of exclusivity of this Agreement is [****] from the date of
Commencement. In the event that Distributor causes at least [****] customer
contracts valued at [****] or more each to be executed with Customers during
the first year after Commencement, and during each subsequent year
thereafter, then the one year period of exclusivity described in this
Agreement will be automatically extended to the end of the subsequent year.
9. TERM AND TERMINATION
9.1 The term of this Agreement shall commence upon the date of execution
of this Agreement and shall continue for [****] thereafter unless
sooner terminated in accordance with the provisions hereof. This
Agreement may be thereafter extended only by written instrument
executed by both parties.
9.2 Licensor may terminate this Agreement upon written notice to
Distributor in the event of the breach of any material obligation
hereunder by Distributor that is not cured by Distributor after
receipt from Licensor of [****] written notice calling attention to
such breach and demanding cure thereof. In the event of such
termination for cause, Licensor's sole obligation to Distributor shall
be to pay compensation accrued for revenues collected prior to the
date of termination.
9.3 Distributor may terminate this Agreement upon written notice to
Licensor in the event of the breach of any material obligation
hereunder by Licensor that is not cured by Licensor after receipt from
Distributor of [****] written notice calling attention to such breach
and demanding cure thereof. In the event of such termination for
cause, Licensor's obligation to Distributor shall be to pay
compensation accrued for revenues collected prior to the date of
termination.
9.4 Upon termination of this Agreement for any reason, Distributor shall
within [****] of such termination return to Licensor all copies of the
Products, including demonstration copies, and all copies of technical
materials, brochures, marketing materials, and the like. Distributor
shall further provide to Licensor copies of Distributor's prospect
files and customer correspondence files.
<PAGE>
Upon the termination of this Agreement for any reason, Distributor shall
immediately cease using all trademarks, services marks, software and
documentation of Licensor.
10. INDEMNITIES
10.1 Licensor hereby indemnifies Distributor from and against any and all
claims, demands or actions (collectively "Claims") arising from
Distributor's participation as a distributor of Licensor's products or
services, except to the extent that such Claims are attributable to
the act or omission of Distributor or its employees or
representatives.
10.2 Distributor hereby indemnifies Licensor from and against any and all
claims, demands, or actions arising out of Distributor's activities or
performance outside the express authorization provided Distributor
under this Agreement or any customer contracts or any breach of
Distributor's obligations hereunder.
10.3 The indemnities contained in this Section 10 shall be conditioned upon
the indemnifying party's receiving (1) prompt written notice of any
claims, demands, or actions for which indemnity is sought; (2)
cooperation in the defense by the party seeking indemnity; and (3)
control of the defense and/or settlement of such claim, demand, or
action as to which indemnity is sought.
11. LIMITATIONS OF LIABILITY
In no event shall either party hereto be entitled to special, indirect, or
consequential damages, including lost profits, for breach of this Agreement.
Remedies shall be limited to claims for amounts due hereunder, for
indemnification as provided for herein or for actual damages resulting from any
such breach. However, the foregoing limitation of remedies shall not apply to
any action by Licensor for infringement of any intellectual property right by
Distributor; any action based on or with respect to unauthorized publication,
disclosure, or use of Confidential Information (see paragraph 14) or trade
secrets of Licensor; or any claim pursuant to paragraph 7.2 (employee claims) of
this Agreement; or any action based on Licensor's rights in copyrights,
trademarks, or trade names or other proprietary rights in the Products or
Services.
12. TRADEMARK
Except for purposes of identification of Products or Services, no right, title,
interest, or license in or to any trademark or service mark of Licensor is
granted to Distributor under this Agreement. Distributor may on its business
cards state that Distributor is an authorized distributor for the licensing of
the Products and provision of Services of Licensor. Distributor shall not
contest the validity of such marks or Licensor's exclusive ownership of them.
During the term of this Agreement, Distributor shall not adopt, use, or
register, whether as a corporate name, trademark, service mark or other
indication of origin, any such marks, or any word or mark confusingly similar to
them in any jurisdiction.
13. ENHANCEMENTS AND DISCOVERIES
If Distributor makes any discoveries, devices or other tangible or intangible
improvement relating to Products or Services, Distributor shall immediately
disclose same to Licensor, and hereby assigns all rights, title and interest in
same to Licensor. Distributor shall secure assignment agreements with its
employees to ensure that same can be assigned to Licensor.
<PAGE>
14 CONFIDENTIALITY
"Confidential Information" shall mean any information disclosed by Licensor to
Distributor, in writing, orally, by inspection of tangible objects or by
inspection of source code, object code or operation of any Product or related
Services, including without limitation, any product, technical, manufacturing,
process, marketing, financial, business or other information, ideas or know-how.
Confidential Information may also include information disclosed to Licensor by
third parties. Confidential Information shall not include information which: (i)
was generally known and available in the public domain at the time it was
disclosed, or becomes generally known and available in the public domain through
no fault of the receiving party, its employees, agents, successors or assigns;
(ii) was known to the Distributor at the time of the disclosure; (iii) was
independently developed by Distributor without the use of or reliance on any
Confidential Information, as shown by written records contemporaneously with
such independent development; (iv) becomes known to Distributor from a third
party who has no obligation of confidentiality to the Licensor.
Distributor shall not disclose Confidential Information to any third party
unless authorized in advance in writing, except (i) to potential and actual
customers of the Products and Services in connection with Distributor's
marketing of the Products and Services and performance of its duties and
obligations under this Agreement, (ii) in response to a subpoena or other legal
process, and (iii) as may otherwise be required by applicable law. Distributor
shall not disclose Confidential Information to its employees, except on a "need
to know" basis where such disclosure is necessary and required to exercise it
rights and perform its obligations under this Agreement. Distributor shall not
disclose Confidential Information to any employee of Distributor unless such
employee has signed a non-use and non-disclosure agreement in content at least
as protective as the provisions hereof, prior to any disclosure of Confidential
Information to such employee. Distributor shall take reasonable measures to
protect the secrecy of and avoid disclosure and unauthorized use of the
Confidential Information. Without limiting the foregoing, Distributor shall take
at least those measures that it takes to protect its own most highly
confidential information. Distributor shall not reverse engineer, disassemble or
decompile any prototypes, software or other tangible objects which embody the
Confidential Information and which are provided to Distributor hereunder.
Distributor shall immediately notify Licensor in the event of any unauthorized
use or disclosure of the Confidential Information. This obligation in this
paragraph shall survive the expiration or termination of this Agreement for any
reason.
Upon termination of this Agreement for any reason, Distributor shall promptly
return all Confidential Information received from Licensor.
15 NO FRANCHISE
Neither this Agreement, nor any terms and conditions contained herein, shall be
construed as creating a partnership, joint venture or agency relationship or as
granting a franchise as defined in 16 CFR Section 436.2(a), or applicable state
law. The price and payment described in this Agreement shall be construed as a
royalty fee for the rights granted in this Agreement, and not as a franchise
fee.
16. UCC
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER ORAL OR
WRITTEN, WHETHER EXPRESS OR IMPLIED, OR ARISING BY STATUTE, CUSTOM, COURSE OF
DEALING OR TRADE USAGE, WITH RESPECT TO THE PRODUCTS OR SERVICES, OR OTHERWISE
IN CONNECTION WITH THIS AGREEMENT. LICENSOR SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED WARRANTIES OR CONDITIONS OF TITLE, MERCHANTIBILITY, SATISFACTORY QUALITY
AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES OF NON- INFRINGEMENT.
<PAGE>
17. STATUS OF DISTRIBUTOR'S PERSONNEL
Distributor shall be responsible for the wages, hours, and conditions of
employment of Distributor's personnel during the term of and under this
Agreement. Nothing herein shall be construed as implying that employees of
Distributor are employees of Licensor.
18. NOTICES
All notices, demands, or consents required or permitted under this Agreement
shall be in writing and shall be delivered personally or sent by certified or
registered mail, postage prepaid, to the appropriate party at the address set
forth in the first paragraph of this Agreement or at such other address as shall
be given by either party to the other in writing.
19. CHOICE OF LAW
This Agreement shall be deemed to be made in the State of California and in all
respects shall be interpreted, construed, and governed by and in accordance with
the laws of the State of California. The venue for any law suits involving
disputes under this Agreement shall be in the Northern District of California or
the County of San Francisco. The prevailing party in any such dispute shall be
entitled to recover its costs and reasonable attorneys' fees.
20. WAIVER OF RIGHTS
The waiver by either party of any term or provision of this Agreement shall not
be deemed to constitute a continuing waiver thereof nor of any further or
additional rights such party may hold under this Agreement.
21. NO ASSIGNMENT; ENFORCEABILITY
This Agreement is personal to Distributor and is not assignable without the
prior written consent of Licensor. Any attempt to assign, transfer, or
subcontract any of the rights, duties, or obligations of this Agreement without
such consent is void. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
22. ARBITRATION
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
23. COMPLETE AGREEMENT
The parties agree that this Agreement is the complete and exclusive statement
thereof between the parties and that it supersedes and merges all prior
proposals and understandings and all other agreements, whether oral or written,
between the parties relating to the subject matter hereof. This Agreement may
not be modified or altered except by a written instrument duly executed by the
parties hereto.
<PAGE>
24. SUCCESSORS AND ASSIGNMENT
Neither party may assign any of its rights nor delegate any of its obligations
hereunder without the prior written consent of the other, although such consent
shall not be unreasonably withheld. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
(including any purchaser of the business of Licensor or Distributor) and their
successors in interest by merger or operation of law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as set
forth below.
Y2K Solutions, L.P. FORECROSS CORPORATION
By: CMM Financial, LLC
/s/ Donald R. Gardner /s/ Bernadette C. Castello
- --------------------------------------- ----------------------------
(authorized signature) (authorized signature)
Donald R. Gardner Bernadette C. Castello
- --------------------------------------- ----------------------------
(name) (name)
CEO Senior Vice President
- --------------------------------------- ----------------------------
(title) (title)
3/24/97 3/25/97
- --------------------------------------- ------------------------------------
(date) (date)
<PAGE>
SOFTWARE LICENSE AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
This Software License Agreement (the "Agreement") by and between Forecross (R)
Corporation, a California corporation located at 90 New Montgomery Street, San
Francisco, California, 94105 (hereafter "Forecross") and Y2K Solutions, L.P.
(hereafter referred to as "Licensee"), having its principal office at 4133
Stanford, Dallas, Texas 75225 is made and entered into as of and dated the 25th
day of March 1997.
WHEREAS, Forecross is the sole owner of a proprietary software system including
programs, options, documentation, data and information, collectively entitled
ASSESS/2000 (hereinafter referred to as the "Licensed Product"; and
WHEREAS, Licensee desires to acquire a license to use the Licensed Product.
NOW, THEREFORE, for and in consideration of the covenants and premises herein
recited, it is understood and agreed as follows:
1. DEFINITIONS.
For the purpose of this Agreement:
(a) "Software" means the computer source and/or object code comprising the
Product/System indicated in Paragraph 13(b);
(b) "Documentation" means any documents and manuals which are normally provided
in conjunction with the Product/System indicated in Paragraph 13(b);
(c) "Error" means a failure of the Software to work in accordance with the
Documentation;
(d) "Maintenance" means the correction of Errors;
(e) "Problem" means any difficulty encountered by Licensee in the use of the
Software and Documentation other than an Error;
(f) "Enhancement" means alterations made to the Software or Documentation to
meet Licensee's requirements;
(g) "Improvement" means any improvement made during the term of this License by
Forecross to the Licensed Product which is not separately listed in the
Forecross price list; and
(h) "Upgrade" means any addition made during the term of this License by
Forecross to the Licensed Product which is separately listed in the
Forecross price list.
(i) "Conversion" of a computer program means the automated translation of a
program and any of its associated components using the Licensed Product.
2. LICENSE.
Forecross grants to Licensee a non-assignable, non-transferable, non-exclusive
license to use the Licensed Product, subject to the terms and conditions
specified herein and only at the computer facility locations specified herein.
3. PAYMENT.
Non-refundable payment for use of the Licensed Product is due upon rendering of
an invoice from Forecross. An invoice will be rendered to Licensee as of the
date of this Agreement.
4. MAINTENANCE AND ENHANCEMENT PLAN.
A. It is understood that Forecross is continually modifying and enhancing
Licensed Product which results in new versions of Licensed Product. Under
the Maintenance and Enhancement Plan of Forecross (hereinafter referred to
as the "Plan"), to the extent Forecross shall produce any such versions,
Forecross will provide to Licensee one (1) copy of every new version of
Licensed Product licensed under this Agreement, including all
modifications, enhancements and corresponding technical documentation. New
features announced as extra cost options shall not be included in the Plan.
Under the Plan, Licensee will also be provided all requested technical
telephone consultation. Forecross reserves the right to terminate the Plan
at the end of any maintenance period.
B. Licensee is subscribed in the Plan for a fee equal to 12.5% of the Licensee
Fee identified in Paragraph 13 hereof for a period of one (1) year
following the delivery date of Licensed Product. Before each anniversary
date of delivery thereafter, Licensee shall be invoiced the fee for the
Plan for the following year.
C. The annual fee for the Plan for each copy of Licensed Product shall be
specified in the Fee Schedule for Licensed Product in effect on the
anniversary date of delivery.
D. Licensee may elect to cancel its subscription in the Plan, effective upon
any subsequent anniversary date of delivery, by written notice to Forecross
at any time prior to such anniversary date. A Licensee who cancels its
subscription in the Plan may at a later time renew its subscription and
receive the benefits of the Plan upon payment of the annual fee for the
Plan in effect at the time of renewal plus a reinstatement fee equal to the
difference between the permanent license fee of Licensed Product originally
paid and that prevailing at the time of subscription renewal.
5. TITLE, RISK OF LOSS AND NON-ASSIGNABILITY.
Title and ownership rights to the Licensed Product shall remain in Forecross.
Title to Licensed Product, all property rights therein and all materials shall
remain the sole property of Forecross. After delivery of Licensed Product to
Licensee, Licensee shall be solely responsible for and bear all risk of loss
thereon, except as occasioned by Forecross. The license to use Licensed Product
hereunder is personal to Licensee and Licensee shall not transfer, sublease,
assign or deliver Licensed Product or such license to another without the prior
written consent of Forecross.
6. WARRANTIES.
Forecross warrants its rights to license the Licensed Product and agrees to
defend, or settle at its option, any action at law against Licensee arising from
a claim that Licensee's permitted use of the Licensed Product under this
Agreement infringes any copyright or other proprietary right of a third party,
provided Licensee gives Forecross prompt notice of any such claim within ten
days of Licensee's notice thereof and provides reasonable assistance in its
defense, with counsel designated by Forecross. ALL OTHER WARRANTIES, INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, ARE
HEREBY EXCLUDED.
7. LIMITATION OF LIABILITY.
Licensee acknowledges that the Licensed Product is of such complexity that it
may have inherent defects. Therefore, Licensee agrees that its sole and
exclusive remedies for any damage or loss in any way connected with the Licensed
Product, whether by Forecross's breach of any express or implied warranty
(except against infringement), negligence, or any breach of any other duty,
shall be, at Forecross's option, repair or replacement of the Licensed Product
or return of or credit for any appropriate portion of any payment made or to be
made by Licensee with respect to the Licensed Product. Under no circumstances
(including breach of the warranty against infringement) and under no legal
theory, tort, contract, or otherwise, shall Forecross be liable to Licensee or
any other person for any special or consequential damages of any character
including, without limitation, damages for loss of good will, work stoppage,
computer failure or malfunction, or any and all other commercial damages or
losses, or for any damages in excess of the fees and charges paid hereinunder,
even if Forecross shall have been informed of the possibility thereof.
8. PROPRIETARY; CONFIDENTIALITY.
The Licensed Product is composed of confidential information which is the
property of Forecross. Licensee shall only use the Licensed Product for its own
use in the normal course of its business. Licensee shall not license or
sublicense, use, market, sell, exploit, revise, assign, or donate the Licensed
Product or any portion thereof, except as provided in this Agreement, whether
with or without charge, and shall have no rights, ownership or interest in the
Licensed Product except as described in this Agreement. Licensee agrees not to
attempt to decipher the Licensed Product or develop source code for the Licensed
Product. Licensee will not copy, duplicate, create or recreate any portion or
the whole of the Licensed Product other than as required by its normal operating
procedures. Licensee shall not remove or alter Forecross's proprietary notices
in any copy or partial copy of any form of the Licensed Product. Licensee shall
not disclose and shall exercise all reasonable precautions to prevent access to
the Licensed Product, or any portion of such, except to persons whose access to
them is necessary for the effective and efficient use of them by Licensee.
Licensee agrees to take all reasonable steps to insure that no unauthorized
persons shall have access to the Licensed Product and that all authorized
persons having access to the Licensed Product shall refrain from any such
disclosure, duplication or reproduction. Licensee shall be responsible for all
damages caused from such disclosure, duplication or reproduction by persons
having access to the Licensed Product while in the possession of Licensee.
Violation in any material aspect of any provision of this Paragraph may cause
irreparable damage to Forecross due to the nature of the obligations. In
addition to any other remedies to which Forecross may be entitled at law or in
equity, Forecross shall be entitled to preliminary and other injunctive relief
against such a violation. Any injunctive relief shall be in addition to and
shall in no way limit all rights of Forecross to recover damages because of such
violation.
9. NO RIGHTS OF MODIFICATION.
Licensee may not modify the Software. If Licensee breaches this provision, in
addition to any such remedies Forecross may have, Forecross will not be
responsible for the integrity, operation or compatibility of the Software with
any hardware or software, although Forecross's ownership and rights remain in
full force and proprietary notices must remain.
10. TAXES AND DUTIES
The charges covered by this Agreement are exclusive of any tariffs, duties or
taxes imposed or levied by any government or governmental agency in connection
with this Agreement. With the exception of taxes imposed upon Forecross which
are based upon net income, Licensee shall be liable for payment of all such
taxes, however designated, levied or based on the Licensed Product, its charges
or its use or on this Agreement, including without limitation, state or local
sales, use and personal property taxes.
11. TERM.
A. COMMENCEMENT AND TERMINATION.
This Agreement shall commence on the date hereof and, unless terminated earlier
pursuant to the terms of this Agreement, shall continue until in perpetuity
unless otherwise terminated as provided herein. This Agreement may be
terminated:
(1) by Forecross upon fifteen (15) days notice in the event of non-payment of
all or any part of any sum due under this Agreement unless full payment
thereof is made within said notice period; or
(2) by either party upon twenty-four (24) hours notice in the event that the
other party shall be or become insolvent or if there are any proceedings
instituted by or against it in bankruptcy or under insolvency laws or for
reorganization, receivership or dissolution, except for such proceedings as
are mandatory on the part of the affected party and are terminated without
prejudice to the other party within sixty (60) days; or if it shall make an
assignment for the benefit of creditors outside the ordinary course of its
business; or
(3) by either party upon fifteen (15) days notice in the event of a material
breach by the other party of any of the terms of this Agreement unless such
breach is fully cured within said notice period.
B. EFFECT.
The provisions of Paragraph 11 shall continue after termination. Upon
termination of this Agreement Licensee will either return to Forecross or
destroy all copies of the Licensed Product and all duplicates thereof and shall
not use them further. Licensee shall within ten (10) business days of the date
of such termination furnish Forecross with a certificate of compliance with the
provisions of this Paragraph 11(b), and agrees that if such a certificate is not
furnished within the time stated Forecross shall have the right to injunctive
relief in the same manner and for the same reasons as provided in Paragraph 11.
