<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VISIGENIC SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 94-3173927
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
951 MARINER'S ISLAND BLVD.
SUITE 460
SAN MATEO, CA 94404
(415) 286-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROGER J. SIPPL
CHIEF EXECUTIVE OFFICER
VISIGENIC SOFTWARE, INC.
951 MARINER'S ISLAND BLVD.
SUITE 460
SAN MATEO, CA 94404
(415) 286-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
THOMAS W. FURLONG, ESQ. MARK C. STEVENS, ESQ.
DAVID A. HUBB, ESQ. JEFFREY R. VETTER, ESQ.
GRAY CARY WARE & FREIDENRICH FENWICK & WEST LLP
A PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE
400 HAMILTON AVENUE PALO ALTO, CA 94306
PALO ALTO, CA 94301-1825 (415) 494-0600
(415) 328-6561
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 2,415,000 shares $11.00 $26,565,000 $9,161
</TABLE>
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(1) Includes 315,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee
pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
VISIGENIC SOFTWARE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1.
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------- ----------------------
<S> <C>
1. Forepart of this Registration
Statement and Outside Front
Cover Page of Prospectus....... Facing Page of this Registration Statement
and Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds................ Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price.......................... Outside Front Cover Page; Underwriting
6. Dilution....................... Dilution
7. Selling Security Holders....... Principal and Selling Stockholders
8. Plan of Distribution........... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered..................... Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and
Counsel........................ Legal Matters
11. Information with Respect to the
Registrant..................... Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 19, 1996
PROSPECTUS
2,100,000 SHARES
[LOGO OF VISIGENIC SOFTWARE, INC.]
COMMON STOCK
Of the 2,100,000 shares of Common Stock offered hereby, 1,700,000 shares are
being sold by the Company and 400,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on The Nasdaq National Market under the symbol VSGN.
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 4.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
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Total (3).............. $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 315,000 additional shares of Common Stock
solely to cover over-allotments, if any. If all such shares are purchased,
the total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY
, 1996
<PAGE>
[Examples of applications which embed Visigenic's database
connectivity and distributed object connectivity products
appear in color here]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports containing unaudited financial statements for each of
the first three quarters of each fiscal year.
Visigenic, the Visigenic logo, BlackWidow, ODBC DriverSet, OpenChannel and
ORBeline are trademarks of the Company. This Prospectus also includes
trademarks of companies other than the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
[Diagram of enterprise
computing environment
that includes multiple
applications utilizing
Visigenic's database connectivity
and distributed object
connectivity products
running on the Internet
and Intranets
appears in color here]
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
See "Risk Factors" for a discussion of certain factors to be considered by
prospective investors.
THE COMPANY
Visigenic Software, Inc. ("Visigenic" or the "Company") is a leading provider
of software tools for database and distributed object connectivity for the
Internet, Intranet and enterprise computing environments. The Company's
standards-based products facilitate the development, deployment and management
of distributed applications by providing database-independent access to leading
databases and the communications infrastructure for distributed object-oriented
applications.
In today's complex computing environment, enterprises require flexible access
to data and applications, regardless of whether the data and applications are
located at the central office, a remote office or across the Internet.
Enterprise computing environments are increasingly using multiple database
management systems ("DBMSs"), operating systems, networks and hardware
platforms and relying on object-oriented technologies to develop and deploy
distributed applications for these heterogeneous environments. The rapid growth
of the Internet and Intranets, both of which are heterogeneous distributed
computing environments, is accelerating the need for tools to develop, deploy
and manage distributed applications.
The Visigenic solution provides key components of the software infrastructure
that enables developers and information technology ("IT") professionals to
develop, deploy and manage distributed applications. The Company believes
business applications increasingly will be comprised of objects, Java applets
and databases that are distributed on networks and dynamically assembled into
highly customized distributed solutions. The Company's products enable the
enterprise to adapt its application architecture to meet changing business and
computing requirements by simplifying the development and deployment of
distributed database and object-oriented applications. Visigenic's products
support existing and emerging industry standards, making the Company's
solutions open, flexible and interoperable across multiple operating
environments. The Company believes that its products are especially well suited
for large distributed computing environments such as the Internet and
Intranets.
The Company's strategy is to become the premier provider of software tools
which enable developers and IT professionals to develop, deploy and manage
distributed applications for Internet, Intranet and enterprise computing
environments. Visigenic supports and contributes to the enhancement of open
industry standards through active participation in several standards setting
organizations. The Company intends to continue to develop strategic
relationships with leading technology companies to promote the widespread
acceptance and distribution of Visigenic products. Visigenic has established
strategic relationships with Cisco, Hitachi, Microsoft, Netscape and Platinum
technology. Additionally, the Company intends to leverage its products and
expertise to exploit the emergence of the Internet and Intranets.
The Company markets and sells its software through its direct sales and
telesales forces, independent software vendors ("ISVs"), value added resellers
("VARs"), international distributors and on-line Internet sales in North
America, Europe and Asia. The Company's customers include ASCII Corporation,
Cisco, Compuware, Borland, Hewlett-Packard, Hitachi, Merrill Lynch, MCI
Telecommunications, Microsoft, Oracle, Platinum technology and Software AG.
The Company was incorporated in February 1993. The Company's principal
executive offices are located at 951 Mariner's Island Boulevard, Suite 460, San
Mateo, California, 94404. Its telephone number is (415) 286-1900. Its email
address is [email protected] and its World Wide Web site is located at
http://www.visigenic.com. Information contained on the Company's Web site shall
not be deemed to be a part of this Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................... 1,700,000 shares
Common Stock offered by the Selling Stockholders....... 400,000 shares
Common Stock to be outstanding after the offering...... 12,102,525 shares (1)
Use of proceeds........................................ General corporate purposes,
including working capital and
possible repayment of revolving
credit facility
Proposed Nasdaq National Market symbol................. VSGN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------------
1994 1995 1996
------- ------- ------------------
PRO
ACTUAL FORMA (2)
------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue.................................. -- $ 1,115 $ 5,575 $ 6,577
Gross profit............................. -- 820 4,564 5,303
Loss from operations..................... (2,496) (4,723) (4,464) (6,432)
Net loss................................. $(2,454) $(4,629) $(4,379) $(6,347)
Pro forma net loss per share (3)......... -- -- $ (.40) $ (.58)
Pro forma weighted average common and
equivalent shares (3)................... -- -- 10,976 10,976
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------
PRO PRO FORMA AS
ACTUAL FORMA (2) ADJUSTED (4)
------ --------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $2,399 $4,124 $19,184
Working capital................................... 816 4,024 19,084
Total assets...................................... 4,820 9,525 24,585
Convertible notes payable......................... -- 2,000 --
Stockholders' equity.............................. 2,220 4,571 21,631
</TABLE>
- --------------
(1) Excludes 1,251,660 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $1.08, as of
May 31, 1996. See "Capitalization" and "Management--Stock Plans."
(2) The pro forma financial data gives effect to the May 1996 acquisition of
PostModern Computing Technologies Inc. as if it had occurred on April 1,
1995 for the consolidated statements of operations data, and on March 31,
1996 for the consolidated balance sheet data. The acquisition is being
accounted for as a purchase and will result in the immediate write-off of
approximately $12.0 million of in process product development in the
quarter ending June 30, 1996. The pro forma statements of operations data
does not give effect to this write-off. The pro forma balance sheet data
gives effect to the write-off as of March 31, 1996. The pro forma financial
data also reflects the Common Stock issued and cash paid in connection with
the acquisition and the issuance of 444,444 shares of Series C Preferred
Stock and convertible notes in the principal amount of $2.0 million in May
and June 1996, part of the proceeds of which was used to fund a portion of
the acquisition. See Note 9 of Notes to Consolidated Financial Statements
of Visigenic and Pro Forma Condensed Combined Financial Statements.
(3) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for
an explanation of the method used to determine the number of shares used to
compute per share amounts.
(4) Adjusted to reflect the sale of 1,700,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $10.00 per share
and the application of the estimated net proceeds therefrom. Also adjusted
to reflect the conversion upon the closing of this offering of all
outstanding shares of Preferred Stock and the convertible notes into shares
of Common Stock. See "Use of Proceeds."
----------------
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the amendment and
restatement of the Company's Certificate of Incorporation prior to the
effective date of this offering effecting a 1 for 2 reverse stock split, (iii)
the conversion of outstanding convertible notes into an aggregate of 200,000
shares of Common Stock upon the consummation of this offering, and (iv) the
conversion of all outstanding shares of Preferred Stock of the Company into an
aggregate of 4,119,069 shares of Common Stock upon the consummation of this
offering. See "Capitalization," "Description of Capital Stock" and
"Underwriting."
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the risk factors set forth below and elsewhere in this Prospectus.
Limited Operating History; Recent Acquisition of Distributed Object
Connectivity Business; History of Losses. The Company was incorporated in 1993
and commenced shipment of its initial products in November 1994. In May 1996,
the Company acquired PostModern Computing Technologies Inc. ("PostModern"), a
developer of distributed object connectivity software. PostModern was founded
in 1991, commenced shipment of its initial products in 1992 and had very
limited product sales prior to the acquisition. Accordingly, the Company has
only a limited operating history, particularly with respect to its newly
acquired distributed object connectivity business, upon which an evaluation of
the Company and its future operating results can be based.
Since inception, the Company has incurred significant losses and negative
cash flow. At March 31, 1996, the Company had cumulative operating losses of
$11.5 million, with net losses of $2.5 million, $4.6 million, and $4.4 million
for fiscal 1994, 1995 and 1996, respectively. A substantial portion of the
accumulated deficit is due to the significant commitment of resources to the
Company's product development and sales and marketing activities. The Company
expects to continue to devote substantial resources in these areas and as a
result will need to generate significant revenue if it is to achieve
profitability. The Company currently anticipates that it will operate at a
loss through at least the middle of 1997. The Company has experienced
substantial growth in revenue in fiscal 1996. The Company expects that prior
growth rates of the Company's software license revenue will not be sustainable
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company, which prior to the acquisition of PostModern did not provide
distributed object connectivity software, expects that its revenue growth
commencing in the current fiscal year will be dependent, in part, on sales of
distributed object connectivity products. The Company's ability to develop a
distributed object connectivity software business will depend upon several
factors, including but not limited to, its ability to integrate the operations
and personnel of PostModern into the Company, the ability of the Company's
sales personnel and distribution channels to sell distributed object
connectivity software and the commercial acceptance of the Company's
distributed object connectivity software. Because the market for distributed
object technology is new and emerging and customers' expertise about this
technology is limited, the Company believes that customer support is critical
to achieving sales of the Company's distributed object connectivity products.
The Company currently has few dedicated support engineers capable of providing
the required level of customer support with respect to its distributed object
technology business. If the Company is unsuccessful at attracting additional
support and engineering personnel, this is likely to have a material adverse
affect on the Company's distributed object connectivity business. There can be
no assurance, particularly in light of the recent acquisition of PostModern by
the Company and the limited operating history of PostModern itself, that the
Company's distributed object connectivity software business will be
successful. Any failure by the Company to develop a successful distributed
object connectivity software business would have a material adverse effect on
the Company's business, results of operations and financial condition.
The process of integrating PostModern into the Company may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of this acquisition will be realized.
Fluctuations in Operating Results. The Company's revenue and results of
operations have varied on a quarterly basis in the past and are expected to
vary significantly in the future. Accordingly, the Company believes that
period to period comparisons of its results of operations are not necessarily
meaningful and should not be
5
<PAGE>
relied upon as indications of future performance. The Company's revenue and
results of operations are difficult to forecast and could be adversely
affected by many factors, including, among others, the size, timing and terms
of individual license transactions; the relatively long sales and
implementation cycles for the Company's products; the delay or deferral of
customer implementations; changes in the Company's operating expenses; the
ability of the Company to develop and market new products and control costs;
market acceptance of new products; timing of introduction or enhancement of
products by the Company or its competitors; the level of product and price
competition; the ability of the Company to expand its direct sales and
telesales forces, its indirect distribution channels and its customer support
capabilities; activities of and acquisitions by competitors; changes in
connectivity software, database technology and industry standards; changes in
the mix of products and services sold; changes in the mix of channels through
which products and services are sold; levels of international sales; personnel
changes and difficulties in attracting and retaining qualified sales,
marketing and technical personnel; changes in customers' budgeting cycles;
foreign currency exchange rates; quality control of products sold; and general
economic conditions. In particular, the ability of the Company to achieve
revenue growth in the future will depend on its success in adding a
substantial number of sales and sales support personnel in fiscal 1997.
Competition for such personnel is intense and there can be no assurance the
Company will be able to attract and retain these personnel.
Licensing of the Company's software products historically has accounted for
the substantial majority of the Company's revenue, and the Company anticipates
that this trend will continue for the foreseeable future. The Company's
software products revenue is difficult to forecast for a number of reasons.
The Company typically does not have a material backlog of unfilled orders, and
revenue in any quarter is substantially dependent on contracts received in
that quarter. A significant portion of the Company's revenue in prior periods
has been derived from relatively large sales to a limited number of customers,
and the Company currently anticipates that future quarters will continue to
reflect this trend. In fiscal 1996, approximately 78% of the Company's revenue
was derived from ten customers. Sales cycles for the Company's products
typically range from six to twelve months, and the terms and conditions of
individual license transactions, including prices and discounts, are often
highly negotiated based on volumes and commitments and vary considerably from
customer to customer. In addition, the Company has generally recognized a
substantial portion of its revenue in the last month of each quarter, with
this revenue concentrated in the last weeks of the quarter. Accordingly, the
cancellation or deferral of even a small number of purchases of the Company's
products has in the past and could in the future have a material adverse
effect on the Company's business, results of operations and financial
condition in any particular quarter. Cancellations or deferrals of orders may
be caused by any of a number of factors, including delays in new or enhanced
product shipments. To the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may fail to keep pace or
even decline. A significant portion of the Company's revenue has been and is
expected in the future to continue to be based upon sales to third party
vendors, who will incorporate the Company's products in their own products.
This revenue depends upon the success of third parties, and as a result is
difficult for the Company to predict and may be subject to extreme
fluctuation.
The Company's expense levels are based, in part, on its expectations as to
future revenue and to a large extent are fixed in the short term. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of
revenue in relation to the Company's expectations would have an almost
immediate adverse effect on the Company's business, financial condition and
results of operations. Further, the Company intends to continue to expand its
development teams and its sales and marketing force. The timing of such
expansion and the rate at which new development and sales and marketing
personnel become productive could cause material fluctuations in quarterly
results of operations.
As a result of the foregoing or other factors, it is likely that in some
future period the Company's results of operations could fail to meet the
expectations of public market analysts or investors, and the price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
6
<PAGE>
Product Concentration. Prior to the acquisition of PostModern in May 1996,
the Company derived all of its revenue from the licensing of its database
connectivity software products, particularly its Open Database Connectivity
("ODBC") standard driver products, and fees from related services. These
products and services are expected to continue to account for a substantial
majority of the Company's revenue for the foreseeable future. As a result, a
reduction in demand or increase in competition for these products, or a
decline in sales of such products, would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Products."
Dependence on Emerging Markets and Evolving Standards; Acceptance of the
Company's Products. The Company's future financial performance will depend on
the growth in demand for standards-based database connectivity and distributed
object connectivity software products. These markets are new and emerging, are
rapidly evolving, are characterized by an increasing number of market entrants
and will be subject to frequent and continuing changes in customers'
preferences and technology. As is typical in new and evolving markets, demand
and market acceptance for products are subject to a high level of uncertainty.
To date, substantially all of the Company's revenue is derived from the
licensing of database connectivity products and related services. These
products are based on the ODBC standard, which was developed to enable
applications to access data from all ODBC-compliant data sources. While the
ODBC standard is supported by most of the major database and software vendors,
it is a recent standard that has not yet gained widespread acceptance and that
currently co-exists with proprietary database connectivity solutions from many
of these same database vendors.
With the acquisition of PostModern in May 1996, the Company began to offer
standards-based distributed object connectivity products. The Company's
current distributed object connectivity products are based on several
standards, including the Common Object Request Broker Architecture ("CORBA")
and the Internet Inter-ORB Protocol ("IIOP"). These standards are intended to
facilitate the management and communication of applications created in object-
oriented programming languages such as C++ and Java. These standards are new,
have not yet gained widespread acceptance and compete with proprietary
solutions such as Microsoft's ActiveX and Distributed Component Object Model
("DCOM"). The distributed object connectivity software market is quite young
and there are few proven products. Further, some of the Company's distributed
object connectivity products are designed specifically for use in applications
for the Internet and Intranets. Because critical issues concerning the
Internet and Intranets (including security, reliability, cost, ease of use and
access and quality of service) remain unresolved, the growth of applications
targeted at the Internet and Intranets is uncertain and difficult to predict.
Because the markets for the Company's products are new and evolving, it is
difficult to assess or predict with any assurance the size or growth rate, if
any, of these markets. There can be no assurance that the markets for the
Company's products will develop, or that the Company's products will be
adopted. If the market fails to develop, develops more slowly than expected or
attracts new competitors, or if the Company's products do not achieve market
acceptance, the Company's business, results of operations and financial
condition could be materially adversely affected. Because the Company's
strategy is to develop standards-based products and the standards it has
selected are relatively new, not widely accepted and compete with other
emerging standards, to the extent that the Company's products comply with
standards that are not commercially successful, this will have a material
adverse affect on the Company's business, results of operations and financial
condition. Competing or alternative technologies are being or are likely in
the future to be promoted by current and potential competitors of the Company,
some of which have well-established relationships with the current and
potential customers of the Company and have extensive knowledge of the markets
served by the Company, better name recognition and more extensive development,
sales and marketing resources than the Company.
While the Company has licensed its products to numerous customers, most of
these customers are currently developing applications that incorporate the
Company's products, and only a very limited number of them have deployed or
shipped such applications. To the extent these customers are unable to or
otherwise do not deploy or ship applications that incorporate the Company's
products, or if these applications are not successful, this will have a
material adverse effect on the Company's business, results of operations and
financial condition. See "--Intense Competition" and "Business--Industry
Background."
7
<PAGE>
Reliance on VARs and ISVs. A significant element of the Company's strategy
is to embed its technology in products offered by the Company's VAR and ISV
customers, such as Cisco, Hewlett-Packard, Microsoft, Oracle and Platinum
technology. A relatively small number of VAR and ISV customers have accounted
for a significant percentage of the Company's revenue. The Company intends to
seek similar distribution arrangements with other VARs and ISVs and expects
that these arrangements will account for a significant portion of the
Company's revenue in future periods. To date, the terms and conditions,
including prices and discounts, of the Company's agreements with its VAR and
ISV customers have been highly negotiated and vary significantly between
customers. Many of the markets for the VAR and ISV products in which the
Company's technology are being embedded are new and evolving and, therefore,
subject to the same risks faced by the Company in the markets for its own
products. If the Company is unsuccessful in securing license agreements with
additional VARs and ISVs on commercially reasonable terms or at all, or if the
Company's VAR and ISV customers are unsuccessful in selling their products,
this would have a material adverse impact on the Company's business, results
of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence on the Internet and Intranets. The Company believes that sales of
its connectivity products, particularly its distributed object connectivity
products, will depend in large part upon the adoption by businesses and end-
users of the Internet and Intranets for commerce and communications. The
Internet and Intranets are new and evolving, and there can be no assurance of
their widespread adoption. Critical issues concerning the Internet and
Intranets (including security, reliability, cost, ease of use and access and
quality of service) remain unresolved at this time, inhibiting adoption by
many enterprises and end-users. If the Internet and Intranets are not widely
used by businesses and end users, this will have a material adverse affect on
the Company's business, results of operations and financial condition.
Dependence on Java; Risks Associated with Encryption Technology. Certain of
the Company's products are based on Java, an object-oriented programming
language developed by JavaSoft, a subsidiary of Sun Microsystems. Java was
developed primarily for Internet and Intranet applications. Java was only
recently introduced and does not yet have sufficient history to establish its
reliability, thereby inhibiting adoption of Java. To date, there have been
only a very limited number of commercially significant Java-based products,
and it is too early to determine whether Java will become a significant
technology. Alternatives to Java have been announced by several companies,
including Microsoft. To the extent that Java is not adopted or is adopted more
slowly than anticipated, this could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company plans to use encryption technology in certain of its future
products to provide the security required for the exchange of confidential
information. Encryption technologies have been breached in the past. There can
be no assurance that there will not be a compromise or breach of the security
technology used by the Company. If any such compromise or breach were to
occur, it could have a material adverse effect on the Company's business,
results of operations and financial condition.
Need to Develop New Software Products and Enhancements. The markets for the
Company's products are characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements, computer
operating environments and software applications, and frequent new product
introductions and enhancements. As a result, the Company's success depends
substantially upon its ability to anticipate changes and continue to enhance
its existing products, develop and introduce in a timely manner new products
incorporating technological advances, comply with emerging industry standards
and meet increasing customer expectations. The Company's products may be
rendered obsolete if the Company fails to anticipate or react to change. To
the extent one or more of the Company's competitors introduce products that
better address customer needs, the Company's business, results of operations
and financial condition could be materially adversely affected. There can be
no assurance that the Company will be successful in developing and marketing
new products or enhancements to its existing products or new products on a
timely basis or that any new or enhanced products will adequately address the
changing needs of the marketplace. The Company has in the past incurred
product development expenses and sales and marketing expenses in connection
with product
8
<PAGE>
development activities that did not result in commercially introduced
products. Some of the Company's products are based on technology from third
parties and the Company therefore has limited control over whether and when
these technologies are enhanced. For instance, the Visigenic ODBC Software
Developers Kit (SDK) products are based upon ODBC software licensed from
Microsoft. The failure or delay in enhancements of technology from third
parties used in the Company's products could have a material adverse effect on
the Company's ability to develop and enhance its own products. Also, negative
reviews of the Company's new products or product versions in industry
publications could have a material adverse effect on the Company's sales. The
Company has in the past experienced delays in the development of new products
and product versions. If the Company is unable to develop and introduce new
products or enhancements to existing products in a timely manner in response
to changing market conditions or customer requirements, the Company's
business, operating results and financial condition would be materially and
adversely affected.
The Company has in the past engaged and expects that it will continue in the
future to engage in joint development projects with third parties. Currently,
the Company is engaged in joint development with Hitachi of distributed object
connectivity software targeted at transaction processing applications. Joint
development creates several risks for the Company, including loss of control
over the development of aspects of the jointly developed product and over the
timing of product availability. There can be no assurance that joint
development activities will result in products, or that any products developed
will be commercially successful.
Dependence on Key Personnel; Need to Increase Technical, Sales and Marketing
and Managerial Personnel. The Company's future performance depends to a
significant extent upon the continued service of its key technical, sales and
marketing and senior management personnel. The loss of the services of any of
these individuals would have a material adverse effect on the Company. The
Company's future success also depends on its continuing ability to attract,
train and retain highly qualified technical, sales and marketing and
managerial personnel. In particular, the Company currently has a very limited
technical staff devoted to its distributed object connectivity business. An
increase in the technical staff will be required to rapidly develop the
database connectivity and distributed object connectivity products currently
being planned, while an increase in the sales and marketing staff will be
required to expand both the Company's direct and indirect sales activities and
achieve revenue growth. The Company intends to hire a significant number of
additional technical and sales and marketing personnel in fiscal 1997 and
beyond. Competition for such personnel is intense, and there can be no
assurance that the Company can attract, assimilate or retain such personnel.
Because of the complexity of database connectivity and distributed object
connectivity software products, the Company has in the past experienced and
expects to continue in the future to experience a time lag between the date
technical and sales personnel are hired and the date such persons become fully
productive. If the Company is unable to hire and train such personnel on a
timely basis in the future, the Company's business, financial condition and
results of operations could be materially adversely affected.
Management of Growth; Need to Increase Financial Personnel and Implement
Policies. The Company's business has grown rapidly in recent periods, with
revenue increasing from $1.1 million in fiscal 1995 to $5.6 million in fiscal
1996. In addition, the Company acquired PostModern in May 1996 as part of its
strategy of adding distributed object connectivity products to its product
line. The growth of the Company's business, the expansion of the Company's
customer base and the recent acquisition and integration of PostModern have
placed a significant strain on the Company's management, operations and
financial systems, policies and procedures. The Company's recent expansion has
also resulted in substantial growth in the number of its employees, the scope
of its operating and financial systems and the geographic area of its
operations, resulting in increased responsibility for management personnel.