12. MISCELLANEOUS.
A. GOVERNING LAW.
This Agreement is made in and shall be governed by the laws of California
applicable to contracts made and to be performed in California.
B. ARBITRATION.
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
C. NOTICES.
Notices shall be given at the addresses above (which may be changed by notice)
and shall be deemed given upon personal delivery or forty-eight (48) hours after
mailing.
D. AGREEMENT.
This Agreement shall be binding upon any successors, assigns and legal
representatives of either party. This Agreement contains the entire agreement of
the parties relating to the Licensed Product, and may be amended only by a
writing executed by both parties.
13. LICENSE DETAILS.
Licensee agrees to license the Licensed Product for use at the following
computer facility location(s) for the fee(s) indicated below:
A. LOCATION OF LICENSED PRODUCT. 4133 Stanford, Dallas, Texas 75225
B. METHOD OF DELIVERY.
Licensor will deliver the Licensed Product to Licensee's computer by means of
electronic transfer.
C. SCOPE OF USE OF LICENSED PRODUCT.
Licensee may use the Licensed Product at the Location specified above to assess
code for Year 2000 compliance for multiple customers of Licensee.
D. LICENSE FEE.
US [***]
E. MAINTENANCE PLAN FEE.
US [***]
SIGNATURES
/s/ Y2K Solutions, L.P.
By: CMM Financial, LLC
LICENSEE
BY: /s/ Donald R. Gardner
------------------------------------------
AUTHORIZED OFFICER'S SIGNATURE
Donald R. Gardner, CEO
------------------------------------------
PRINT NAME AND TITLE OF AUTHORIZED OFFICER
FORECROSS CORPORATION,
a California Corporation
BY: /s/ Bernadette C. Castello
------------------------------------------
Bernadette C. Castello
Senior Vice President
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
FACTORING AGREEMENT
This Factoring Agreement (the "Agreement") is made on this THIRTY day of
OCTOBER, 1995, by and between Silicon Valley Financial Services (a division of
Silicon Valley Bank) ("Buyer") having a place of business at the address
specified above and FORECROSS CORPORATION, a California corporation, ("Seller")
having its principal place of business and chief executive office at
Street Address: 90 New Montgomery, Suite 710
City: San Francisco
County: San Francisco
State: California
Zip code: 94105
Fax: 415/543-1515
1. DEFINITIONS. When used herein, the following terms shall have the following
meanings.
1.1 "Account Balance" shall mean, on any given day, the gross amount of
all Purchased Receivables unpaid on that day.
1.2 "Account Debtor" shall have the meaning set forth in the California
Uniform Commercial Code and shall include any person liable on any
Purchase Receivable, including without limitation, any guarantor of
the Purchased Receivable and any issuer of a letter of credit or
banker's acceptance.
1.3 "Adjustments" shall mean all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf
of any Account Debtor with respect to any Purchase Receivable.
1.4 "Administrative Fee" shall have the meaning as set forth in Section
3.3 hereof.
1.5 "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or on
behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Compliance Certificate" shall mean a certificate, in a form provided
by Buyer to Seller, which contains the certification of the chief
financial officer of Seller that, among other things, the
representations and warranties set forth in this Agreement are true
and correct as of the date such certificate is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10."Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11."Invoice Transmittal" shall mean a writing signed by an authorized
representative of Seller which accurately identifies the receivables
which Buyer, at its election, may purchase, and includes for each such
receivable the correct amount owed by the Account Debtor, the name and
address of the Account Debtor, the invoice number, the invoice date
and the account code.
1.12."Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or
payable by Seller to Buyer of any kind or nature, present or future,
arising under or in connection with this Agreement or under any other
document, instrument or agreement, whether or not evidenced by any
note, guarantee or other instrument, whether arising on account or by
overdraft, whether direct or indirect (including those acquired by
assignment) absolute or contingent, primary or secondary, due or to
become due, now owing or hereafter arising, and however acquired;
including, without limitation, all Advances, Finance Charges,
Administrative Fees, interest, Repurchase Amounts, fees, expenses,
professional fees and attorneys' fees and any other sums chargeable to
Seller hereunder or otherwise.
1.13."Purchased Receivables" shall mean all those accounts, receivables,
chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, bankers acceptances, and
rights to payment, and all proceeds thereof (all of the foregoing
being referred to as "receivables"), arising out of the invoices and
other agreements identified on or delivered with any Invoice
Transmittal delivered by Seller to Buyer which Buyer elects to
purchase and for which Buyer makes an Advance.
1.14. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.15. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.16."Repurchase Amount" shall have the meaning set forth in Section 4.2
hereof.
1.17."Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18. "Reconciliation Period" shall mean each calendar month of every year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.l. OFFER TO SELL RECEIVABLES. During the term hereof, and provided that
there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of
Default, Seller may request that Buyer purchase receivables and Buyer
may, in its sole discretion, elect to purchase receivables. Seller
shall deliver to Buyer an Invoice Transmittal with respect to any
receivable for which a request for purchase is made. An authorized
representative of Seller shall sign each Invoice Transmittal delivered
to Buyer. Buyer shall be entitled to rely on all the information
provided by Seller to Buyer on or with the Invoice Transmittal and to
rely on the signature on any Invoice Transmittal as an authorized
signature of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to purchase
any receivable listed on an Invoice Transmittal. Buyer may exercise
its sole discretion in approving the credit of each Account Debtor
before buying any receivable. Upon acceptance by Buyer of all or any
of the receivables described on any Invoice Transmittal, Buyer shall
pay to Seller 80 (%) percent of the face amount of each receivable
Buyer desires to purchase. Such payment shall be the 'Advance' with
respect to such receivable. Buyer may, from time to time, in its sole
discretion, change the percentage of the Advance. Upon Buyer's
acceptance of the receivable and payment to Seller of the Advance, the
receivable shall become a 'Purchased Receivable.' It shall be a
condition to each Advance that (i) all of the representations and
warranties set forth in Section 6 of this Agreement be true and
correct on and as of the date of the related Invoice Transmittal and
on and as of the date of such Advance as though made at and as of each
such date, and (ii) no Event of Default or any event or condition that
with notice, lapse of time or otherwise would constitute an Event of
Default shall have occurred and be continuing, or would result from
such Advance. Notwithstanding the foregoing, in no event shall the
aggregate amount of all Purchased Receivable outstanding at any time
exceed $500,000.00 Dollars.
<PAGE>
2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyers payment of an
Advance, and for and in consideration therefor and in consideration of
the covenants of this Agreement, Seller hereby absolutely sells,
transfers and assigns to Buyer, all of Seller's right, title and
interest in and to each Purchased Receivable and all monies due or
which may become due on or with respect to such Purchased Receivable.
Buyer shall be the absolute owner of each Purchased Receivable. Buyer
shall have, with respect to any goods related to the Purchased
Receivable, all the rights and remedies of an unpaid seller under the
California Uniform Commercial Code and other applicable law, including
the rights of repletion, claim and delivery, reclamation and stoppage
in transit.
2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve
shall be the amount by which the face amount of the Purchased
Receivable exceeds the Advance on that Purchased Receivable (the
"Reserve"); provided, the Reserve with respect to all Purchased
Receivables outstanding at any one time shall be an amount not less
than 20 (%) percent of the Account Balance at that time and may be set
at a higher percentage at Buyer's sole discretion. The reserve shall
be a book balance maintained on the records of Buyer and shall not be
a segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1. COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a
daily basis; provided, that if Seller is in default under this
Agreement, Buyer shall apply all Collections to Seller's Obligations
hereunder in such order and manner as Buyer may determine. If an item
of collection is not honored or Buyer does not receive good funds for
any reason, the amount shall be included in the Account Balance as if
the Collections had not been received and Finance Charges under
Section 3.2 shall accrue thereon.
3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay t Buyer
a finance charge in an amount equal to 2% percent per month of the
average daily Account Balance outstanding during the applicable
Reconciliation Period (the "Finance Charges"). Buyer shall deduct the
accrued Finance Charges from the Reserve as set forth in Section 3.5
below.
3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay to
Buyer an Administrative Fee equal to 1.0 (%) percent of the face
amount of each Purchased Receivable first purchased during that
Reconciliation Period (the "Administrative Fee"). Buyer shall deduct
the Administrative Fee from the Reserve as set forth in Section 3.5
below.
3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the close of
business for each Reconciliation Period, an accounting of the
transactions for that Reconciliation Period, including the amount of
all Purchased Receivables, all Collections, Adjustments, Finance
Charges, and the Administrative Fee. The accounting shall be deemed
correct and conclusive unless Seller makes written objection to Buyer
within thirty (30) days after the Buyer mails the accounting to
Seller.
3.5. REFUND TO SELLER. Provided that there does not then exist an Event of
Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default, Buyer shall refund to
Seller by check after the Reconciliation Date, the amount, if any,
which Buyer owes to Seller at the end of the Reconciliation Period
according to the accounting prepared by Buyer for that Reconciliation
Period (the "Refund"). The Refund shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
plus
(2) the Reserve created for each Purchased Receivable purchased during
that Reconciliation Period, minus
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum percentage set
forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as set
forth in Section 12 for which oral or written demand has been
made by Buyer to Seller during that Reconciliation Period to the
extent Buyer has agreed to accept payment thereof by deduction
from the Refund.
In the event the formula set forth in this Section 3.5 results in an amount due
to Buyer from Seller, Seller shall make such payment in the same manner as set
forth in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such
payment by check subject to Buyer's rights under Section 4.3 and Buyer's rights
of offset and recoupment.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
4.l. RECOURSE. Buyer's acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the
Obligations exceed the amount of Purchased Receivables and Collateral,
Seller shall be liable for any deficiency.
4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the invoice
date; or
(B) which is owed by any Account Debtor who has filed, or has had
filed against it, any bankruptcy case, assignment for the benefit
of creditors, receivership, or insolvency proceeding or who has
become insolvent (as defined in the United States Bankruptcy
Code) or who is generally not paying its debts as such debts.
become due', or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any
covenant contained in this Agreement: or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right
of recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and
expenses and all court costs incurred by Buyer in collecting such
Purchased Receivable and/or enforcing its rights under, or
collecting amounts owed by Seller in connection with, this
Agreement (collectively, the "Repurchase Amount").
4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE BUYER.
When any Repurchase Amount or other amount owing to Buyer becomes due,
Buyer shall inform Seller of the manner of payment which may be any
one or more of the following in Buyer's sole discretion: (a) in cash
immediately upon demand therefor; (b) by delivery of substitute
invoices and an Invoice Transmittal acceptable to Buyer which shall
thereupon become Purchased Receivables; (c) by adjustment to
<PAGE>
the Reserve pursuant to Section 3.5 hereof; (d) by deduction from or
offset against the Refund that would otherwise be due and payable to
Seller; (e) by deduction from or offset against the amount that
otherwise would be forwarded to Seller in respect of any further
Advances that may be made by Buyer; or (f) by any combination of the
foregoing as Buyer may from time to time choose.
4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon and
after the occurrence of an Event of Default, Seller shall, upon
Buyer's demand (or, in the case of an Event of Default under Section
9(B), immediately without notice or demand from Buyer) repurchase all
the Purchased Receivables then outstanding , or such portion thereof
as Buyer may demand. Such demand may, at Buyer's option, include and
Seller shall pay to Buyer immediately-upon demand, cash in an amount
equal to the Advance with respect to each Purchased Receivable then
outstanding together with all accrued Finance Charges, Adjustments,
Administrative Fees, attorney's and professional fees, court costs and
expenses as provided for herein, and any other Obligations. Upon
receipt of payment in full of the Obligations, Buyer shall immediately
instruct Account Debtors to pay Seller directly, and return to Seller
any Refund due to Seller. For the purpose of calculating any Refund
due under this Section only, the Reconciliation Date shall be deemed
to be the date Buyer receives payment in good funds of all the
Obligations as provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and
hereby authorizes Buyer, regardless of whether there has been an Event of
Default, (a) to sell, assign, transfer, pledge, compromise, or discharge
the whole or any part of the Purchased Receivables; (b) to demand, collect,
receive, sue, and give releases to any Account Debtor for the monies due or
which may become due upon or with respect to the Purchased Receivables and
to compromise, prosecute, or defend any action, claim, case or proceeding
relating to the Purchased Receivables, including the filing of a claim or
the voting of such claims in any bankruptcy case, all in Buyer's name or
Seller's name, as Buyer may choose; (c) to prepare, file and sign Seller's
name on any notice, claim, assignment, demand, draft, or notice of or
satisfaction of lien or mechanics' lien or similar document with respect to
Purchased Receivables; (d) to notify all Account Debtors with respect to
the Purchased Receivables to pay Buyer directly; (e) to receive, open, and
dispose of all mail addressed to Seller for the purpose of collecting the
Purchased Receivables; (f) to endorse Seller's name on any checks or other
forms of payment on the Purchased Receivables; (g) to execute on behalf of
Seller any and all instruments, documents, financing statements and the
like to perfect Buyer's interests in the Purchased Receivables and
Collateral; and (h) to do all acts and things necessary or expedient, in
furtherance of any such purposes. If Buyer receives a check or item which
is payment for both a Purchased Receivable and another receivable, the
funds shall first be applied to the Purchased Receivable and, so long as
there does not exist an Event of Default or an event that with notice,
lapse of time or otherwise would constitute an Event of Default, the excess
shall be remitted to Seller. Upon the occurrence and continuation of an
Event of Default, all of the power of attorney rights granted by Seller to
Buyer hereunder shall be applicable with respect to all Purchased
Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to render its services to Seller, and
with full knowledge that the truth and accuracy of the following are
being relied upon by the Buyer in determining whether to accept
receivables as Purchased Receivables, Seller represents, warrants,
covenants and agrees, with respect to each Invoice Transmittal
delivered to Buyer and each receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer
and assign such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any
and all obligations required of the Seller have been fulfilled as
of the date of the Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based on
an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due
or in default, has not been previously sold, assigned,
transferred, or pledged, and is free of any and all liens,
security interests and encumbrances other than liens, security
interests or encumbrances in favor of Buyer or any other division
or affiliate of Silicon Valley Bank;
(E) There are no defenses, offsets, or counterclaims against any of
the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as
otherwise stated in the Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer and
shall be collected by Buyer, but if for any reason it should be
paid to Seller, Seller shall promptly notify Buyer of such
payment, shall hold any checks, drafts, or monies so received in
trust for the benefit of Buyer, and shall promptly transfer and
deliver the same to the Buyer;
(G) Buyer shall have the right of endorsement, and also the right to
require endorsement by Seller, on all payments received in
connection with each Purchased Receivable and any proceeds of
Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Invoice Transmittal, are and shall remain solvent as
that term is defined in the United States Bankruptcy Code and the
California Uniform Commercial Code, and no such Account Debtor
has filed or had filed against it a voluntary or involuntary
petition for relief under the United States Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the
subject matter of, the receivable and is liable for the amount
set forth on the Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after acceptance
by Buyer, that the Purchased Receivable has been transferred to
and is payable to Buyer, and Seller shall not take or permit any
action to countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the date
hereof, and thereby becoming Purchased Receivables, shall comply
with each and every one of the foregoing representations,
warranties, covenants and agreements referred to above in this
Section 6.1.
6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to
the foregoing warranties, representations and covenants, to induce
Buyer to buy receivables and to render its services to Seller, Seller
hereby represents, warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant , or permit any
lien or security interest in any Purchased Receivables or
Collateral to or in favor of any other party, without Buyer's
prior written consent;
(B) The Seller's name, form of organization, chief executive office,
and the place where the records concerning all Purchased
Receivables and Collateral are kept is set forth at the beginning
of this Agreement, Collateral is located only at the location set
forth in the beginning of this Agreement, or, if located at any
additional location, as set forth on a schedule attached to this
Agreement, and Seller will give Buyer at least thirty (30) days
prior written notice if such name, organization, chief executive
office or other locations of Collateral or records concerning
Purchased Receivables or Collateral is changed or added and shall
execute any documents necessary to perfect Buyer's interest in
the Purchased Receivables and the Collateral;
<PAGE>
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due,
including without limitation all payroll and withholding taxes
and state sales taxes; (ii) deliver at any time and from time to
time at Buyer's request, evidence satisfactory to Buyer that all
such amounts have been paid to the proper taxing authorities; and
(iii) if requested by Buyer, pay its payroll and related taxes
through a bank or an independent payroll service acceptable to
Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an
Invoice Transmittal, or as of the time Seller accepts any Advance
from Buyer, filed a voluntary petition for relief under the
United States Bankruptcy Code or had filed against it an
involuntary petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been
disclosed to Buyer and is specifically listed and identified on a
schedule to this Agreement, and Seller shall immediately notify
Buyer if Seller hereafter obtains any interest in any additional
copyrights, patents, trademarks or licenses that are significant
in value or are material to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate (i) on a
quarterly basis to be received by Buyer no later than the fifth
calendar day following each calendar quarter, and; (ii) on a more
frequent or other basis if and as requested by Buyer.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Buyer and shall, subject to the Buyer's approval, resolve
such disputes and advise Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the full Repurchase
Amount is paid, Buyer shall remain the absolute owner of any Purchased
Receivable which is subject to Adjustment or repurchase under Section 4.2
hereof, and any rejected, returned, or recovered personal property, with
the right to take possession thereof at any time. If such possession is not
taken by Buyer, Seller is to resell it for Buyer's account at Seller's
expense with the proceeds made payable to Buyer. While Seller retains
possession of said returned goods, Seller shall segregate said goods and
mark them "property of Silicon Valley Financial Services."
8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer of
all of the Obligations, Seller hereby grants to Buyer a continuing lien
upon and security interest in all of Seller's now existing or hereafter
arising rights and interest in the following , whether now owned or
existing or hereafter created, acquired, or arising, and wherever located
(collectively, the "Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances,
drafts, checks, cash, securities, and general intangibles (including,
without limitation, all claims, causes of action, deposit accounts,
guaranties, rights in and claims under insurance policies (including
rights to premium refunds), rights to tax refunds, copyrights,
patents, trademarks, rights in and under license agreements, and all
other intellectual property);
(B) All inventory, including Seller's rights to any returned or rejected
goods, with respect to which Buyer shall have all the rights of any
unpaid seller, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit;
(C) All monies, refunds and other amounts due Seller, including, without
limitation, amounts due Seller under this Agreement (including
Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like (including oil
and gas);
(F) All accessions to, substitutions for, and replacements of, all of the
foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or involuntary
disposition, including insurance proceeds. Seller is not authorized to
sell, assign, transfer or otherwise convey any Collateral without
Buyer's prior written consent, except for the sale of finished
inventory in the Seller's usual course of business. Seller agrees to
sign UCC financing statements, in a form acceptable to Buyer, and any
other instruments and documents requested by Buyer to evidence ,
perfect, or protect the interests of Buyer in the Collateral. Seller
agrees to deliver to Buyer the originals of all instruments, chattel
paper and documents evidencing or related to Purchased Receivables and
Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a receiver
or custodian for any of, its assets;
(C) Seller shall become insolvent in that its debts are greater than the
fair value of its booked & unbooked/intangible assets, or Seller is
generally not paying its debts as they become due or is left with
unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment or the like is issued
against or attaches to the Purchased Receivables or any Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyers
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of
being cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default under,
any term of any document, instrument or agreement evidencing a debt,
obligation or liability of any kind or character of Seller, now or
hereafter existing, in favor of Buyer or any division or affiliate of
Silicon Valley Bank, regardless of whether such debt, obligation or
liability is direct or indirect, primary or secondary, joint, several
or joint and several, or fixed or contingent, together with any and
all renewals and extensions of such debts, obligations and
liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed by any
guarantor of the Obligations of Seller to Buyer under this Agreement,
or any material provision of any such guaranty shall for any reason
cease to be valid or enforceable or any such guaranty shall be
repudiated or terminated, including by operation of law;
(H) A default or event of default shall occur under any agreement between
Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement with
Buyer shall breach any of the terms of or not comply with such
subordination agreement.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or
a portion of the Obligations shall be, at the option of and upon demand by
Buyer, or with respect to an Event of Default described in Section 9(B),
automatically and without notice or demand, due and payable in full; and
(3) Buyer shall have and may exercise all the rights and remedies under
this Agreement and under applicable law, including the rights and remedies
of a secured party under the California Uniform Commercial Code, all the
power of attorney rights described in Section 5 with respect to all
Collateral, and the right to collect, dispose of, sell, lease, use, and
realize upon all Purchased Receivables and all Collateral in any commercial
reasonable manner. Seller and Buyer agree that any notice of sale required
to be given to Seller shall be deemed
<PAGE>
to be reasonable if given five (5) days prior to the date on or after which
the sale may be held. In the event that the Obligations are accelerated
hereunder, Seller shall repurchase all of the Purchased Receivables as set
forth in Section4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid
when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and any other
Obligations, such amounts shall bear interest at a per annum rate equal to
the per annum rate of the Finance Charges until the earlier of (i) payment
in good funds or (ii) entry of a final judgment thereof, at which time the
principal amount of any money judgment remaining unsatisfied shall accrue
interest at the highest rate allowed by applicable law.
12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses) that Buyer incurs
or may from time to time impose in connection with any of the following:
(a) preparing, negotiating, administering, and enforcing this Agreement or
any other agreement executed in connection herewith, including any
amendments, waivers or consents in connection with any of the foregoing,
(b) any litigation or dispute (whether instituted by Buyer, Seller or any
other person) in any way relating to the Purchased Receivables, the
Collateral, this Agreement or any other agreement executed in connection
herewith or therewith, (d) enforcing any rights against Seller or any
guarantor, or any Account Debtor, (e) protecting or enforcing its interest
in the Purchased Receivables or the Collateral, (f) collecting the
Purchased Receivables and the Obligations, and (g) the representation of
Buyer in connection with any bankruptcy case or insolvency proceeding
involving Seller, any Purchased Receivable, the Collateral, any Account
Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless
from and against any and all claims, actions, damages, costs, expenses, and
liabilities of any nature whatsoever arising in connection with any of the
foregoing.
13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision of
this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the
Agreement shall remain in full force and effect. Buyer retains all of its
rights, even if it makes an Advance after a default. If Buyer waives a
default, it may enforce a later default. Any consent or waiver under, or
amendment of, this Agreement must be in writing. Nothing contained herein,
or any action taken or not taken by Buyer at any time, shall be construed
at any time to be indicative of any obligation or willingness on the part
of Buyer to amend this Agreement or to grant to Seller any waivers or
consents. This Agreement has been transmitted by Seller to Buyer at Buyer's
office in the State of California and has been executed and accepted by
Buyer in the State of California. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of
California.
14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or prefer
that all of Seller's receivables be paid to the same address and/or party,
or Seller and Buyer may agree that all receivables with respect to certain
Account Debtors be paid to one party. In such event Buyer and Seller may
agree that Buyer shall collect all receivables whether owned by Seller or
Buyer and (provided that there does not then exist an Event of Default or
event that with notice, lapse or time or otherwise would constitute an
Event of Default, and subject to Buyer's rights in the Collateral) Buyer
agrees to remit to Seller the amount of the receivables collections it
receives with respect to receivables other than Purchased Receivables. It
is understood and agreed by Seller that this Section does not impose any
affirmative duty on Buyer to do any act other than to turn over such
amounts. All such receivables and collections are Collateral and in the
event of Seller's default hereunder, Buyer shall have no duty to remit
collections of Collateral and may apply such collections to the obligations
hereunder and Buyer shall have the rights of a secured party under the
California Uniform Commercial Code.
15. NOTICES. All notices shall be given to Buyer and Seller at the addresses or
taxes set forth on the first page of this Agreement and shall be deemed to
have been delivered and received: (a) if mailed, three (3) calendar days
after deposited in the United States mail, first class, postage pre-paid,
(b) one (1) calendar day after deposit with an overnight mail or messenger
service; or (c) on the same date of confirmed transmission if sent by hand
delivery, telecopy, telefax or telex.
16. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR INCONNECTION WITH
THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THETRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THEFOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT; AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER,
HAS DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL
COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
17. TERM AND TERMINATION. The term of this Agreement shall be for one (1) year
from the date hereof, and from year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in
the Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered
into and Obligations incurred hereunder or in connection herewith have been
completed and satisfied in full.
18. TITLES AND SECTION HEADINGS. The titles and section headings used herein
are for convenience only and shall not be used in interpreting this
Agreement.
<PAGE>
19. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The
terms of such other documents, instruments and agreements shall remain in
full force and effect notwithstanding the execution of this Agreement. In
the event of a conflict between any provision of this Agreement and any
provision of any other document, instrument or agreement between Seller on
the one hand, and Buyer or any other division or affiliate of Silicon
Valley Bank on the other hand, Buyer shall determine in its sole discretion
which provision shall apply. Seller acknowledges specifically that any
security agreements, liens and/or security interests currently securing
payment of any obligations of Seller owing to Buyer or any other division
or affiliate of Silicon Valley Bank also secure Seller's obligations under
this Agreement, and are valid and subsisting and are not adversely affected
by execution of this Agreement. Seller further acknowledges that (a) any
collateral under other outstanding security agreements or other documents
between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b)
a default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the day and
year above written.
SELLER: FORECROSS CORPORATION
By /s/ Bernadette C. Castello
--------------------------------------
Title Senior Vice President
--------------------------------------
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By
-------------------------------------
Title Senior Vice President
-------------------------------------
<PAGE>
CONTINUING GUARANTY
============================================================================
Seller: Forecross Corporation Buyer: Silicon Valley
90 New Montgomery, Suite 710 Financial Services
San Francisco, CA 94105 3003 Tasman Drive
Santa Clara, CA.
95054
Guarantor: Kim O. Jones
============================================================================
CONTINUING GUARANTY. For good and valuable consideration, KIM 0. JONES
("Guarantor") hereby absolutely, unconditionally and irrevocably guarantees to
Silicon Valley Financial Services, a division of Silicon Valley Bank ("Buyer"),
the punctual payment and performance of all Indebtedness (as that term is
defined below) of Forecross Corporation ("Seller") to Buyer, including, without
limitation, attorneys" fees incurred in connection with collection of the
Indebtedness and the enforcement or protection of Buyer"s interest in all real
or personal property collateral that is or may become security for the
Indebtedness, on the terms and conditions set forth in this Guaranty. The
obligations of Guarantor under this Guaranty are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
EVENT OF DEFAULT. The words "Event of Default" mean the Events of Default
as set forth in this Guaranty.
FACTORING AGREEMENT. The words "Factoring Agreement" mean that certain
Factoring Agreement dated October 30, 1995, by and between Buyer and Seller
(the "Factoring Agreement"), pursuant to which Seller may sell, and Buyer
may purchase, certain receivables owned by Seller, and all amendments,
renewals and modifications thereof, and supplements thereto.
GUARANTOR. The word "Guarantor" means KIM 0. JONES.
GUARANTY. The word "Guaranty" means this Continuing Guaranty between
Guarantor and Buyer dated October 30, 1995.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any all of Seller"s liabilities, obligations,
debts, and indebtedness to Buyer, now existing or hereinafter incurred,
created or arising, including, without limitation, any and all obligations
and liabilities of Seller to Buyer under the Factoring Agreement and under
any Related Documents as the same may be modified, supplemented or amended
from time to time and any present or future judgments against Seller, or
any of them; and whether any such Indebtedness is voluntary or
involuntarily incurred, due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined, whether Seller may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Seller for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
BUYER. The word "Buyer" means Silicon Valley Financial Services, its
successors and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation, the Factoring Agreement, all promissory notes, guaranties,
security agreements, mortgages, deeds of trust, and all other instruments,
documents and agreements, whether now or hereafter existing, executed in
connection with the Indebtedness.
SELLER. The word "Seller" means FORECROSS CORPORATION .
<PAGE>
JOINT AND SEVERAL LIABILITY. The obligations of Guarantor to Buyer under this
Guaranty, and Guarantor's obligations under any other guaranty for the
Indebtedness, are joint and several. If any other person in addition to
Guarantor shall guarantee the Indebtedness, all guarantors and their respective
successors and assigns shall be jointly and severally bound by the terms of this
Guaranty and any other guaranty of the Indebtedness, notwithstanding any
relationship or contract of co-obligation by or among such guarantors. Buyer's
enforcement of Guarantor's obligations under this Guaranty is not conditioned
upon Buyer obtaining from any other person a guaranty of all or any part of the
Indebtedness.
REVIVAL OF OBLIGATIONS. If Buyer receives from any source payment in whole or in
part of the Indebtedness or Guarantor's obligations under this Guaranty and, if
the payments is declared invalid or set aside or is subject to any set off or
counterclaim for preference, fraudulent conveyance, breach of contract, or
breach of warranty, then and to the extent of that payment the Indebtedness
shall be revived and obligations of Guarantor under this Guaranty shall be
continued in full force and effect without reduction or discharge for that
payment.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all of the
Indebtedness. Accordingly, no payments made upon the Indebtedness will discharge
or diminish the continuing liability of Guarantor in connection with any
remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted. Guarantor agrees
that Guarantor's liability hereunder shall be the immediate, direct and primary
obligation of Guarantor and shall not be contingent upon Buyer's exercise or
enforcement of any remedy it may have against Seller or others, or against any
real or personal property collateral that is or may become security for the
Indebtedness.
DURATION OF GUARANTY. This Guaranty will take effect when received by Buyer
without the necessity of any acceptance by Buyer, or any notice to Guarantor or
to Seller, and will continue, in full force until all of the Indebtedness
incurred or contracted shall have been fully and finally paid and satisfied and
all other obligations of Guarantor under this Guaranty shall have been performed
in full. This Guaranty shall bind the estate of Guarantor as to Indebtedness
created both before and after the death or incapacity of Guarantor, regardless
of Buyer's actual notice of Guarantor's death. Release of any other guarantor or
termination of any other guaranty of the Indebtedness shall not affect the
liability of Guarantor under this Guaranty. It is anticipated that fluctuations
may occur in the aggregate amount of the Indebtedness covered by this Guaranty,
and it is specifically acknowledged and agreed by Guarantor that reductions in
the amount of Indebtedness, even to zero dollars ($0.00) shall not constitute a
termination of this Guaranty. This Guaranty is irrevocable and is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero ($0.00) dollars.
GUARANTOR'S AUTHORIZATION TO BUYER. Guarantor authorizes Buyer, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured financial
accommodations to Seller, to lease equipment or other goods to Seller, or
otherwise to extend additional financial accommodations to Seller; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change, modify or amend one
or more times the time for payment or other terms of the Indebtedness or any
part of the Indebtedness, including increases and decreases of the finance
charges (or interest rates, if any), and other charges applicable to the
Indebtedness; extensions may be repeated and may be for longer than the original
term of the Indebtedness or the date when the Indebtedness is due and payable in
full; (c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, fail to perfect, and release any
such security, with or without the substitution of new collateral; (d) to
release, substitute, agree not to sue, or deal with any one or more of Sellers
sureties, endorsers, or other guarantors on any terms or in any manner Buyer may
choose; (e) to determine how, when and what application of payments and credits
shall be made on the Indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any nonjudicial
sale permitted by the terms of the controlling security agreement or deed of
trust, as Buyer in its discretion may determine; (g) to sell, transfer, or
assign; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Buyer that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Seller's request and not at the request of
Buyer; (c) Guarantor has not and will not, without the prior written consent of
Buyer, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein, (d) Buyer has made no representation to Guarantor as to the
creditworthiness of Seller; (e) upon Buyer's request, Guarantor will provide to
Buyer financial and credit information in form acceptable to Buyer, and all such
financial information provided to Buyer is true and correct in all material
respects and fairly presents the financial condition of Guarantor as of the
dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Seller on a
continuing basis information regarding Seller's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in way affect Guarantors risks under this Guaranty,
and Guarantor further agrees that, absent a request for information,
2
<PAGE>
Buyer shall have no obligation to disclose to Guarantor any information or
documents acquired by Buyer in the course of its relationship with Seller.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Buyer to (a) make any presentment, protest, demand, or
notice of any kind, including notice of (i) any extension, modification,
renewal, or amendment of the terms of the Factoring Agreement or any other
Related Document, (ii) any notice of change of any terms of repayment of the
Indebtedness, (iii) any default by Seller or any other guarantor of surety, (iv)
any action or nonaction taken by Seller, Buyer, or any other guarantor or surety
of Seller, or (v) the creation of new or additional Indebtedness; (b) proceed
against any person, including Seller, before proceeding against Guarantor; (c)
proceed against any collateral for the Indebtedness, including Seller's
collateral, before proceeding against Guarantor; (d) apply any payments or
proceeds against the Indebtedness in any order; (e) give notice of the terms,
time, and place of any sale of the collateral pursuant to the Uniform Commercial
Code or any other law governing such sale; disclose any information about the
Indebtedness, the Seller, the collateral, or any other guarantor or surety, or
about any action or nonaction of Buyer; or (g) pursue any remedy or course of
action in Buyer's power whatsoever.
Guarantor also waives any and rights or defenses arising by reason of (h) any
disability or other defense of Seller, any other guarantor or surety or any
other person; (i) the cessation from any cause whatsoever, other than payment in
full, of the Indebtedness; (j) the application of proceeds of the Indebtedness
by Seller for purposes other than the purposes understood and intended by
Guarantor and Buyer, (k) any act of omission or commission by Buyer which
directly or indirectly results in or contributes to the discharge of Seller or
any other guarantor or surety; or the Indebtedness, or the loss or release of
any collateral by operation of law or otherwise; (l) any statute of limitations
in any under this Guaranty or on the Indebtedness; or (m) any modification or
change in terms of the Indebtedness, whatsoever, including without limitation,
the renewal, extension, acceleration, or other change in the time payment of the
Indebtedness is due and any change in the finance charges (interest rate, if
any) and other charges. Guarantor waives any defense Guarantor may have based
upon any election of remedies by Buyer which limits or destroys Guarantor's
subrogation rights, if any, or Guarantor's rights, if any, to seek reimbursement
from Seller or any other guarantor or surety, including, without limitation, any
loss of rights Guarantor may suffer by reason of any rights or protections of
Seller in connection with any anti-deficiency laws or other laws limiting or
discharging the Indebtedness or Seller's obligations (including, without
limitation, Sections 726,580a 580b, and 580d of the California Code of Civil
Procedure). Guarantor waives any right to enforce any remedy Buyer may have
against Seller or any guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Buyer.
Without limiting the generality of any of the foregoing paragraphs, Guarantor
expressly waives the benefit of California Civil Code Sections 2809, 2810, 2839,
2845, 2848, 2849, 2850, 2899, and 3433, and other statutes of similar effect.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above and in the immediately succeeding
paragraph, is made with Guarantor's full knowledge of its significance and
consequences and that, under the circumstances, the waivers are reasonable and
not contrary to public policy or law. If any such waiver is determined to be
contrary to any applicable law or public policy, such waiver shall be effective
only to the extent permitted by law or public policy.
NO SUBROGATION OR REIMBURSEMENT. Notwithstanding anything to the contrary in
this Guaranty, Guarantor hereby irrevocably waives all right it may have at law
or in equity (including, without limitation, any law subrogating Guarantor to
the rights of Buyer) to seek contribution, indemnification, or any other form or
reimbursement from Seller, any other Guarantor, or any other person now or
hereafter primarily or secondarily liable for any obligations of Seller to
Buyer, for any disbursement made by this Guarantor or in connection with this
Guaranty or otherwise. At no time shall Guarantor be or become a "creditor" of
Seller within the meaning of 11 U.S.C. section 547(b), or any successor
provision of the Federal bankruptcy laws.
SUBORDINATION OF SELLER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Seller to Buyer, whether now existing or hereafter created or
arising, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Seller, whether or not Seller becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Seller, upon
any account whatsoever, to any claim that Buyer may now or hereafter have
against Seller. In the event of insolvency and consequent liquidation of the
assets of Seller, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise. the assets of Seller
applicable to the payment of the claims that it may have or acquire against
Seller or against any assignee or trustee in bankruptcy of Seller; provided
however, that such assignment shall be effective only for the purpose of
assuring to Buyer full payment in legal tender of the Indebtedness. If Buyer so
requests, any notes or credit agreements now or hereafter evidencing any debts
or obligations of Seller to Guarantor shall be marked with a legend that the
same are subject to this Guaranty and shall be delivered to Buyer. Guarantor
agrees, and Buyer hereby is authorized, in the name of Guarantor, from time to
time to execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Buyer deems
necessary or appropriate to perfect, preserve and enforced its rights under this
Guaranty.
3
<PAGE>
EVENT OF DEFAULT. The occurrence of any one or more of the following events
shall constitute an "Event of Default" under this Guaranty:
(A) The occurrence of an "Event of Default" under and as defined in the
Factoring Agreement or any other Related Documents:
(B) Guarantor fails to pay or perform in full any of its obligations under
this Guaranty as and when due and payable hereunder, or declared to be
due and payable by Buyer, whichever is earlier;
(C) Guarantor fails or neglects to perform, keep or observe any other
term, provision, condition, covenant, warranty or representation
contained in this Guaranty, that is required to be performed, kept or
observed by Guarantor:
(D) Any representation or warranty made Guarantor to Buyer in this
Guaranty, or in any statement, report, financial statement, or
certificate delivered by Guarantor to Buyer is not true and correct or
is misleading, any material respect, when made or delivered;
(E) Any of the Factoring Agreement, any other Related Document or any
other guaranty shall be renounced, breached, terminated, revoked or
become unenforceable or ineffective, by reason of the dissolution of a
party thereto, or otherwise;
(F) The commencement by Guarantor of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or similar law; or
the consent by Guarantor to the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator, agent or other similar
official for Guarantor for any substantial part of its properties; or
the making by Guarantor of any assignment for the benefit of
creditors; or any case or proceeding is commenced by Guarantor for its
dissolution, liquidation or termination; or the taking of any action
by or on behalf of Guarantor in furtherance of any of the foregoing;
(G) The filing of a petition with a court having jurisdiction over
Guarantor to commence an involuntary case for Guarantor under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or
similar law; or the appointment of a receiver, liquidator, assignee,
custodian, trustee, agent, sequestrator or other similar official for
Guarantor or for any substantial part of its respective property; or
any substantial part of Guarantor's property is subject to any levy,
execution, attachment, garnishment, or temporary protective order, or
the ordering of the dissolution, liquidation or winding up of
Guarantor's affairs; and the failure to obtain the dismissal of such
petition or appointment or the continuance of such decree or order
unstayed and in effect for or within a period of sixty (60) days from
the date of such filing, appointment, or entry of such order or
decree; or
(H) Guarantor becomes insolvent or is generally not paying its debts as
such debts become due or ceases to conduct its business as now
conducted or is enjoined, restrained, or in any way prevented by court
order from conducting all or any part of its business affairs.