The Company's future results of operations will depend in part on the ability
of its officers and other key employees to continue to implement its
operational, customer support and financial control systems and to expand,
train and manage its employee base. The Company has recently hired a new Chief
Financial Officer, who is expected to commence working for the Company on a
full-time basis in late July 1996. The Company's current financial systems,
policies and procedures are limited. The Company is in the process of
developing a more comprehensive set of written financial policies and
procedures to supplement its limited current policies and procedures and still
must hire additional accounting staff, including a controller, experienced in
the software industry. There can be no assurance that the Company will be able
to manage any future expansion of its business, if any, successfully, or that
its management, personnel, procedures and systems will be adequate to support
the Company's operations. Any such inabilities or inadequacies to do so would
have a material adverse effect on the Company's business, financial condition
or results of operations.
9
<PAGE>
Potential Acquisitions. If appropriate opportunities present themselves, the
Company intends to acquire businesses, products or technology that the Company
believes are strategic, although the Company currently has no understandings,
commitments or agreements with respect to any material acquisition and no
material acquisition is currently being pursued. There can be no assurance
that the Company will be able to successfully identify, negotiate or finance
such acquisitions, or to integrate such acquisitions with its current
business. The process of integrating an acquired business, product or
technology into the Company may result in unforeseen operating difficulties
and expenditures and may absorb significant management attention that would
otherwise be available for ongoing development of the Company's business.
Moreover, there can be no assurance that the anticipated benefits of any
acquisition will be realized. Acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect the Company's business,
results of operations and financial condition. Any such future growth and any
acquisitions of other technologies, products or companies may require the
Company to obtain additional equity or debt financing, which may not be
available or may be dilutive.
Intense Competition. The Company's products are targeted at the emerging
markets for standards-based database connectivity software and standards-based
distributed object connectivity software. The markets for the Company's
products are intensely competitive, subject to rapid change and significantly
affected by new product introductions and other market activities of industry
participants. The Company believes that the principal competitive factors in
these markets are product quality, performance and price, vendor and product
reputation, product architecture and quality of support.
In the standards-based database connectivity market, the Company competes
principally against Intersolv. The Company's database connectivity products
also indirectly compete against proprietary database connectivity solutions
from database vendors. In the standards-based distributed object connectivity
market, the Company competes principally against two private companies, Iona
and Expersoft. The Company's distributed object connectivity products also
compete against existing or proposed distributed object connectivity solutions
from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition,
because there are relatively low barriers to entry in the software market and
because the Company's products are based on publicly available standards, the
Company expects to experience additional competition in the future from other
established and emerging companies if the market for database connectivity and
distributed object connectivity software continues to develop and expand. In
particular, relational database vendors including Informix, Microsoft, Oracle
and Sybase may offer standards-based database connectivity software to their
customers, eliminating or reducing demand for the Company's products.
Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM,
Microsoft and Sun may offer standards-based distributed object connectivity
products bundled with their operating systems. For instance, Microsoft has
announced plans to introduce DCOM, which would eliminate the need for CORBA-
compliant ORBs, such as those offered by the Company, for Microsoft operating
systems. Many of these current and potential competitors have well-established
relationships with the current and potential customers of the Company, have
extensive knowledge of the markets serviced by the Company, better name
recognition and more extensive development, sales and marketing resources and
are capable of offering single vendor solutions. As a result, these current
and potential competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than the Company. It is also possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. Increased price competition may
result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business,
financial condition or results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures will not materially and adversely
affect its business, financial condition or results of operations. See
"Business--Competition."
10
<PAGE>
Risk of Product Defects. Software products as complex as those offered by
the Company frequently contain undetected errors or failures that may be
detected at any point in the product's life cycle. The Company has in the past
discovered software errors in certain of its new products and enhancements and
has experienced delays in shipment of products during the period required to
correct these errors. There can be no assurance that, despite testing by the
Company and potential customers, errors will not occur, resulting in loss of
or delay in market acceptance and sales, diversion of development resources,
injury to the Company's reputation or increased service and warranty costs,
any of which could have a material adverse effect on the Company's business,
results of operations and financial condition. This risk is amplified for the
Company because a significant portion of its future sales are expected to be
derived from arrangements under which third parties embed the Company's
products in their own products. Any significant errors in the Company's
products, or in the products of VARs or ISVs which embed the Company's
products, might discourage such third parties or other customers from
utilizing the Company's products, which would have a material adverse effect
on the Company's business, results of operations and financial condition.
Although the Company generally attempts to limit by contract its exposure to
incidental and consequential damages, and to cap the Company's liabilities to
its proceeds under a contract, if a court failed to enforce the liability
limiting provisions of the Company's contracts for any reason, or if
liabilities arose which were not effectively limited, the Company's business,
operating results and financial condition could be materially and adversely
affected. See "Business--Research and Development."
Dependence on Company and Third Party Proprietary Technology. The Company's
success is dependent in part upon its proprietary technology. While the
Company relies on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights, the Company believes that factors such as the technical
and creative skills of its personnel, new product developments, frequent
product enhancements, name recognition and reliable products and product
support are more essential to establishing and maintaining a technology
leadership position, particularly because the Company is supplying standards-
based products. The Company seeks to protect its software, published data,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company has granted limited
access to its source code to third parties under confidentiality obligations.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's product or to obtain and
use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company distributes its products
electronically through the Internet. Distributing the Company's products
through the Internet makes the Company's software more susceptible than other
software to unauthorized copying and use. The Company has historically allowed
and currently intends to continue to allow, customers to electronically
download its client and server software. If as a result of changing legal
interpretations of liability for unauthorized use of the Company's software or
otherwise, users were to become less sensitive to avoiding copyright
infringement, the Company's business, operating results and financial
condition could be materially adversely affected.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim infringement by the Company with respect to current or
future products. The Company expects that software developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, financial
condition or results of operations.
11
<PAGE>
In addition, the Company relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. The
Company licenses from Microsoft the base technology for the Visigenic ODBC SDK
products and licenses from RSA Data Security, Inc. ("RSA") security technology
it plans to use in several of its future products. Microsoft has the right to
terminate its license with the Company at any time after delivery to the
Company of the SDK for ODBC 3.0, which is expected to occur in the second half
of 1996. The Company's license with RSA may only be terminated for breach. The
Company has entered into a joint technology agreement with JavaSoft, a
subsidiary of Sun Microsystems, that grants the Company the right to
sublicense JavaSoft's Java database connectivity ("JDBC") test suites and ODBC
bridge. There can be no assurances that such firms will remain in business,
that they will continue to support their technology or that their technology
will otherwise continue to be available to the Company on commercially
reasonable terms. The loss of or inability to maintain any of these software
licenses could result in delays or cancellations in product shipments until
equivalent software can be identified and licensed or developed and integrated
with the Company's products. Any such delay or cancellation could materially
adversely affect the Company's business, financial condition or results of
operations. See "Business--Proprietary Rights."
International Sales. The Company's export sales accounted for 10% of the
Company's total revenue in fiscal 1996. The Company had no material export
sales in fiscal 1994 or 1995. The Company expects to increase its emphasis on
export sales. Revenue derived from export sales may account for a growing
percentage of the Company's revenue in future periods, although there can be
no assurance that the Company will achieve significant penetration in any
international market. The Company has only one international sales office in
Paris, France. The Company believes that its continued growth will require
expansion of its international operations and export sales. To successfully
expand export sales, the Company must establish additional foreign sales
offices, hire additional personnel and recruit additional international
resellers. To the extent the Company is unable to do so in a timely manner,
the Company's growth in export sales, if any, will be limited, and the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company has granted exclusive distribution
rights in Japan for the Japanese versions of its ODBC products to ASCII
Corporation, a Japanese software distributor. The Company may not terminate
these exclusive rights unless ASCII fails to meet certain minimum annual sales
objectives commencing in fiscal year 1998 or otherwise breaches the agreement.
There can be no assurance that ASCII will be successful selling the Company's
products.
There are a number of risks inherent in the Company's international business
activities, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, costs and risks of localizing and internationalizing
products for foreign countries, longer accounts receivable payment cycles,
potentially adverse tax consequences, repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. None of the Company's
products are currently "double byte" products, which is required to localize
these products in certain non-English character set markets such as Asia. The
Company believes that it will be required to develop double byte versions of
its products and engage in other internationalization and localization
activities. There can be no assurance the Company will successfully complete
these activities in a timely manner. All of the Company's sales are currently
denominated in U.S. dollars and, therefore, increases in the value of the U.S.
dollar relative to foreign currencies could make the Company's products less
competitive in foreign markets. In addition, revenue of the Company earned in
various countries where the Company does business may be subject to taxation
by more than one jurisdiction, thereby adversely affecting the Company's
earnings. There can be no assurance that such factors will not have an adverse
effect on the revenue from the Company's future international sales and,
consequently, the Company's financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales and Marketing."
Concentration of Share Ownership and Voting Power; Anti-Takeover
Provisions. Upon completion of this offering (assuming no exercise of the
Underwriters' overallotment option), officers, directors and affiliates of the
Company will beneficially own approximately 54.6% of the Company's outstanding
Common Stock. As a result, these stockholders as a group will be able to
control the management and affairs of the Company and all matters
12
<PAGE>
requiring stockholder approval, including election of directors, any merger,
consolidation or sale of all or substantially all of the Company's assets and
any other significant corporate transactions. The concentration of ownership
could have the effect of delaying or preventing a change in control of the
Company, reducing the likelihood of any acquisition of the Company at a
premium price. See "Principal and Selling Stockholders."
Upon the closing of this offering, the Company's Board of Directors has the
authority to issue up 2,000,000 shares of Preferred Stock and to determine the
price, rights, preferences and privileges of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of shares of Preferred Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no present intention to issue shares of Preferred Stock. In
addition, certain provisions of the Company's Certificate of Incorporation may
have the effect of delaying or preventing a change of control of the Company,
which could adversely affect the market price of the Company's Common Stock.
These provisions provide, among other things, that the Board of Directors is
divided into three classes to serve for staggered three-year terms, that a
director may be removed from the Board of Directors only for cause and only
upon the vote of at least 66 2/3% of the outstanding shares of the Company's
capital stock, that stockholders may not take action by written consent and
that the ability of stockholders to call special meetings of stockholders and
to raise matters at meetings of stockholders is restricted. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The application of Section 203 also could have the
effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock."
Broad Management Discretion over Use of Proceeds. The primary purposes of
this offering are to increase the Company's equity capital, to create a public
market for the Company's Common Stock and to facilitate future access by the
Company to public capital markets. A significant portion of the anticipated
net proceeds to the Company from this offering have not been designated for
specific uses. Accordingly, management of the Company will have broad
discretion with respect to the use of these funds. See "Use of Proceeds."
No Prior Market; Possible Volatility. Prior to this offering there has been
no public market for the Common Stock of the Company. The initial public
offering price will be determined by negotiations between the Company, the
Selling Stockholders and the Representatives of the Underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
public market will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future announcements concerning the Company or its
competitors, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, proprietary rights
or other litigation, changes in earnings estimates by market analysts or other
factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies
fluctuate widely for reasons which may be unrelated to operating results.
These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may materially and
adversely affect the market price of the Company's Common Stock. See "--
Fluctuations in Operating Results."
Shares Eligible for Future Sale; Registration Rights. Sale of substantial
amounts of Common Stock in the public market following this offering could
have an adverse effect on the price of the Common Stock. Immediately upon the
effectiveness of this offering, 2,100,000 shares will be freely tradeable.
Commencing 180 days following this date of this offering, 8,383,081 additional
shares will become freely tradeable upon the expiration of agreements not to
sell such shares, subject to compliance with Rule 144. Hambrecht & Quist LLC
13
<PAGE>
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to such agreements. The remaining 2,019,444
shares held by existing stockholders become eligible for sale at various times
over a period of less than two years, subject to the limitations of Rule 144.
Immediately after this offering, the Company intends to register approximately
3,150,000 shares of the Company's Common Stock reserved for issuance under its
stock option and purchase plans. See "Shares Eligible for Future Sale"
As of the effective date of the Registration Statement, the holders of
6,789,050 shares of the Company's Common Stock will be entitled to certain
piggyback registration rights with respect to such shares. If the Company were
required to include in a Company initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sale might have an adverse effect on the Company's ability to raise needed
capital. See "Description of Capital Stock."
Immediate and Substantial Dilution to New Investors. The initial public
offering price is substantially higher than the book value per outstanding
share of Common Stock. Investors purchasing Common Stock in this offering
will, therefore, incur immediate dilution of $8.19 in net tangible book value
per share of Common Stock from the initial public offering price and may incur
additional dilution upon the exercise of outstanding stock options. See
"Dilution."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$15,060,000 (approximately $17,431,500 if the Underwriters' over-allotment
option is exercised in full), assuming the shares offered hereby are sold at a
public offering price of $10.00 per share. The principal purposes of the
offering are to obtain additional working capital, establish a public market
for the Company's Common Stock and facilitate future access to public markets.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company expects the net proceeds to be used for general corporate
purposes, including working capital and possible repayment of the Company's
revolving credit facility. A portion of the proceeds may also be used to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. While from time to time the Company
evaluates potential acquisitions of such businesses, products or technologies,
and anticipates continuing to make such evaluations, there are no present
understandings, commitments or agreements with respect to any acquisition of
other businesses, products or technologies. Pending such uses, the proceeds
will be invested in interest-bearing securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. It is the present
policy of the Company to retain earnings to finance the growth and development
of the business and, therefore, the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at March 31, 1996, (ii) the pro forma capitalization of the Company at such
date after giving effect of the issuance of Series C Preferred Stock and
convertible notes in May and June 1996 to finance a portion of the acquisition
of PostModern and the issuance of Common Stock in connection with the
acquisition of PostModern, and (iii) pro forma as adjusted capitalization to
reflect conversion upon the closing of this offering of all outstanding shares
of Preferred Stock and convertible notes into shares of Common Stock, the sale
of Common Stock offered by the Company hereby (assuming an initial public
offering price of $10.00) and the application of the estimated net proceeds
therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
-------- ------------ -----------
<S> <C> <C> <C>
Convertible notes payable.................. $ -- $ 2,000 $ --
STOCKHOLDERS' EQUITY(2):
Preferred stock, $0.001 par value,
10,000,000 shares authorized, 3,674,625
shares issued and outstanding actual;
4,119,069 shares issued and outstanding
pro forma; none issued and outstanding pro
forma as adjusted......................... 4 5 --
Common stock, $0.001 par value, 20,000,000
shares authorized, 2,835,905 shares issued
and outstanding actual; 30,000,000 shares
authorized, 5,935,726 shares issued and
outstanding pro forma; 50,000,000 shares
authorized, 11,954,795 shares issued and
outstanding pro forma as adjusted......... 3 6 12
Additional paid in capital................. 13,675 28,056 45,115
Accumulated deficit........................ (11,462) (23,496) (23,496)
-------- -------- --------
Stockholders' equity .................... 2,220 4,571 21,631
-------- -------- --------
Total capitalization................... $ 2,220 $ 6,571 $ 21,631
======== ======== ========
</TABLE>
- --------
(1) Gives effect to the May 1996 acquisition of PostModern and the issuance of
3,099,821 shares of Common Stock issued in connection with the acquisition
as if it had occurred on March 31, 1996 and includes the immediate write-
off of approximately $12.0 million of in process product development. Also
gives effect to the sale of 444,444 shares of Series C Preferred Stock at
$9.00 per share and the issuance of $2.0 million of convertible notes,
part of the proceeds of which was used to fund a portion of the
acquisition. See Note 9 of Notes to Consolidated Financial Statements of
Visigenic and Pro Forma Condensed Combined Financial Statements.
(2) Excludes shares of Common Stock reserved for future issuance pursuant to
the Company's stock plans. As of May 31, 1996, options to purchase
1,251,660 shares at a weighted average exercise price of $1.08 per share
were outstanding. See Note 6 of Notes to Consolidated Financial Statements
of Visigenic.
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<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was
$6,571,000 or $.77 per share of Common Stock. Net tangible book value per
share represents the amount of total tangible assets of the Company reduced by
the amount of its total liabilities and divided by the total number of shares
of Common Stock outstanding (reflecting the issuance in May 1996 of 3,099,821
shares of Common Stock in connection with the acquisition of PostModern and
444,444 shares of Series C Preferred Stock and convertible notes in the
aggregate principal amount of $2.0 million, and the conversion of all
outstanding Preferred Stock and convertible notes into shares of Common Stock
upon the closing of the offering made hereby). Without taking into account any
other change in such net tangible book value after March 31, 1996, other than
to give effect to the sale by the Company of 1,700,000 shares offered hereby
at an assumed initial public offering price of $10.00 per share and receipt of
the estimated net proceeds therefrom, the pro forma net tangible book value of
the Company as of March 31, 1996 would have been approximately $21,631,000, or
$1.81 per share. This represents an immediate increase in such net tangible
book value of $1.04 per share to existing stockholders and an immediate
dilution of $8.19 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $10.00
Net tangible book value per share as of March 31, 1996 before
the offering................................................ $ .77
Increase per share attributable to new investors............. 1.04
-----
Pro forma net tangible book value per share after the offer-
ing........................................................... 1.81
------
Dilution per share to new investors............................ $ 8.19
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 10,254,795 85.8% $30,067,000 63.9% $ 2.93
New investors(1)........... 1,700,000 14.2% 17,000,000 36.1 $10.00
---------- ----- ----------- -----
Total.................... 11,954,795 100.0% $47,067,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 9,854,795 or approximately 82.4%
of the total number of shares of Common Stock outstanding after this
offering (9,794,795 or 80.2% if the Underwriters' overallotment option is
exercised in full), and will increase the number of shares held by new
investors to 2,100,000 or approximately 17.6 % of the total number of
shares of Common Stock outstanding after the offering (2,415,000 or 19.8%
if the Underwriters' overallotment option is exercised in full). See
"Principal and Selling Stockholders."
The above computations reflect the issuance in May 1996 of 3,099,821 shares
of Common Stock in connection with the acquisition of PostModern, 444,444
shares of Series C Preferred Stock or convertible notes in the aggregate
principal amount of $2.0 million. The above computations also assume no
exercise of options after March 31, 1996. As of March 31, 1996, there were
outstanding options to purchase 753,250 shares of Common Stock at a weighted
average exercise price of $.40 per share. To the extent outstanding options
are exercised, there will be further dilution to new investors. See Note 6 of
Notes to Financial Statements of Visigenic.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data at March 31, 1995 and
1996 and for the years ended March 31, 1994, 1995, and 1996 have been derived
from the audited financial statements of the Company included elsewhere in
this Prospectus. The consolidated balance sheet data at March 31, 1994 are
derived from audited financial statements not included herein. The following
selected pro forma combined financial data at March 31, 1996 and for the year
ended March 31, 1996 has been derived from the unaudited pro forma condensed
combined financial statements of the Company and PostModern included elsewhere
in this Prospectus. The data set forth below is qualified by reference to, and
should be read in conjunction with the financial statements and notes thereto
and the discussion thereof included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------
1996
------------------------
PRO FORMA
1994(1) 1995 ACTUAL COMBINED(3)
--------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERA-
TIONS DATA:
Revenue:
Software products.............. $ -- $ 892 $ 4,479 $ 4,783
Service and other.............. -- 223 1,096 1,794
--------- --------- --------- ---------
Total revenue................ -- 1,115 5,575 6,577
--------- --------- --------- ---------
Cost of revenue:
Software products.............. -- 36 284 328
Service and other.............. -- 259 727 946
--------- --------- --------- ---------
Total cost of revenue........ -- 295 1,011 1,274
--------- --------- --------- ---------
Gross profit..................... -- 820 4,564 5,303
--------- --------- --------- ---------
Operating expenses:
Product development............ 1,393 3,160 4,348 5,888
Sales and marketing............ 503 1,511 3,215 3,638
General and administrative..... 600 872 1,465 1,677
Amortization of excess of
purchase price over net assets
acquired...................... -- -- -- 532
--------- --------- --------- ---------
Total operating expenses..... 2,496 5,543 9,028 11,735
--------- --------- --------- ---------
Loss from operations......... (2,496) (4,723) (4,464) (6,432)
Interest and other income, net... 42 94 85 85
--------- --------- --------- ---------
Net loss......................... $ (2,454) $ (4,629) $ (4,379) $ (6,347)
========= ========= ========= =========
Pro forma net loss per share
(2)............................. $ (.40) $ (.58)
========= =========
Pro forma weighted average common
and common equivalent shares
(2)............................. 10,976 10,976
========= =========
<CAPTION>
MARCH 31,
----------------------------------------------
1996
------------------------
PRO FORMA
1994 1995 ACTUAL COMBINED(3)
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 2,901 $ 553 $ 2,399 $ 4,124
Working capital.................. 2,722 488 816 4,024
Total assets..................... 3,346 1,829 4,820 9,525
Convertible notes................ -- -- -- 2,000
Stockholders' equity............. 3,132 1,117 2,220 4,571
</TABLE>
- --------
(1) The statement of operations data for the year ended March 31, 1994 is
presented for the period from inception (February 12, 1993) to March 31,
1994. See Note 1 of Notes to Consolidated Financial Statements of
Visigenic.
(2) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for
an explanation of the method used to determine the number of shares used
to compute per share amounts.
(3) The pro forma combined financial data gives effect to the May 1996
acquisition of PostModern as if it had occurred on April 1, 1995 for the
consolidated statements of operations data, and on March 31, 1996 for the
consolidated balance sheet data. The acquisition is being accounted for as
a purchase and will result in the immediate write-off of approximately
$12.0 million of in process product development in the quarter ending June
30, 1996. The combined pro forma statement of operations data does not
give effect to this write-off. The pro forma balance sheet data gives
effect to the write-off as of March 31, 1996. The combined pro forma
financial data also reflects the Common Stock issued and cash paid in
connection with the acquisition and the issuance of 444,444 shares of
Series C Preferred Stock and convertible notes in the principal amount of
$2.0 million in May and June 1996, part of the proceeds of which was used
to fund a portion of the acquisition. See Note 9 of Notes to Consolidated
Financial Statements of Visigenic and Pro Forma Condensed Combined
Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements. Actual results could
differ materially from those projected in the forward looking statements as a
result of the risks described below and elsewhere in this Prospectus.
OVERVIEW
The Company commenced operations in February 1993 and was engaged
principally in product and market research and product development until the
launch of its initial products in November 1994. The Company shipped version
1.0 of the Visigenic ODBC Software Development Kit ("SDK") and the Visigenic
ODBC Drivers and DriverSet in November 1994, version 1.0 of its OpenChannel
product in March 1996 and version 2.0 of its ODBC product line in June 1996.
The Company first recognized material revenue in the fourth quarter of fiscal
1995.
The Company's revenue is derived from license fees from licensing its
products, royalties from VARs, ISVs and distributors, and fees for services
related to its products, including software maintenance, development
contracts, consulting and training. License fees for the Company's products
vary according to the specific products licensed. Terms and conditions of
individual license transactions, including prices and discounts, are often
highly negotiated based on volumes and commitments and vary considerably from
customer to customer. Certain of the Company's license arrangements with VARs
and ISVs provide for sublicense fees payable to the Company based on a percent
of the VAR's or ISV's net revenue. Certain of the Company's license
arrangements with VARs and ISVs provide for fixed fees for the right to make
and distribute an unlimited number of copies of the Company's product for a
specified period of time. Service revenue is primarily attributable to lower
margin maintenance and other revenue, including training revenue and
engineering development fees. Most of the Company's license revenue to date is
attributable to non-recurring license fees for its ODBC products. The Company
currently expects that license revenue from its database connectivity products
will account for a substantial majority of its revenue for the remainder of
fiscal 1997 and for the foreseeable future. Factors adversely affecting the
pricing of or demand for its products could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company generally recognizes revenue from license and pre-paid royalty
fees upon delivery of software products if there are no significant post-
delivery obligations, if collection is probable and if the license agreement
requires payment within 90 days. If significant post-delivery obligations
exist or if a product is subject to customer acceptance, revenue is deferred
until no significant obligations remain or acceptance has occurred. Royalty
revenue (other than from pre-paid royalties) is recognized when it is reported
by VARs, ISVs and distributors. Maintenance revenue from ongoing customer
support and product upgrades is recognized ratably over the term of the
applicable maintenance period, which is typically 12 months. Consulting and
training revenue is generally recognized as services are performed over the
term of the agreement. If maintenance revenue is included in a license
agreement, such amounts are unbundled from the license fee at its fair market
value. Revenue from engineering development work is generally recognized on a
percentage of completion basis. If a transaction includes both license and
service elements, license fee revenue is recognized upon shipment of the
software, provided services do not include significant customization or
modification of the base product and payment terms are not subject to
acceptance criteria. In cases where license fee payments are contingent upon
the acceptance of services, revenues from both the license and service
elements are deferred until the acceptance criteria are met. See Note 2 of
Notes to Consolidated Financial Statements of Visigenic.