ACCELERATION OF THE LIABILITIES. Upon and after an Event of Default hereunder or
upon the declaration by Buyer of an 'Event of Default' under the Factoring
Agreement or under any Related Documents, then and in either such event or any
portion of Guarantor's obligations under this Guaranty may, at the option of
Buyer and without demand, notice, or legal process of any kind, be declared, and
immediately shall become, due and payable; without implying any obligation to
purchase receivables under the Factoring Agreement, Buyer may, at its sole
option, cease purchasing receivables; and Buyer may declare that an Event of
Default exists under the Factoring Agreement and under any other Related
Document and may exercise all of its rights and remedies thereunder and under
applicable law.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
respect to the subject matter hereof and all prior negotiations, drafts,
and other extrinsic communications between Guarantor and Buyer shall have
no evidentiary effect whatsoever. Guarantor further agrees that Guarantor
has read and fully understands the terms of this Guaranty, Guarantor has
had the opportunity to be advised by Guarantor's attorney with respect to
this Guaranty; the Guaranty fully reflects Guarantor's intentions and
parole evidence is not required to interpret the terms of this Guaranty.
Guarantor hereby indemnifies and holds Buyer harmless from all losses,
claims, damages, and costs (including Buyer's attorneys' fees) suffered or
incurred by Buyer as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or
amendment to this Guaranty shall be effective unless given in writing and
signed by the parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Guaranty has been delivered to Buyer and accepted by
Buyer in the State of California. If there is a lawsuit, Guarantor agrees
upon Buyer's request to submit to the jurisdiction of the courts of Santa
Clara County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws
4
<PAGE>
of the State of California.
EXPENSES. Guarantor agrees to pay demand all of Buyer's costs and expenses,
including legal expenses, incurred in connection with the enforcement of
this Guaranty. Buyer may pay someone else to help enforce this Guaranty,
and Guarantor shall pay the expenses of such enforcement. Costs and
expenses include, without limitation, Buyers legal expenses whether or not
there is a lawsuit, including legal expenses for or in connection with
bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Guarantor also shall pay all court costs and such
additional fees as may be directed by the court.
NOTICES. All notices required to be given by either to the other under this
Guaranty shall be in writing and shall be effective when actually
delivered or when deposited in the United States mail, first class postage
prepaid addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For
notice purposes, Guarantor agrees to keep Buyer informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Seller or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more that one Seller named in this Guaranty
or when this Guaranty is executed by more than one Guarantor, the words
"Seller" and "Guarantor" respectively shall mean all and any one or more of
them, jointly and severally. The words "Guarantor," "Seller," and "Buyer"
include the heirs, successors, assigns, and transferees of each of them.
Caption headings in this Guaranty are for convenience purposes only and are
not to be used to interpret or define the provisions of this Guaranty. If a
court of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Seller
or Guarantor are corporations or partnerships, it is not necessary for
Buyer to inquire into the powers of Seller or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Buyer shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Buyer. No
delay or omission on the part of the Buyer in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Buyer of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Buyer's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No other waiver by Buyer, nor any
course of dealing between Buyer and Guarantor, shall constitute a waiver of
any of Buyer's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Buyer is required under this
Guaranty, the granting of such consent by Buyer in any instance shall not
constitute continuing consent to subsequent instances where such consent
may be granted or withheld in the sole discretion of Buyer.
CONFLICT. In the even of a conflict in terms of definitions among this
Guaranty, the Factoring Agreement, or any other agreement, this Guaranty
shall govern with respect to the rights and obligations of Buyer and
Guarantor.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO BUYER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY BUYER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED October 30, 1995.
/s/ Kim O. Jones
- ----------------------
Kim O. Jones
5
<PAGE>
CONTINUING GUARANTY
================================================================================
Seller: Forecross Corporation Buyer: Silicon Valley
90 New Montgomery, Suite 710 Financial Services
San Francisco, CA 94105 3003 Tasman Drive
Santa Clara, CA 95054
Guarantor: Bernadette C. Castello
================================================================================
CONTINUING GUARANTY. For good and valuable consideration, Bernadette C. Castello
("Guarantor") hereby absolutely, unconditionally and irrevocably guarantees to
Silicon Valley Financial Services, a division of Silicon Valley Bank ("Buyer"),
the punctual payment and performance of all Indebtedness (as that term is
defined below) of Forecross Corporation ("Seller") to Buyer, including, without
limitation, attorneys" fees incurred in connection with collection of the
Indebtedness and the enforcement or protection of Buyer"s interest in all real
or personal property collateral that is or may become security for the
Indebtedness, on the terms and conditions set forth in this Guaranty. The
obligations of Guarantor under this Guaranty are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Event of Default. The words "Event of Default" mean the Events of Default
as set forth in this Guaranty.
Factoring Agreement. The words "Factoring Agreement" mean that certain
Factoring Agreement dated October 30, 1995, by and between Buyer and Seller
(the "Factoring Agreement"), pursuant to which Seller may sell, and Buyer
may purchase, certain receivables owned by Seller, and all amendments, re-
newals and modifications thereof, and supplements thereto.
Guarantor. The word "Guarantor" means Bernadette C. Castello.
Guaranty. The word "Guaranty" means this Continuing Guaranty between
Guarantor and Buyer dated October 30, 1995.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any all of Seller"s liabilities, obligations,
debts, and indebtedness to Buyer, now existing or hereinafter incurred,
created or arising, including, without limitation, any and all obligations
and liabilities of Seller to Buyer under the Factoring Agreement and under
any Related Documents as the same may be modified, supplemented or amended
from time to time and any present or future judgments against Seller,
or any of them; and whether any such Indebtedness is voluntary or
involuntarily incurred, due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined; whether Seller may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Seller for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
Buyer. The word "Buyer" means Silicon Valley Financial Services, its
successors and assigns.
Related Documents. The words "Related Documents" mean and include without
limitation, the Factoring Agreement, all promissory notes, guaranties,
security agreements, mortgages, deeds of trust, and all other instruments,
documents and agreements, whether now or hereafter existing, executed in
connection with the Indebtedness.
Seller. The word "Seller" means Forecross Corporation.
<PAGE>
JOINT AND SEVERAL LIABILITY. The obligations of Guarantor to Buyer under this
Guaranty, and Guarantor's obligations under any other guaranty for the
Indebtedness, are joint and several. If any other person in addition to
Guarantor shall guarantee the Indebtedness, all guarantors and their respective
successors and assigns shall be jointly and severally bound by the terms of this
Guaranty and any other guaranty of the Indebtedness, notwithstanding any
relationship or contract of co-obligation by or among such guarantors. Buyer's
enforcement of Guarantor's obligations under this Guaranty is not conditioned
upon Buyer obtaining from any other person a guaranty of all or any part of the
Indebtedness.
REVIVAL OF OBLIGATIONS. If Buyer receives from any source payment in whole or in
part of the Indebtedness or Guarantor's obligations under this Guaranty and, if
the payments is declared invalid or set aside or is subject to any set off or
counterclaim for preference, fraudulent conveyance, breach of contract, or
breach of warranty, then and to the extent of that payment the Indebtedness
shall be revived and obligations of Guarantor under this Guaranty shall be
continued in full force and effect without reduction or discharge for that
payment.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continues for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all of the
Indebtedness. Accordingly, no payments made upon the Indebtedness will discharge
or diminish the continuing liability of Guarantor in connection with any
remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted. Guarantor agrees
that Guarantor's liability hereunder shall be the immediate, direct and primary
obligation of Guarantor and shall not be contingent upon Buyer's exercise or
enforcement of any remedy it may have against Seller or others, or against any
real or personal property collateral that is or may become security for the
Indebtedness.
DURATION OF GUARANTY. This Guaranty will take effect when received by Buyer
without the necessity of any acceptance by Buyer, or any notice to Guarantor or
to Seller, and will continue in full force until all of the Indebtedness
incurred or contracted shall have been fully and finally paid and satisfied and
all other obligations of Guarantor under this Guaranty shall have been performed
in full. This Guaranty shall bind the estate of Guarantor as to Indebtedness
created both before and after the death or incapacity of Guarantor, regardless
of Buyer's actual notice of Guarantor's death. Release of any other guarantor or
termination of any other guaranty of the Indebtedness shall not affect the
liability of Guarantor under this Guaranty. It is anticipated that fluctuations
may occur in the aggregate amount of the Indebtedness covered by this Guaranty,
and it is specifically acknowledged and agreed by Guarantor that reductions in
the amount of Indebtedness, even to zero dollars ($0.00) shall not constitute a
termination of this Guaranty. This Guaranty is irrevocable and is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero ($0.00) dollars.
GUARANTOR'S AUTHORIZATION TO BUYER. Guarantor authorizes Buyer, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured financial
accommodations to Seller, to lease equipment or other goods to Seller, or
otherwise to extend additional financial accommodations to Seller, (b) to alter,
compromise, renew, extend, accelerate, or otherwise change, modify or amend one
or more times the time for payment or other terms of the Indebtedness or any
part of the Indebtedness, including increases and decreases of the finance
charges (or interest rates, if any), and other charges applicable to the
Indebtedness; extensions may be repeated and may be for longer than the original
term of the Indebtedness or the date when the Indebtedness is due and payable in
full; (c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, fail to perfect, and release any
such security, with or without the substitution of new collateral; (d) to
release, substitute, agree not to sue, or deal with any one or more of Seller's
sureties, endorsers, or other guarantors on any terms or in any manner Buyer may
choose; (e) to determine how, when and what application of payments and credits
shall be made on the Indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any nonjudicial
sale permitted by the terms of the controlling security agreement or deed of
trust, as Buyer in its discretion may determine; (g) to sell, transfer, or
assign; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Buyer that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Seller's request and not at the request of
Buyer; (c) Guarantor has not and will not, without the prior written consent of
Buyer, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Buyer has made no representation to Guarantor as to the
creditworthiness of Seller; (e) upon Buyer's request, Guarantor will provide to
Buyer financial and credit information in form acceptable to Buyer, and all such
financial information provided to Buyer is true and correct in all material
respects and fairly presents the financial condition of Guarantor as of the
dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Seller on a
continuing basis information regarding Seller's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in way affect Guarantor's risks under this Guaranty,
and Guarantor further agrees that, absent a request for information,
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<PAGE>
Buyer shall have no obligation to disclose to Guarantor any information or
documents acquired by Buyer in the course of its relationship with Seller.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Buyer to (a) make any presentment, protest, demand, or
notice of any kind, including notice of (i) any extension, modification,
renewal, or amendment of the terms of the Factoring Agreement or any other
Related Document, (ii) any notice of change of any terms of repayment of the
Indebtedness, (iii) any default by Seller or any other guarantor of surety, (iv)
any action or nonaction taken by Seller, Buyer, or any other guarantor or surety
of Seller, or (v) the creation of new or additional Indebtedness; (b) proceed
against any person, including Seller, before proceeding against Guarantor; (c)
proceed against any collateral for the Indebtedness, including Seller's
collateral, before proceeding against Guarantor; (d) apply any payments or
proceeds against the Indebtedness in any order; (e) give notice of the terms,
time, and place of any sale of the collateral pursuant to the Uniform Commercial
Code or any other law governing such sale; (f) disclose any information about
the Indebtedness, the Seller, the collateral, or any other guarantor or surety,
or about any action or nonaction of Buyer; or (g) pursue any remedy or course of
action in Buyer's power whatsoever.
Guarantor also waives any and rights or defenses arising by reason of (h) any
disability or other defense of Seller, any other guarantor or surety or any
other person; (i) the cessation from any cause whatsoever, other than payment in
full, of the Indebtedness; (j) the application of proceeds of the Indebtedness
by Seller for purposes other than the purposes understood and intended by
Guarantor and Buyer; (k) any act of omission or commission by Buyer which
directly or indirectly results in or contributes to the discharge of Seller or
any other guarantor or surety; or the Indebtedness, or the loss or release of
any collateral by operation of law or otherwise; (l) any statute of limitations
in any under this Guaranty or on the Indebtedness; or (m) any modification or
change in terms of the Indebtedness, whatsoever, including without limitation,
the renewal, extension, acceleration, or other change in the time payment of the
Indebtedness is due and any change in the finance charges (interest rate, if
any) and other charges. Guarantor waives any defense Guarantor may have based
upon any election of remedies by Buyer which limits or destroys Guarantor's
subrogation rights, if any, or Guarantor's rights, if any, to seek reimbursement
from Seller or any other guarantor or surety, including, without limitation, any
loss of rights Guarantor may suffer by reason of any rights or protections of
Seller in connection with any anti-deficiency laws or other laws limiting or
discharging the Indebtedness or Seller's obligations (including, without
limitation, Sections 726,580a 580b, and 580d of the California Code of Civil
Procedure). Guarantor waives any right to enforce any remedy Buyer may have
against Seller or any guarantor, surety, or other person, and further, Guarantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Buyer.
Without limiting the generality of any of the foregoing paragraphs, Guarantor
expressly waives the benefit of California Civil Code Sections 2809, 2810, 2839,
2845, 2848, 2849, 2850, 2899, and 3433, and other statutes of similar effect.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above and in the immediately succeeding
paragraph, is made with Guarantor's full knowledge of its significance and con-
sequences and that, under the circumstances, the waivers are reasonable and not
contrary to public policy or law. If any such waiver is determined to be
contrary to any applicable law or public policy, such waiver shall be effective
only to the extent permitted by law or public policy.
NO SUBROGATION OR REIMBURSEMENT. Notwithstanding anything to the contrary in
this Guaranty, Guarantor hereby irrevocably waives all right it may have at law
or in equity (including, without limitation, any law subrogating Guarantor to
the rights of Buyer) to seek contribution, indemnification, or any other form or
reimbursement from Seller, any other Guarantor, or any other person now or
hereafter primarily or secondarily liable for any obligations of Seller to
Buyer, for any disbursement made by this Guarantor or in connection with this
Guaranty or otherwise. At no time shall Guarantor be or become a 'creditor' of
Seller within the meaning of 11 U.S.C. section 547(b), or any successor
provision of the Federal bankruptcy laws.
SUBORDINATION OF SELLER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Seller to Buyer, whether now existing or hereafter created or
arising, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Seller, whether or not Seller becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Seller, upon
any account whatsoever, to any claim that Buyer may now or hereafter have
against Seller. In the event of insolvency and consequent liquidation of the
assets of Seller, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise, the assets of Seller
applicable to the payment of the claims that it may have or acquire against
Seller or against any assignee or trustee in bankruptcy of Seller; provided
however, that such assignment shall be effective only for the purpose of
assuring to Buyer full payment in legal tender of the Indebtedness. If Buyer so
requests, any notes or credit agreements now or hereafter evidencing any debts
or obligations of Seller to Guarantor shall be marked with a legend that the
same are subject to this Guaranty and shall be delivered to Buyer. Guarantor
agrees, and Buyer hereby is authorized, in the name of Guarantor, from time to
time to execute and file financing statements and continuation statements and to
execute such other documents and to take such other actions as Buyer deems
necessary or appropriate to perfect, preserve and enforced its rights under this
Guaranty.
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EVENT OF DEFAULT. The occurrence of any one or more of the following events
shall constitute an "Event of Default" under this Guaranty:
(A) The occurrence 0of an "Event of Default" under and as defined in the
Factoring Agreement or any other Related Documents;
(B) Guarantor fails to pay or perform in full any of its obligations under
this Guaranty as and when due and payable hereunder, or declared to be
due and payable by Buyer, whichever is earlier;
(C) Guarantor fails or neglects to perform, keep or observe any other
term, provision, condition, covenant, warranty or representation
contained in this Guaranty, that is required to be performed, kept or
observed by Guarantor;
(D) Any representation or warranty made Guarantor to Buyer in this
Guaranty, or in any statement, report, financial statement, or
certificate delivered by Guarantor to Buyer is not true and correct or
is misleading, any material respect, when made or delivered;
(E) Any of the Factoring Agreement, any other Related Document or any
other guaranty shall be renounced, breached, terminated, revoked or
become unenforceable or ineffective, by reason of the dissolution of a
party thereto, or otherwise;
(F) The commencement by Guarantor of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or similar law; or
the consent by Guarantor to the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator, agent or other similar
official for Guarantor for any substantial part of its properties; or
the making by Guarantor of any assignment for the benefit of
creditors; or any case or proceeding is commenced by Guarantor for
its dissolution, liquidation or termination; or the taking of any
action by or on behalf of Guarantor in furtherance of any of the
foregoing;
(G) The filing of a petition with a court having jurisdiction over
Guarantor to commence an involuntary case for Guarantor under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or
similar law: or the appointment of a receiver, liquidator, assignee,
custodian, trustee, agent, sequestrator or other similar official for
Guarantor or for any substantial part of its respective property; or
any substantial part of Guarantor's property is subject to any levy,
execution, attachment, garnishment, or temporary protective order or
the ordering of the dissolution, liquidation or winding up of
Guarantors affairs; and the failure to obtain the dismissal of such
petition or appointment or the continuance of such decree or order
unstayed and in effect for or within a period of sixty (60) days from
the date of such filing, appointment or entry of such order or decree;
or
(H) Guarantor becomes insolvent or is generally not paying its debts as
such debts become due or ceases to conduct its business as now
conducted or is enjoined, restrained, or in any way prevented by court
order from conducting all or any part of its business affairs.
ACCELERATION OF THE LIABILITIES. Upon and after an Event of Default hereunder or
upon the declaration by Buyer of an 'Event of Default' under the Factoring
Agreement or under any Related Documents, then and in either such event or any
portion of Guarantor's obligations under this Guaranty may, at the option of
Buyer and without demand, notice, or legal process of any kind, be declared, and
immediately shall become, due and payable; without implying any obligation to
purchase receivables under the Factoring Agreement, Buyer may, at its sole
option cease purchasing receivables; and Buyer may declare that an Event of
Default exists under the Factoring Agreement and under any other Related
Document and may exercise all of its rights and remedies thereunder and under
applicable law.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that this
Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreements and understandings of Guarantor with
respect to the subject matter hereof and all prior negotiations, drafts,
and other extrinsic communications between Guarantor and Buyer shall have
no evidentiary effect whatsoever. Guarantor further agrees that Guarantor
has read and fully understands the terms of this Guaranty; Guarantor has
had the opportunity to be advised by Guarantor's attorney with respect to
this Guaranty; the Guaranty fully reflects Guarantor's intentions and
parole evidence is not required to interpret the terms of this Guaranty.
Guarantor hereby indemnifies and holds Buyer harmless from all losses,
claims, damages, and Costs (including Buyer's attorneys' fees) suffered or
incurred by Buyer as a result of any breach by Guarantor of the warranties,
representations and agreements of this paragraph. No alteration or
amendment to this Guaranty shall be effective unless given in writing and
signed by the parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Guaranty has been delivered to Buyer and accepted by
Buyer in the State of California. If there is a lawsuit, Guarantor agrees
upon Buyers request to submit to the jurisdiction of the courts of Santa
Clara County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws
4
<PAGE>
of the State of California.
EXPENSES. Guarantor agrees to pay upon demand all of Buyer's costs and
expenses. including legal expenses, incurred in connection with the
enforcement of this Guaranty. Buyer may pay someone else to help enforce
this Guaranty, and Guarantor shall pay the expenses of such enforcement.
Costs and expenses include, without limitation, Buyer's legal expenses
whether or not there is a lawsuit, including legal expenses for or in
connection with bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all court costs
and such additional fees as may be directed by the court.