The Company licenses its products to VARs and ISVs, who include the
Company's products in their own products, and to end users, who deploy the
Company's products in their own computing environments. A substantial portion
of the Company's license revenue to date is attributable to licenses to VARs
and ISVs. A relatively small number of VAR and ISV customers have accounted
for a significant percentage of the Company's license revenue. For fiscal
1996, licenses to the Company's ten largest customers accounted for
approximately 78% of the Company's total revenue and licenses to one customer,
Platinum technology, Inc., accounted for approximately 25% of the Company's
total revenue. The Company expects that licenses to a limited number of VAR
and ISV customers will continue to account for a large percentage of revenue
for the foreseeable future.
The sales cycles associated with the license of the Company's products is
often lengthy (typically ranging from six to twelve months) and is subject to
a number of significant delays over which the Company has little or no
control. In some cases, the license of the Company's software products is an
enterprise-wide decision by
19
<PAGE>
prospective end user customers or a product strategy decision by VARs and
ISVs. Generally, the Company must provide a significant amount of information
to prospective customers regarding the use and benefits of the Company's
products as part of its sales efforts. In addition, the implementation of some
of the Company's products involves a significant commitment of resources by
prospective customers and may require substantial reengineering of customers'
computing environments. The cost to the customer of the Company's product is
typically only a portion of the related hardware, software, development,
training and integration costs of implementing a large scale system. Given
these factors and the expected continued dependence on a limited number of
customers for a substantial part of license revenue, the loss of a major
customer or any reduction or delay in sales to or implementations by such
customers could have a material adverse effect on the Company's business,
operating results, and financial condition.
The Company markets its products in North America through its direct sales
and telesales organizations and through VARs and ISVs. Throughout the rest of
the world, the Company markets its products through distributors, VARs and
ISVs. International revenue accounted for approximately 10% of total revenue
in fiscal 1996. In February 1996, the Company opened a European sales office
in France. The Company intends to increase its international sales force and
focus on establishing additional international distributor, VAR and ISV
relationships. The Company expects that international revenue will account for
an increasing portion of total revenue in the future. As a result, failure to
manage international sales appropriately could have a material adverse effect
on the Company's business, operating results and financial condition.
With the exception of the third quarter of fiscal 1996, the Company's
revenue has increased in each of the last five quarters. The Company's limited
operating history, however, makes the prediction of future operating results
difficult. The Company expects that prior growth rates of the Company's
software license revenue will not be sustainable in the future. The Company's
future operating results will depend on many factors, including the size,
timing and terms and conditions of individual license transactions; the
relatively long sales and implementation cycles for the Company's products;
the delay or deferral of customer implementations; changes in the Company's
operating expenses; the ability of the Company to develop and market new
products and control costs; market acceptance of new products; timing of
introduction or enhancement of products by the Company or its competitors; the
level of product and price competition; the ability of the Company to expand
its direct sales and telesales force, its indirect distribution channels and
its customer support capabilities; activities of and acquisitions by
competitors; changes in connectivity software, database technology and
industry standards; changes in the mix of products and services sold; changes
in the mix of channels through which products and services are sold; levels of
international sales; personnel changes and difficulties in attracting and
retaining qualified sales, marketing and technical personnel; changes in
customers' budgeting cycles; foreign currency exchange rates; quality control
of products sold; and general economic conditions. The Company has not been
profitable to date and the Company currently anticipates that it will operate
at a loss through at least the middle of 1997. There can be no assurance that
any of the Company's business or strategies will be successful or that the
Company will be able to achieve or sustain profitability on a quarterly or
annual basis.
The Company's sales generally reflect a relatively high amount of revenue
per order. The loss or delay of individual orders, therefore, can have a
significant impact on the revenue and quarterly results of the Company.
Because the Company's operating expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could
cause significant variations in operating results from quarter to quarter and
could result in significant losses. To the extent such expenses precede, or
are not subsequently followed by, increased revenue, the Company's operating
results would be materially adversely affected. As a result of these and other
factors, revenue for any quarter is subject to significant variation, and the
Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. It is likely that in some future quarter
the Company's operating results will be below the expectations of market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
The Company acquired PostModern effective May 31, 1996. The transaction was
accounted for as a purchase. Except for certain combined condensed financial
statements included elsewhere in this Prospectus and for the presentation of
certain pro forma revenue amounts herein, PostModern's financial results prior
to the effective date of the acquisition are not included in the Company's
financial results presented herein. The future operating results of the former
PostModern business will affect the Company's results of operations for the
last month of the quarter ending June 30, 1996 and for all subsequent
quarters. The Company's ability to successfully integrate the operations of
PostModern will depend upon several factors, including but not limited to,
successful integration of the products and operations of PostModern into the
Company. See "Risk Factors -- Limited Operating History; Recent Acquisition of
Distributed Object Connectivity Business; History of Losses."
20
<PAGE>
RESULTS OF OPERATIONS
The Company first recognized material revenue in the fourth quarter of
fiscal 1995 after the Company shipped version 1.0 of its ODBC product line. As
a result, the Company believes that period-to-period comparisons of annual
operating results are less meaningful than an analysis of recent quarterly
results.
The following tables set forth statements of operations for each of the five
quarters ended March 31, 1996, including such amounts expressed as a
percentage of total revenue. This quarterly information is unaudited, but has
been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of the Company's management, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair representation of the information for the periods presented. Such
statements of operations should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included elsewhere
herein. Operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996
-------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Software products...... $ 500 $ 544 $ 1,033 $ 840 $2,062
Service and other...... 155 367 268 253 208
------- ------ ------- ------- ------
Total revenue........ 655 911 1,301 1,093 2,270
------- ------ ------- ------- ------
Cost of revenue:
Software products...... 34 43 62 107 72
Service and other...... 105 146 180 200 201
------- ------ ------- ------- ------
Total cost of reve-
nue................. 139 189 242 307 273
------- ------ ------- ------- ------
Gross profit............. 516 722 1,059 786 1,997
------- ------ ------- ------- ------
Operating expenses:
Product development.... 660 729 972 1,429 1,218
Sales and marketing.... 543 636 770 732 1,077
General and administra-
tive.................. 324 335 336 371 423
------- ------ ------- ------- ------
Total operating ex-
penses.............. 1,527 1,700 2,078 2,532 2,718
------- ------ ------- ------- ------
Loss from opera-
tions............... (1,011) (978) (1,019) (1,746) (721)
Interest and other in-
come, net............... 4 1 28 48 8
------- ------ ------- ------- ------
Net loss................. $(1,007) $ (977) $ (991) $(1,698) $ (713)
======= ====== ======= ======= ======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software products...... 76.3% 59.7% 79.4% 76.9% 90.8%
Service and other...... 23.7 40.3 20.6 23.1 9.2
------- ------ ------- ------- ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------
Cost of revenue:
Software products...... 5.2 4.7 4.8 9.8 3.2
Service and other...... 16.0 16.0 13.8 18.3 8.8
------- ------ ------- ------- ------
Total cost of reve-
nue................. 21.2 20.7 18.6 28.1 12.0
------- ------ ------- ------- ------
Gross profit............. 78.8 79.3 81.4 71.9 88.0
------- ------ ------- ------- ------
Operating expenses:
Product development.... 100.8 80.1 74.7 130.7 53.7
Sales and marketing.... 82.9 69.8 59.2 67.0 47.4
General and administra-
tive.................. 49.4 36.8 25.8 33.9 18.6
------- ------ ------- ------- ------
Total operating ex-
penses.............. 233.1 186.7 159.7 231.6 119.7
------- ------ ------- ------- ------
Loss from opera-
tions............... (154.3) (107.4) (78.3) (159.7) (31.7)
Interest and other in-
come, net............... 0.6 0.2 2.1 4.3 0.3
------- ------ ------- ------- ------
Net loss................. (153.7)% (107.2)% (76.2)% (155.4)% (31.4)%
======= ====== ======= ======= ======
</TABLE>
21
<PAGE>
REVENUE
Software Products. Software products revenue increased by 402% from $892,000
in fiscal 1995 to $4.5 million in fiscal 1996. The Company had no software
products revenue in fiscal 1994. The increase from fiscal 1995 to fiscal 1996
was primarily due to an increased volume of licensing of the Company's ODBC
products, resulting from an increase in the number of products offered and the
expansion of the Company's direct sales and telesales organizations. The
decline in software products revenue in the third quarter of fiscal 1996
resulted primarily from the delay in completion of a large sale which closed
in the fourth quarter.
Service and Other. Service and other revenue, including development fees and
consulting and training revenue, increased by 391% from $223,000 in fiscal
1995 to $1.1 million in fiscal 1996. The Company had no service and other
revenue in fiscal 1994. The increase from fiscal 1995 to fiscal 1996 was due
to the greater licensing of products to customers under agreements with a
maintenance component. Revenue attributable to engineering development fees
has been declining, and the Company expects such fees to continue to decline
as a percentage of total revenue.
COST OF REVENUE
Software Products. Cost of software products revenue includes product
packaging, documentation, production and shipping. Cost of software products
revenue increased from $36,000 in fiscal 1995 to $284,000 in fiscal 1996. This
increase resulted from an increased volume of licensing of the Company's
products. The Company had no costs of software products revenue in fiscal
1994.
Service and Other. Cost of service and other revenue consists primarily of
personnel and personnel related overhead allocation, facility and systems
costs incurred in providing consulting, training, customer support and
engineering development services. Cost of service and other revenue increased
from $259,000 in fiscal 1995 to $727,000 in fiscal 1996. This increase
reflects the effect of fixed costs resulting from the Company's investment
during fiscal 1996 in a larger customer support organization in anticipation
of entering into an increasing number of licenses with maintenance components.
The Company had no costs of service and other revenue in fiscal 1994. The
Company intends to continue investing resources in its customer support
organization. The Company currently expects that costs of service and other
revenue will increase in absolute dollar amount from the level for fiscal
1996.
OPERATING EXPENSES
Product Development. Product development expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities, and consist primarily of employee
salaries, personnel related overhead allocation, benefits, consulting costs,
the cost of technology licensed from other software companies and the cost of
software development tools. Product development expenses increased by 38% from
$3.2 million in fiscal 1995 to $4.3 million in fiscal 1996 and by 127% from
$1.4 million in fiscal 1994 to $3.2 million in fiscal 1995. The increases in
the dollar amount of product development expenses were primarily attributable
to costs of additional personnel and full-time contractors in the Company's
product development operations and, to a lesser extent, the licensing of
existing technology from third parties which has or will be incorporated into
the Company's products. The increase of product development expenses in the
third quarter of fiscal 1996 was the result of increased consulting fees and
licensing of third party technology which was expensed because it was used
exclusively in the development process. A substantial portion of the product
development costs in fiscal 1994 and in early fiscal 1995 consisted of
expenses for the development of a product the Company later chose not to
introduce commercially. There can be no assurance that the Company will not
devote significant resources in the future to develop and market other
products that the Company may choose not to introduce commercially. The
Company anticipates that it will continue to devote substantial resources to
product development, including acquiring or licensing technology from others,
in order to introduce new products, enhance existing products or accelerate
its time to market. The Company plans to hire a substantial number of product
development personnel in fiscal 1997. The Company currently expects that
product development expenses will increase in absolute dollar amount from the
level for fiscal 1996.
22
<PAGE>
In accordance with Statement of Financial Accounting Standards No. 86, the
Company has charged all software development costs to product development
expense as incurred because expenditures which were eligible for
capitalization in prior periods were insignificant.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
personnel related overhead allocation, field office rent and related expenses,
travel and entertainment, and advertising and promotional expenses. Sales and
marketing expenses increased by 113% from $1.5 million in fiscal 1995 to $3.2
million in fiscal 1996 and by 200% from $503,000 in fiscal 1994 to $1.5
million in fiscal 1995. The increases in sales and marketing expenditures
reflect primarily the hiring of additional sales and marketing personnel,
costs associated with expanded advertising and promotional activities,
increased sales commissions and increased costs associated with field sales
offices. A substantial portion of sales and marketing costs in fiscal 1994
consisted of expenses relating to a product the Company later chose not to
introduce commercially. The Company plans to hire a substantial number of
sales and sales support personnel in fiscal 1997. The Company expects that
sales and marketing expenses will continue to increase in absolute dollar
amount as the Company continues to expand its sales and marketing efforts
domestically and internationally, establishes additional sales offices and
increases advertising and promotional activities. The Company currently
expects that sales and marketing expenses will increase in absolute dollar
amount from the level for fiscal 1996.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel and personnel related overhead allocation. These expenses
increased by 68% from $872,000 in fiscal 1995 to $1.5 million in fiscal 1996
and by 45% from $600,000 in fiscal 1994 to $872,000 in fiscal 1995. The
increases in the absolute dollar amounts of general and administrative
expenses were primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations.
The Company believes that the absolute dollar amount of its general and
administrative expenses will continue to increase as a result of the
anticipated expansion of the Company's administrative staff to support growing
operations and expenses associated with being a public company.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, is comprised primarily of interest income
earned on the Company's cash and cash equivalents. Interest and other income,
net, decreased by 10% from $94,000 in fiscal 1995 to $85,000 in fiscal 1996
and increased by 124% from $42,000 in fiscal 1994 to $94,000 in fiscal 1995.
The variations reflect changing cash balances.
PROVISION FOR INCOME TAXES
As of March 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $9.8 million and $2.0 million, respectively,
which expire at various dates through 2011. In addition, as of March 31, 1996,
the Company had general business credit carryforwards of approximately
$372,000, which expire at various dates through 2011. Utilization of the net
operating loss carryforwards and business credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state
provisions. See Note 8 of Notes to Consolidated Financial Statements of
Visigenic.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily from proceeds from the private sales of
Preferred and Common Stock. Through March 31, 1996, the Company had raised
$13.7 million from the sale of Preferred and Common Stock. At March 31, 1996,
the Company's principal sources of liquidity included cash and cash
equivalents of $2.4 million and a $1.0 million revolving line of credit
agreement which expires on August 15, 1996. Advances under the agreement,
which
23
<PAGE>
bear interest at the bank's prime lending rate plus 1.25%, are limited to 80%
of eligible accounts receivable and are secured by substantially all of the
assets and contractual rights of the Company. After the end of fiscal 1996,
the Company borrowed approximately $525,000 under the line of credit, which
bore interest at a rate of 9.5%, as of May 31, 1996. The line of credit
agreement also contains certain financial restrictions and covenants. The
Company is in compliance with these financial restrictions and covenants. See
Note 3 of Notes to Consolidated Financial Statements of Visigenic.
On May 24, 1996, the Company sold 444,444 shares of its Series C Preferred
Stock at a price of $9.00 per share to three investors, for aggregate proceeds
of $4.0 million. Subject to certain conditions, the Company has the right to
require these investors to purchase up to an additional $4.0 million in
convertible notes at any time prior to October 31, 1996. Between May 28 and
June 7, 1996, the Company issued $2.0 million principal amount of these
convertible notes, bearing interest at the rate of 8.25% per annum. Upon the
closing of the Company's initial public offering, the principal amount of each
note and all accrued interest will automatically convert into shares of the
Company's Common Stock at the lesser of $13.00 per share or the offering price
per share to the public. Upon the closing of the Company's initial public
offering, the Series C Preferred Stock will automatically convert into shares
of the Company's Common Stock. The Company used a portion of the proceeds from
the sale of the Series C Preferred Stock and the convertible notes to pay
amounts payable in connection with the closing of the acquisition of
PostModern. See "--PostModern Acquisition" and Note 9 of Notes to Consolidated
Financial Statements of Visigenic.
The Company's operating activities used cash of $2.2 million in fiscal 1994,
$4.6 million in fiscal 1995 and $2.6 million in fiscal 1996. The increased use
of cash in fiscal 1995 as compared with fiscal 1994 was primarily attributable
to increased operating costs and increased accounts receivable reduced by an
increase in accounts payable, accrued liabilities and deferred revenue. The
decline in net cash used in operations in fiscal 1996 as compared with fiscal
1995 was primarily due to an increase in accounts payable, accrued liabilities
and deferred revenue.
The Company used $477,000, $378,000 and $1.1 million of net cash during
fiscal 1994, 1995 and 1996, respectively, for investing activities, due
primarily to purchases of property and equipment. Financing activities
provided $5.6 million, $2.6 million and $5.5 million of net cash during fiscal
1994, 1995 and 1996, respectively, due entirely to the issuance of Preferred
and Common Stock.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contracts) and advance payment of
software development fees and software license fees. Capital expenditures were
primarily for computers, furniture and equipment. The Company expects that its
capital expenditures will increase as the Company's employee base grows. As of
March 31, 1996, the Company did not have any material commitments for capital
expenditures.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing sources of liquidity and cash
generated from operations, will satisfy the Company's projected working
capital and other cash requirements for at least the next twelve months.
Although operating activities may provide cash in certain periods, to the
extent the Company experiences growth in the future, the Company anticipates
that its operating and investing activities will use cash. Any such future
growth and any acquisitions of other technologies, products or companies may
require the Company to obtain additional equity or debt financing, which may
not be available or may be dilutive.
24
<PAGE>
POSTMODERN ACQUISITION
In May 1996, the Company completed the acquisition of PostModern, a supplier
of software for the development of distributed applications in an object-
oriented environment. In the acquisition, which was structured as a merger,
the Company issued 3,099,821 shares of its Common Stock and paid a total of
$2.3 million in exchange for all of PostModern's outstanding shares. The
Company also assumed PostModern's outstanding stock options and reserved
361,785 shares of the Company's Common Stock for issuance upon exercise of
such options. The Company expects to incur acquisition-related costs of
approximately $525,000, resulting in a total purchase price of approximately
$13.1 million. In addition, the Company made cash payments, subject to one-
year vesting and totaling $1.5 million, to certain PostModern employees. The
acquisition of PostModern will be accounted for as a purchase in the quarter
ending June 30, 1996. The Company expects to record an immediate write-off of
approximately $12.0 million of in process product development in the quarter
ending June 30, 1996. The remaining purchase price of approximately $1.1
million will be amortized over two years.
The following pro forma revenue information is unaudited and is based on the
respective historical financial statements of the Company and PostModern. The
Company's acquisition of PostModern was accounted for as a purchase, and the
following pro forma data are presented for comparison purposes only. These
data should be read in conjunction with the pro forma condensed combined
financial statements and historical financial statements contained herein.
This revenue data has been prepared on the same basis as the annual
consolidated financial statements and, in the opinion of the Company's
management, reflects all adjustments necessary for a fair presentation of the
information for the periods presented.
<TABLE>
<CAPTION>
PRO FORMA COMBINED QUARTER ENDED
-------------------------------------
PRO FORMA
COMBINED
FISCAL YEAR
ENDED
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, MARCH 31,
1995 1995 1995 1996 1996
-------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Pro Forma Revenue:
Software products........ $ 580 $1,179 $ 868 $2,156 $4,783
Service and other........ 422 605 394 373 1,794
------ ------ ------ ------ ------
$1,002 $1,784 $1,262 $2,529 $6,577
====== ====== ====== ====== ======
</TABLE>
The majority of PostModern's total revenues for the twelve month period
ended March 31, 1996 consisted of service and other revenues, attributable to
development, training and consulting fees.
25
<PAGE>
BUSINESS
OVERVIEW
Visigenic Software, Inc. is a leading provider of software tools for
database and distributed object connectivity for the Internet, Intranet and
enterprise computing environments. The Company's standards-based products
facilitate the development, deployment and management of distributed
applications by providing database-independent access to leading databases and
the communications infrastructure for distributed object-oriented
applications. The Company markets and sells its software through its direct
sales and telesales forces, independent software vendors ("ISVs"), value added
resellers ("VARs"), international distributors and on-line Internet sales in
North America, Europe, and Asia. The Company's customers include ASCII
Corporation, Cisco, CompuWare, Borland, Hewlett Packard, Hitachi Ltd., Merrill
Lynch, MCI Telecommunications, Microsoft, Oracle, Platinum technology and
Software AG.
INDUSTRY BACKGROUND
In an increasingly complex computing environment, today's enterprises
require flexible access to data and applications, regardless of whether the
data and applications are located at the central office, a remote office or
across the Internet. This requirement is being driven by the following market
trends:
. The increasing use of multiple database management systems ("DBMSs"),
requiring DBMS-independent client/server database connectivity solutions.
. The increasing use of object-oriented technologies to provide distributed
application solutions.
. The increasing use of Internet and Intranet technologies within
mainstream commercial markets, which is increasing the demand for
applications capable of operating in distributed computing environments.
Database Connectivity
Client/server computing has given organizations the flexibility to develop
and deploy applications on a wide variety of computer platforms and DBMSs. The
computing infrastructure of the typical enterprise now consists of a
heterogeneous mix of operating systems, databases, networks and hardware. One
industry survey of Fortune 500 companies found that these companies use an
average of six different DBMSs. For example, an enterprise may support the
Windows 3.1, Windows NT, UNIX and MVS operating system platforms running
Microsoft SQL Server, Oracle and IBM DB2 DBMSs. To manage this heterogeneous,
cross-platform database environment, a common method of accessing, managing
and analyzing data from multiple databases was needed. The Open Database
Connectivity ("ODBC") standard was created to address this problem.
ODBC, originally developed by Microsoft, is an industry standard that is
based on a specification defined by the SQL Access Group, a consortium of
database, software and hardware vendors. ODBC provides a common data access
application programming interface ("API") for developers building DBMS-
independent applications. With ODBC, a single application can access multiple
databases on multiple platforms, avoiding the need for developers to write
versions of each application for each DBMS vendor's proprietary data access
API. The ODBC API is supported by most major software vendors in their
programming languages, application development tools and report writing tools,
including Microsoft Visual Basic and Visual C++, Sybase PowerBuilder and the
Oracle 2000 family, and Seagate Crystal Reports.
Although ODBC provides heterogeneous database connectivity, organizations
seeking the benefits afforded by ODBC have encountered two limitations as they
move to a more distributed computing environment. First, ODBC development
tools and ODBC drivers originally were only available for Windows platforms.
This limited the ability of enterprises to realize the multi-platform
potential of ODBC and to deploy ODBC solutions in multi-platform computing
environments such as Intranets and the Internet. Second, initial
implementations of ODBC are client-centric and are suitable for departmental
or limited enterprise deployments. These client-centric implementations
require that an ODBC driver and database-specific network libraries for each
DBMS to be accessed reside on each client system. For larger deployments,
which may involve hundreds, or even thousands, of ODBC-enabled client systems
accessing multiple DBMSs, maintaining and managing this client/server
infrastructure is expensive and difficult because each client system must be
updated for each new version of the DBMS and the ODBC driver. The Company
believes that organizations need a simplified, server-centric ODBC database
access architecture for larger deployments, including Intranet and Internet
computing environments.
26
<PAGE>
Distributed Object Connectivity
In today's rapidly evolving computing environments, enterprises require
improved data access as well as improved software application architectures.
Computing environments are becoming more distributed, with numerous client and
server machines networked together within a single enterprise as well as
across the Internet. The traditional method of building applications as
monolithic programs is not suited for this distributed environment. Instead,
applications must be more modular in nature, where the application is built as
a set of modules that can be distributed over a number of client and server
systems. Enterprises can improve computing performance by distributing
application logic over these computing networks so that the appropriate
application logic resides on the most appropriate system. For example, logic
for the graphical user interface resides on a client machine while the
business logic is located on one or more servers where the business
application resides and the logic that manipulates the data in the DBMS is
located on one or more servers where the data resides.
Object-oriented programming languages like C++ and Java have enabled
software developers to develop and deploy distributed applications more
easily. These languages are based on the concept of objects, reusable software
components that contain both data and the related procedures that act upon
them. Objects are modular in nature and can be arranged or reused in many
different combinations to form new applications. This modular, self-contained
characteristic makes objects ideal for distributed computing environments
because applications can now be created by linking a series of objects that
may be distributed over a number of different systems.
Significant challenges in distributed application development and deployment
include communications and interoperability between objects that are
distributed over a network. The Common Object Request Broker Architecture
("CORBA") specification, developed by the Object Management Group ("OMG"), a
consortium of software and hardware vendors and corporate end users, was
created to address these challenges. The CORBA specification defines an Object
Request Broker ("ORB") that manages and monitors the interactions of
distributed objects on a network. To enable interoperability among
applications using ORBs, CORBA also specifies the Internet Inter-ORB Protocol
("IIOP"), which defines a standard distributed messaging protocol for
communication between objects. CORBA-compliant objects are portable across
programming languages, development environments, computer platforms and
networks, which is an increasingly important attribute of applications in the
heterogeneous computing environments of the Internet, Intranets and
enterprises.
Before the CORBA specifications, many enterprises had not undertaken the
development and deployment of distributed applications because of the lack of
software development tools that provide a distributed object communication
infrastructure. This meant that building enterprise-wide distributed
applications entailed writing a new, proprietary communication
infrastructure--a task that was difficult and time consuming for many
enterprises. The introduction of CORBA-compliant ORBs has freed enterprises
from having to write their own communication infrastructure and allows
enterprises to focus their development efforts on business logic. The Company
believes that enterprises now need commercially available ORBs from third
party vendors that provide this communications infrastructure.
The Internet and Intranets Increase the Need for Distributed Applications
The Internet has quickly emerged as an important aspect of business
computing. Internet-based business applications have expanded beyond
electronic mail to a broad range of business applications and services,
including electronic publishing, direct-to-customer transactions, product
marketing, advertising and customer support. The widespread use of the
Internet by enterprises has also resulted in the emergence of Intranets,
internal information systems based upon the Internet infrastructure. Intranets
use Internet protocols and applications to share information and services both
within the enterprise and across the Internet. Intranets allow the enterprise
to distribute data and applications across geographically dispersed facilities
as well as enable customers, suppliers and other business partners to easily
access enterprise data and applications.
The Internet and Intranets are large heterogeneous distributed computing
environments, consisting of vast numbers of networked client and server
systems and distributed databases. The rapid growth of the Internet and of
Intranets is accelerating the importance of distributed applications that can
access data wherever the data resides. The Company believes business
applications increasingly will be comprised of objects, Java applets and
27
<PAGE>
databases that are distributed on networks and dynamically assembled into
highly customized solutions. As a result, development and deployment tools for
database access and distributed object connectivity solutions are increasingly
key components of the software infrastructure required for Internet, Intranet
and enterprise computing environments.
VISIGENIC SOLUTION
The Visigenic solution provides key components of the software
infrastructure that enable developers and IT professionals to develop, deploy
and manage distributed applications. The Company provides software tools for
database and distributed object connectivity for Internet, Intranet and
enterprise computing environments. The Company's cross-platform database
connectivity products, based on the ODBC API, are open, flexible and cost
effective for developing, deploying and maintaining DBMS-independent
applications. The Company's distributed object connectivity products,
consisting of CORBA-compliant ORBs, provide a communication infrastructure and
enable the development and deployment of reliable and flexible distributed
applications.
The Company's solution provides the following benefits:
Application Architecture Flexibility. Visigenic's products are designed to
enable developers and IT professionals to build applications for a variety of
enterprise architectures. The database connectivity products provide
application developers with the flexibility to implement the ODBC database
connection on the client, the server or across the Internet. The distributed
object connectivity products allow developers to build applications that can
be distributed over multiple client and server machines and can interoperate
with other CORBA-compliant applications. This flexibility allows the
enterprise to adapt its application architecture to meet changing business or
computing requirements.
Simplification of Application Development. Visigenic's products simplify
application development by reducing the time and expertise required to develop
applications. The Company's database connectivity products allow developers to
access multiple DBMSs by writing to a single API rather than multiple
proprietary APIs. The Company's distributed object connectivity products
provide the developer with the communications infrastructure required for
distributed object applications, allowing the developer to focus on developing
business objects and facilitating the reuse of these objects in multiple
applications.
Simplification of Distributed Application Deployment. Visigenic's products
simplify the deployment of distributed applications. Visigenic's OpenChannel
product is based on a server-centric ODBC architecture that shifts the
database connection software components from clients to servers, thereby
simplifying deployment and centralizing administration. ORBeline' and
BlackWidow's agent-based architecture reduces deployment and administration
effort for distributed applications, by automatically launching objects,
tracking their state and adapting to their changing resource requirements.
Support of Open Industry Standards. Visigenic's products for database and
distributed object connectivity support existing and emerging industry
standards, enabling developers and IT professionals to build solutions that
are open, flexible and interoperable across multiple operating environments.
Visigenic's products support key industry standards including: database
connectivity standards such as ODBC and X/Open SQL Access and distributed
object standards such as CORBA 2.0 and IIOP. The Company is currently
developing products that support Java Database Connectivity ("JDBC") and other
industry de facto standards such as RSA data encryption technology.
Technology Independence. Visigenic's products enable the development of
solutions for the heterogeneous computing environments confronting the
enterprise by supporting multiple operating systems, DBMSs, development
languages and hardware platforms.
Manageability. Visigenic's products provide monitoring tools to provide
control over the computing environment while reducing the time and resources
spent on managing distributed applications. Visigenic's OpenChannel product
provides a monitor that supplies information regarding client/server database
connections
28
<PAGE>
and provides administrators the ability to adjust system configuration
parameters. The Company's ORBeline and BlackWidow products provide monitoring
capabilities for distributed object usage and location. These monitoring tools
provide administrators with information needed to manage and administer
distributed application environments.
VISIGENIC STRATEGY
The Company's strategy is to become the premier provider of software tools
which enable developers and IT professionals to develop, deploy and manage
distributed applications for Internet, Intranet and enterprise computing
environments. The Company's strategy incorporates the following key elements:
Support and Enhance Open Industry Standards. The Company's products are
based on existing and emerging industry standards for heterogeneous database
connectivity and distributed object connectivity. The Company actively
participates in standards setting organizations including X/OPEN and the
Object Management Group. The Company intends to contribute to the expansion of
existing standards and the development of future standards created by these
and other standard setting organizations. For example, the Company was
instrumental in accelerating ODBC's acceptance as a standard for heterogeneous
database access by exclusively licensing certain ODBC enabling technology from
Microsoft and providing the Visigenic ODBC SDK on Macintosh, OS/2 and many
UNIX platforms. In addition, the Company has developed the first commercial
implementation of IIOP, defined as part of the CORBA 2.0 specification, in its
ORB products. The Company intends to promote acceptance of IIOP as the de
facto standard for distributed object messaging for the Internet and
Intranets.
Leverage Strategic Partners. The Company intends to continue to establish
close relationships with leading technology companies through technology
licensing, joint development, strategic investments, and distribution and
marketing arrangements to promote the widespread acceptance and distribution
of Visigenic products. Key partnerships include the following:
. Cisco is a strategic investor in the Company and has entered into a license
agreement to bundle the Company's database connectivity products in Cisco's
network management product line.
. Hitachi has entered into a joint-development agreement with the Company for
the development of a transaction-enabled ORB based on the Visigenic
ORBeline and BlackWidow products.
. JavaSoft, a division of Sun Microsystems, has entered into an agreement for
JDBC technology that grants the Company the right to sub-license JavaSoft's
JDBC test suites and its JDBC-to-ODBC bridge.
. Microsoft has entered into a series of agreements to bundle certain of the
Company's ODBC products with certain Microsoft products and to exclusively
license to the Company the ODBC SDK and test suites for non-Microsoft
operating systems.
. Netscape is a strategic investor in the Company.
. Oracle has entered into a license agreement with the Company to bundle the
Company's database connectivity products with a number of Oracle's
Transparent Gateway products.
. Platinum technology is a strategic investor in the Company and has entered
into an agreement to bundle both the Company's database connectivity and
distributed object connectivity products with certain Platinum products.
Provide a Broad Suite of Products and Services. The Company offers a suite
of software tools for database and distributed object connectivity, as well as
support, consulting and training services. The Company intends to develop new
products, enhance its current products and integrate its database connectivity
software products with its distributed object connectivity products to address
the requirements of the emerging Internet and Intranet distributed markets.
29
<PAGE>
Maintain Technology Leadership. The Company is committed to maintaining its
technological leadership through internal product development efforts and, if
appropriate opportunities present themselves, through acquisitions of
technologies, products and companies to address the specific requirements of
distributed applications in the areas of database connectivity, distributed
object connectivity and the monitoring of distributed environments. The
Company has invested and will continue to invest in technology so that it can
react and adapt to changing technological trends and market needs.
Exploit and Develop the Internet/Intranets Market Opportunity. The Company
believes that the emergence of the Internet and Intranets will significantly
increase the market for database and distributed object connectivity software.
Visigenic intends to leverage its products and expertise in heterogeneous
database connectivity and distributed object connectivity to exploit the
market opportunity for distributed applications for the Internet and
Intranets.
Expand Brand Name Awareness. Visigenic believes that the brand name
awareness of the Company and its products will be an important element of its
success. Visigenic is targeting its marketing efforts to establish and expand
the recognition of the Company and its products through advertising,
promotional activities, selected sales channels and strategic partners. The
Company believes that establishing and expanding market awareness is
particularly important given the emerging nature of the market in which it
competes.
Expand Distribution Channels Worldwide. To achieve broad distribution of its
database and distributed object connectivity software, the Company believes it
must continue to build multiple distribution channels worldwide. The Company
is expanding its direct sales and telesales forces as well as broadening its
indirect channels of distribution, including VARs, ISVs systems integrators
("SIs"), Internet sales and international distributors. The Company's
international distribution strategy is to penetrate key international markets
by seeking additional VARs, ISVs and regional distributors and by further
developing its existing relationships with these customers.
PRODUCTS
The Company provides software tools for database and distributed object
connectivity for Internet, Intranet and enterprise computing environments. The
Company's products provide key components of the software infrastructure that
enable developers and IT professionals to develop, deploy and manage
distributed applications.
30
<PAGE>
The following table identifies the Company's current products:
<TABLE>
<CAPTION>
MOST
ORIGINAL RECENT
PRODUCT RELEASE RELEASE SUPPORTED US SUGGESTED
NAMES DATE DATE PLATFORMS LIST PRICE (1)
<S> <C> <C> <C> <C>
DATABASE CONNECTIVITY
- -------------------------------------------------------------------------------
Visigenic ODBC 11/94 6/96 Windows 3.1 $95-$150/Driver
Drivers Windows 95 $295-595/DriverSet
and DriverSet Windows NT
UNIX
Macintosh
OS/2
- -------------------------------------------------------------------------------
Visigenic ODBC SDK 11/94 6/96 UNIX $995/user
Macintosh
OS/2
- -------------------------------------------------------------------------------
Visigenic OpenChannel 3/96 3/96 Windows 95 $500-$700/user
Windows NT
- -------------------------------------------------------------------------------
DISTRIBUTED OBJECT CONNECTIVITY
- -------------------------------------------------------------------------------
Visigenic BlackWidow 4/96 4/96 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/
runtime
- -------------------------------------------------------------------------------
Visigenic ORBeline 9/94 9/95 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/runtime
</TABLE>
(1) Actual price depends upon platform selected and quantity purchased, among
other factors. The terms and conditions, including prices and discounts
from list prices, of individual license transactions are often highly
negotiated based on volumes and commitments and vary considerably from
customer to customer.
DATABASE CONNECTIVITY PRODUCTS
The Visigenic software tools for database connectivity are based on the ODBC
standard and enable data access independent of both the DBMS and platform. The
ODBC products include the Visigenic ODBC Drivers and DriverSets and Visigenic
ODBC Software Development Kits.
[Diagram of Visigenic ODBC Driver and DriverSet product architecture
appears here.]
31
<PAGE>
ODBC Drivers and DriverSets. The Visigenic ODBC Drivers and DriverSets
provide cross-platform access to multiple SQL relational DBMSs--including CA-
Ingres, IBM DB2, Informix, Microsoft SQL Server, Oracle and Sybase SQL Server
(DBLib and CTLib)--from any ODBC-enabled application. The ODBC Driver and
DriverSets are made up of two ODBC components: the Driver Manager and a set of
database drivers. The Driver Manager loads the ODBC drivers that an ODBC-
enabled application requests. The ODBC drivers provide the communication link
between the ODBC-enabled application and a specific DBMS; the drivers process
ODBC function calls from the application, translate them to DBMS-specific
calls and return the results of those calls to the application. For example,
to access an Oracle DBMS, an ODBC-enabled application, such as Microsoft
Excel, would send SQL calls through an Oracle ODBC driver. Likewise, to access
an Informix DBMS, Microsoft Excel would send the same SQL calls through an
Informix ODBC driver. The Company sells ODBC drivers separately or as the ODBC
DriverSet, which consists of the full set of ODBC drivers available for each
platform. The Visigenic ODBC Drivers are available for Windows 3.1, Windows
NT, Windows 95, ATT GIS, HP-UX, IBM AIX, SCO, Solaris, Sun OS, Macintosh and
Power Macintosh and OS/2. The Company initially released Visigenic ODBC
Drivers and DriverSets in November 1994.
ODBC SDKs. Visigenic ODBC Software Development Kits allow developers to
develop vendor-independent database applications and ODBC drivers. Using the
ODBC SDKs, developers write database-independent C and C++ applications that
communicate simultaneously with multiple databases from different vendors.
Each ODBC SDK comes with the Driver Manager, header files, programmer's
reference and graphical utilities.
Visigenic has ported the Microsoft ODBC 2.x SDK to ATT GIS, IBM AIX, HP-UX,
SCO, Solaris, Sun OS, Macintosh, Power Macintosh and OS/2. Visigenic currently
has the exclusive right to license and port the Microsoft ODBC SDK versions
2.X and 3.0 for Windows to all non-Microsoft platforms and intends to do
additional ports in the future. The Company released its first Visigenic ODBC
SDK in November 1994.
OpenChannel Products. The Visigenic OpenChannel product line provides an
architecture that simplifies database connectivity in large distributed
application environments such as the Internet, Intranets and enterprise
computing environments. The Company initially released its OpenChannel
products in March 1996.
[Diagram of Visigenic OpenChannel product architecture appears here.]
32
<PAGE>
OpenChannel's server-centric architecture shifts the administrative burden
and processing load for ODBC-enabled applications by relocating ODBC drivers
and network libraries away from each user's individual machine to a central
server, allowing easier administration and control. A "thin" database-
independent client driver connects to any database through the OpenChannel
Server, where server-side ODBC drivers manage the actual database connections.
Since database connections are centralized, OpenChannel can reduce the time
and resources spent on deploying and managing database applications.
OpenChannel consists of the OpenChannel Client, Server and Manager. The
OpenChannel Client replaces the ODBC drivers and database vendor's proprietary
libraries on the client. The OpenChannel Server can be used to access any ODBC
data source, either through a Visigenic ODBC Driver or other third party ODBC
drivers. The OpenChannel Server has been designed to support large numbers of
concurrent users through the use of a multi-threaded architecture, which
provides for efficient resource utilization, enhanced throughput and shared
resource integrity. The OpenChannel Manager is a monitoring tool that allows
IT professionals to monitor all OpenChannel connections and adjust system
configuration parameters from a single location.
OpenChannel can be deployed for use with existing ODBC applications without
any changes to the client application. OpenChannel is optimized for large-
scale ODBC traffic and runs over standard TCP/IP transports, enabling it to be
used for database connectivity across the Internet. The Company is developing
a version of OpenChannel that will support the JDBC API for Java applets and
applications.
The OpenChannel Server is available for Windows NT, and OpenChannel Clients
are available for Windows 3.1, Windows NT and Windows 95. The Company expects
to begin shipping OpenChannel Servers and Clients for UNIX in the second half
of 1996.
DISTRIBUTED OBJECT CONNECTIVITY PRODUCTS
Visigenic develops and markets two Object Request Broker ("ORB") products:
ORBeline 2.0 for C++ and BlackWidow 1.0 for Java. Visigenic's ORBs, which are
based on the Common Object Request Broker Architecture ("CORBA")
specification, provide an object-oriented solution for the development and
deployment of distributed applications.
[Diagram of Visigenic ORBeline and Visigenic BlackWidow product architecture
appears here.]
33
<PAGE>
ORBeline. Visigenic ORBeline provides a communication framework that enables
the development, deployment and management of complex, distributed C++
applications. ORBeline consists of two main components: a development
component and a runtime component. The development component includes a code
generator that converts object interfaces specified in CORBA's Interface
Definition Language ("IDL") into C++. The developer adds application logic and
the runtime code to the generated code to create a distributed application.
The generated code is used by the objects' application logic to interact with
the runtime component which manages the communication among the distributed
objects.
ORBeline operates on SunOS, Solaris, Digital UNIX, HP-UX, IBM AIX, Windows
NT and Windows 95 platforms. ORBeline was first released in September 1994 and
the Company is currently shipping version 2.0.
BlackWidow. Visigenic BlackWidow is the industry's first client and server
Java ORB. BlackWidow enables distributed computing on the Internet and
Intranets. Like ORBeline, BlackWidow consists of a development component and a
runtime component. The development component converts IDL interfaces into
client-side and server-side Java code. The BlackWidow runtime is written
entirely in Java and can run in any Java-enabled Web browser, such as Netscape
Navigator 2.0. The BlackWidow environment allows Internet, Intranet and
enterprise deployment. On the Internet, a user can load a client-side
BlackWidow Java applet into any Java-enabled browser, execute the applet and
establish IIOP connectivity with CORBA objects, whether the objects are
written in Java or in another language such as C++ or Smalltalk.
The BlackWidow development environment is available on Windows NT, Windows
95 and Solaris. Distributed applications developed with BlackWidow can be
deployed on any platform supporting the Java environment. BlackWidow was first
released in April 1996.
ORBeline and BlackWidow Architecture. ORBeline and BlackWidow share a common
architecture. Both products use IIOP as their internal communications protocol
and do not rely on conversion of a proprietary protocol into IIOP in order to
interoperate with other ORB implementations. IIOP is an emerging standard for
distributed object messaging and is designed for applications distributed
across the Internet and Intranets. Each of the Company's ORB products is
multi-threaded, facilitating scalability and enhancing throughput.
Applications developed using the Company's ORBs can support multiple
concurrent threads to service both incoming and outgoing object requests
simultaneously, permitting objects within an application to process a request
without impacting the responsiveness of other objects within the application.
The Company's ORB products have an agent-based architecture and include one or
more agents that communicate and monitor the location of the ORB objects on
the network. This agent-based architecture is designed to adapt itself to
changes in the objects and the network, such as a heavy system load or the
failure of objects. The architecture minimizes the need for configuration
files, making it easier to deploy and administer applications, and enables
automatic fail-over capabilities, significantly reducing interruptions in any
service provided as part of or implemented using the ORB.
34
<PAGE>
CUSTOMERS
The Company's customers include the following:
FINANCIAL SERVICES NETWORK MANAGEMENT/SYSTEMS MANAGEMENT
Global Trade Technologies Bytex--A Division of Storage
Merrill Lynch Technology
Wells Fargo Bank Cisco
Compuware
TELECOMMUNICATIONS Embarcadero Technologies
Hewlett-Packard
Bell Northern Research Network General
British Telecom-North America Platinum technology
DSC Communications Software Professionals
MCI Telecommunications
INDEPENDENT SOFTWARE VENDORS AND VALUE ADDED RESELLERS
AimTech Corporation Oracle
Applix Premenos
AT&T Global Information Solutions Research Systems
Borland Software AG
Hitachi Starware
Information Builders UniSQL
Informix Software Vmark
Investment Intelligence Systems Wall Data
Corporation Wang
Microsoft XVT Software
In fiscal 1996, one customer accounted for approximately 25% of revenue and
no other customer accounted for more than 10% of revenue. A relatively small
number of VAR and ISV customers have accounted for a significant percentage of
the Company's revenue, and the Company expects that such sales will continue to
represent a significant portion of the Company's revenue in future periods. For
fiscal 1996, the Company's ten largest customers accounted for approximately
78% of the Company's total revenue.
The Company's products can be used in many applications, including the
following examples:
Oracle Corporation. Oracle Corporation, a leading supplier of information
management software, wanted to provide their customers with access to
competitors' DBMSs. Their customers are increasingly operating in heterogeneous
environments and require a solution that allows them to develop applications
that access multiple DBMSs. Oracle integrated Visigenic's ODBC technology in
their Transparent Gateway, allowing them to support a single, standard DBMS-
independent API versus supporting multiple proprietary APIs of their
competitors. For the first time, Oracle provided their customers with direct
gateway access, providing distributed database capabilities, from the Oracle7
database to Sybase, Informix, and CA-Ingres.
Platinum technology. Platinum technology, a provider of application
development, business intelligence, database administration, data warehousing,
and systems software solutions, was seeking a consistent database access
solution for their Platinum Open Enterprise Management System ("POEMS")
products. Platinum was supporting several proprietary database access methods.
Platinum integrated Visigenic ODBC technology and Visigenic OpenChannel into
the POEMS architecture, providing Platinum with a single database access
architecture to support and providing their customers with database
connectivity across multiple databases, operating systems and hardware
platforms.
MCI. 800-number customers of MCI, a leading telecommunications provider,
wanted more information regarding incoming calls from callers using the
customers' 800 numbers. Using ORBeline, MCI developed an application to provide
this information. The application collects information such as call origin and
duration from telephone switches, assembles the information in data records,
places the records in a database and delivers the
35
<PAGE>
information back to the customer. The information is updated continually and
automatically, enabling MCI's 800-number customers to monitor usage of their
lines in real time.
SALES AND MARKETING
The Company's objective is to achieve broad market penetration by targeting
multiple channels of distribution, including direct sales and telesales, ISVs,
VARs, SIs, international distributors and on-line Internet sales. The Company
is actively seeking to increase its base of VARs, ISVs, SIs and international
distributors.
Direct Sales/Telesales. The Company's direct sales and telesales forces
focus on medium to large-sized VARs, ISVs and corporate IT opportunities. To
date, the direct sales and telesales forces have been primarily targeting
strategic VARs and ISVs to leverage their sales and marketing expertise as
well as their position in the market. The Company has direct sales offices or
personnel in San Mateo, California; Atlanta, Georgia; Boston, Massachusetts;
Reston, Virginia and Paris, France. The Company's telesales organization,
based in San Mateo, California, works jointly with the direct sales force to
receive customer orders as well as proactively identify, contact and qualify
customer leads.
Independent Software Vendors. The Company has relationships with a number of
ISVs to leverage their sales and marketing channels through joint marketing
programs and product bundling agreements.
Value Added Resellers and System Integrators. VARs and SIs customize,
configure and install the Company's software products and bundle these
products with their software solutions and services.
International Distributors. The Company believes that it is important to
develop a strong international presence and intends to do business in markets
outside of North America principally through distributors. International sales
accounted for 10% percent of revenue in fiscal 1996. The Company is working
with its distributors to develop end user, ISV, VAR and SI relationships in
their respective territories. As of May 31, 1996, the Company had 12
international distributors, mostly in Europe and Asia.
Internet Sales. Certain of the Company's products can be evaluated and
purchased electronically over the Internet. The Company believes that the
Internet can be an effective way to market its products to potential
customers.
The Company's marketing efforts are directed at building brand name
awareness while also highlighting the value of the Company's database
connectivity and distributed object connectivity products. The Company's
marketing efforts include market research, product planning, creating
collateral materials, managing press coverage and other public relations,
identifying potential customers, advertising, attending tradeshows, speaking
at industry conferences, direct mail campaigns and establishing and
maintaining close relationships with recognized industry analysts. The Company
also maintains a home page on the Internet that is a source of sales leads.