NOTICES. All notices required to be given by either to the other under this
Guaranty shall be in writing and shall be effective when actually delivered
or when deposited in the United States mail, first class postage prepaid
addressed to the party to whom the notice is to be given at the address
shown above or to such other addresses as either party may designate to the
other in writing. If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Buyer informed at all times of Guarantor's current
address.
INTERPRETATION. In all cases where there is more than one Seller or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more that one Seller named in this Guaranty
or when this Guaranty is executed by more than one Guarantor, the words
"Seller" and "Guarantor" respectively shall mean all and any one or more of
them, jointly and severally. The words "Guarantor," "Seller," and "Buyer"
include the heirs, successors. assigns, and transferees of each of them.
Caption headings in this Guaranty are for convenience purposes only and are
not to be used to interpret or define the provisions of this Guaranty. If a
court of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Seller
or Guarantor are corporations or partnerships, it is not necessary for
Buyer to inquire into the powers of Seller or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Buyer shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Buyer. No
delay or omission on the part of the Buyer in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Buyer of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Buyer's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No other waiver by Buyer, nor any
course of dealing between Buyer and Guarantor, shall constitute a waiver of
any of Buyer's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Buyer is required under this
Guaranty, the granting of such consent by Buyer in any instance shall not
constitute continuing consent to subsequent instances where such consent
may be granted or withheld in the sole discretion of Buyer.
CONFLICT. In the even of a conflict in terms of definitions among this
Guaranty, the Factoring Agreement, or any other agreement, this Guaranty
shall govern with respect to the rights and obligations of Buyer and
Guarantor.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO BUYER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY BUYER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED October 30, 1995.
/s/ Bernadette C. Castello
- -------------------------
Bernadette C. Castello
5
<PAGE>
Silicon Valley Financial Services
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
(408) 654-1000 - Fax (408) 980-6410
SECRETARY'S CERTIFICATE OF RESOLUTION
The undersigned, as Secretary of Forecross Corporation, a California
corporation (the "Corporation"), hereby certifies to Silicon Valley Financial
Services that at a meeting duly convened at which a quorum was present the
following resolutions were adopted by the Board of Directors of the Corporation
and that such resolutions have not been modified, amended, or rescinded in any
respect and are in full force and effect as of today's date.
RESOLVED, that this corporation be and hereby is authorized to sell this
corporation's accounts receivable to Silicon Valley Financial Services, a
division of Silicon Valley Bank, and to grant Silicon Valley Financial Services
a security interest in this corporation's assets, including, without limitation,
accounts, accounts receivable, contract rights, chattel paper, general
intangibles, instruments, documents, letters of credit, drafts, inventory and
equipment, presently owned or hereafter acquired and proceeds and products of
the foregoing (the "Collateral," as defined in the Factoring Agreement).
RESOLVED, that this corporation be and hereby is authorized and directed to
execute and deliver certain agreements in connection with the sale of
receivables, and granting of security interests in the Collateral to Silicon
Valley Financial Services including, without limitations, a Factoring Agreement
and UCC-1 financing statement.
RESOLVED, that the following named officers of this corporation
("Authorized Officers") be, any of them hereby are, authorized, empowered, and
directed to execute and directed to Silicon Valley Financial Services on behalf
of this corporation all such further agreements and instruments as may be deemed
necessary or advisable in order to fully effectuate the purposes and intent of
the foregoing resolutions.
Print Names of Authorized Officers: Title:
Kim O. Jones President
- ---------------------------------------- -----------------------------------
Bernadette C. Castello Senior Vice President
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
RESOLVED, that the Secretary or Assistant Secretary of this corporation be,
and hereby is authorized, empowered and directed to certify to the passage of
the foregoing resolutions under the seal of this corporation.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this
Thirty day of October, 1995.
/s/ Bernadette C. Castello
-----------------------------------------
Signature
Secretary of Forecross Corporation
<PAGE>
Treasurer:
/s/ Bernadette C. Castello
-----------------------------------------
(Signature)
Other Officer:
Title:
-----------------------------------------
(Signature)
7. Except as indicated in this paragraph 7, each of the officers listed in
paragraph 6 has signatory powers with respect to all the Corporation's
transactions with SVFS. Explanation of exceptions:
8. The undersigned shall give SVFS prompt written notice of any change or
amendment with respect to any of the foregoing. Until such written notice is
received by SVFS, SVFS shall be entitled to rely upon the foregoing in all
respects.
IN WITNESS WHEREOF, the undersigned have executed this Certification of
Officers on October 30, 1995.
President: /s/ Kim O. Jones
--------------------------------------------------
Vice President: /s/ Bernadette C. Castello
----------------------------------------------
Secretary: /s/ Bernadette C. Castello
--------------------------------------------------
Treasurer: /s/ Bernadette C. Castello
--------------------------------------------------
<PAGE>
Silicon Valley Financial Services
A Division of Silicon Valley
3003 Tasman Bank
Santa Clara, California Drive 95054
(408) 654-1000 - Fax (408) 980-6410
CERTIFICATION of OFFICERS
The undersigned, being all the officers of Forecross Corporation, a
California corporation (the "Corporation"), hereby certify to Silicon Valley
Financial Services, a division of Silicon Valley Bank ("SVFS") that:
1. The correct name of the Corporation is Forecross Corporation , as set
forth in the Articles of Incorporation.
2. The Corporation was incorporated on June 25, 1982 under the laws of the
State of California , and is in good standing under such laws.
3. The Corporation's place of business and chief executive office being the
place at which the Corporation maintains its books and records pertaining to
accounts, accounts receivables, contract rights, chattel paper, general
intangibles, instruments, documents, inventory, and equipment, is located at:
90 New Montgomery, Suite 710
San Francisco, California 94105
4. The Corporation has other places of business at the following
addressees: None
5. There is no provision in the Certificate of Incorporation, Articles of
Incorporation, or Bylaws of the Corporation, or in the laws of the State of its
incorporation, requiring any vote or consent of shareholders to authorize the
sale of receivables or the grant of a security interest in any assets of the
Corporation. Such power is vested exclusively in the Corporation's Board of
Directors.
6. The officers of the Corporation, and their respective titles and
signatures are as follows:
President:
/s/ Kim O. Jones
----------------------------------------------------------------------
(Signature)
Vice President:
/s/ Bernadette C. Castello
----------------------------------------------------------------------
(Signature)
Secretary
/s/ Bernadette C. Castello
----------------------------------------------------------------------
(Signature)
THE CAC GROUP
COMMERCIAL REAL ESTATE
STEVEN A. ANDERSON
255 CALIFORNIA STREET
2ND FLOORSAN
FRANCISCO, CA 94111
TEL 415-291-8880
DIRECT 415-291-8880
VICE PRESIDENT
FAX 415-291-8208
November 17, 1997
Mr. Kim Jones
Forecross Corporation
90 New Montgomery Street
Suite 710
San Francisco, CA 94105
RE: Lease Expansion Proposal for Forecross Corporation at 90 New Montgomery
Street, San Francisco
Dear Kim:
The following is a preliminary letter of intent and outlines the basic business
terms and conditions of a proposed lease between The Canada Life Assurance
Company (as "Landlord") and Forecross Corporation (as "Tenant") at 90 New
Montgomery Street, San Francisco (the "Building").
1. PREMISES: Approximately 3,974 rentable square feet (suite 1401) on floor 14
("Premises"). Exhibit A attached hereto shows the location of the Premises
on the floor. Final space measurement would be subject to Landlord's
architect's review.
2. TERM: January 1, 1998 to December 31, 2,001.
3. COMMENCEMENT: January 1, 1998 or upon delivery of Premises to Tenant,
whichever is sooner.
4. BASE RENT: $ 36.00,per square foot, fully serviced.
5. TENANT IMPROVEMENTS: Tenant would accept the Premises in their "as is"
configuration and condition. Prior to Tenant's occupancy the Landlord, at
its sole cost and expense, shall recarpet and repaint the Premises using
building standard finishes.
<PAGE>
Mr. Kim Jones
November 17, 1997
Page 2
An additional $5.00 per square foot in tenant improvements could be
Amortized as additional rent over the term of the remaining lease term.
The Landlord would use 11% interest per annum for amortization of
Landlord's costs.
Landlord would prepare all architectural and engineering services needed
In connection with the construction of the tenant improvements if
necessary. The costs for architectural and engineering services would
be paid out of the Tenant's amortized costs.
6. BASE YEAR FOR OPERATING EXPENSES AND PROPERTY TAXES: Calendar Year 1997
from January 1, 1997 through December 31, 1997 ("Base Year") based an a 95%
occupied building. Base Year expenses would be included as part of the Base
Rent.
If in any calendar year after the Base Year operating expenses and property
taxes exceed those for the Base Year, Tenant would pay its pro rata share of any
such increase.
7. SECURITY DEPOSIT: One months' Base Rent would be held by Landlord in a
non-interest bearing account for the lease term.
8. ADVANCE RENT: Tenant would pay to Landlord one (1) month's rent upon
execution of the lease agreement between Landlord and Tenant. The advance
rent would apply to the 1st month's Base Rent payable under the Lease.
9. AGENCY: Landlord and Tenant have been notified and acknowledge the fact
that The CAC Group and NAMCO represent both the Landlord and Tenant in this
transaction.
10. FINANCIAL REVIEW: Tenant is to submit evidence of its financial condition
(i.e. financial statements, bank references, etc.) with this signed letter
for review and approval by Landlord.
Landlord requests that Tenant evidence by its signature below (1) that the
foregoing correctly reflects the basic business terms upon which Tenant would be
prepared to enter into a lease, and (2) Tenant's understanding that this letter
of intent is preliminary only in nature and is not intended to create any legal
obligation binding on either party. It is to be used as a basis for preparation
of a definitive written lease which may contain materially additional or
different terms and conditions, and which will be subject, in any event, to
approval in form and substance by each party and its respective counsel. Any
binding agreement will be only evidenced by such definite lease, so approved and
mutually executed and delivered by the parties. We have enclosed a basic lease
information form which the Tenant would need to complete in order to allow the
Landlord to properly prepare the lease document.
Tenant is encouraged to sign and return one duplicate of this letter prior to
November 25, 1997, so that we may proceed. Naturally, the matter needs to go
<PAGE>
Mr. Kim Jones
November 17, 1997
Page 3
forward promptly and without delay, since the Premises will remain on the market
until a transaction is finally concluded.
As in any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with the experience in evaluating the condition of the property including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or subject matter of this agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments.
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The American's With
Disabilities Act.
On behalf of the Landlord, we are excited about the prospect of having Forecross
Corporation expand as a tenant in 90 New Montgomery Street. Please call us
should you have any questions or need additional information.
Sincerely,
/S/ Steven A. Anderson
Steven A. Anderson
Vice President
(415) 291-8886
CC:
Ms. W. White
Ms. A. McNee
Ms. A. Dawkins
AGREED AND ACCEPTED this _______ day of November,
1997.
Forecross Corporation
By:
Title: President and CEO
FACTORING MODIFICATION AGREEMENT
This Factoring Modification Agreement is entered into as of January 13,
1998, by and between FORECROSS CORPORATION (the "Seller") whose address is 90
New Montgomery, Suite 710, San Francisco, CA 94105 and Silicon Valley Financial
Services, a division of Silicon Valley Bank ("8uyer"), whose address is 3003
Tasman Drive, Santa Clara, CA 95054.
1. Description OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Seller to Buyer, Seller is indebted to Buyer pursuant to, among
other documents, a Factoring Agreement, dated October 30, 1995, modified by that
certain Factoring Modification Agreement dated December 18, 1996, by and between
Seller and Buyer (the "Factoring Agreement"). Capitalized terms used without
definition herein shall have the meanings assigned to them in the Factoring
Agreement.
Hereinafter, all indebtedness owing by Seller to Buyer shall be referred to as
the "Indebtedness" and the Factoring Agreement and any and all other documents
executed by Seller in favor of Buyer shall be referred to as the "Existing
Documents."
2. DESCRIPTION OF CHANGE IN TERMS.
-----------------------------------
A. Modification(s) to Factoring Agreement, effective as of the date first
----------------------------------------------------------------------------
written above:
------------
Increase gross factoring line in the amount of SEVEN HUNDRED FIFTY THOUSAND AND
NO/100 *** ($750,000.00).
3. CONSISTENT CHANGES. The Existing Documents are each hereby amended
-------------------
wherever necessary to reflect the changes described above.
4. NO DEFENSES OF SELLER. Seller agrees that, as of this date, it has no
---------------------
defenses against the obligations to pay any amounts under the Indebtedness.
5. CONTINUING VALIDITY. Seller understands and agrees that in modifying the
-------------------
existing Indebtedness, Buyer is relying upon Seller's representations,
warranties, and agreements, as set forth in the Existing Documents. Except as
expressly modified pursuant to this Factoring Modification Agreement, the terms
of the Existing Documents remain unchanged and in full force and effect. Buyer's
agreement to modifications to the existing Indebtedness pursuant to this
Factoring Modification Agreement in no way shall obligate Buyer to make any
future modifications to the Indebtedness. Nothing in this Factoring Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Buyer and Seller to retain as liable parties all makers and
endorsers of Existing Documents, unless the party is expressly released by Buyer
in writing. No maker, endorser, or guarantor will be released by virtue of this
Factoring Modification Agreement. The terms of this paragraph apply not only to
this Factoring Modification Agreement, but also to any subsequent factoring
modification agreements.
This Factoring Modification Agreement is executed as of the date first written
above.
SELLER: BUYER:
Forecross Corporation SILICON VALLEY FINANCIAL SERVIES,
a division of Silicon Valley Bank
By:/s/ Bernadette C. Castello By: /s/ Lee Shodiss
------------------------ -------------------
Name: Bernadette c. Castello Name: Lee Shodiss
------------------------ -------------------
Title: Sr. Vice President & CFO Title: Vice President
---------------------------- -----------------------
[Guarantor consents to the modifications to the Indebtedness pursuant to this
Factoring Modification Agreement, hereby ratifies the provisions of the Guaranty
and confirms that all provisions of that document are in full force and effect.]
GUARANTOR:
s/ Bernadette C. Castello Date: 1-15-98
- ---------------------------- -------
s/ Kim O. Jones
- ------------------
[GRAPHIC OMITTED]
FORECROSS
EXCLUSIVE DISTRIBUTOR AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
THIS EXCLUSIVE DISTRIBUTOR AGREEMENT (this "Agreement") by and between Forecross
Corporation (hereinafter "Licensor"), a California corporation having its
principal offices at 90 New Montgomery Street, San Francisco, CA 94105; and CY2K
Solutions, L.L.C., a California Limited Liability Company having its principal
offices at 4133 Stanford, Dallas, Texas 75225 is made and entered into as of and
dated this 25th day of March, 1997 ("Commencement Date"),:
WHEREAS, Licensor is the owner of certain computer programs and methodology
together with all upgrades, improvements and enhancements defined herein as the
"Products" and "Services", which Products and Services are used to assist
customers in making their computer applications capable of correctly processing
dates in the year 2000 and beyond ("Year 2000") ;
WHEREAS, Distributor has special knowledge concerning the general business needs
of prospects in the "Territory" defined herein and familiarity with a number of
such prospects;
WHEREAS, Licensor wishes to appoint Distributor as its exclusive marketing
representative for the solicitation of customer contracts relating to the
Products and Services, and authorize Distributor to provide certain services
relating to such marketing efforts; and
WHEREAS, Distributor is willing to accept such appointment and to undertake to
provide such services under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SCOPE
The Products and Services covered by this Agreement are Licensor's Complete/2000
automated conversion software products, related services and methodologies and
consist of computer programs, any updates thereto and conversion services
offered generally to customers by Licensor under the terms and conditions of its
then current customer contracts. Licensor offers enhancement and
error-correction services with respect to the Products under the terms and
conditions of service agreements created for each customer.
2. APPOINTMENT OF DISTRIBUTOR
Subject to the terms and conditions hereof, Licensor hereby designates and
appoints Distributor as its exclusive marketing agent and representative for the
solicitation of customer contracts related to the Products and Services from,
and the delivery of such Services to customers in the Territory. Distributor
hereby accepts such designation and appointment.
3. DUTIES OF DISTRIBUTOR
3.1 Distributor agrees, for the term of this Agreement, that it shall
promote and market the Products and Services to prospective customers
by:
<PAGE>
1. Identifying prospects within the Territory that may benefit from
use of the Products and Services
2. Contacting prospects and conducting sales presentations of the
Products and Services
3. Performing systems analysis of the customers' applications and
providing to Licensor information to assist Licensor in preparing
proposals to prospects
4. Assisting Licensor in preparing and obtaining the prospects'
execution of customer contracts
5. Forwarding executed customer contracts to Licensor
6. Serving as a point of contact for necessary communications
between customers and Licensor with respect to the Products and
Services
7. Providing on-site Services and support, including project
management, working with customer to create date selection and
expansion rules, installing and turning over to customer the data
expansion programs and converted application programs
8. Performing all obligations of Distributor under accepted customer
contracts
9. Providing account management
3.2 Distributor shall use its best efforts to generate Year 2000 business
acceptable to Licensor. Distributor shall diligently and continuously
sell, distribute and promote the Products and Services and shall make
and maintain adequate arrangements for the distribution of Products
and Services. Distributor shall report to Licensor about Distributor's
marketing activities and shall provide forecasts to Licensor as may be
reasonably requested.
3.3 Distributor shall not during the term of this Agreement represent or
offer to represent or market, sell or distribute, in the Territory,
computer software products or services that compete directly with the
Products or Services.
3.4 In consideration for the grant of exclusivity within the Territory
defined herein, Distributor shall pay a fee to Licensor of [***].
4. CUSTOMER CONTRACTS
4.1 Distributor shall have the authority to solicit the signature of
customers on Licensor's customer contracts which have been jointly
prepared by Licensor and Distributor for customers. Distributor has
and shall exercise no authority to make any alterations in such
agreements or to execute or accept such agreements on behalf of
Licensor. Distributor shall inform all customers that such agreements
must be forwarded to Licensor for acceptance and execution by Licensor
in order for such agreement to be binding on Licensor.
4.2 Distributor has and may exercise no authority to make statements or
representations concerning the Products or Services that exceed or are
inconsistent with the marketing materials and technical specifications
provided to Distributor by Licensor. Distributor has and may exercise
no authority to bind Licensor to any undertaking or performance with
respect to the Products or Services. Licensor has and may exercise no
authority to make statements or representations concerning the
Distributor which exceed or are inconsistent with this Agreement.
Licensor has and may exercise no authority to bind Distributor to any
undertaking or performance with respect to the Products or Services,
other than as mutually agreed by Licensor and Distributor in writing
in Licensor's contract for an customer. Notwithstanding the foregoing,
in the event that a prospective customer contacts Licensor to request
<PAGE>
Products or Services and Distributor elects not to pursue the
prospective customer, Licensor shall be free to negotiate
independently with the customer for the provision of Products or
Services.
5. UNDERTAKING OF LICENSOR
Licensor shall:
1. Use best efforts to promote the Products and Services including
national and local advertising as it deems appropriate.
2. Provide to Distributor's technical and sales staff technical and sales
training with respect to the Products and Services, to consist of one
two-week training course offered at Licensor's field training center
or at Distributor's facilities. Licensor shall provide such training
at its own cost, but Distributor shall be responsible for travel and
living expenses incurred by its employees.
3. Provide reasonable quantities of marketing materials, including
descriptive brochures and promotional materials suitable for
unrestricted distribution, and licenses and other contractual
documents.
4. Evaluate the qualifications of prospective customers solicited by
Distributor. Licensor may condition acceptance of customer contracts
on a customers' payment in advance of all or part of applicable
license fees and service fees.