As of May 31, 1996, the Company's sales organization included 26 employees
and its marketing organization included 6 employees. The Company intends to
hire a significant number of additional sales and marketing personnel in
fiscal 1997 and beyond. An increase in the sales and marketing staff will be
required to expand both the Company's direct and indirect sales activities and
achieve revenue growth. Competition for such personnel is intense, and there
can be no assurance that the Company can attract, assimilate or retain such
personnel. Because of the complexity of database connectivity and distributed
object connectivity software products, the Company has in the past and expects
to continue in the future to experience a time lag between the date sales
personnel are hired and the date such persons become fully productive. If the
Company is unable to hire and train such personnel on a timely basis in the
future, the Company's business, financial condition and results of operations
could be materially adversely affected.
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<PAGE>
CUSTOMER SERVICE AND SUPPORT
The Company believes that a high level of customer service and support is
critical to the Company's success. The services provided by the Company
include technical support, maintenance, training and consulting. These
services are designed to increase customer satisfaction and provide feedback
to the Company as to customers' demands and requirements.
Technical Support and Maintenance. The Company offers customer support
through telephone, electronic mail and fax. Visigenic provides new software
releases, maintenance releases and enhancements under annual support
agreements with customers. Maintenance and customer support license fees are
not included in software license fees but are purchased separately for an
annual fee.
Training and Consulting. The Company offers its customers education and
training programs, as well as customized consulting services. Fees for
training and consulting services are generally charged on a per diem basis,
separately from the Company's software products.
PRODUCT DEVELOPMENT
The Company believes its future success will depend in large part on its
ability to expand the Visigenic product family by enhancing existing products,
integrating database connectivity technology with distributed object
connectivity technology and developing new products to meet a broad range of
customer needs. The Company's product development organization is responsible
for new product and technology development, product testing and user interface
development. This organization is working to expand the availability of the
Company's products on the leading hardware platforms, operating systems,
DBMSs, programming languages and networking and communication protocols.
Since inception, the Company has made substantial investments in product
development and related activities. The Company's products have been developed
primarily by the Company's internal development staff and, in some instances,
with the assistance of external consultants. Certain technologies have been
acquired and integrated into Company's products through licensing
arrangements. The Company expects that most of its new products will be
developed internally. However, the Company will evaluate on an ongoing basis
externally developed technologies and products for integration into its
product lines.
The Company expects that development activities with respect to its database
connectivity products will include development of ODBC SDKs, ODBC drivers and
test suites compliant with the ODBC 3.0 specification as well as additional
features for its OpenChannel products, including high performance scalability,
message and queuing capabilities, a server-procedure architecture and Simple
Network Management Protocol ("SNMP") agents and other management and
monitoring tools. The Company intends to support the JDBC API through a JDBC-
to-ODBC product that will allow Java programmers using the JDBC API to access
heterogeneous data sources through the Company's ODBC drivers or OpenChannel
products. Visigenic also expects to ship an OpenChannel Client implementation
in Java in the second half of fiscal 1997.
The Company expects to enhance its ORBeline and BlackWidow products and
expand its ORB product line. The Company is developing an object-oriented
transaction processing system based on the Object Transaction Service ("OTS")
specified by the OMG that enables mission-critical On-line Transaction Process
("OLTP") applications. This product is being jointly developed with Hitachi
and is a combination of the Company's ORBeline product, the OTS interface
implementations and OpenTP1, Hitachi's advanced transaction processing engine.
The Company currently expects to release the product in the second half of
fiscal 1997. The Company also plans to leverage its CORBA expertise to develop
products that enable Microsoft's Active/X objects to interact with CORBA
objects.
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<PAGE>
The Company also intends to leverage its database connectivity expertise to
provide database connectivity capabilities for its ORB products. The Company's
ORB products would then provide a more complete distributed object solution,
addressing both the distributed object and data connectivity requirements of
its customer base.
As of May 31, 1996, there were 41 employees on the Company's research and
development staff. The Company's product development expenditures in fiscal
1995 and 1996 were $3.2 million and $4.3 million, respectively. The Company
expects that it will continue to commit substantial resources to product
development in the future.
The markets for the Company's products are characterized by rapid
technological developments, evolving industry standards, swift changes in
customer requirements, computer operating environments and software
applications, and frequent new product introductions and enhancements. As a
result, the Company's success depends substantially upon its ability to
anticipate changes and continue to enhance its existing products, develop and
introduce in a timely manner new products incorporating technological
advances, comply with emerging industry standards and meet increasing customer
expectations. If the Company is unable to develop and introduce new products
or enhancements to existing products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Risk Factors--Need to Develop New Software Products and
Enhancements."
COMPETITION
The Company's products are targeted at the emerging markets for standards-
based database connectivity software and standards-based distributed object
connectivity software. The markets for the Company's products are intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company believes that the principal competitive factors in these markets are
product quality, performance and price, vendor and product reputation, product
architecture and quality of support.
In the standards-based database connectivity market, the Company competes
principally against Intersolv. The Company's database connectivity products
also indirectly compete against proprietary database connectivity solutions
from database vendors. In the standards-based distributed object connectivity
market, the Company competes principally against two private companies, Iona
and Expersoft. The Company's distributed object connectivity products also
compete against existing or proposed distributed object connectivity solutions
from hardware vendors such as DEC, Hewlett-Packard, IBM and Sun. In addition,
because there are relatively low barriers to entry in the software market and
because the Company's products are based on publicly available standards, the
Company expects to experience additional competition in the future from other
established and emerging companies if the market for database connectivity and
distributed object connectivity software continues to develop and expand. In
particular, relational database vendors including Informix, Microsoft, Oracle
and Sybase may offer standards-based database connectivity software to their
customers, eliminating or reducing demand for the Company's products.
Similarly, operating system vendors such as DEC, Hewlett-Packard, IBM,
Microsoft and Sun may offer standards-based distributed object connectivity
products bundled with their operating systems. For instance, Microsoft has
announced plans to introduce DCOM, which would eliminate the need for CORBA-
compliant ORBs, such as those offered by the Company, for Microsoft operating
systems. Many of these current and potential competitors have well-established
relationships with the current and potential customers of the Company, have
extensive knowledge of the markets serviced by the Company, better name
recognition and more extensive development, sales and marketing resources and
are capable of offering single vendor solutions. As a result, these current
and potential competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than can the Company. It is also possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations.
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<PAGE>
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. Increased price competition may
result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business,
financial condition or results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures will not materially and adversely
affect its business, financial condition or results of operations. See "Risk
Factors--Intense Competition."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary technology.
While the Company relies on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights, the Company believes that factors such as the
technical and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable products and
product support are more essential to establishing and maintaining a
technology leadership position, particularly because the Company is supplying
standards-based products. The Company seeks to protect its software, published
data, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has granted
limited access to its source code to third parties under confidentiality
obligations. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's product or
to obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company distributes its products
electronically through the Internet. Distributing the Company's products
through the Internet makes the Company's software more susceptible than other
software to unauthorized copying and use. The Company has historically allowed
and currently intends to continue to allow customers to electronically
download its client and server software. If as a result of changing legal
interpretations of liability for unauthorized use of the Company's software or
otherwise, users were to become less sensitive to avoiding copyright
infringement, the Company's business, operating results and financial
condition could be materially adversely affected.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim infringement by the Company with respect to current or
future products. The Company expects that software developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, financial
condition or results of operations.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. The
Company licenses from Microsoft the base technology for the Visigenic ODBC SDK
products and licenses from RSA security technology it plans to use in several
of its future products. Microsoft has the right to terminate its license with
the Company any time after delivery to the Company of the SDK for ODBC 3.0,
which is expected to occur in the second half of 1996. The Company's license
with RSA may only be terminated for breach. The Company has entered into a
joint technology agreement with JavaSoft, a subsidiary of Sun MicroSystems,
that grants the Company the right to sub-license JavaSoft's JDBC test suites
and ODBC bridge. There can be no assurances that such firms will remain in
business, that they will continue to support
39
<PAGE>
their technology or that their technology will otherwise continue to be
available to the Company on commercially reasonable terms. The loss of or
inability to maintain any of these software licenses could result in delays or
cancellations in product shipments until equivalent software can be identified
and licensed or developed and integrated with the Company's products. Any such
delay or cancellation could materially adversely affect the Company's
business, financial condition or results of operations. See "Risk Factors--
Dependence on Company and Third Party Proprietary Technology."
EMPLOYEES
As of May 31, 1996, the Company employed 90 full time personnel, including
41 in product development, 6 in technical support, 32 in sales and marketing
and 11 in finance and administration.
FACILITIES
The Company's principal executive offices and research and development
facilities are located in San Mateo, California and consist of approximately
25,000 square feet under leases that will expire between July 2000 and January
2001. The Company also leases approximately 5,000 square feet of additional
office space used for research and development activities in Mountain View,
California pursuant to a lease that expires in March 1998. The Company has
sales offices in Atlanta, Boston and the Washington D.C. area and in Paris,
France. The Company anticipates that it will require additional space in the
near term and that such space will be available on reasonable terms.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger J. Sippl (1)...... 41 Chairman of the Board of Directors
and Chief Executive Officer
Mark D. Hanson.......... 35 President and Chief Operating Officer
Jens Christensen,
Ph.D................... 33 Vice President, Chief Technical Officer and Director
Glenn C. Myers.......... 51 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Therese H. Langlais..... 37 Vice President, Marketing
David T. Shewmake,
Ph.D................... 44 Vice President, Technical Services
Richard L. Gerould...... 43 Vice President, Corporate Development and General Counsel
Robert Perreault........ 39 Vice President, Research and Development
Cristina M. Morgan...... 43 Director
Gill Cogan (2).......... 44 Director
Michael Moritz.......... 41 Director
E. E. van Bronkhorst
(2).................... 72 Director
J. Sidney Webb (1)...... 76 Director
Eric Young (1).......... 40 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Roger J. Sippl is the founder of the Company and has served as a Director
and the Chief Executive Officer since February 1993. Mr. Sippl is a co-founder
of The Vantive Corporation, a customer interaction applications software
company ("Vantive") and has served as a director of Vantive since December
1990. Prior to his relationship with Vantive, Mr. Sippl founded Informix
Software, a database software company ("Informix") in 1980 and served as that
company's Chairman of the Board until 1992.
Mark D. Hanson has served as President and Chief Operating Officer of the
Company since January 1995. Mr. Hanson served as Vice President of Worldwide
Sales from June 1994 when he joined the Company until his appointment as
President and Chief Operating Officer. From July 1992 to March 1994, Mr.
Hanson was Vice President of Channel Sales of Sybase and Vice President,
International Sales of Gain Technology ("Gain"), software company, before the
acquisition of Gain by Sybase, a database software company. From January 1991
to June 1992, Mr. Hanson served as Vice President, World Wide Sales and
Support for Macromedia, a supplier of PC multimedia software and services.
Prior to that time, Mr. Hanson was employed as Vice President at Informix from
1984 to January 1991, most recently as Vice President, Americas Sales.
Jens Christensen has served as Vice President, Chief Technical Officer and a
Director of the Company since May 1996. From October 1991 to May 1996, Mr.
Christensen served as President and Chief Executive Officer of PostModern
Computing Technologies Inc., a software company he founded in 1991. From
October 1990 to September 1991, Mr. Christensen was employed as a software
engineer for Teknekron, a software company.
Glenn C. Myers has served as Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since February 1993. From
October 1985 to October 1992, Mr. Myers served as a Vice President,
Development for Donahue Schriber, a real estate development company.
Therese H. Langlais has served as Vice President, Marketing, of the Company
since November 1993. Ms. Langlais served as Director of Marketing from April
1993, when she joined the Company until her appointment as Vice President,
Marketing. Prior to this, Ms. Langlais was employed for nine years at
Informix, where she held various positions, the most recent being Director of
Strategic Projects.
41
<PAGE>
David T. Shewmake has served as Vice President, Technical Services of the
Company since September, 1993. In April 1983, Dr. Shewmake co-founded
Interactive Development Environments, a computer-aided-software engineering
tools company, where he served as Vice President until September 1993.
Richard L. Gerould has served as Vice President, Corporate Development and
General Counsel of the Company since December 1993. In November 1991, Mr.
Gerould founded Configurex, Inc., a software tools company, where he served as
President until March 1993. From April 1993 to November 1993, Mr. Gerould
worked as an independent attorney primarily for Cadence Design Systems, Inc.
From 1984 to 1990, Mr. Gerould was employed at Micro Focus, a COBOL software
tools company, most recently as Vice President of Corporate Services and
previously as Vice President, Marketing Operations.
Robert Perreault has served as Vice President, Research and Development of
the Company since September 1995. From May 1994 to September 1995, Mr.
Perreault served as Vice President of Client/Server Technology at Compuware
Corporation, a software company. From September 1993 to May 1994, he served as
Vice President of Database and Connectivity Products at Uniface Corporation, a
software company which merged with Compuware Corporation in May 1994. In 1993,
Mr. Perreault co-founded and served as President of Data Accessibility
Solutions, Inc., a consulting company which merged with the Company in May
1996. Mr. Perreault co-founded and served as Vice President of U.S. Operations
for RIAL, Inc., a consulting company, from September 1991 to August 1993.
Cristina M. Morgan has served as a Director of the Company since March 1993.
Ms. Morgan is a Managing Director of Hambrecht & Quist LLC, an investment
banking firm, where she has been employed since October 1982.
Gill Cogan has served as a Director of the Company since January 1994. Since
October 1991, Mr. Cogan has been a partner at Weiss, Peck & Greer Venture
Partners. Mr. Cogan serves as a director for Electronics for Imaging, Inc.,
Harmonic Lightwaves, Inc., Integrated Packaging Assembly Corp., Microlinear
Corporation, Number Nine Visual Technology, and P-Com Inc.
Michael Moritz has served as a Director of the Company since March 1993. Mr.
Moritz has been a partner at Sequoia Capital, a venture capital company, since
1986. Mr. Moritz serves as a director for Yahoo!, Flextronics International
and Global Village Communications.
E. E. van Bronkhorst has served as a Director of the Company since March
1993. Since 1984, Mr. van Bronkhorst has been an independent financial
consultant to various technology companies. From 1962 until 1984, Mr. van
Bronkhorst served as Senior Vice President, Chief Financial Officer and
Treasurer at Hewlett-Packard Company. Mr. van Bronkhorst is a director of
California Water Service Co., Nellcor Puritan Bennett Inc. and Mid-Peninsula
Bank.
J. Sidney Webb has served as a Director of the Company since March 1993.
Since May 1984, Mr. Webb has served as Director and Chairman of the Board of
The Titan Corporation, a consulting company. Mr. Webb also serves as a
Director of Amdahl Corporation, EIP Microwave, Inc. and Plantronics, Inc. Mr.
Webb previously was Vice Chairman and a Director of TRW.
Eric Young has served as a Director of the Company since July 1995. Mr.
Young is a general partner of Canaan Capital Partners, a venture capital
company, where he has been employed since October 1987. Mr. Young also serves
as a director for Spectrian Corporation and Integrated Packaging Assembly
Corporation.
42
<PAGE>
The Company's Bylaws currently authorize eight directors, which number may
be changed from time-to-time by the Board of Directors. All directors hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Amended and Restated Bylaws which will
become effective upon consummation of this offering will provide that,
beginning with the first annual meeting of stockholders following this
offering, the Board of Directors will be divided into three classes, with each
class serving staggered three-year terms. There are no family relationships
among the directors or executive officers of the Company.
In April 1996, the Board of Directors established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal audits. The Compensation Committee approves the
compensation of executives of the Company and makes recommendations to the
Board of Directors with respect to standards for setting compensation levels.
The Compensation Committee also administers the Company's employee stock
option and stock purchase plans. See "--Stock Plans."
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid by
the Company during the fiscal year ended March 31, 1996 to the Company's Chief
Executive Officer and the four other most highly compensated executive
officers (collectively, the "Named Executive Officers") whose salary and bonus
for services rendered in all capacities to the Company exceeded $100,000
during such fiscal year.
SUMMARY COMPENSATION TABLE FOR FISCAL 1996
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------
ANNUAL
COMPENSATION AWARDS
------------ -----------------
NO. OF SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION SALARY (1) OPTIONS
------------------ ------------ -----------------
<S> <C> <C>
Roger J. Sippl ................................. $ 90,001 --
Chief Executive Officer and
Chairman of the Board
Mark D. Hanson.................................. $140,000 62,500
President and Chief Operating Officer
Therese H. Langlais............................. $106,667 27,500
Vice President, Marketing
David T. Shewmake............................... $115,000 10,000
Vice President, Technical Services
Richard L. Gerould.............................. $115,000 15,000
Vice President, Corporate Development and
General Counsel
</TABLE>
- --------
(1) Amounts shown are on a full year basis and include cash and noncash
compensation earned and received by executive officers.
43
<PAGE>
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended March
31, 1996 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED(1) 1996(2) SHARE(3) DATE 5% 10%
---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger J. Sippl.......... -- -- -- -- -- --
Mark D. Hanson.......... 25,000 3.0% $0.40 04/18/05 $ 6,289 $ 15,937
12,500 1.5 $0.40 07/27/05 3,144 7,969
12,500 1.5 $0.40 10/25/05 3,144 7,969
12,500 1.5 $0.40 03/31/06 3,144 7,969
Therese H. Langlais..... 7,500 0.9 $0.40 04/18/05 1,887 4,781
10,000 1.2 $0.40 07/27/05 2,516 6,375
10,000 1.2 $0.40 03/15/06 2,516 6,375
David T. Shewmake....... 2,500 0.3 $0.40 04/18/05 629 1,594
7,500 0.9 $0.40 03/15/06 1,887 4,781
Richard L. Gerould...... 5,000 0.6 $0.40 04/18/05 1,258 3,187
10,000 1.2 $0.40 03/15/06 2,516 6,375
</TABLE>
- --------
(1) Options granted in fiscal 1996 are immediately exercisable and generally
vest over five years, with 10% of the option shares becoming fully vested
six months from the initial vesting date and 1/60th of the remainder
vesting each successive month, with full vesting occurring on the fifth
anniversary of the initial vesting date. The Company has a repurchase
right for shares not vested. Under the terms of the Company's 1995 Stock
Option Plan (the "Option Plan"), the Board or a committee of the Board
retains discretion, subject to Option Plan limits, to modify the terms of
outstanding options and to reprice outstanding options. The options have
a term of 10 years, subject to earlier termination in certain situations
related to termination of employment. See "--Stock Plans" for a
description of the material payment terms of the options.
(2) Based on a total of 832,500 options granted to all employees and
consultants during fiscal year 1996.
(3) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors of the Company on the date of grant. The Company's Common Stock
was not publicly traded at the time of the option grants to the officers.
(4) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall market conditions and the option holders' continued employment
through the vesting period. This table does not take into account any
appreciation in the price of the Common Stock from the date of grant to
the present. Assuming the fair market value of the Common Stock at the
date of grant is the initial public offering price of $10.00, the
potential realizable value of these options (a) at a 5% assumed annual
rate of stock price appreciation would be $397,224, $198,612, $198,612
and $198,612 for Mr. Hanson's options, $119,167, $158,889 and $158,889
for Ms. Langlais' options, $39,722 and $119,167 for Mr. Shewmake's
options, and $79,445 and $158,889 for Mr. Gerould's options and (b) at
10% assumed annual rate of stock price appreciation would be $638,436,
$319,218, $319,218 and $319,218 for Mr. Hanson's options, $191,531,
$255,374 and $255,374 for Ms. Langlais' options, $63,844 and $191,531 for
Mr. Shewmake's options, and $127,687 and $255,374 for Mr. Gerould's
options.
44
<PAGE>
AGGREGATE OPTION EXERCISES AND FISCAL 1996 YEAR-END VALUES
The following table provides the specified information concerning
unexercised options held as of March 31, 1996 by each of the Named Executive
Officers:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 3/31/96(1) OPTIONS AT 3/31/96(2)
------------------------ ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Roger J. Sippl................ -- -- -- --
Mark D. Hanson................ 7,500 55,000 -- --
Therese H. Langlais........... 4,750 22,750 -- --
David T. Shewmake............. 583 9,417 -- --
Richard L. Gerould............ 1,167 13,833 -- --
</TABLE>
- --------
(1) These options are immediately exercisable in full at the date of grant,
but shares purchased on exercise of unvested options are subject to a
repurchase right in favor of the Company which lapses ratably over five
years and entitles the Company to repurchase unvested shares at their
original issuance price.
(2) Calculated on the basis of the fair market value of the underlying
securities as of March 31, 1996 of $0.40 per share, as determined by the
Company's Board of Directors, minus the aggregate exercise price.
No options to purchase the Company's Common Stock were exercised during the
fiscal year ended March 31, 1996 by the Named Executive Officers. No
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year was paid pursuant to a long-term incentive
plan during the last fiscal year to any Named Executive Officer. The Company
does not have any defined benefit or actuarial plan under which benefits are
determined primarily by final compensation (or average final compensation) and
years of service with any of the Named Executive Officers.
STOCK PLANS
1995 Stock Option Plan. The 1995 Stock Option Plan of the Company (the
"Option Plan") provides for the grant of stock options to employees (including
officers), directors and consultants of the Company and its subsidiaries.
Options may be incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or nonstatutory
stock options, although incentive stock options may be granted only to
employees. All options granted under the Option Plan must be granted by April
18, 2005.
The Option Plan is administered by the Board of Directors or a committee
thereof. Subject to the provisions of the Option Plan, the Board or committee
has the authority to select the persons to whom options are granted and
determine the terms of each option, including (i) the number of shares of
Common Stock covered by the option, (ii) when the option becomes exercisable,
(iii) the option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of Common
Stock as of the date of grant, and, in the case of nonstatutory stock options
must be at least 85% of the fair market value of a share of Common Stock as of
the date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years). Generally, options granted
under the Option Plan are immediately exercisable but remain subject to
repurchase by the Company until vested under a schedule established by the
Board or committee. The Company's repurchase right will terminate upon certain
changes in control of the Company unless the outstanding options are assumed
or replaced by the acquiring corporation or if, following certain changes in
control of the Company, the option holder is terminated without cause or
resigns following "constructive termination" as defined in the Option Plan.
All incentive stock options are non-transferable other than by will or the
laws of descent and distribution. With the Company's consent, nonstatutory
stock options may be transferred to an optionee's immediate family, a trust
for their benefit or a partnership in which only the optionee and immediate
family members are partners.
45
<PAGE>
Of the 2,000,000 shares of Common Stock reserved for issuance under the
Option Plan as of May 31, 1996, a total of 189,301 shares had been issued upon
the exercise of options, of which 105,067 remain subject to repurchase,
options for the purchase of a total of 1,251,660 shares at a weighted average
exercise price of $1.08 per share were outstanding and 559,039 shares were
available for future option grants. On June 17, 1996, the Board of Directors
increased by 500,000 the number of shares issuable under the Option Plan,
subject to stockholder approval.
1996 Outside Directors Stock Option Plan. In June 1996, the Board of
Directors, subject to stockholder approval, adopted the 1996 Outside Directors
Stock Option Plan (the "Directors Plan") and reserved a total of 200,000
shares of Common Stock for issuance thereunder. The Directors Plan provides
for the grant of nonstatutory stock options to nonemployee directors of the
Company. The Directors Plan is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors. The Directors Plan provides that each
future nonemployee director of the Company will be granted an option to
purchase 15,000 shares of Common Stock on the date on which the optionee first
becomes a nonemployee director of the Company and each current nonemployee
director will be granted an option to purchase 15,000 shares of Common Stock
on the date following the first annual meeting of the stockholders of the
Company after this offering (the "Initial Grant"). Thereafter, on each
anniversary of a nonemployee director's Initial Grant, the director will be
granted an additional option to purchase 5,000 shares of Common Stock (an
"Annual Grant"). Subject to an optionee's continuous service with the Company,
approximately 1/8th of an Initial Grant will become exercisable six months
after the date of grant and 1/48th of the Initial Grant will become
exercisable monthly thereafter. Each Annual Grant will become exercisable in
twelve monthly installments beginning in the 37th month after the date of
grant, subject to the optionee's continuous service. The exercise price per
share of all options granted under the Directors Plan will equal the fair
market value of a share of Common Stock on the date of grant. Options granted
under the Directors Plan have a term of ten years. In the event of certain
changes in control of the Company, options outstanding under the Directors
Plan will become immediately exercisable and vested in full. With the
Company's consent, the options may be transferred to an optionee's immediate
family, a trust for their benefit or a partnership in which only the optionee
and immediate family members are partners.