5. Perform all obligations of Licensor under accepted customer contracts.
6. Invoice and collect amounts payable under each customer contract
accepted by Licensor.
7. Provide Product development, enhancement, and product problem
resolution as Licensor deems appropriate, but in all events sufficient
to enable Licensor and Distributor to perform their obligations under
accepted customer contracts.
8. Provide migration factory management and operations.
9. Provide Products and Services in a manner which does not lead to added
delays, costs or expenses to Distributor.
10. Use its best efforts to increase Product and Service capacity, and
improve the quality of its Products and Services.
11. Use its reasonable best efforts, consistent with its past practices,
to protect all of its intellectual property rights, including, without
limitation, trade secrets, know-how, patents, copyrights and
trademarks, and take strict precautions to protect the confidential
and proprietary status of all current and future information relating
to the Products and Services.
6. COMPENSATION
6.1 Distributor shall receive a fee equal to [***] of the revenue actually
collected by Licensor under customer contracts solicited by
Distributor and accepted by Licensor. At Licensor's expense,
Distributor agrees to reasonably cooperate with Licensor and
reasonably assist in the collection of accounts receivable under
customer contracts forwarded to Licensor by Distributor, provided,
however, that Distributor shall not be required to commence or
prosecute any litigation in connection with any such collection
assistance. Payment of Distributor's compensation shall be made by
Licensor within [****] after receipt of revenues by Licensor. Payment
shall be accompanied by a detailed accounting of the basis for such
payment, identifying the source and amount of applicable revenues so
received by Licensor.
3
<PAGE>
6.2 Distributor shall have the right, at its sole expense, to examine the
books and records of Licensor to verify Licensor's calculation of the
compensation due to Distributor. Such examinations may be made no more
frequently than once every six months and may cover only the prior two
years books and records. All such examinations shall be conducted by a
certified public accountant upon not less than two business days prior
written notice to Licensor, during Licensor's regular business hours.
6.3 Distributor shall be responsible for its own expenses and costs in
fulfilling it duties under this Agreement, including, without
limitation, office rent, salaries and commissions of office help and
sales people in its employ, licenses, taxes, insurance, automotive
costs, transportation and living expenses. Distributor shall supply
appropriate commercial and general liability insurance needed to
fulfill its duties under this Agreement. Distributor indemnifies and
holds harmless Licensor from any claims, costs, losses or damages,
including attorneys' fees, resulting from workers' compensation
claims, or other claims of or relating to Distributor's employees.
7. TERRITORY
The territory of this Agreement shall be the states of California. Any disputes
arising out of this paragraph will be settled solely by Licensor.
8. TERM OF EXCLUSIVITY AND EXTENSION OF EXCLUSIVITY
The period of exclusivity of this Agreement is [****] from the date of
Commencement. In the event that Distributor causes at least [****] customer
contracts valued at [****] or more each to be executed with Customers during the
first year after Commencement, and during each subsequent year thereafter, then
the one year period of exclusivity described in this Agreement will be
automatically extended to the end of the subsequent year.
9. TERM AND TERMINATION
9.1 The term of this Agreement shall commence upon the date of execution
of this Agreement and shall continue for [****] thereafter unless
sooner terminated in accordance with the provisions hereof. This
Agreement may be thereafter extended only by written instrument
executed by both parties.
9.2 Licensor may terminate this Agreement upon written notice to
Distributor in the event of the breach of any material obligation
hereunder by Distributor that is not cured by Distributor after
receipt from Licensor of [****] written notice calling attention to
such breach and demanding cure thereof. In the event of such
termination for cause, Licensor's sole obligation to Distributor shall
be to pay compensation accrued for revenues collected prior to the
date of termination.
9.3 Distributor may terminate this Agreement upon written notice to
Licensor in the event of the breach of any material obligation
hereunder by Licensor that is not cured by Licensor after receipt from
Distributor of [****] written notice calling attention to such breach
and demanding cure thereof. In the event of such termination for
cause, Licensor's obligation to Distributor shall be to pay
compensation accrued for revenues collected prior to the date of
termination.
9.4 Upon termination of this Agreement for any reason, Distributor shall
within [****] of such termination return to Licensor all copies of the
Products, including demonstration copies, and all copies of technical
materials, brochures, marketing materials, and the like. Distributor
shall further provide to Licensor copies of Distributor's prospect
files and customer correspondence files.
<PAGE>
Upon the termination of this Agreement for any reason, Distributor shall
immediately cease using all trademarks, services marks, software and
documentation of Licensor.
10. INDEMNITIES
10.1 Licensor hereby indemnifies Distributor from and against any and all
claims, demands or actions (collectively "Claims") arising from
Distributor's participation as a distributor of Licensor's products or
services, except to the extent that such Claims are attributable to
the act or omission of Distributor or its employees or
representatives.
10.2 Distributor hereby indemnifies Licensor from and against any and all
claims, demands, or actions arising out of Distributor's activities or
performance outside the express authorization provided Distributor
under this Agreement or any customer contracts or any breach of
Distributor's obligations hereunder.
10.3 The indemnities contained in this Section 10 shall be conditioned upon
the indemnifying party's receiving (1) prompt written notice of any
claims, demands, or actions for which indemnity is sought; (2)
cooperation in the defense by the party seeking indemnity; and (3)
control of the defense and/or settlement of such claim, demand, or
action as to which indemnity is sought.
11. LIMITATIONS OF LIABILITY
In no event shall either party hereto be entitled to special, indirect, or
consequential damages, including lost profits, for breach of this Agreement.
Remedies shall be limited to claims for amounts due hereunder, for
indemnification as provided for herein or for actual damages resulting from any
such breach. However, the foregoing limitation of remedies shall not apply to
any action by Licensor for infringement of any intellectual property right by
Distributor; any action based on or with respect to unauthorized publication,
disclosure, or use of Confidential Information (see paragraph 14) or trade
secrets of Licensor; or any claim pursuant to paragraph 7.2 (employee claims) of
this Agreement; or any action based on Licensor's rights in copyrights,
trademarks, or trade names or other proprietary rights in the Products or
Services.
12. TRADEMARK
Except for purposes of identification of Products or Services, no right, title,
interest, or license in or to any trademark or service mark of Licensor is
granted to Distributor under this Agreement. Distributor may on its business
cards state that Distributor is an authorized distributor for the licensing of
the Products and provision of Services of Licensor. Distributor shall not
contest the validity of such marks or Licensor's exclusive ownership of them.
During the term of this Agreement, Distributor shall not adopt, use, or
register, whether as a corporate name, trademark, service mark or other
indication of origin, any such marks, or any word or mark confusingly similar to
them in any jurisdiction.
13. ENHANCEMENTS AND DISCOVERIES
If Distributor makes any discoveries, devices or other tangible or intangible
improvement relating to Products or Services, Distributor shall immediately
disclose same to Licensor, and hereby assigns all rights, title and interest in
same to Licensor. Distributor shall secure assignment agreements with its
employees to ensure that same can be assigned to Licensor.
<PAGE>
14 CONFIDENTIALITY
"Confidential Information" shall mean any information disclosed by Licensor to
Distributor, in writing, orally, by inspection of tangible objects or by
inspection of source code, object code or operation of any Product or related
Services, including without limitation, any product, technical, manufacturing,
process, marketing, financial, business or other information, ideas or know-how.
Confidential Information may also include information disclosed to Licensor by
third parties. Confidential Information shall not include information which: (i)
was generally known and available in the public domain at the time it was
disclosed, or becomes generally known and available in the public domain through
no fault of the receiving party, its employees, agents, successors or assigns;
(ii) was known to the Distributor at the time of the disclosure; (iii) was
independently developed by Distributor without the use of or reliance on any
Confidential Information, as shown by written records contemporaneously with
such independent development; (iv) becomes known to Distributor from a third
party who has no obligation of confidentiality to the Licensor.
Distributor shall not disclose Confidential Information to any third party
unless authorized in advance in writing, except (i) to potential and actual
customers of the Products and Services in connection with Distributor's
marketing of the Products and Services and performance of its duties and
obligations under this Agreement, (ii) in response to a subpoena or other legal
process, and (iii) as may otherwise be required by applicable law. Distributor
shall not disclose Confidential Information to its employees, except on a "need
to know" basis where such disclosure is necessary and required to exercise it
rights and perform its obligations under this Agreement. Distributor shall not
disclose Confidential Information to any employee of Distributor unless such
employee has signed a non-use and non-disclosure agreement in content at least
as protective as the provisions hereof, prior to any disclosure of Confidential
Information to such employee. Distributor shall take reasonable measures to
protect the secrecy of and avoid disclosure and unauthorized use of the
Confidential Information. Without limiting the foregoing, Distributor shall take
at least those measures that it takes to protect its own most highly
confidential information. Distributor shall not reverse engineer, disassemble or
decompile any prototypes, software or other tangible objects which embody the
Confidential Information and which are provided to Distributor hereunder.
Distributor shall immediately notify Licensor in the event of any unauthorized
use or disclosure of the Confidential Information. This obligation in this
paragraph shall survive the expiration or termination of this Agreement for any
reason.
Upon termination of this Agreement for any reason, Distributor shall promptly
return all Confidential Information received from Licensor.
15 NO FRANCHISE
Neither this Agreement, nor any terms and conditions contained herein, shall be
construed as creating a partnership, joint venture or agency relationship or as
granting a franchise as defined in 16 CFR Section 436.2(a), or applicable state
law. The price and payment described in this Agreement shall be construed as a
royalty fee for the rights granted in this Agreement, and not as a franchise
fee.
16. UCC
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER ORAL OR
WRITTEN, WHETHER EXPRESS OR IMPLIED, OR ARISING BY STATUTE, CUSTOM, COURSE OF
DEALING OR TRADE USAGE, WITH RESPECT TO THE PRODUCTS OR SERVICES, OR OTHERWISE
IN CONNECTION WITH THIS AGREEMENT. LICENSOR SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED WARRANTIES OR CONDITIONS OF TITLE, MERCHANTIBILITY, SATISFACTORY QUALITY
AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES OF NON- INFRINGEMENT.
<PAGE>
17. STATUS OF DISTRIBUTOR'S PERSONNEL
Distributor shall be responsible for the wages, hours, and conditions of
employment of Distributor's personnel during the term of and under this
Agreement. Nothing herein shall be construed as implying that employees of
Distributor are employees of Licensor.
18. NOTICES
All notices, demands, or consents required or permitted under this Agreement
shall be in writing and shall be delivered personally or sent by certified or
registered mail, postage prepaid, to the appropriate party at the address set
forth in the first paragraph of this Agreement or at such other address as shall
be given by either party to the other in writing.
19. CHOICE OF LAW
This Agreement shall be deemed to be made in the State of California and in all
respects shall be interpreted, construed, and governed by and in accordance with
the laws of the State of California. The venue for any law suits involving
disputes under this Agreement shall be in the Northern District of California or
the County of San Francisco. The prevailing party in any such dispute shall be
entitled to recover its costs and reasonable attorneys' fees.
20. WAIVER OF RIGHTS
The waiver by either party of any term or provision of this Agreement shall not
be deemed to constitute a continuing waiver thereof nor of any further or
additional rights such party may hold under this Agreement.
21. NO ASSIGNMENT; ENFORCEABILITY
This Agreement is personal to Distributor and is not assignable without the
prior written consent of Licensor. Any attempt to assign, transfer, or
subcontract any of the rights, duties, or obligations of this Agreement without
such consent is void. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
22. ARBITRATION
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
23. COMPLETE AGREEMENT
The parties agree that this Agreement is the complete and exclusive statement
thereof between the parties and that it supersedes and merges all prior
proposals and understandings and all other agreements, whether oral or written,
between the parties relating to the subject matter hereof. This Agreement may
not be modified or altered except by a written instrument duly executed by the
parties hereto.
<PAGE>
24. SUCCESSORS AND ASSIGNMENT
Neither party may assign any of its rights nor delegate any of its obligations
hereunder without the prior written consent of the other, although such consent
shall not be unreasonably withheld. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
(including any purchaser of the business of Licensor or Distributor) and their
successors in interest by merger or operation of law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as set
forth below.
CY2K Solutions, L.L.C. FORECROSS CORPORATION
/s/ Donald R. Gardner /s/ Bernadette C. Castello
- --------------------------------------- ----------------------------
(authorized signature) (authorized signature)
Donald R. Gardner Bernadette C. Castello
- --------------------------------------- ----------------------------
(name) (name)
CEO Senior Vice President
- --------------------------------------- ----------------------------
(title) (title)
3/24/97 3/25/97
- --------------------------------------- ----------------------------
(date) (date)
<PAGE>
SOFTWARE LICENSE AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
This Software License Agreement (the "Agreement") by and between Forecross (R)
Corporation, a California corporation located at 90 New Montgomery Street, San
Francisco, California, 94105 (hereafter "Forecross") and CY2K Solutions, L.L.C.,
a California Limited Liability Company (hereafter referred to as "Licensee"),
having its principal office at 4133 Stanford, Dallas, Texas 75225 is made and
entered into as of and dated the 25th day of March 1997.
WHEREAS, Forecross is the sole owner of a proprietary software system including
programs, options, documentation, data and information, collectively entitled
ASSESS/2000 (hereinafter referred to as the "Licensed Product"; and
WHEREAS, Licensee desires to acquire a license to use the Licensed Product.
NOW, THEREFORE, for and in consideration of the covenants and premises herein
recited, it is understood and agreed as follows:
1. DEFINITIONS.
For the purpose of this Agreement:
(a) "Software" means the computer source and/or object code comprising the
Product/System indicated in Paragraph 13(b);
(b) "Documentation" means any documents and manuals which are normally provided
in conjunction with the Product/System indicated in Paragraph 13(b);
(c) "Error" means a failure of the Software to work in accordance with the
Documentation;
(d) "Maintenance" means the correction of Errors;
(e) "Problem" means any difficulty encountered by Licensee in the use of the
Software and Documentation other than an Error;
(f) "Enhancement" means alterations made to the Software or Documentation to
meet Licensee's requirements;
(g) "Improvement" means any improvement made during the term of this License by
Forecross to the Licensed Product which is not separately listed in the
Forecross price list; and
(h) "Upgrade" means any addition made during the term of this License by
Forecross to the Licensed Product which is separately listed in the
Forecross price list.
(i) "Conversion" of a computer program means the automated translation of a
program and any of its associated components using the Licensed Product.
2. LICENSE.
Forecross grants to Licensee a non-assignable, non-transferable, non-exclusive
license to use the Licensed Product, subject to the terms and conditions
specified herein and only at the computer facility locations specified herein.
3. PAYMENT.
Non-refundable payment for use of the Licensed Product is due upon rendering of
an invoice from Forecross. An invoice will be rendered to Licensee as of the
date of this Agreement.
4. MAINTENANCE AND ENHANCEMENT PLAN.
A. It is understood that Forecross is continually modifying and enhancing
Licensed Product which results in new versions of Licensed Product.
Under the Maintenance and Enhancement Plan of Forecross (hereinafter
referred to as the "Plan"), to the extent Forecross shall produce any
such versions, Forecross will provide to Licensee one (1) copy of
every new version of Licensed Product licensed under this Agreement,
including all modifications, enhancements and corresponding technical
documentation. New features announced as extra cost options shall not
be included in the Plan. Under the Plan, Licensee will also be
provided all requested technical telephone consultation. Forecross
reserves the right to terminate the Plan at the end of any maintenance
period.
B. Licensee is subscribed in the Plan for a fee equal to 12.5% of the
Licensee Fee identified in Paragraph 13 hereof for a period of one (1)
year following the delivery date of Licensed Product. Before each
anniversary date of delivery thereafter, Licensee shall be invoiced
the fee for the Plan for the following year.
C. The annual fee for the Plan for each copy of Licensed Product shall be
specified in the Fee Schedule for Licensed Product in effect on the
anniversary date of delivery.
D. Licensee may elect to cancel its subscription in the Plan, effective
upon any subsequent anniversary date of delivery, by written notice to
Forecross at any time prior to such anniversary date. A Licensee who
cancels its subscription in the Plan may at a later time renew its
subscription and receive the benefits of the Plan upon payment of the
annual fee for the Plan in effect at the time of renewal plus a
reinstatement fee equal to the difference between the permanent
license fee of Licensed Product originally paid and that prevailing at
the time of subscription renewal.
5. TITLE, RISK OF LOSS AND NON-ASSIGNABILITY.
Title and ownership rights to the Licensed Product shall remain in Forecross.
Title to Licensed Product, all property rights therein and all materials shall
remain the sole property of Forecross. After delivery of Licensed Product to
Licensee, Licensee shall be solely responsible for and bear all risk of loss
thereon, except as occasioned by Forecross. The license to use Licensed Product
hereunder is personal to Licensee and Licensee shall not transfer, sublease,
assign or deliver Licensed Product or such license to another without the prior
written consent of Forecross.
6. WARRANTIES.
Forecross warrants its rights to license the Licensed Product and agrees to
defend, or settle at its option, any action at law against Licensee arising from
a claim that Licensee's permitted use of the Licensed Product under this
Agreement infringes any copyright or other proprietary right of a third party,
provided Licensee gives Forecross prompt notice of any such claim within ten
days of Licensee's notice thereof and provides reasonable assistance in its
defense, with counsel designated by Forecross. ALL OTHER WARRANTIES, INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, ARE HEREBY
EXCLUDED.
7. LIMITATION OF LIABILITY.
Licensee acknowledges that the Licensed Product is of such complexity that it
may have inherent defects. Therefore, Licensee agrees that its sole and
exclusive remedies for any damage or loss in any way connected with the Licensed
Product, whether by Forecross's breach of any express or implied warranty
(except against infringement), negligence, or any breach of any other duty,
shall be, at Forecross's option, repair or replacement of the Licensed Product
or return of or credit for any appropriate portion of any payment made or to be
made by Licensee with respect to the Licensed Product. Under no circumstances
(including breach of the warranty against infringement) and under no legal
theory, tort, contract, or otherwise, shall Forecross be liable to Licensee or
any other person for any special or consequential damages of any character
including, without limitation, damages for loss of good will, work stoppage,
computer failure or malfunction, or any and all other commercial damages or
losses, or for any damages in excess of the fees and charges paid hereinunder,
even if Forecross shall have been informed of the possibility thereof.
8. PROPRIETARY; CONFIDENTIALITY.
The Licensed Product is composed of confidential information which is the
property of Forecross. Licensee shall only use the Licensed Product for its own
use in the normal course of its business. Licensee shall not license or
sublicense, use, market, sell, exploit, revise, assign, or donate the Licensed
Product or any portion thereof, except as provided in this Agreement, whether
with or without charge, and shall have no rights, ownership or interest in the
Licensed Product except as described in this Agreement. Licensee agrees not to
attempt to decipher the Licensed Product or develop source code for the Licensed
Product. Licensee will not copy, duplicate, create or recreate any portion or
the whole of the Licensed Product other than as required by its normal operating
procedures. Licensee shall not remove or alter Forecross's proprietary notices
in any copy or partial copy of any form of the Licensed Product. Licensee shall
not disclose and shall exercise all reasonable precautions to prevent access to
the Licensed Product, or any portion of such, except to persons whose access to
them is necessary for the effective and efficient use of them by Licensee.
Licensee agrees to take all reasonable steps to insure that no unauthorized
persons shall have access to the Licensed Product and that all authorized
persons having access to the Licensed Product shall refrain from any such
disclosure, duplication or reproduction. Licensee shall be responsible for all
damages caused from such disclosure, duplication or reproduction by persons
having access to the Licensed Product while in the possession of Licensee.