1996 Employee Stock Purchase Plan. In June 1996, the Board of Directors,
subject to stockholder approval, adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 450,000 shares of Common Stock
for issuance thereunder, none of which have been issued as of the effective
date of this offering. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, is administered by the Board of Directors or by a
committee thereof. Employees (including officers and employee directors) of
the Company or any subsidiary designated by the Board for participation in the
Purchase Plan are eligible to participate in the Purchase Plan if they are
customarily employed for more than 20 hours per week and more than five months
per year, and do not own 5% or more of the Company's Common Stock. The
Purchase Plan will be implemented by sequential six-month offerings, the first
of which will commence on the effective date of this offering. The initial
offering period will terminate on January 31, 1997. Thereafter, offering
periods will begin on February 1 and August 1 of each year. The Board may
change the dates or duration of one or more offerings, but no offering may
exceed 27 months. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions at a price no less than 85% of the
lower of the fair market value of the Company's Common Stock on the first day
or the last day of each six-month offering period. Participants generally may
not purchase more than 1,500 shares in a six-month offering or stock having a
value (measured at the beginning of the offering) greater than $25,000 in any
calendar year. In the event of certain changes in control of the Company, the
Board may accelerate the purchase of shares under the Purchase Plan unless the
acquiring corporation assumes or replaces the purchase rights outstanding
under the Purchase Plan.
Executive Performance Incentive Plan. Under the Company's Executive
Performance Incentive Plan (the "Incentive Plan"), the Compensation Committee
of the Board of Directors (the "Committee") may award performance units to
designated executives that will vest and become payable if one or more
preestablished performance goals are attained during a specified performance
period and the participant remains an employee. Performance goals may be
either absolute or relative (in comparison to a standard determined by the
Committee)
46
<PAGE>
measures of revenue, operating income, net income, earnings per share, or
departmental expenses. Performance units are dollar-denominated in an amount
specified by the Committee at the time of initial award and become payable at
a time determined by the Committee following its certification of the
attainment of the performance goals. Participants may elect to receive payment
of vested performance units either in cash or in shares of the Company's
Common Stock having a fair market value on the date of payment equal to the
dollar value of the vested performance units. Immediately prior to certain
changes in control of the Company, Incentive Plan participants will be paid
the value of their performance units for the current performance period that
would have vested had the performance goals been attained at the target level,
prorated, however, for the portion of the performance period elapsed prior to
the change in control.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services provided as a
director. Directors are reimbursed for all travel and related expenses
incurred in connection with attending board and committee meetings. Upon
adoption of the Directors Plan, directors who are not employees of the Company
will receive yearly grants of options to purchase Common Stock. The Directors
Plan will become effective upon consummation of this offering. See "--Stock
Plans--1996 Outside Directors Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee was formed in April 1996, and is composed of
Roger Sippl, J. Sidney Webb and Eric Young. No interlocking relationship
exists between any member of the Company's Compensation Committee and any
member of any other company's board of directors or compensation committee.
During the fiscal year completed March 31, 1996, the Board of Directors of the
Company, of which Roger J. Sippl, Chief Executive Officer of the Company, was
and is a member, fulfilled all functions of the Compensation Committee with
regard to compensation of executive officers of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation, as
amended, which provide that directors of the Company shall not be personally
liable for monetary damages to the Company or its stockholders for a breach of
fiduciary duty as a director, except for liability as a result of (i) a breach
of the director's duty of loyalty to the Company or its stockholders; (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) an act related to the unlawful stock
repurchase or payment of a dividend under Section 174 of Delaware General
Corporation Law; and (iv) transactions from which the director derived an
improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation, as amended, also authorizes the
Company to indemnify its officers, directors and other agents, by bylaws,
agreements or otherwise, to the full extent permitted under Delaware law. The
Company intends to enter into separate indemnification agreements with its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company believes that the
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers and may indemnify its employees to the
fullest extent permitted by law. The Company believes that indemnification
under its Amended and Restated Bylaws covers at least negligence and gross
negligence on the part of the indemnified party.
47
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
EMPLOYMENT CONTRACTS
In connection with the merger of PostModern with and into the Company in May
1996, the Company entered into Non-Compete and Non-Solicitation Agreements
(the "Non-Compete Agreements") with each of Jens Christensen, Neguine Navab,
Prasad Mokkapati, and certain other employees of PostModern. The Non-Compete
Agreements provide that for a period of three years, these former employees of
PostModern will not accept employment from a competitor of the Company or
solicit employees of the Company to leave their employment with the Company.
48
<PAGE>
CERTAIN TRANSACTIONS
Since February 12, 1993 (the date of the Company's inception), there has not
been, nor is there currently proposed, any transaction or series of similar
transactions to which the Company was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of any class of voting securities of the Company or
members of such person's immediate family had or will have a direct or
indirect material interest other than the transactions described below.
On March 3, 1993, the Company issued for cash 2,000,000 shares of Common
Stock at a price of $0.08 per share to Roger J. Sippl, the Company's founder,
Chairman of the Board and Chief Executive Officer.
On March 31, 1993, the Company sold 803,000 shares of Series A Preferred
Stock at a price of $2.40 per share. The following executive officers,
directors, beneficial holders of more than 5% of a class of the Company's
capital stock and immediate family members of such persons purchased Series A
Preferred Stock:
<TABLE>
<CAPTION>
SHARES OF
SERIES A
PURCHASER(1) PREFERRED STOCK
------------ ---------------
<S> <C>
Cristina M. Morgan (2)....................................... 10,000
J. Sidney Webb (2)........................................... 20,000
Mark D. Hanson (3)........................................... 5,000
Therese H. Langlais (3)...................................... 15,000
Glenn C. Myers (3)........................................... 27,500
Elizabeth G. Salmon (4)...................................... 197,500
Entities affiliated with Sequoia Capital (4)(5).............. 250,000
</TABLE>
- --------
(1) See notes to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of such
shares.
(2) Director of the Company.
(3) Executive officer of the Company.
(4) A beneficial holder of more than 5% of a class of the Company's capital
stock.
(5) Includes 227,500 shares held by Sequoia Capital VI, 12,500 shares held by
Sequoia Technology Partners VI and 10,000 shares held by Sequoia XXIII.
Upon the consummation of this offering, all outstanding shares of Series A
Preferred Stock will convert into shares of Common Stock on a one-for-one
basis.
In June 1993, the Company issued 12,500 shares of Common Stock at a price of
$0.20 per share to each of Cristina M. Morgan, J. Sidney Webb, and E. E. van
Bronkhorst, outside directors of the Company.
49
<PAGE>
Between December 17, 1993 and January 14, 1994, the Company sold an
aggregate of 871,625 shares of Series B Preferred Stock at a price of $4.00
per share. Between April 29, 1994 and August 2, 1994, the Company sold an
aggregate of 625,000 shares of Series B Preferred Stock at a price of $4.00
per share. Between May 26, 1995 and August 3, 1995, the Company sold an
aggregate of 1,375,000 shares of Series B Preferred Stock at a price of $4.00
per share. The following executive officers, directors, beneficial holders of
more than 5% of a class of the Company's capital stock and immediate family
members of such persons purchased Series B Preferred Stock:
<TABLE>
<CAPTION>
SHARES OF
SERIES B
PURCHASER (1) PREFERRED STOCK
------------- ---------------
<S> <C>
Roger J. Sippl (2)(3)(4)................................... 261,250
J. Sidney Webb (2)......................................... 37,500
Cristina M. Morgan (2)..................................... 2,500
Mark D. Hanson (3)......................................... 2,500
Glenn C. Myers (3)......................................... 46,250
Therese H. Langlais (3).................................... 3,750
Richard L. Gerould (3)..................................... 12,625
Elizabeth G. Salmon (4).................................... 216,500
Entities Affiliated with Sequoia Capital (4)(5)............ 490,500
Entities Affiliated with Weiss, Peck & Greer Venture
Partners (4)(6)........................................... 592,500
Entities Affiliated with Canaan Capital Partners (4)(7).... 550,000
</TABLE>
- --------
(1) See notes to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of such
shares.
(2) Director of the Company.
(3) Executive officer of the Company.
(4) A beneficial holder of more than 5% of a class of the Company's capital
stock.
(5) Includes 446,355 shares held by Sequoia Capital VI, 24,525 shares held by
Sequoia Technology Partners VI, 8,820 shares held by Sequoia XXIII and
10,800 shares held by Sequoia XXIV.
(6) Includes 49,888 shares held by Weiss, Peck & Greer Venture Associates II
(Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture
Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund.
(7) Includes 446,500 shares held by Canaan Capital Offshore Limited
Partnership C.V., 53,500 shares held by Canaan Capital Limited Partnership
and 50,000 shares held by Quai Limited.
Upon the consummation of this offering, all outstanding shares of Series B
Preferred Stock will convert into shares of Common Stock on a one-for-one
basis.
On May 24, 1996, the Company sold an aggregate of 444,444 shares of Series C
Preferred Stock at a price of $9.00 per share, and shortly thereafter issued
convertible notes in the aggregate of $2.0 million. Cisco purchased 222,222 of
these shares, and a note for $1.0 million. Upon the consummation of this
offering, all outstanding shares of Series C Preferred Stock will convert into
shares of Common Stock on a one-for-one basis, and the amount borrowed by the
Company pursuant to the convertible notes will convert into shares of the
Company's Common Stock at a conversion price equal to the lesser of (i) $13.00
per share or (ii) the offering price per share to the public in the offering.
50
<PAGE>
In connection with the merger of PostModern Computing Technologies Inc.
("PostModern") with and into the Company in May 1996, the Company issued an
aggregate of 3,099,821 shares of its Common Stock to the former shareholders
of PostModern, including 844,486 shares to Jens Christensen, 851,235 shares to
Neguine Navab, 844,486 shares to Prasad Mokkapati and 426,507 shares to Suresh
Challa, and options to purchase an aggregate of 361,785 shares of its Common
Stock at exercise prices ranging from $0.24 to $0.60 to the former holders of
options to purchase Common Stock of PostModern, including options to purchase
67,494 shares of the Company's Common Stock issued to Neguine Navab. Also in
connection with the merger, the Company paid, subject to vesting, an aggregate
of $1,500,000 to certain former employees of PostModern, including $400,000 to
each of Messrs. Christensen and Mokkapati and $400,000 to Ms. Navab, and
$2,307,152 to certain former shareholders of PostModern, including $750,655 to
each of Messrs. Christensen and Mokkapati, $183,000 to Mr. Challa, and
$696,659 to Ms. Navab. Upon the closing of the merger, Hambrecht & Quist LLC,
of which Cristina M. Morgan, a Director of the Company, is a Managing
Director, received shares of PostModern common stock for financial advisory
services rendered to PostModern in connection with the Company's acquisition
of PostModern, which shares were immediately converted into 84,374 shares of
the Company's Common Stock. The consideration issued by the Company in the
merger was determined through negotiations between the managements of the
Company and PostModern.
In connection with the merger of Data Accessibility Solutions, Inc. ("Data
Accessibility") with and into the Company in May 1996, the Company issued an
aggregate of 12,500 shares of its Common Stock to the former shareholders of
Data Accessibility, including 6,250 shares to Robert Perreault, the Company's
Vice President, Research and Development.
Mr. Sippl, the Company's founder and the Chief Executive Officer and
Chairman of the Board of Directors of the Company, formed Java Development
Corp.("JDC") in February 1996, in order to pursue technology research and
development projects of interest to him. Mr. Sippl is the sole owner, director
and officer of JDC. In June 1996, the Company acquired certain technology and
other assets being developed by JDC that the Company expects it may use in a
future product or products. The Company paid Mr. Sippl $40,000 to acquire
these assets. JDC's cost of development of the technology, consisting chiefly
of salaries of JDC employees and fees paid to consultants, exceeded the price
paid by the Company. In connection with the asset sale, five employees of JDC
became employees of Visigenic. The Company may purchase technology or
technology rights from JDC in the future.
The Company has entered into non-compete agreements with certain employees
who joined the Company in connection with the PostModern merger. See
"Management--Employment Contracts." The Company intends to enter into
indemnification agreements with each of its directors and executive officers.
Such agreements will require the Company to indemnify such individuals to the
fullest extent permitted by Delaware law.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996, and as adjusted to
reflect the sale of the shares offered hereby, assuming no exercise of the
Underwriters' over-allotment option, (i) by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
by each of the Named Executive Officers and by each of the Company's
directors, (iii) by all current executive officers and directors as a group,
and (iv) by each Selling Stockholder. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
----------------------- SHARES BEING -----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
NAMED OFFICERS AND
DIRECTORS
Roger J. Sippl (2)..... 2,468,750 23.7% -- 2,468,750 20.4%
Mark D. Hanson (3)..... 275,000 2.6 -- 275,000 2.3
Jens Christensen (4)... 1,695,720 16.2 85,976 1,530,120 12.6
Therese H. Langlais
(5)................... 96,250 * -- 96,250 *
David T. Shewmake (6).. 45,000 * -- 45,000 *
Richard L. Gerould
(7)................... 90,125 * -- 90,125 *
Michael Moritz (8)..... 740,500 7.1 -- 740,500 6.1
Cristina M. Morgan
(9)................... 109,374 1.0 -- 109,374 *
Gill Cogan (10)........ 592,500 5.7 -- 592,500 4.9
E. E. van Bronkhorst
(11).................. 12,500 * -- 12,500 *
J. Sidney Webb (11).... 70,000 * -- 70,000 *
Eric Young (12)........ 550,000 5.3 -- 550,000 4.5
All executive officers
and directors as a
group (14 persons)
(13).................. 6,882,219 65.9 165,600 6,716,619 54.6
5% STOCKHOLDERS
Elizabeth G. Salmon
(14).................. 2,468,750 23.7 -- 2,468,750 20.4
c/o 951 Mariner's
Island Blvd.
Suite 460
San Mateo, California
94404
Neguine Navab (15).... 1,695,720 16.2 79,624 1,530,120 12.6
c/o 951 Mariner's
Island Blvd.
Suite 460
San Mateo, California
94404
Prasad Mokkapati (16).. 844,485 8.2 75,000 769,485 6.4
c/o 951 Mariner's
Island Blvd.
Suite 460
San Mateo, California
94404
Funds affiliated with.. 740,500 7.1 -- 740,500 6.1
Sequoia Capital (17)
3000 Sand Hill Road
Menlo Park, California
94025
Funds affiliated with.. 592,500 5.7 -- 592,500 4.9
Weiss, Peck & Greer
Venture Partners (18)
555 California Street
San Francisco,
California 94104
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(2)
----------------------SHARES BEING ----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ----------- ---------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Funds affiliated with... 550,000 5.3 -- 550,000 4.5
Canaan Capital Partners
(19)
2884 Sand Hill Road
Menlo Park, California
94025
OTHER SELLING STOCKHOLDERS
Justin Broughton........ 6,000 * 6,000 -- *
Suresh Challa (20)...... 426,507 4.1 80,000 346,507 2.9
John D. Fleischhauer.... 1,000 * 1,000 -- *
Richard J. Foley........ 15,000 * 1,500 13,500 *
Tommy Hawkins........... 67,500 * 17,500 50,000 *
Lynn Hoefflinger (21)... 15,500 * 1,000 14,500 *
Miles Kurland........... 2,000 * 500 1,500 *
Lion Investments 100,000 * 50,000 50,000 *
Limited................
Scott D. Putney......... 3,100 * 1,100 2,000 *
Clifford S. Robbins..... 1,875 * 500 1,375 *
Omar Shamseldin......... 300 * 300 -- *
</TABLE>
- --------
* Represents less than 1%.
(1) Based on 10,402,525 shares of Common Stock outstanding prior to the
offering. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days upon the exercise of
options. Calculations of percentages of beneficial ownership assume the
exercise by only the respective named stockholder of all options for the
purchase of Common Stock held by such stockholder which are exercisable
within 60 days of May 31, 1996.
(2) Includes 393,750 shares held by Elizabeth G. Salmon, Mr. Sippl's spouse,
as separate property and 20,000 shares held by Nelson D. Salmon and
Elizabeth G. Salmon, Trustees of the Nelson D. Salmon Trust dated October
14, 1994. Mr. Sippl disclaims beneficial ownership of all such shares.
(3) Includes 113,833 shares subject to a right of repurchase in favor of the
Company which lapses over time. Includes 30,000 shares issuable upon
exercise of options.
(4) Includes 783,740 shares held by Neguine Navab, Mr. Christensen's spouse,
and 67,494 shares issuable upon exercise of options held by Ms. Navab.
Mr. Christensen acquired his shares in the Company in connection with the
Company's acquisition of PostModern. See footnote 15 below. See "Certain
Transactions."
(5) Includes 3,750 shares held by Ms. Langlais, as Co-Trustee of the Halloran
1990 Living Trust dated March 12, 1990. Includes 19,020 shares subject to
a right of repurchase in favor of the Company which lapses over time, and
27,500 shares issuable upon exercise of options.
(6) Includes 15,983 shares subject to a right of repurchase in favor of the
Company which lapses over time. Includes 10,000 shares issuable upon
exercise of options.
(7) Includes 31,666 shares subject to a right of repurchase in favor of the
Company which lapses over time.
(8) Includes all shares held by entities affiliated with Sequoia Capital. See
footnote 17 below. Mr. Moritz, as a general partner of Sequoia Capital,
may be deemed to beneficially own shares, but Mr. Moritz disclaims
beneficial ownership of all such shares except to the extent of his
proportional interest therein.
(9) Includes 4,778 shares subject to a right of repurchase in favor of the
Company which lapses over time. Includes 84,374 shares issued to Hambrecht
& Quist LLC ("H&Q") for financial advisory services rendered to PostModern
in connection with the Company's acquisition of PostModern. Ms. Morgan is
a Managing Director of H&Q. Ms. Morgan disclaims beneficial ownership of
all such shares.
(10) Includes all shares held by entities affiliated with Weiss, Peck & Greer
Venture Partners. See footnote 18 below. Mr. Cogan, as a general partner
of Weiss, Peck & Greer Venture Partners, may be deemed to beneficially
own shares, but Mr. Cogan disclaims beneficial ownership of all such
shares except to the extent of his proportional interest therein.
53
<PAGE>
(11) Includes 4,778 shares subject to a right of repurchase in favor of the
Company which lapses over time.
(12) Includes all shares held by entities affiliated with Canaan Capital
Partners. See footnote 19 below. Mr. Young, as a general partner of
Canaan Capital Partners, may be deemed to beneficially own shares, but
Mr. Young disclaims beneficial ownership of all such shares except to the
extent of his proportional interest therein.
(13) See footnotes 2 through 12, footnote 15, and footnotes 17 through 19.
Includes 16,250 shares held by Robert Perreault, 46,500 shares held by
Glenn C. Myers, 67,500 shares held by Glenn C. Myers, Trustee U/D/T dated
January 20, 1986 and 6,250 shares held by Malinda Howard, Mr. Myers'
spouse. Also includes 194,836 shares subject to a right of repurchase in
favor of the Company which lapses over time, and 207,494 shares issuable
upon exercise of options. Of the 165,600 shares to be sold by the
executive officers and directors of the Company, Mr. Christensen intends
to sell 85,976 shares and Ms. Navab intends to sell 79,624 shares.
(14) Includes 2,055,000 shares held by Roger J. Sippl, Ms. Salmon's spouse,
and 20,000 shares held by Nelson D. Salmon and Elizabeth G. Salmon,
Trustees of the Nelson D. Salmon Trust dated October 14, 1994.
(15) Includes 67,494 shares issuable upon exercise of options. Also includes
844,486 shares held by Mr. Christensen, Ms. Navab's spouse. Ms. Navab is
Director of Object Technologies for the Company. Ms. Navab acquired her
shares and options in the Company in connection with the Company's
acquisition of PostModern. See "Certain Transactions."
(16) Mr. Mokkapati is Senior Architect for Distributed Objects for the
Company. Mr. Mokkapati acquired his shares in connection with the
Company's acquisition of PostModern. See "Certain Transactions."
(17) Represents 673,855 shares held by Sequoia Capital VI, 37,025 shares held
by Sequoia Technology Partners VI, 18,820 shares held by Sequoia XXIII
and 10,800 shares held by Sequoia XXIV. Michael Moritz, a Director of the
Company, is a general partner of Sequoia Capital. See footnote 8 above.
(18) Represents 49,888 shares held by Weiss, Peck & Greer Venture Associates
II (Overseas), Ltd., 227,638 shares held by Weiss, Peck & Greer Venture
Associates II, L.P. and 314,973 shares held by WPG Enterprise Fund. Gill
Cogan, a Director of the Company, is a general partner of Weiss, Peck &
Greer Venture Partners. See footnote 10 above.
(19) Represents 446,500 shares held by Canaan Capital Offshore Limited
Partnership C.V., 53,500 shares held by Canaan Capital Limited
Partnership and 50,000 shares held by Quai Limited. Eric Young, a
Director of the Company, is a general partner of Canaan Capital Partners.
See footnote 12 above.
(20) Includes 25,590 shares issuable upon exercise of options. Mr. Challa is
Director of Business Development for the Company. Mr. Challa acquired his
shares and options in the Company in connection with the Company's
acquisition of PostModern. See "Certain Transactions."
(21) Includes 8,258 shares subject to a right of repurchase in favor of the
Company which lapses over time. Includes 2,500 shares issuable upon
exercise of options.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock, par value $0.001 per share. Each outstanding share of
Preferred Stock will be automatically converted into one share of Common Stock
upon the closing of the offering being made hereby. Upon such conversion, such
Preferred Stock will be canceled, retired and eliminated from the shares that
the Company is authorized to issue. The following summary of certain
provisions of the Common Stock and the preferred stock of the Company does not
purport to be complete and is subject to, and qualified in its entirety by,
the Certificate of Incorporation and By-Laws of the Company that are included
as exhibits to the Registration Statement of which this Prospectus forms a
part and by the provisions of applicable law.
COMMON STOCK
As of May 31, 1996, there were approximately 10,402,525 shares of Common
Stock outstanding held of record by 147 stockholders, as adjusted to reflect
the conversion of the outstanding shares of Preferred Stock and convertible
promissory notes upon the closing of the offering. The holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of the holders of Common Stock. Subject to preferences
applicable to any outstanding preferred stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any preferred stock. Holders of
Common Stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued upon completion of the offering will be fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences
and restrictions of each series any or all of which may be greater than the
rights of the Common Stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock upon the rights of holders of
the Common Stock until the Board of Directors determines the specific rights
of the holders of such preferred stock. However, the effects might include,
among other things, restricting dividends on the Common Stock, diluting the
voting power of the Common Stock, impairing the liquidation rights of the
Common Stock and delaying or preventing a change in control of the Company
without further action by the stockholders. The Company has no present plans
to issue any shares of preferred stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the holders
of approximately 6,789,050 shares: issuable upon conversion of the outstanding
shares of Preferred Stock and outstanding convertible notes; held by the
founder and certain early employees of the Company; and held by former
PostModern shareholders, and their transferees, will have certain rights to
register those shares under the Securities Act of 1933, as amended. These
rights are provided under the terms of an agreement among the Company and the
holders of such shares. If the Company registers any of its Common Stock
either for its own account or for the account of other security holders, the
holders of such shares are entitled to include their shares of Common Stock in
the registration, subject to the ability of the underwriters to limit the
number of shares included in the offering. All fees, costs and expenses of
such registrations (other than underwriting discounts and commissions) will be
borne by the Company.
55
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three (3) years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
The Company's Amended and Restated Certificate of Incorporation, which will
become effective upon consummation of this offering, will require that any
action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders of the Company may be called only by the Board of Directors
or a committee of the Board. The Amended and Restated Bylaws which will become
effective upon consummation of this offering will provide that, beginning with
the first annual meeting of stockholders following this offering, the Board of
Directors will be divided into three classes, with each class serving
staggered three-year terms. These provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have outstanding an
aggregate of 12,102,525 shares of Common Stock, assuming (i) the issuance of
2,100,000 shares of Common Stock offered hereby, (ii) no exercise of the
Underwriters' over-allotment option and (iii) no exercise of options to
purchase Common Stock after May 31, 1996. Of these shares, the 2,100,000
shares sold in the offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act (whose
sales would be subject to certain limitations and restrictions described
below).
The remaining 10,402,525 shares of Common Stock held by existing
stockholders were issued and sold by the Company in reliance on exemptions
from the registration requirements of the Securities Act. All such outstanding
shares will be subject to the "lock-up" agreements described below on the date
of this Prospectus. Upon expiration of lock-up agreements 180 days after the
date of this Prospectus, 8,383,081 shares will become eligible for sale,
subject in most cases to the limitations of Rule 144. The remaining 2,019,444
shares held by existing stockholders will become eligible for sale at various
times over a period of less than two years and could be sold earlier if the
holders exercise registration rights. In addition, holders of stock options
could exercise these options and sell certain of the shares issued upon
exercise as described below.
As of May 31, 1996, there were a total of 1,251,660 shares of Common Stock
subject to outstanding options under the Option Plan, all of which were
exercisable. However, these shares are subject to lock-up agreements. All
options held by officers and directors of the Company are subject to a 180 day
lock-up agreement described below, and all other options are subject to a 180
day lock-up agreement with the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding
(approximately 121,025 shares immediately after this offering) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability
of current public information about the Company. Under Rule 144(k), a person
who is deemed not to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for a least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Under Rule 701 under the
Securities Act, persons who purchase shares upon exercise of options granted
prior to the effective date of this offering are entitled to sell such shares
90 days after the effective date of this offering in reliance on Rule 144,
without having to comply with the holding period and notice filing
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice filing
provisions of Rule 144.
The Company intends to file a registration statement under the Securities
Act 180 days after the effective date of the offering to register shares of
Common Stock reserved for issuance under the Option Plan and the Directors
Plan, thus permitting the resale of such shares by non-affiliates and by
affiliates, subject to Rule 144 volume limitations applicable thereto, in the
public market without restriction under the Securities Act. Such registration
statements will become effective immediately upon filing.
57
<PAGE>
As of May 31, 1996, the holders of approximately 6,789,050 shares are
entitled to certain registration rights with respect to such shares. If such
registration rights are exercised, the shares can be sold without any holding
period or sales volume limitation. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were required to include
in a Company initiated registration the shares held by such holders pursuant
to the exercise of their registration rights, such sales might have an adverse
effect on the Company's ability to raise needed capital. See "Description of
Capital Stock--Registration Rights."
All existing stockholders of the Company have agreed that they will not,
subject to certain limited exceptions, directly or indirectly, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for any such shares for a period of 180
days after the effective date of the offering without the prior written
consent of the Company, and in most cases, Hambrecht & Quist LLC.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC
and Robertson, Stephens & Company LLC (collectively, the "Representatives"),
have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC..............................................
Robertson, Stephens & Company LLC..................................
---------
Total.......................................................... 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus,
to purchase up to 255,000 and 60,000, respectively, additional shares of
Common Stock at the initial public offering price, less the underwriting
discount, set forth on the cover page of this Prospectus. To the extent that
the Underwriters exercise this option, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company and the Selling Stockholders will be obligated, pursuant to the
option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover-allotments
made in connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders and the other stockholders of the Company,
including the executive officers and directors, who will own in the aggregate
10,402,525 shares of Common Stock after this offering, have agreed that they
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exercisable for or convertible
into shares of Common Stock owned by them during the 180-day period following
the effective date of the Registration Statement for this offering. The
Company has agreed that it will not, without the prior
59
<PAGE>
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the effective date of the
Registration Statement for this offering, except that the Company may grant
additional options under its stock plans and issue securities under, or
pursuant to the exercise of options granted under, its stock plans. See
"Shares Eligible for Future Sale."
The Representatives currently anticipate that up to 105,000 shares of Common
stock may be sold at the initial public offering price to directors (or their
affiliated entities) and employees of the Company who have expressed an
interest in purchasing such shares of Common Stock in the offering. The number
of shares available for sale to the general public will be reduced to the
extent such persons purchase such shares. Any such shares not so purchased
will be offered by the Representatives to the general public on the same basis
as other shares offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they have discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiation among the Company, the representatives of the Selling Stockholders
and the Representatives. Among the factors considered in determining the
initial public offering price were prevailing market and economic conditions
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed
relevant.
LEGAL MATTERS
The validity of the securities offered hereby and general corporate legal
matters will be passed upon for the Company by Gray Cary Ware & Freidenrich, A
Professional Corporation ("GCWF"), Palo Alto, California. As of May 31, 1996,
certain members and investment partnerships of GCWF beneficially owned an
aggregate of 37,000 shares of the Company's Common Stock. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Fenwick & West LLP. Fenwick & West LLP owns an aggregate of
18,979 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Visigenic Software, Inc. and
PostModern Computing Technologies Inc. included in this Prospectus and
elsewhere in the Registration Statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus which constitutes a part of the Registration Statement does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and such Common Stock, reference is made to the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete. In each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. Copies of the Registration Statement, including exhibits and
schedule thereto, may be inspected without charge at the Commission's
principal office in Washington, D.C., or obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
60
<PAGE>
VISIGENIC SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VISIGENIC SOFTWARE, INC.:
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
POSTMODERN COMPUTING TECHNOLOGIES INC.:
Report of Independent Public Accountants............................... F-15
Balance Sheets......................................................... F-16
Statements of Operations............................................... F-17
Statements of Shareholders' Equity..................................... F-18
Statements of Cash Flows............................................... F-19
Notes to Financial Statements.......................................... F-20
VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC.--
PRO FORMA:
Pro Forma Condensed Combined Financial Statements...................... P-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Visigenic Software, Inc.:
We have audited the accompanying consolidated balance sheets of Visigenic
Software, Inc. (a Delaware corporation) and subsidiary as of March 31, 1995
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visigenic Software, Inc.
and subsidiary as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
June 17, 1996
F-2
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1996
MARCH 31, STOCKHOLDERS' EQUITY
----------------- PRO FORMA
1995 1996 (NOTE 5)
------- -------- --------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 553 $ 2,399
Accounts receivable, net of allowance
of $60 in 1996...................... 472 760
Prepaid expenses and other current
assets.............................. 175 257
------- --------
Total current assets............... 1,200 3,416
------- --------
PROPERTY AND EQUIPMENT, net............ 607 1,349
OTHER ASSETS, net...................... 22 55
------- --------
$ 1,829 $ 4,820
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 201 $ 811
Accrued liabilities-
Payroll and related benefits........ 86 347
Other............................... 122 301
Deferred revenue..................... 303 1,141
------- --------
Total current liabilities.......... 712 2,600
------- --------
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001
par value, aggregate liquidating
preference of $13,414
Authorized--10,000,000 shares
Outstanding--Series A, 803,000
shares in 1995 and 1996; Series B,
1,496,625 shares in 1995 and
2,871,625 shares in 1996; no
shares outstanding pro forma...... 3 4 $ --
Common stock, $.001 par value,
Authorized--20,000,000 shares
Outstanding--2,782,877 shares in
1995 and 2,835,905 shares in 1996;
6,510,530 shares outstanding pro
forma............................. 3 3 7
Additional paid-in capital........... 8,194 13,675 13,675
Accumulated deficit.................. (7,083) (11,462) (11,462)
------- -------- --------
Total stockholders' equity......... 1,117 2,220 $ 2,220
------- -------- ========
$ 1,829 $ 4,820
======= ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
REVENUE:
Software products................................ $ -- $ 892 $ 4,479
Service and other................................ -- 223 1,096
------- ------- -------
Total revenue.................................. -- 1,115 5,575
------- ------- -------
COST OF REVENUE:
Software products................................ -- 36 284
Service and other................................ -- 259 727
------- ------- -------
Total cost of revenue.......................... -- 295 1,011
------- ------- -------
GROSS PROFIT....................................... -- 820 4,564
------- ------- -------
OPERATING EXPENSES:
Product development.............................. 1,393 3,160 4,348
Sales and marketing.............................. 503 1,511 3,215
General and administrative....................... 600 872 1,465
------- ------- -------
Total operating expenses....................... 2,496 5,543 9,028
------- ------- -------
Loss from operations........................... (2,496) (4,723) (4,464)
INTEREST AND OTHER INCOME, net..................... 42 94 85
------- ------- -------
NET LOSS........................................... $(2,454) $(4,629) $(4,379)
======= ======= =======
PRO FORMA NET LOSS PER SHARE....................... $ (.40)
=======
PRO FORMA WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES................................. 10,976
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founder in
February 1993......... -- $ -- 2,000,000 $ 2 $ 158 $ -- $ 160
Issuance of common
stock................. -- -- 427,019 -- 81 -- 81
Issuance of Series A
convertible preferred
stock................. 803,000 1 -- -- 1,898 -- 1,899
Issuance of Series B
convertible preferred
stock................. 871,625 1 -- -- 3,445 -- 3,446
Net loss............... -- -- -- -- -- (2,454) (2,454)
--------- ----- --------- --- ------- -------- -------
BALANCE, MARCH 31,
1994................... 1,674,625 2 2,427,019 2 5,582 (2,454) 3,132
Issuance of common
stock................. -- -- 459,575 1 183 -- 184
Repurchase of common
stock................. -- -- (103,717) -- (35) -- (35)
Issuance of Series B
convertible preferred
stock................. 625,000 1 -- -- 2,464 -- 2,465
Net loss............... -- -- -- -- -- (4,629) (4,629)
--------- ----- --------- --- ------- -------- -------
BALANCE, MARCH 31,
1995................... 2,299,625 3 2,782,877 3 8,194 (7,083) 1,117
Issuance of Series B
convertible preferred
stock................. 1,375,000 1 -- -- 5,459 -- 5,460
Exercise of stock
options............... -- -- 54,068 -- 22 -- 22
Repurchase of common
stock, net of
issuances............. -- -- (1,040) -- -- -- --
Net loss............... -- -- -- -- -- (4,379) (4,379)
--------- ----- --------- --- ------- -------- -------
BALANCE, MARCH 31,
1996................... 3,674,625 $ 4 2,835,905 $ 3 $13,675 $(11,462) $ 2,220
========= ===== ========= === ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(2,454) $(4,629) $(4,379)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation and amortization.................... 67 158 310
Provision for allowance for doubtful accounts.... -- -- 60
Changes in net assets and liabilities--
Increase in accounts receivable................. -- (472) (348)
Increase in prepaid expenses and other current
assets......................................... (35) (139) (82)
Increase in accounts payable.................... 148 53 610
Increase in accrued liabilities................. 66 142 440
Increase in deferred revenue.................... -- 303 838
------- ------- -------
Net cash used in operating activities.......... (2,208) (4,584) (2,551)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (457) (373) (1,052)
Organization costs and other assets............... (20) (5) (33)
------- ------- -------
Net cash used in investing activities.......... (477) (378) (1,085)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock..... 5,345 2,465 5,460
Net proceeds from issuance of common stock........ 241 149 22
------- ------- -------
Net cash provided by financing activities...... 5,586 2,614 5,482
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 2,901 (2,348) 1,846
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... -- 2,901 553
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 2,901 $ 553 $ 2,399
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Visigenic Software, Inc. (the "Company") was incorporated on February 12,
1993. The Company operates in a single industry segment and is involved in the
design, development and marketing of database connectivity software products.
Through March 31, 1995 the Company's principal efforts were focused on raising
capital, developing its products and applications, establishing marketing and
sales channels and recruiting key personnel. During fiscal 1996, the Company
emerged from the development stage, however, the Company continues to be
subject to the risks associated with companies in a comparable stage of
development.
Although the Company was incorporated on February 12, 1993, its activities
during the first two months involved limited cash expenditures and consisted
only of recruiting of key personnel and raising capital. Accordingly, the
accompanying consolidated statements of operations, stockholders' equity and
cash flows for the year ended March 31, 1994 are presented for the period from
inception (February 12, 1993) to March 31, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Functional Currency
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary after elimination of intercompany transactions
and balances. The functional currency of the Company's foreign subsidiary is
the U.S. dollar. Foreign exchange gains and losses resulting from the
remeasurement of the financial statements for the subsidiary, which are not
material, are included in other income in the accompanying consolidated
statements of operations.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. The Company's short-term investments are accounted for pursuant
to the provisions of Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." As of
March 31, 1995 and 1996, the Company's cash and cash equivalents were
deposited in checking and money market accounts, U.S. Government Treasury
Bills and certificates of deposits.
Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," the Company capitalizes
eligible computer software development costs upon the establishment of
technological feasibility, which it has defined as completion of a working
model. For the years ended March 31, 1994, 1995 and 1996, the amount of costs
eligible for capitalization, after consideration of factors such as realizable
value, were not material and, accordingly, all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.
F-7
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets (or
over the lease term if it is shorter for leasehold improvements), which range
from three to five years. Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1995 1996
----- -------
<S> <C> <C>
Computer equipment........................................... $ 453 $ 1,126
Furniture and fixtures....................................... 125 320
Purchased software........................................... 239 401
Leasehold improvements....................................... 12 34
----- -------
829 1,881
Less--Accumulated depreciation and amortization.............. (222) (532)
----- -------
Property and equipment, net................................ $ 607 $ 1,349
===== =======
</TABLE>
Revenue Recognition and Deferred Revenue
The Company's revenue is derived from fixed license fees from licensing its
products, royalties from VARs, ISVs and distributors, and fees for services
related to its products, including software maintenance, development contracts
and consulting and training. Certain of the Company's license arrangements
with VARs and ISVs provide for sublicense fees payable to the Company based on
a percent of the VARs or ISVs net revenue. Other license arrangements provide
for fixed license fees for the right to make and distribute an unlimited
number of copies of the Company's product for a specified period of time.
Ongoing sublicense fee revenue, other than from guaranteed sublicense fees, is
recognized when it is reported by the VAR, ISV or distributor. Service revenue
is primarily attributable to lower margin maintenance and other revenue,
including training revenue and engineering development fees.
The Company generally recognizes revenue from fixed license and guaranteed
sublicense fees upon delivery of software products if there are no significant
post-delivery obligations, if collection is probable and if the license
agreement requires payment within 90 days. If significant post-delivery
obligations exist or if a product is subject to customer acceptance, revenue
is deferred until no significant obligations remain or acceptance has
occurred.
Maintenance revenue from ongoing customer support and product upgrades is
recognized ratably over the term of the applicable maintenance period, which
is typically 12 months. If maintenance is included in a license agreement,
such amounts are unbundled from the license fee at its fair market value.
Consulting and training revenue is generally recognized as services are
performed over the term of the agreement. Revenue from engineering development
work is generally recognized on a percentage of completion basis. If a
transaction includes both license and service elements, license fee revenue is
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and payment
terms are not subject to acceptance criteria. In cases where license fee
payments are contingent upon the acceptance of services, revenues from both
the license and service elements are deferred until the acceptance criteria
are met.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contract) and advance payment of
software development fees and license fees.
F-8
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant Customers
A relatively small number of customers have accounted for a significant
percentage of the Company's total revenue. The following three customers
accounted for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------
1995 1996
----- -----
<S> <C> <C>
Customer A.................................................... 55% -- %
Customer B.................................................... 20% -- %
Customer C.................................................... -- % 25%
</TABLE>
Export Sales
The Company markets its products in North America and in foreign countries
(primarily Europe and Japan) through its sales personnel, VARs, ISVs and
distributors. For fiscal 1996, export sales, which consist of domestic sales
to customers in foreign countries, were 10% of total revenue. For fiscal 1995,
export sales were less than 10% of total revenue.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. As of
March 31, 1996, approximately 75% of accounts receivable were concentrated
with ten customers. The Company generally does not require collateral on
accounts receivable as the majority of the Company's customers are large, well
established companies. The Company provides reserves for credit losses, which
to date have been insignificant.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which will be effective for
the Company's 1997 fiscal year. SFAS No. 123 allows companies which have
stock-based compensation arrangements with employees to adopt a new fair-value
basis of accounting for stock options and other equity instruments or to
continue to apply the existing accounting rules under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," but
with additional financial statement disclosure. The Company expects to
continue to account for stock-based compensation arrangements under APB
Opinion No. 25 and, therefore, does not expect SFAS No. 123 to have a material
impact on its financial position, results of operations and cash flows.
Pro Forma Net Loss per Share
Pro forma net loss per share is computed using the pro forma weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of convertible preferred stock (using
the if converted method) and stock options (using the treasury stock method).
Common stock options are excluded from the computation if their effect is
antidilutive. Convertible preferred stock outstanding during the period is
included (using the if converted method) in the computation of common
equivalent shares even though the effect is antidilutive. Also, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the filing date of this registration
statement as if they were outstanding for all periods presented. Historical
net loss per share amounts have not been presented since such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure that will occur in connection with the proposed offering.
F-9
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LINE OF CREDIT:
The Company has a $1.0 million revolving line of credit agreement (the
"Agreement") with a bank, which expires on August 15, 1996. Advances under the
Agreement bear interest at the bank's prime lending rate plus 1.25% (9.5% at
March 31, 1996), are limited to 80% of eligible accounts receivable and are
secured by substantially all of the assets and contractual rights of the
Company. The Agreement also contains certain financial restrictions and
covenants. As of March 31, 1996, the Company was in compliance with the
financial restrictions and covenants, and there were no borrowings
outstanding. Subsequent to March 31, 1996, the Company borrowed approximately
$525,000 under the Agreement.
4. COMMITMENTS:
The Company leases its facilities under operating lease agreements expiring
through January 2001. Rent expense for all operating leases totaled
approximately $131,000, $192,000 and $304,000 for the years ended March 31,
1994, 1995 and 1996, respectively. Minimum future lease payments under all
noncancellable operating leases as of March 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- -----------
<S> <C>
1997................................................................... $ 434
1998................................................................... 559
1999................................................................... 571
2000................................................................... 582
2001................................................................... 277
------
$2,423
======
</TABLE>
5. CONVERTIBLE PREFERRED STOCK:
Subsequent to March 31, 1996, the Company's Board of Directors approved a
one-for-two reverse split of its common and preferred stock. All common and
preferred share and per share amounts in the accompanying consolidated
financial statements have been adjusted retroactively to give effect to this
reverse stock split.
In conjunction with the proposed initial public offering of the Company's
common stock, all outstanding shares of Series A and B convertible preferred
stock will automatically convert into common stock upon closing of the
offering. The pro forma effects of this conversion, which do not reflect the
securities issued subsequent to year end (see Note 9), have been reflected in
the accompanying consolidated balance sheet as of March 31, 1996.
The Company's certificate of incorporation, as amended in May 1996,
authorizes the issuance of up to 10,000,000 shares of convertible preferred
stock of which the Company has designated 1,606,000 shares as Series A
preferred stock, 6,000,000 shares as Series B preferred stock and 1,000,000
shares as Series C preferred stock. No shares of Series C preferred stock were
issued as of March 31, 1996 (see Note 9). The rights and preferences of the
Series A, B and C preferred stock are as follows:
Dividends
The holders of Series A, B and C preferred stock are entitled to receive
dividends when and as declared by the Board of Directors. No cash dividends
can be paid on common stock or preferred stock unless, at the same time, a
dividend is paid with respect to all outstanding shares of preferred stock in
an amount for each such share equal to the aggregate amount of such dividends
payable on that number of shares of common stock into which each such share of
preferred stock could then be converted.
F-10
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A, B and C preferred stock are entitled to receive, in
preference to holders of common stock, the amount of $2.40, $4.00 and $9.00
per share, respectively. Such amounts will be adjusted for any stock split,
combination, distribution or dividend. After payment of the above amounts,
holders of common stock are entitled to receive the amount of $2.40 per share,
adjusted for any stock split, combination, distribution or dividend. After
payment of the above amounts, holders of Series A preferred stock and common
stock are entitled to receive the amount of $1.60 per share for each share of
such stock, adjusted for any stock split, combination, distribution or
dividend. Any remaining assets would then be distributed ratably among
stockholders in proportion to their aggregate preferential amounts.
Voting Rights
The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which such preferred stock is
convertible.
Conversion
Each share of preferred stock is convertible into one share of common stock,
at the option of the holder thereof, at any time after the date of issuance.
The conversion rate is subject to adjustment for dilution, including, but not
limited to, stock splits, stock dividends and stock combinations. In addition,
each share of Series A, B and C preferred stock will automatically convert
into common stock at the then conversion rate upon the written consent of
holders of a majority of all outstanding series A, B and C preferred stock or
upon the closing of an underwritten public offering of the Company's common
stock at an aggregate offering price of not less than $10,000,000 and at an
offering price per share of at least $4.00 per share, of at least $6.67 per
share and of at least $12.00 per share, for Series A, B and C preferred stock,
respectively. Holders of Series C preferred stock have agreed to reduce the
automatic conversion price of the Series C preferred stock if necessary to
cause such stock to convert automatically into shares of common stock upon the
completion of the Company's initial public offering.
6. COMMON STOCK:
Subsequent to March 31, 1996, the Company's Board of Directors approved a
one-for-two reverse split of its common and preferred stock. All common and
preferred share and per share amounts in the accompanying consolidated
financial statements have been adjusted retroactively to give effect to this
reverse stock split.
Prior to July 1993, the Company issued 232,575 shares of common stock to
certain employees and directors of the Company that are subject to certain
repurchase rights. These rights of repurchase lapse over a five-year period.
As of March 31, 1996, 64,228 shares of common stock are subject to repurchase
by the Company at prices ranging from $0.08 to $0.20 per share.
Stock Purchase Plans
In April 1993 and August 1994, the Company adopted Stock Purchase Plans (the
"Plans") and authorized the issuance of 952,500 shares thereunder to employees
and consultants. Stock purchased under these Plans generally vests ratably
over a five-year period. Unvested shares may be repurchased by the Company at
the original issuance price in the event of termination.
F-11
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1996, 526,287 shares were issued and outstanding under these
Plans at prices ranging from $.20 to $.40 per share, which was the fair market
value of the stock, as determined by the Board of Directors, on the date of
grant, of which 289,522 were subject to repurchase. As of March 31, 1996, no
further shares were available for issuance under the Plans.
Stock Option Plan
In fiscal 1996, the Company established the 1995 Stock Option Plan (the
"1995 Plan") and reserved 2,000,000 shares of common stock for issuance. Under
the 1995 Plan, the Board of Directors may grant incentive and nonqualified
stock options to employees, consultants and directors of the Company. The
exercise price per share for an incentive stock option cannot be less than the
fair market value, as determined by the Board of Directors, on the date of
grant. The exercise price per share for nonqualified stock options cannot be
less than 85% of the fair market value, as determined by the Board of
Directors, on the date of grant. Options generally expire ten years after the
date of grant and vest over a period of five years. Option activity under the
1995 Plan was as follows:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
OPTIONS --------------
AVAILABLE SHARES PRICE
--------- ------- -----
<S> <C> <C> <C>
Authorized......................................... 2,000,000 -- --
Granted............................................ (820,250) 820,250 $.40
Exercised.......................................... -- (54,068) $.40
Canceled........................................... 12,932 (12,932) $.40
--------- ------- ----
Balance at March 31, 1996.......................... 1,192,682 753,250 $.40
========= ======= ====
</TABLE>
At March 31, 1996, options outstanding for the purchase of 75,358 shares
were vested under the 1995 Plan at an exercise price of $0.40 per share.
Subsequent to March 31, 1996, the Company increased the number of shares of
common stock available for issuance under the 1995 Plan to 2,500,000 shares.
Common Stock Reserved for Future Issuance
As of March 31, 1996, the Company has reserved the following shares of
common stock for future issuance:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 803,000
Conversion of Series B preferred stock............................. 2,871,625
Stock Option Plan.................................................. 1,945,932
---------
5,620,557
=========
</TABLE>
7. EMPLOYEE BENEFIT PLAN:
In June 1995, the Company adopted the Visigenic Software, Inc. 401(k) Plan
(the "401(k) Plan"), as allowed under Section 401(k) of the Internal Revenue
Code, which provides for tax deferred salary deductions for eligible employees
of the Company. Employees who are 21 years of age or older are eligible to
participate immediately upon the date of hire and may make voluntary
contributions of their compensation to the 401(k) Plan. The 401(k) Plan does
not provide for Company contributions and the Company is the administrator.