Violation in any material aspect of any provision of this Paragraph may cause
irreparable damage to Forecross due to the nature of the obligations. In
addition to any other remedies to which Forecross may be entitled at law or in
equity, Forecross shall be entitled to preliminary and other injunctive relief
against such a violation. Any injunctive relief shall be in addition to and
shall in no way limit all rights of Forecross to recover damages because of such
violation.
9. NO RIGHTS OF MODIFICATION.
Licensee may not modify the Software. If Licensee breaches this provision, in
addition to any such remedies Forecross may have, Forecross will not be
responsible for the integrity, operation or compatibility of the Software with
any hardware or software, although Forecross's ownership and rights remain in
full force and proprietary notices must remain.
10. TAXES AND DUTIES
The charges covered by this Agreement are exclusive of any tariffs, duties or
taxes imposed or levied by any government or governmental agency in connection
with this Agreement. With the exception of taxes imposed upon Forecross which
are based upon net income, Licensee shall be liable for payment of all such
taxes, however designated, levied or based on the Licensed Product, its charges
or its use or on this Agreement, including without limitation, state or local
sales, use and personal property taxes.
11. TERM.
A. COMMENCEMENT AND TERMINATION.
This Agreement shall commence on the date hereof and, unless terminated earlier
pursuant to the terms of this Agreement, shall continue until in perpetuity
unless otherwise terminated as provided herein. This Agreement may be
terminated:
(1) by Forecross upon fifteen (15) days notice in the event of non-payment of
all or any part of any sum due under this Agreement unless full payment
thereof is made within said notice period; or
(2) by either party upon twenty-four (24) hours notice in the event that the
other party shall be or become insolvent or if there are any proceedings
instituted by or against it in bankruptcy or under insolvency laws or for
reorganization, receivership or dissolution, except for such proceedings as
are mandatory on the part of the affected party and are terminated without
prejudice to the other party within sixty (60) days; or if it shall make an
assignment for the benefit of creditors outside the ordinary course of its
business; or
(3) by either party upon fifteen (15) days notice in the event of a material
breach by the other party of any of the terms of this Agreement unless such
breach is fully cured within said notice period.
B. EFFECT.
The provisions of Paragraph 11 shall continue after termination. Upon
termination of this Agreement Licensee will either return to Forecross or
destroy all copies of the Licensed Product and all duplicates thereof and shall
not use them further. Licensee shall within ten (10) business days of the date
of such termination furnish Forecross with a certificate of compliance with the
provisions of this Paragraph 11(b), and agrees that if such a certificate is not
furnished within the time stated Forecross shall have the right to injunctive
relief in the same manner and for the same reasons as provided in Paragraph 11.
12. MISCELLANEOUS.
A. GOVERNING LAW.
This Agreement is made in and shall be governed by the laws of California
applicable to contracts made and to be performed in California.
B. ARBITRATION.
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
C. NOTICES.
Notices shall be given at the addresses above (which may be changed by notice)
and shall be deemed given upon personal delivery or forty-eight (48) hours after
mailing.
D. AGREEMENT.
This Agreement shall be binding upon any successors, assigns and legal
representatives of either party. This Agreement contains the entire agreement of
the parties relating to the Licensed Product, and may be amended only by a
writing executed by both parties.
13. LICENSE DETAILS.
Licensee agrees to license the Licensed Product for use at the following
computer facility location(s) for the fee(s) indicated below:
A. LOCATION OF LICENSED PRODUCT. 4133 Stanford, Dallas, Texas 75225
B. METHOD OF DELIVERY.
Licensor will deliver the Licensed Product to Licensee's computer by means of
electronic transfer.
C. SCOPE OF USE OF LICENSED PRODUCT.
Licensee may use the Licensed Product at the Location specified above to assess
code for Year 2000 compliance for multiple customers of Licensee.
D. LICENSE FEE.
US [***]
E. MAINTENANCE PLAN FEE.
US [***]
SIGNATURES
/s/ CY2K Solutions, L.L.C.
LICENSEE
BY: /s/ Donald R. Gardner
------------------------------------------
AUTHORIZED OFFICER'S SIGNATURE
Donald R. Gardner, CEO
------------------------------------------
PRINT NAME AND TITLE OF AUTHORIZED OFFICER
FORECROSS CORPORATION,
a California Corporation
BY: /s/ Bernadette C. Castello
------------------------------------------
Bernadette C. Castello
Senior Vice President
[GRAPHIC OMITTED]
FORECROSS
EXCLUSIVE DISTRIBUTOR AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
THIS EXCLUSIVE DISTRIBUTOR AGREEMENT (this "Agreement") by and between Forecross
Corporation (hereinafter "Licensor"), a California corporation having its
principal offices at 90 New Montgomery Street, San Francisco, CA 94105; and PY2K
Solutions, L.L.C., a Delaware Limited Liability Company having its principal
offices at 4133 Stanford, Dallas, Texas 75225 is made and entered into as of and
dated this 16th day of June, 1997 ("Commencement Date"),:
WHEREAS, Licensor is the owner of certain computer programs and methodology
together with all upgrades, improvements and enhancements defined herein as the
"Products" and "Services", which Products and Services are used to assist
customers in making their computer applications capable of correctly processing
dates in the year 2000 and beyond ("Year 2000") ;
WHEREAS, Distributor has special knowledge concerning the general business needs
of prospects in the "Territory" defined herein and familiarity with a number of
such prospects;
WHEREAS, Licensor wishes to appoint Distributor as its exclusive marketing
representative for the solicitation of customer contracts relating to the
Products and Services, and authorize Distributor to provide certain services
relating to such marketing efforts; and
WHEREAS, Distributor is willing to accept such appointment and to undertake to
provide such services under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SCOPE
The Products and Services covered by this Agreement are Licensor's Complete/2000
automated conversion software products, related services and methodologies and
consist of computer programs, any updates thereto and conversion services
offered generally to customers by Licensor under the terms and conditions of its
then current customer contracts. Licensor offers enhancement and
error-correction services with respect to the Products under the terms and
conditions of service agreements created for each customer.
2. APPOINTMENT OF DISTRIBUTOR
Subject to the terms and conditions hereof, Licensor hereby designates and
appoints Distributor as its exclusive marketing agent and representative for the
solicitation of customer contracts related to the Products and Services from,
and the delivery of such Services to customers in the Territory. Distributor
hereby accepts such designation and appointment.
3. DUTIES OF DISTRIBUTOR
3.1 Distributor agrees, for the term of this Agreement, that it shall
promote and market the Products and Services to prospective customers
by:
<PAGE>
1. Identifying prospects within the Territory that may benefit from
use of the Products and Services
2. Contacting prospects and conducting sales presentations of the
Products and Services
3. Performing systems analysis of the customers' applications and
providing to Licensor information to assist Licensor in preparing
proposals to prospects
4. Assisting Licensor in preparing and obtaining the prospects'
execution of customer contracts
5. Forwarding executed customer contracts to Licensor
6. Serving as a point of contact for necessary communications
between customers and Licensor with respect to the Products and
Services
7. Providing on-site Services and support, including project
management, working with customer to create date selection and
expansion rules, installing and turning over to customer the data
expansion programs and converted application programs
8. Performing all obligations of Distributor under accepted customer
contracts
9. Providing account management
3.2 Distributor shall use its best efforts to generate Year 2000 business
acceptable to Licensor. Distributor shall diligently and continuously
sell, distribute and promote the Products and Services and shall make
and maintain adequate arrangements for the distribution of Products
and Services. Distributor shall report to Licensor about Distributor's
marketing activities and shall provide forecasts to Licensor as may be
reasonably requested.
3.3 Distributor shall not during the term of this Agreement represent or
offer to represent or market, sell or distribute, in the Territory,
computer software products or services that compete directly with the
Products or Services.
3.4 In consideration for the grant of exclusivity within the Territory
defined herein, Distributor shall pay a fee to Licensor of [***].
4. CUSTOMER CONTRACTS
4.1 Distributor shall have the authority to solicit the signature of
customers on Licensor's customer contracts which have been jointly
prepared by Licensor and Distributor for customers. Distributor has
and shall exercise no authority to make any alterations in such
agreements or to execute or accept such agreements on behalf of
Licensor. Distributor shall inform all customers that such agreements
must be forwarded to Licensor for acceptance and execution by Licensor
in order for such agreement to be binding on Licensor.
4.2 Distributor has and may exercise no authority to make statements or
representations concerning the Products or Services that exceed or are
inconsistent with the marketing materials and technical specifications
provided to Distributor by Licensor. Distributor has and may exercise
no authority to bind Licensor to any undertaking or performance with
respect to the Products or Services. Licensor has and may exercise no
authority to make statements or representations concerning the
Distributor which exceed or are inconsistent with this Agreement.
Licensor has and may exercise no authority to bind Distributor to any
undertaking or performance with respect to the Products or Services,
other than as mutually agreed by Licensor and Distributor in writing
in Licensor's contract for an customer. Notwithstanding the foregoing,
in the event that a prospective customer contacts Licensor to request
<PAGE>
Products or Services and Distributor elects not to pursue the
prospective customer, Licensor shall be free to negotiate
independently with the customer for the provision of Products or
Services.
5. UNDERTAKING OF LICENSOR
Licensor shall:
1. Use best efforts to promote the Products and Services including
national and local advertising as it deems appropriate.
2. Provide to Distributor's technical and sales staff technical and sales
training with respect to the Products and Services, to consist of one
two-week training course offered at Licensor's field training center
or at Distributor's facilities. Licensor shall provide such training
at its own cost, but Distributor shall be responsible for travel and
living expenses incurred by its employees.
3. Provide reasonable quantities of marketing materials, including
descriptive brochures and promotional materials suitable for
unrestricted distribution, and licenses and other contractual
documents.
4. Evaluate the qualifications of prospective customers solicited by
Distributor. Licensor may condition acceptance of customer contracts
on a customers' payment in advance of all or part of applicable
license fees and service fees.
5. Perform all obligations of Licensor under accepted customer contracts.
6. Invoice and collect amounts payable under each customer contract
accepted by Licensor.
7. Provide Product development, enhancement, and product problem
resolution as Licensor deems appropriate, but in all events sufficient
to enable Licensor and Distributor to perform their obligations under
accepted customer contracts.
8. Provide migration factory management and operations.
9. Provide Products and Services in a manner which does not lead to added
delays, costs or expenses to Distributor.
10. Use its best efforts to increase Product and Service capacity, and
improve the quality of its Products and Services.
11. Use its reasonable best efforts, consistent with its past practices,
to protect all of its intellectual property rights, including, without
limitation, trade secrets, know-how, patents, copyrights and
trademarks, and take strict precautions to protect the confidential
and proprietary status of all current and future information relating
to the Products and Services.
6. COMPENSATION
6.1 Distributor shall receive a fee equal to [***] of the revenue actually
collected by Licensor under customer contracts solicited by
Distributor and accepted by Licensor. At Licensor's expense,
Distributor agrees to reasonably cooperate with Licensor and
reasonably assist in the collection of accounts receivable under
customer contracts forwarded to Licensor by Distributor, provided,
however, that Distributor shall not be required to commence or
prosecute any litigation in connection with any such collection
assistance. Payment of Distributor's compensation shall be made by
Licensor within [****] after receipt of revenues by Licensor. Payment
shall be accompanied by a detailed accounting of the basis for such
payment, identifying the source and amount of applicable revenues so
received by Licensor.
3
<PAGE>
6.2 Distributor shall have the right, at its sole expense, to examine the
books and records of Licensor to verify Licensor's calculation of the
compensation due to Distributor. Such examinations may be made no more
frequently than once every six months and may cover only the prior two
years books and records. All such examinations shall be conducted by a
certified public accountant upon not less than two business days prior
written notice to Licensor, during Licensor's regular business hours.
6.3 Distributor shall be responsible for its own expenses and costs in
fulfilling it duties under this Agreement, including, without
limitation, office rent, salaries and commissions of office help and
sales people in its employ, licenses, taxes, insurance, automotive
costs, transportation and living expenses. Distributor shall supply
appropriate commercial and general liability insurance needed to
fulfill its duties under this Agreement. Distributor indemnifies and
holds harmless Licensor from any claims, costs, losses or damages,
including attorneys' fees, resulting from workers' compensation
claims, or other claims of or relating to Distributor's employees.
7. TERRITORY
The territory of this Agreement shall be the states of Florida, Georgia, North
Carolina and South Carolina. Any disputes arising out of this paragraph will be
settled solely by Licensor.
8. TERM OF EXCLUSIVITY AND EXTENSION OF EXCLUSIVITY
The period of exclusivity of this Agreement is [****] from the date of
Commencement. In the event that Distributor causes at least [****] customer
contracts valued at [****] or more each to be executed with Customers during the
first year after Commencement, and during each subsequent year thereafter, then
the one year period of exclusivity described in this Agreement will be
automatically extended to the end of the subsequent year.
9. TERM AND TERMINATION
9.1 The term of this Agreement shall commence upon the date of execution
of this Agreement and shall continue for [****] thereafter unless
sooner terminated in accordance with the provisions hereof. This
Agreement may be thereafter extended only by written instrument
executed by both parties.
9.2 Licensor may terminate this Agreement upon written notice to
Distributor in the event of the breach of any material obligation
hereunder by Distributor that is not cured by Distributor after
receipt from Licensor of [****] written notice calling attention to
such breach and demanding cure thereof. In the event of such
termination for cause, Licensor's sole obligation to Distributor shall
be to pay compensation accrued for revenues collected prior to the
date of termination.
9.3 Distributor may terminate this Agreement upon written notice to
Licensor in the event of the breach of any material obligation
hereunder by Licensor that is not cured by Licensor after receipt from
Distributor of [****] written notice calling attention to such breach
and demanding cure thereof. In the event of such termination for
cause, Licensor's obligation to Distributor shall be to pay
compensation accrued for revenues collected prior to the date of
termination.
9.4 Upon termination of this Agreement for any reason, Distributor shall
within [****] of such termination return to Licensor all copies of the
Products, including demonstration copies, and all copies of technical
materials, brochures, marketing materials, and the like. Distributor
shall further provide to Licensor copies of Distributor's prospect
files and customer correspondence files.
<PAGE>
Upon the termination of this Agreement for any reason, Distributor shall
immediately cease using all trademarks, services marks, software and
documentation of Licensor.
10. INDEMNITIES
10.1 Licensor hereby indemnifies Distributor from and against any and all
claims, demands or actions (collectively "Claims") arising from
Distributor's participation as a distributor of Licensor's products or
services, except to the extent that such Claims are attributable to
the act or omission of Distributor or its employees or
representatives.
10.2 Distributor hereby indemnifies Licensor from and against any and all
claims, demands, or actions arising out of Distributor's activities or
performance outside the express authorization provided Distributor
under this Agreement or any customer contracts or any breach of
Distributor's obligations hereunder.
10.3 The indemnities contained in this Section 10 shall be conditioned upon
the indemnifying party's receiving (1) prompt written notice of any
claims, demands, or actions for which indemnity is sought; (2)
cooperation in the defense by the party seeking indemnity; and (3)
control of the defense and/or settlement of such claim, demand, or
action as to which indemnity is sought.
11. LIMITATIONS OF LIABILITY
In no event shall either party hereto be entitled to special, indirect, or
consequential damages, including lost profits, for breach of this Agreement.
Remedies shall be limited to claims for amounts due hereunder, for
indemnification as provided for herein or for actual damages resulting from any
such breach. However, the foregoing limitation of remedies shall not apply to
any action by Licensor for infringement of any intellectual property right by
Distributor; any action based on or with respect to unauthorized publication,
disclosure, or use of Confidential Information (see paragraph 14) or trade
secrets of Licensor; or any claim pursuant to paragraph 7.2 (employee claims) of
this Agreement; or any action based on Licensor's rights in copyrights,
trademarks, or trade names or other proprietary rights in the Products or
Services.
12. TRADEMARK
Except for purposes of identification of Products or Services, no right, title,
interest, or license in or to any trademark or service mark of Licensor is
granted to Distributor under this Agreement. Distributor may on its business
cards state that Distributor is an authorized distributor for the licensing of
the Products and provision of Services of Licensor. Distributor shall not
contest the validity of such marks or Licensor's exclusive ownership of them.
During the term of this Agreement, Distributor shall not adopt, use, or
register, whether as a corporate name, trademark, service mark or other
indication of origin, any such marks, or any word or mark confusingly similar to
them in any jurisdiction.
13. ENHANCEMENTS AND DISCOVERIES
If Distributor makes any discoveries, devices or other tangible or intangible
improvement relating to Products or Services, Distributor shall immediately
disclose same to Licensor, and hereby assigns all rights, title and interest in
same to Licensor. Distributor shall secure assignment agreements with its
employees to ensure that same can be assigned to Licensor.
<PAGE>
14. CONFIDENTIALITY
"Confidential Information" shall mean any information disclosed by Licensor to
Distributor, in writing, orally, by inspection of tangible objects or by
inspection of source code, object code or operation of any Product or related
Services, including without limitation, any product, technical, manufacturing,
process, marketing, financial, business or other information, ideas or know-how.
Confidential Information may also include information disclosed to Licensor by
third parties. Confidential Information shall not include information which: (i)
was generally known and available in the public domain at the time it was
disclosed, or becomes generally known and available in the public domain through
no fault of the receiving party, its employees, agents, successors or assigns;
(ii) was known to the Distributor at the time of the disclosure; (iii) was
independently developed by Distributor without the use of or reliance on any
Confidential Information, as shown by written records contemporaneously with
such independent development; (iv) becomes known to Distributor from a third
party who has no obligation of confidentiality to the Licensor.
Distributor shall not disclose Confidential Information to any third party
unless authorized in advance in writing, except (i) to potential and actual
customers of the Products and Services in connection with Distributor's
marketing of the Products and Services and performance of its duties and
obligations under this Agreement, (ii) in response to a subpoena or other legal
process, and (iii) as may otherwise be required by applicable law. Distributor
shall not disclose Confidential Information to its employees, except on a "need
to know" basis where such disclosure is necessary and required to exercise it
rights and perform its obligations under this Agreement. Distributor shall not
disclose Confidential Information to any employee of Distributor unless such
employee has signed a non-use and non-disclosure agreement in content at least
as protective as the provisions hereof, prior to any disclosure of Confidential
Information to such employee. Distributor shall take reasonable measures to
protect the secrecy of and avoid disclosure and unauthorized use of the
Confidential Information. Without limiting the foregoing, Distributor shall take
at least those measures that it takes to protect its own most highly
confidential information. Distributor shall not reverse engineer, disassemble or
decompile any prototypes, software or other tangible objects which embody the
Confidential Information and which are provided to Distributor hereunder.
Distributor shall immediately notify Licensor in the event of any unauthorized
use or disclosure of the Confidential Information. This obligation in this
paragraph shall survive the expiration or termination of this Agreement for any
reason.
Upon termination of this Agreement for any reason, Distributor shall promptly
return all Confidential Information received from Licensor.
15. NO FRANCHISE
Neither this Agreement, nor any terms and conditions contained herein, shall be
construed as creating a partnership, joint venture or agency relationship or as
granting a franchise as defined in 16 CFR Section 436.2(a), or applicable state
law. The price and payment described in this Agreement shall be construed as a
royalty fee for the rights granted in this Agreement, and not as a franchise
fee.
16. UCC
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER ORAL OR
WRITTEN, WHETHER EXPRESS OR IMPLIED, OR ARISING BY STATUTE, CUSTOM, COURSE OF
DEALING OR TRADE USAGE, WITH RESPECT TO THE PRODUCTS OR SERVICES, OR OTHERWISE
IN CONNECTION WITH THIS AGREEMENT. LICENSOR SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED WARRANTIES OR CONDITIONS OF TITLE, MERCHANTIBILITY, SATISFACTORY QUALITY
AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES OF NON- INFRINGEMENT.
<PAGE>
17. STATUS OF DISTRIBUTOR'S PERSONNEL
Distributor shall be responsible for the wages, hours, and conditions of
employment of Distributor's personnel during the term of and under this
Agreement. Nothing herein shall be construed as implying that employees of
Distributor are employees of Licensor.
18. NOTICES
All notices, demands, or consents required or permitted under this Agreement
shall be in writing and shall be delivered personally or sent by certified or
registered mail, postage prepaid, to the appropriate party at the address set
forth in the first paragraph of this Agreement or at such other address as shall
be given by either party to the other in writing.
19. CHOICE OF LAW
This Agreement shall be deemed to be made in the State of California and in all
respects shall be interpreted, construed, and governed by and in accordance with
the laws of the State of California. The venue for any law suits involving
disputes under this Agreement shall be in the Northern District of California or
the County of San Francisco. The prevailing party in any such dispute shall be
entitled to recover its costs and reasonable attorneys' fees.
20. WAIVER OF RIGHTS
The waiver by either party of any term or provision of this Agreement shall not
be deemed to constitute a continuing waiver thereof nor of any further or
additional rights such party may hold under this Agreement.
21. NO ASSIGNMENT; ENFORCEABILITY
This Agreement is personal to Distributor and is not assignable without the
prior written consent of Licensor. Any attempt to assign, transfer, or
subcontract any of the rights, duties, or obligations of this Agreement without
such consent is void. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
22. ARBITRATION
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
23. COMPLETE AGREEMENT
The parties agree that this Agreement is the complete and exclusive statement
thereof between the parties and that it supersedes and merges all prior
proposals and understandings and all other agreements, whether oral or written,
between the parties relating to the subject matter hereof. This Agreement may
not be modified or altered except by a written instrument duly executed by the
parties hereto.
<PAGE>
24. SUCCESSORS AND ASSIGNMENT
Neither party may assign any of its rights nor delegate any of its obligations
hereunder without the prior written consent of the other, although such consent
shall not be unreasonably withheld. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
(including any purchaser of the business of Licensor or Distributor) and their
successors in interest by merger or operation of law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as set
forth below.
PY2K Solutions, L.C.C. FORECROSS CORPORATION
/s/ Donald R. Gardner /s/ Bernadette C. Castello
- --------------------------------------- ----------------------------
(authorized signature) (authorized signature)
Donald R. Gardner Bernadette C. Castello
- --------------------------------------- ----------------------------
(name) (name)
CEO Senior Vice President
- --------------------------------------- ----------------------------
(title) (title)
6/16/97 6/16/97
- --------------------------------------- ------------------------------------
(date) (date)
<PAGE>
SOFTWARE LICENSE AGREEMENT
"The information below marked [***] has been omitted pursuant to a request for
confidential treatment. The omitted portions have been separately filed with the
Commission."
This Software License Agreement (the "Agreement") by and between Forecross (R)
Corporation, a California corporation located at 90 New Montgomery Street, San
Francisco, California, 94105 (hereafter "Forecross") and PY2K Solutions, L.L.C.,
A Delaware Limited Liability Company (hereafter referred to as "Licensee"),
having its principal office at 4133 Stanford, Dallas, Texas 75225 is made and
entered into as of and dated the 16th day of June 1997.
WHEREAS, Forecross is the sole owner of a proprietary software system including
programs, options, documentation, data and information, collectively entitled
ASSESS/2000 (hereinafter referred to as the "Licensed Product"; and
WHEREAS, Licensee desires to acquire a license to use the Licensed Product.
NOW, THEREFORE, for and in consideration of the covenants and premises herein
recited, it is understood and agreed as follows:
1. DEFINITIONS.
For the purpose of this Agreement:
(a) "Software" means the computer source and/or object code comprising the
Product/System indicated in Paragraph 13(b);
(b) "Documentation" means any documents and manuals which are normally provided
in conjunction with the Product/System indicated in Paragraph 13(b);
(c) "Error" means a failure of the Software to work in accordance with the
Documentation;
(d) "Maintenance" means the correction of Errors;
(e) "Problem" means any difficulty encountered by Licensee in the use of the
Software and Documentation other than an Error;
(f) "Enhancement" means alterations made to the Software or Documentation to
meet Licensee's requirements;
(g) "Improvement" means any improvement made during the term of this License by
Forecross to the Licensed Product which is not separately listed in the
Forecross price list; and
(h) "Upgrade" means any addition made during the term of this License by
Forecross to the Licensed Product which is separately listed in the
Forecross price list.
(i) "Conversion" of a computer program means the automated translation of a
program and any of its associated components using the Licensed Product.
2. LICENSE.
Forecross grants to Licensee a non-assignable, non-transferable, non-exclusive
license to use the Licensed Product, subject to the terms and conditions
specified herein and only at the computer facility locations specified herein.
3. PAYMENT.
Non-refundable payment for use of the Licensed Product is due upon rendering of
an invoice from Forecross. An invoice will be rendered to Licensee as of the
date of this Agreement.
4. MAINTENANCE AND ENHANCEMENT PLAN.
A. It is understood that Forecross is continually modifying and enhancing
Licensed Product which results in new versions of Licensed Product.
Under the Maintenance and Enhancement Plan of Forecross (hereinafter
referred to as the "Plan"), to the extent Forecross shall produce any
such versions, Forecross will provide to Licensee one (1) copy of
every new version of Licensed Product licensed under this Agreement,
including all modifications, enhancements and corresponding technical
documentation. New features announced as extra cost options shall not
be included in the Plan. Under the Plan, Licensee will also be
provided all requested technical telephone consultation. Forecross
reserves the right to terminate the Plan at the end of any maintenance
period.
B. Licensee is subscribed in the Plan for a fee equal to 12.5% of the
Licensee Fee identified in Paragraph 13 hereof for a period of one (1)
year following the delivery date of Licensed Product. Before each
anniversary date of delivery thereafter, Licensee shall be invoiced
the fee for the Plan for the following year.
C. The annual fee for the Plan for each copy of Licensed Product shall be
specified in the Fee Schedule for Licensed Product in effect on the
anniversary date of delivery.
D. Licensee may elect to cancel its subscription in the Plan, effective
upon any subsequent anniversary date of delivery, by written notice to
Forecross at any time prior to such anniversary date. A Licensee who
cancels its subscription in the Plan may at a later time renew its
subscription and receive the benefits of the Plan upon payment of the
annual fee for the Plan in effect at the time of renewal plus a
reinstatement fee equal to the difference between the permanent
license fee of Licensed Product originally paid and that prevailing at
the time of subscription renewal.
5. TITLE, RISK OF LOSS AND NON-ASSIGNABILITY.
Title and ownership rights to the Licensed Product shall remain in Forecross.
Title to Licensed Product, all property rights therein and all materials shall
remain the sole property of Forecross. After delivery of Licensed Product to
Licensee, Licensee shall be solely responsible for and bear all risk of loss
thereon, except as occasioned by Forecross. The license to use Licensed Product
hereunder is personal to Licensee and Licensee shall not transfer, sublease,
assign or deliver Licensed Product or such license to another without the prior
written consent of Forecross.
6. WARRANTIES.
Forecross warrants its rights to license the Licensed Product and agrees to
defend, or settle at its option, any action at law against Licensee arising from
a claim that Licensee's permitted use of the Licensed Product under this
Agreement infringes any copyright or other proprietary right of a third party,
provided Licensee gives Forecross prompt notice of any such claim within ten
days of Licensee's notice thereof and provides reasonable assistance in its
defense, with counsel designated by Forecross. ALL OTHER WARRANTIES, INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, ARE HEREBY
EXCLUDED.
7. LIMITATION OF LIABILITY.
Licensee acknowledges that the Licensed Product is of such complexity that it
may have inherent defects. Therefore, Licensee agrees that its sole and
exclusive remedies for any damage or loss in any way connected with the Licensed
Product, whether by Forecross's breach of any express or implied warranty
(except against infringement), negligence, or any breach of any other duty,
shall be, at Forecross's option, repair or replacement of the Licensed Product
or return of or credit for any appropriate portion of any payment made or to be
made by Licensee with respect to the Licensed Product. Under no circumstances
(including breach of the warranty against infringement) and under no legal
theory, tort, contract, or otherwise, shall Forecross be liable to Licensee or
any other person for any special or consequential damages of any character
including, without limitation, damages for loss of good will, work stoppage,
computer failure or malfunction, or any and all other commercial damages or
losses, or for any damages in excess of the fees and charges paid hereinunder,
even if Forecross shall have been informed of the possibility thereof.
8. PROPRIETARY; CONFIDENTIALITY.
The Licensed Product is composed of confidential information which is the
property of Forecross. Licensee shall only use the Licensed Product for its own
use in the normal course of its business. Licensee shall not license or
sublicense, use, market, sell, exploit, revise, assign, or donate the Licensed
Product or any portion thereof, except as provided in this Agreement, whether
with or without charge, and shall have no rights, ownership or interest in the
Licensed Product except as described in this Agreement. Licensee agrees not to
attempt to decipher the Licensed Product or develop source code for the Licensed
Product. Licensee will not copy, duplicate, create or recreate any portion or
the whole of the Licensed Product other than as required by its normal operating
procedures. Licensee shall not remove or alter Forecross's proprietary notices
in any copy or partial copy of any form of the Licensed Product. Licensee shall
not disclose and shall exercise all reasonable precautions to prevent access to
the Licensed Product, or any portion of such, except to persons whose access to
them is necessary for the effective and efficient use of them by Licensee.
Licensee agrees to take all reasonable steps to insure that no unauthorized
persons shall have access to the Licensed Product and that all authorized
persons having access to the Licensed Product shall refrain from any such
disclosure, duplication or reproduction. Licensee shall be responsible for all
damages caused from such disclosure, duplication or reproduction by persons
having access to the Licensed Product while in the possession of Licensee.
Violation in any material aspect of any provision of this Paragraph may cause
irreparable damage to Forecross due to the nature of the obligations. In
addition to any other remedies to which Forecross may be entitled at law or in
equity, Forecross shall be entitled to preliminary and other injunctive relief
against such a violation. Any injunctive relief shall be in addition to and
shall in no way limit all rights of Forecross to recover damages because of such
violation.
9. NO RIGHTS OF MODIFICATION.
Licensee may not modify the Software. If Licensee breaches this provision, in
addition to any such remedies Forecross may have, Forecross will not be
responsible for the integrity, operation or compatibility of the Software with
any hardware or software, although Forecross's ownership and rights remain in
full force and proprietary notices must remain.
10. TAXES AND DUTIES
The charges covered by this Agreement are exclusive of any tariffs, duties or
taxes imposed or levied by any government or governmental agency in connection
with this Agreement. With the exception of taxes imposed upon Forecross which
are based upon net income, Licensee shall be liable for payment of all such
taxes, however designated, levied or based on the Licensed Product, its charges
or its use or on this Agreement, including without limitation, state or local
sales, use and personal property taxes.
11. TERM.
A. COMMENCEMENT AND TERMINATION.
This Agreement shall commence on the date hereof and, unless terminated earlier
pursuant to the terms of this Agreement, shall continue until in perpetuity
unless otherwise terminated as provided herein. This Agreement may be
terminated:
(1) by Forecross upon fifteen (15) days notice in the event of non-payment of
all or any part of any sum due under this Agreement unless full payment
thereof is made within said notice period; or
(2) by either party upon twenty-four (24) hours notice in the event that the
other party shall be or become insolvent or if there are any proceedings
instituted by or against it in bankruptcy or under insolvency laws or for
reorganization, receivership or dissolution, except for such proceedings as
are mandatory on the part of the affected party and are terminated without
prejudice to the other party within sixty (60) days; or if it shall make an
assignment for the benefit of creditors outside the ordinary course of its
business; or
(3) by either party upon fifteen (15) days notice in the event of a material
breach by the other party of any of the terms of this Agreement unless such
breach is fully cured within said notice period.
B. EFFECT.
The provisions of Paragraph 11 shall continue after termination. Upon
termination of this Agreement Licensee will either return to Forecross or
destroy all copies of the Licensed Product and all duplicates thereof and shall
not use them further. Licensee shall within ten (10) business days of the date
of such termination furnish Forecross with a certificate of compliance with the
provisions of this Paragraph 11(b), and agrees that if such a certificate is not
furnished within the time stated Forecross shall have the right to injunctive
relief in the same manner and for the same reasons as provided in Paragraph 11.
12. MISCELLANEOUS.
A. GOVERNING LAW.
This Agreement is made in and shall be governed by the laws of California
applicable to contracts made and to be performed in California.
B. ARBITRATION.
Any controversy or claim arising out of, in connection with or relating to this
Agreement, or the formation or breach hereof shall be resolved by binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association and the State of California, with the cost thereof shared equally by
the parties; the venue of any arbitration or litigation relating to any such
controversy or claim shall be San Francisco, California, and the parties consent
to the jurisdiction of any court therein. In the event of litigation or
arbitration between the parties concerning this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees.
C. NOTICES.
Notices shall be given at the addresses above (which may be changed by notice)
and shall be deemed given upon personal delivery or forty-eight (48) hours after
mailing.
D. AGREEMENT.
This Agreement shall be binding upon any successors, assigns and legal
representatives of either party. This Agreement contains the entire agreement of
the parties relating to the Licensed Product, and may be amended only by a
writing executed by both parties.
13. LICENSE DETAILS.
Licensee agrees to license the Licensed Product for use at the following
computer facility location(s) for the fee(s) indicated below:
A. LOCATION OF LICENSED PRODUCT.
4133 Stanford, Dallas, Texas 75225
B. METHOD OF DELIVERY.
Licensor will deliver the Licensed Product to Licensee's computer by means of
electronic transfer.
C. SCOPE OF USE OF LICENSED PRODUCT.
Licensee may use the Licensed Product at the Location specified above to assess
code for Year 2000 compliance for multiple customers of Licensee.
D. LICENSE FEE.
US [***]
E. MAINTENANCE PLAN FEE.
US [***]
SIGNATURES
/s/ PY2K Solutions, L.P.
LICENSEE
BY: /s/ Donald R. Gardner
------------------------------------------
AUTHORIZED OFFICER'S SIGNATURE
Donald R. Gardner, CEO
------------------------------------------
PRINT NAME AND TITLE OF AUTHORIZED OFFICER
FORECROSS CORPORATION,
a California Corporation
BY: /s/ Bernadette C. Castello
------------------------------------------
Bernadette C. Castello
Senior Vice President
FORECROSS CORPORATION
(the "Company")
TO: ALL HOLDERS OF COMMON SHARES IN THE CAPITAL OF THE COMPANY
Please be advised that on July 2, 1997, the Company received the resignation of
its current auditor, Coopers & Lybrand L.L.P. ("Coopers & Lybrand"). By
resolution dated September 10, 1997, the Board of Directors of the Company
appointed BDO Seidman, LLP ("BDO Seidman") as the new auditor of the Company
effective September 10, 1997.
The Company reports that there have been no reservations in the auditor's
reports of Coopers L Lybrand for the last two fiscal years reported on by
Coopers & Lybrand ended September 30, 1996 and 1995. The auditor's reports of
Coopers & Lybrand as of and for the years ended September 30, 1996 and 1995 were
modified to reflect their conclusion that an uncertainty existed at those dates
about the Company's ability to continue as a going concern.
The Company reports that there were no disagreements of any kind with Coopers &
Lybrand during the two fiscal years reported on by Coopers & Lybrand ended
September 30, 1996 and 1995.
Coopers & Lybrand disagreed with the Company's accounting for two specific
transactions entered into in March 1997. Both transactions involved the
licensing of software and the granting of certain exclusive marketing rights to
two of the Company's distributors. It was the view of Coopers & Lybrand that the
Company did not have sufficient information to support the allocation of revenue
between the software licenses and the exclusive marketing rights.
BDO Seidman was retained to advise the Company on a recommended method of
accounting for the two transactions in question as well as a subsequent similar
transaction. BDO Seidman has recommended a method of accounting whereby the
total dollar amount of the software license and distributor agreements will be
amortized over periods commencing with the dates of their respective signing and
ending December 31, 1999. The Company accepted this recommendation and
accordingly restated its interim financial statements for the period ended March
31, 1997.
The Company reports that it has never been advised by Coopers & Lybrand that:
(1) it does not have the internal controls necessary for the development of
reliable financial statements; or (2) any information came to Coopers & Lybrand
attention that led it to conclude that it could not any longer rely on
management's representations, or made it unwilling to be associated with
financial statements prepared by management; or, (3) there was any need to
increase the scope of its audits.
Except for the disagreement regarding the two specific transactions described
above, nothing has come to the attention of Coopers & Lybrand that in its
opinion materially impacts the fairness of previously audited financial
statements for the fiscal years ended September 30, 1996 and 1995.
Dated at San Francisco, California this 23rd day of September, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
s/Kim O. Jones
President & CEO
FORECROSS CORPORATION
BDO
BDO Seidman, LLP
Accountants and Consultants
One Sansome Street, Suite f100
San Francisco, California 94104-4430
Telephone: (415) 397-7900
Fax: (415) 397-2161
September 23, 1997
TO: British Columbia Securities Commission
1100 - 1865 Hornby Street
Vancouver, BC V6Z 2H4
AND TO: Vancouver Stock Exchange
Stock Exchange Tower
609 Granville Street
Vancouver, BC V7Y 1H1
Dear Sirs:
We have reviewed the Notice of Change of Auditors of Forecross Corporation (the
"Company") dated September 23rd, 1997 and confirm that, based on our knowledge
of the information stated therein, we agree with the information contained in
the Notice.
Sincerely,
s/BDO SEIDMAN, LLP
Coopers & Lybrand
Coopers & Lybrand L.L.P.
a professional services firm
333 Market Street
San Francisco, California
94105-2119
telephone (415) 957-3000
facsimile (415) 957-3394
(415) 957-3372
September 23, 1997
British Columbia Securities Commission
1100 - 1865 Hornby Street
Vancouver, BC V6Z 2H4
Dear Sirs:
We have reviewed the Notice of Change of Auditor of Forecross Corporation (the
"Company") dated September 23, 1997, and confirm that, based on our knowledge of
the information stated therein, we agree with the information contained in the
Notice.
Sincerely,
s/Coopers & Lybrand L.L.P.
By: s/Richard D. Baker
FORECROSS CORPORATION
90 NEW MONTGOMERY STREET
SAN FRANCISCO, CA 94105
415 543-1515
FAX: 415 543-6701
TO: The shareholders of Forecross Corporation
AND TO: British Columbia Securities Commission
AND TO: Vancouver Stock Exchange
The undersigned, on behalf of the Board of Directors of Forecross Corporation
(the "Board"), hereby confirms that the Board has reviewed the attached Notice
of Change of Auditors; the letter from the former auditor of the Company,
Coopers & Lybrand L.L.P.; and the letter from the successor auditors of the
Company, BDO Seidman LLP.
Dated at San Francisco, California this 23rd of September, 1997.
By and on behalf of the
Board of Directors of Forecross Corporation
s/Kim O. Jones
President, CEO & Director
FORECROSS CORPORATION
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