F-12
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES:
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns based upon
enacted tax laws and rates applicable to the periods in which taxes become
payable. A valuation allowance has been recorded for the entire deferred tax
asset as a result of uncertainties regarding realization of the asset
including the limited operating history of the Company, the lack of
profitability to date and the uncertainty over future operating profitability.
Components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Net operating loss carryforwards............................. $1,894 $3,398
Cumulative book to tax differences........................... 750 994
General business credit carryforwards........................ 311 372
------ ------
2,955 4,764
Valuation allowance.......................................... (2,955) (4,764)
------ ------
Net deferred tax asset................................... $ -- $ --
====== ======
</TABLE>
As of March 31, 1996, the Company had Federal and state net operating loss
carryforwards of approximately $9.8 million and $2.0 million, respectively,
which expire at various dates through 2011. In addition, as of March 31, 1996,
the Company had general business credit carryforwards of approximately
$372,000 which expire at various dates through 2011.
Under current tax law, net operating loss and credit carryforwards available
in any given year may be limited upon the occurrence of certain events,
including significant changes in ownership interests.
9. SUBSEQUENT EVENTS:
Acquisition of PostModern Computing Technologies Inc.
In May 1996, the Company completed the acquisition of PostModern, a supplier
of software for the development of distributed applications in an object-
oriented environment. In the acquisition, which was structured as a merger,
the Company issued 3,099,821 shares of its Common Stock, valued at $3.00 per
share based on an independent appraisal of the Company's stock, and paid a
total of $2.3 million in exchange for all of PostModern's outstanding shares.
The Company expects to incur acquisition-related costs of approximately
$525,000, resulting in a total purchase price of approximately $13.1 million.
In addition, the Company made cash payments, subject to one-year vesting and
totaling $1.5 million, to certain PostModern employees. The acquisition of
PostModern will be accounted for as a purchase in the quarter ending June 30,
1996.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicates that approximately $12.0
million of the acquired intangible assets consist of in process product
development. Because there can be no assurance that the Company will be able
to successfully complete the development and integration of the PostModern
products or that the acquired technology has any alternative future use, the
acquired in process product development will be charged to expense by
Visigenic in its quarter ending June 30, 1996.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $1.1 million, which is being amortized on a
straight-line basis over a period of two years. Management believes that the
unamortized balance is recoverable through future operating results.
F-13
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition, the Company also assumed PostModern's
outstanding stock options and reserved 361,785 shares of the Company's common
stock for issuance upon exercise of such option at an exercise price of $0.24
to $0.60 per share under similar vesting terms.
Issuance of Series C Convertible Preferred Stock and Convertible Notes
On May 24, 1996, the Company sold 444,444 shares of its Series C Preferred
Stock at a price of $9.00 per share to three investors, for aggregate proceeds
of $4.0 million. Subject to certain conditions, the Company has the right to
require these investors to purchase up to an additional $4.0 million in
convertible notes at any time prior to October 31, 1996. Between May 28 and
June 7, 1996, the Company issued convertible notes, bearing interest at the
rate of 8.25% per annum, for $2.0 million of the available $4.0 million. Upon
the closing of the Company's initial public offering, the principal amount of
each Note and all accrued interest will automatically convert into shares of
the Company's common stock at the lesser of $13.00 per share or the offering
price per share to the public, and the Series C preferred stock will
automatically convert into shares of the Company's common stock. The Company
used a portion of the proceeds from the sale of the Series C preferred stock
and the convertible notes to pay amounts payable in connection with the
closing of the acquisition of PostModern.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in June 1996, subject to approval
by the stockholders. A total of 450,000 shares of common stock has been
reserved for issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to purchase common stock at 85% of the lower of the fair
market value of the Company's common stock on the first day or the last day of
each six-month offering period.
1996 Outside Directors Stock Option Plan
The Company's 1996 Outside Directors Stock Option Plan (the "Directors
Plan") was adopted by the Company's Board of Directors in June 1996, subject
to approval by the stockholders. A total of 200,000 shares of common stock has
been reserved for issuance under the Directors Plan. The Directors Plan
provides for the initial grant of nonstatutory stock options to purchase
15,000 shares of common stock on the first annual meeting following the
initial public offering of the Company's common stock or the date on which the
optionee first becomes a nonemployee director of the Company and an additional
option to purchase 5,000 shares of common stock on the next anniversary to
existing and future nonemployee directors of the Company. The exercise price
per share of all options granted under the Directors Plan will equal the fair
market value of a share of the Company's common stock on the date of grant of
the option.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PostModern Computing Technologies Inc.:
We have audited the accompanying balance sheets of PostModern Computing
Technologies Inc. (a California corporation) as of March 31, 1995 and 1996 and
the related statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PostModern Computing
Technologies Inc. as of March 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
May 31, 1996
F-15
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 38,342 $ 56,860
Accounts receivable...................................... 138,383 303,604
Prepaid expenses......................................... 6,200 33,714
-------- --------
Total current assets................................... 182,925 394,178
-------- --------
PROPERTY AND EQUIPMENT:
Computer equipment....................................... 53,719 85,596
Furniture and fixtures................................... 5,295 27,626
-------- --------
59,014 113,222
Less--Accumulated depreciation........................... (29,479) (47,680)
-------- --------
Net property and equipment............................. 29,535 65,542
-------- --------
OTHER ASSETS............................................... 6,457 14,051
-------- --------
$218,917 $473,771
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to shareholders............................. $ 22,500 $ --
Accounts payable......................................... 13,035 109,488
Accrued payroll and related benefits..................... 95,541 55,312
Deferred revenue......................................... 19,321 189,252
-------- --------
Total current liabilities.............................. 150,397 354,052
-------- --------
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY:
Convertible preferred stock, no par value -- --
Authorized--5,000,000 shares
Outstanding--none
Common stock, no par value
Authorized--20,000,000 shares
Outstanding--6,600,000 and 6,920,000 shares in 1995 and
1996, respectively..................................... 18,775 50,775
Note receivable from shareholder......................... -- (32,000)
Retained earnings........................................ 49,745 100,944
-------- --------
Total shareholders' equity............................. 68,520 119,719
-------- --------
$218,917 $473,771
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-16
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
REVENUE:
Software products.............................. $324,874 $ 253,056 $ 304,161
Consulting, maintenance and other.............. 319,349 250,758 697,702
-------- --------- ---------
Total revenue................................ 644,223 503,814 1,001,863
-------- --------- ---------
COST OF REVENUE:
Software products.............................. 9,459 31,746 43,340
Consulting, maintenance and other.............. 74,613 140,622 219,228
-------- --------- ---------
Total cost of revenue........................ 84,072 172,368 262,568
-------- --------- ---------
GROSS PROFIT..................................... 560,151 331,446 739,295
-------- --------- ---------
OPERATING EXPENSES:
Research and development....................... 116,840 150,428 223,297
Sales and marketing............................ 87,681 183,264 240,383
General and administrative..................... 83,104 176,672 211,766
-------- --------- ---------
Total operating expenses..................... 287,625 510,364 675,446
-------- --------- ---------
Income (loss) before provision for income
taxes....................................... 272,526 (178,918) 63,849
PROVISION FOR INCOME TAXES....................... -- -- 5,000
-------- --------- ---------
NET INCOME (LOSS)................................ $272,526 $(178,918) $ 58,849
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- NOTES RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
---------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993.... 10,000,000 $35,775 $ -- $ (3,863) $ 31,912
Declaration and payment
of dividend............. -- -- -- (40,000) (40,000)
Net income............... -- -- -- 272,526 272,526
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1994.... 10,000,000 35,775 -- 228,663 264,438
Issuance of common stock
........................ 500,000 25,000 -- -- 25,000
Repurchase of common
stock .................. (3,900,000) (42,000) -- -- (42,000)
Net loss................. -- -- -- (178,918) (178,918)
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1995.... 6,600,000 18,775 -- 49,745 68,520
Declaration and payment
of dividend............. -- -- -- (7,650) (7,650)
Issuance of common stock
........................ 320,000 32,000 (32,000) -- --
Net income............... -- -- -- 58,849 58,849
---------- ------- -------- -------- --------
BALANCE, MARCH 31, 1996.... 6,920,000 $50,775 $(32,000) $100,944 $119,719
========== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $272,526 $(178,918) $ 58,849
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Depreciation and amortization................ 7,680 11,572 18,201
Changes in net assets and liabilities--
Decrease (increase) in accounts receivable.. (139,206) 37,532 (165,221)
Increase in prepaid expenses................ -- (6,200) (27,514)
Increase (decrease) in accounts payable..... 7,053 (2,715) 96,453
Increase (decrease) in accrued liabilities.. (6,000) 87,041 (40,229)
Increase in deferred revenue................ 8,344 10,977 169,931
-------- --------- --------
Net cash provided by (used in) operating
activities................................ 150,397 (40,711) 110,470
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (13,850) (20,995) (54,208)
Other assets.................................. (2,567) (2,703) (7,594)
-------- --------- --------
Net cash used in investing activities...... (16,417) (23,698) (61,802)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........ -- 25,000 --
Repurchase of common stock.................... -- (42,000) --
Payment of cash dividends to shareholders..... (40,000) -- (7,650)
Borrowings from (repayments to) shareholders.. -- 22,500 (22,500)
-------- --------- --------
Net cash provided by (used in) financing
activities................................ (40,000) 5,500 (30,150)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH................. 93,980 (58,909) 18,518
CASH, BEGINNING OF PERIOD....................... 3,271 97,251 38,342
-------- --------- --------
CASH, END OF PERIOD............................. $ 97,251 $ 38,342 $ 56,860
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. THE COMPANY:
PostModern Computing Technologies Inc. (the "Company") was incorporated in
October 1991 in California. The Company, which is closely held, operates in a
single industry segment and is involved in the design, marketing and support
of a family of software products enabling the development and deployment of
distributed applications in an object-oriented environment.
In May 1996, the Company was acquired by Visigenic Software, Inc.
("Visigenic"), a Delaware corporation, according to the terms of an agreement
which provides that the Company be merged with and into Visigenic (the
"Acquisition"). In connection with the Acquisition, Visigenic issued 3,099,821
shares of its common stock and paid cash consideration of approximately $2.3
million in exchange for all of the outstanding shares of common stock of the
Company and assumed all issued and outstanding options to purchase common
stock of the Company. In addition, at the closing of the Acquisition,
Visigenic made cash payments to certain employees of the Company totaling $1.5
million, subject to one-year vesting. The Acquisition was structured as a tax-
free exchange according to Section 368(a)(II)(E) of the Internal Revenue Code.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
The Company generates revenue from licensing the rights to use its software
products, sales of post-contract support, development contracts, consulting
services and training services performed for customers who license its
products.
Revenue from software license agreements is recognized upon shipment of the
software if there are no significant post-delivery obligations and collection
is probable. If an acceptance period is required, revenue is recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenue from post-contract support services is recognized ratably over the
term of the support period. Consulting revenue is primarily related to
development and customization services performed on a time and material basis
under separate service and consulting arrangements. Revenue from development
contracts and training services is recognized as the services are performed
over the term of the agreement. In cases where license fee payments are
contingent upon the acceptance of services, revenue from both the license and
the service elements is deferred until the acceptance criteria are met.
Significant Customers
For fiscal 1994, 1995 and 1996, the combined revenue from five customers
accounted collectively for 96%, 88% and 83% of total revenue, respectively.
The following customers accounted for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A...................................................... 74% -- % -- %
Customer B...................................................... -- % 44% 29%
Customer C...................................................... -- % 18% -- %
Customer D...................................................... -- % 11% 10%
Customer E...................................................... -- % -- % 25%
Customer F...................................................... -- % -- % 12%
</TABLE>
F-20
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Export Revenue
Export revenue for fiscal 1996, which consisted of sales to a customer in
Japan, was 12% of total revenue. Export revenue was less than 10% of total
revenue for fiscal 1994 and 1995.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. As of
March 31, 1996, approximately 72% of accounts receivable were concentrated
with five customers. The Company believes that its credit and collection
procedures are adequate to monitor and evaluate risk among its customer base.
For fiscal 1994, 1995 and 1996 credit losses have been insignificant.
Software Development Costs
The Company capitalizes eligible software development costs upon the
establishment of technological feasibility, which the Company has defined as
completion of a working model. For fiscal 1994, 1995 and 1996, costs which
were eligible for capitalization, after consideration of factors such as
realizable value, were insignificant and, thus, the Company has charged all
software development costs to research and development expense in the
accompanying statements of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the double declining balance method over the estimated useful lives of the
assets of five to seven years.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported results of operations during the reporting period.
Actual results could differ from those estimates.
3. COMMITMENTS:
The Company leases its office space under a non-cancelable operating lease
which expires on March 31, 1998. Rent expense for all operating leases was
approximately $23,000, $38,000 and $38,000 for fiscal 1994, 1995 and 1996,
respectively. Future minimum lease payments under all non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
1997............................................................. $126,000
1998............................................................. 129,000
--------
$255,000
========
</TABLE>
4. LINE OF CREDIT:
In December 1995, the Company entered into a line of credit agreement (the
"Agreement") with a bank which allows for borrowings of up to $125,000 and
expires in December 1996. Advances under the Agreement, which are secured by
substantially all of the Company's assets and contractual rights of the
Company, bear interest at the bank's prime lending rate plus 1.0% (9.25% at
March 31, 1996). As of March 31, 1996, there were no borrowings outstanding
under the Agreement.
F-21
<PAGE>
POSTMODERN COMPUTING TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCK OPTION PLAN:
In November 1995, the Company established the 1995 Stock Option Plan (the
"Plan") and reserved 1,980,000 shares of common stock for issuance thereunder.
Under the Plan, the Board of Directors may grant incentive stock options to
employees and directors at the fair market value of the shares, as determined
by the Board of Directors, on the date of grant. The exercise price per share
for nonqualified stock options cannot be less than 85% of fair market value of
the shares, as determined by the Board of Directors, on the date of grant.
Options generally expire ten years after the date of grant and vest over a
period of four years. Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS
AVAILABLE OPTIONS PRICE
FOR ISSUANCE OUTSTANDING PER SHARE
------------ ----------- ------------
<S> <C> <C> <C>
Authorized for issuance............... 1,980,000 -- --
Granted............................... (1,644,500) 1,644,500 $0.10--$0.25
---------- --------- ------------
Balance, March 31, 1996............... 335,500 1,644,500 $0.10--$0.25
========== ========= ============
</TABLE>
As of March 31, 1996, options to purchase 826,250 shares of common stock at
prices ranging from $0.10 to $0.25 were fully vested and exercisable. In
connection with the Acquisition, Visigenic assumed all outstanding options of
the Company.
6. INCOME TAXES:
Through December 31, 1995, the Company was an S corporation. Effective
January 1, 1996, the Company changed to C corporation status. Federal and
state income tax regulations require that the income or loss of an S
corporation be included in the tax returns of the individual shareholders.
Accordingly, no provision for taxes is made in the accompanying financial
statements for fiscal 1994, 1995 and for the period from April 1, 1995 to
December 31, 1995.
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 provides for an asset and liability approach
to accounting for income taxes under which deferred income taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable. The provision for income taxes for the year ended March 31,
1996 was as follows:
<TABLE>
<S> <C>
Current provision:
Federal............................................................ $5,000
State.............................................................. 1,000
------
6,000
------
Deferred benefit:
Federal............................................................ (1,000)
State.............................................................. --
------
(1,000)
------
Total provision for income taxes..................................... $5,000
======
</TABLE>
As of March 31, 1996, the components of the net deferred income tax asset of
approximately $1,000 consisted of differences in book versus tax depreciation
and nondeductible reserves and accruals.
F-22
<PAGE>
VISGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(UNAUDITED)
In May 1996, Visigenic Software, Inc. (the "Company" or "Visigenic")
completed the acquisition of PostModern Computing Technologies Inc., a
California corporation ("PostModern"). PostModern is a supplier of software
for the development of distributed applications in an object-oriented
environment. The acquisition of PostModern has been accounted for as a
purchase.
In addition, in May and June 1996, the Company entered into a private
placement with three companies, whereby the Company issued 444,444 shares of
Series C preferred stock at $9.00 per share for aggregate proceeds of $4.0
million and issued an additional $2.0 million in convertible notes to the same
companies. A significant portion of the proceeds from this financing was used
to finance the acquisition of PostModern. Accordingly, the proceeds from this
financing have been included as part of the pro forma adjustments in the
accompanying pro forma condensed combined balance sheet.
The accompanying pro forma condensed combined balance sheet as of March 31,
1996 and the pro forma condensed combined statement of operations for the year
ended March 31, 1996 are based upon the audited financial statements of the
Company and PostModern as of March 31, 1996. Accordingly, the accompanying pro
forma condensed combined balance sheet assumes that the acquisition of
PostModern took place on March 31, 1996 and combines the companies' respective
balance sheets as of March 31, 1996. The accompanying pro forma condensed
combined statement of operations for the fiscal year ended March 31, 1996
assumes that the acquisition took place as of the beginning of fiscal 1996,
and combines Visigenic's and PostModern's statements of operations for the
fiscal year ended March 31, 1996. The pro forma condensed combined statement
of operations for the fiscal year ended March 31, 1996 does not include the
effect of any nonrecurring charges directly attributable to the acquisition.
The purchase price allocation reflected in the accompanying pro forma
condensed combined financial statements has been prepared on an estimated
basis. The effects resulting from any differences in the final allocation of
the purchase price are not expected to have a material effect on the Company's
financial statements.
The accompanying pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and related notes
thereto for both Visigenic and PostModern, which are included in this
prospectus.
P-1
<PAGE>
VISIGENIC SOFTWARE, INC. AND
POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
ASSETS
<CAPTION>
PRO FORMA
MARCH 31, 1996 ADJUSTMENTS
--------------------- ------------------ PRO
HISTORICAL HISTORICAL FORMA
VISIGENIC POSTMODERN DEBIT CREDIT COMBINED
---------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 2,399 $ 57 $ 6,000(a) $ 4,332(b) $ 4,124
Accounts receivable.... 760 303 -- -- 1,063
Prepaid expenses and
other current assets.. 257 34 1,500(b) -- 1,791
-------- ---- --------
Total current
assets.............. 3,416 394 6,978
-------- ---- --------
PROPERTY AND EQUIPMENT,
net..................... 1,349 66 1,415
-------- ---- --------
OTHER ASSETS:
In process product
development........... -- -- 12,034(b) 12,034(c) --
Excess of purchase
price over net assets
acquired.............. -- -- 1,063(b) -- 1,063
Other.................. 55 14 -- -- 69
-------- ---- --------
$ 4,820 $474 $ 9,525
======== ==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....... $ 811 $110 -- -- $ 921
Accrued liabilities--
Payroll and related
benefits............ 347 55 -- -- 402
Other................ 301 -- -- -- 301
Deferred revenue....... 1,141 189 -- -- 1,330
-------- ---- --------
Total current
liabilities......... 2,600 354 2,954
-------- ---- --------
CONVERTIBLE NOTES........ -- -- -- 2,000(a) 2,000
-------- ---- --------
STOCKHOLDERS' EQUITY:
Convertible preferred
stock................. 4 -- -- 1(a) 5
Common stock........... 3 51 51(b) 3(b) 6
Note receivable from
shareholder........... -- (32) -- 32(b) --
Additional paid-in
capital............... 13,675 -- -- 10,382(b) 28,056
-- 3,999(a)
Retained earnings
(accumulated
deficit).............. (11,462) 101 101(b) -- (23,496)
12,034(c) --
-------- ---- --------
Total stockholders'
equity.............. 2,220 120 4,571
-------- ---- --------
$ 4,820 $474 $ 9,525
======== ==== ========
</TABLE>
The accompanying notes are an integral part of this statement.
P-2
<PAGE>
VISIGENIC SOFTWARE, INC. AND
POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
VISIGENIC POSTMODERN ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Software products.............. $ 4,479 $ 304 $ -- $ 4,783
Service and other.............. 1,096 698 -- 1,794
------- ------ -------
Total revenue................ 5,575 1,002 6,577
------- ------ -------
COST OF REVENUE:
Software products.............. 284 44 -- 328
Service and other.............. 727 219 -- 946
------- ------ -------
Total cost of revenue........ 1,011 263 1,274
------- ------ -------
GROSS PROFIT..................... 4,564 739 5,303
------- ------ -------
OPERATING EXPENSES:
Product development............ 4,348 223 1,317(d) 5,888
Sales and marketing............ 3,215 240 183(d) 3,638
General and administrative..... 1,465 212 -- 1,677
Amortization of excess of
purchase price over net assets
acquired...................... -- -- 532(d) 532
------- ------ -------
Total operating expenses..... 9,028 675 11,735
------- ------ -------
Operating income (loss)...... (4,464) 64 -- (6,432)
INTEREST AND OTHER INCOME, net... 85 -- -- 85
------- ------ -------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................ (4,379) 64 -- (6,347)
PROVISION FOR INCOME TAXES....... -- 5 5(e) --
------- ------ -------
NET INCOME (LOSS)................ $(4,379) $ 59 $(6,347)
======= ====== =======
NET LOSS PER SHARE............... $ (.40) $ (.58)
======= =======
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.... 10,976 10,976(f)
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
P-3
<PAGE>
VISIGENIC SOFTWARE, INC. AND POSTMODERN COMPUTING TECHNOLOGIES INC.
----------------
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro forma
condensed combined balance sheets and statements of operations as described
below:
(a) Reflects the issuance of 444,444 shares of Series C preferred stock at
$9.00 per share and the issuance of $2.0 million of convertible notes.
(b) Reflects the purchase of PostModern in exchange for 3,099,821 shares of
Visigenic's common stock and a cash payment of approximately $2.3
million for the outstanding shares of PostModern common stock. In
addition, the Company made cash payments totaling $1.5 million to
certain PostModern employees, which is to be earned over the 12 month
period following the acquisition, and expects to incur acquisition
related costs of approximately $525,000 resulting in a total purchase
price of approximately $13.1 million.
(c) Reflects the write-off of intangible assets consisting of in process
product development of approximately $12.0 million. The effect of this
charge has not been reflected in the accompanying pro forma statement
of operations as it is a non-recurring charge. See Note 2 below for
discussion of the purchase price allocation.
(d) Reflects the amortization of the excess of the purchase price over net
assets acquired of $1.1 million, which will be amortized on a straight
line basis over its estimated life of two years, and $1.5 million of
cash payments made to certain PostModern employees.
(e) Reflects the elimination of the PostModern tax provision for fiscal
1996 due to the pro forma 1996 net loss.
(f) Pro forma weighted average common and common equivalent shares for
fiscal 1996 do not include common stock equivalents as inclusion of
these shares would be anti-dilutive. The stand alone Visigenic and pro
forma combined weighted average common and common equivalent shares are
identical as the Visigenic shares issued to PostModern shareholders are
included in the stand alone Visigenic weighted average share
calculation pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin No. 83.
NOTE 2. PURCHASE PRICE ALLOCATION
In connection with the acquisition, the Company exchanged 3,099,821 shares
of its common stock valued at $3.00 per share based on an independent
appraisal of the Company's stock and paid cash consideration of $2.3 million
in exchange for all of the outstanding shares of common stock of PostModern.
In addition to the forgoing, at the closing of the acquisition, the Company
made cash payments to certain PostModern employees totaling $1.5 million. In
the event that such employees leave the Company within the 12 months following
the date of acquisition, the employees must refund back to the Company a pro
rata portion of the payment for the months they are no longer employees.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicates that approximately $12.0
million of the acquired intangible assets consist of in process product
development. Because there can be no assurance that the Company will be able
to successfully complete the development and integration of the PostModern
products or that the acquired technology has any alternative future use, the
acquired in process product development will be charged to expense by
Visigenic in its quarter ending June 30, 1996.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $1.1 million, which is being amortized on a
straight-line basis over a period of two years. Management believes that the
unamortized balance is recoverable through future operating results.
P-4
<PAGE>
NOTE 3. PREFERRED STOCK AND CONVERTIBLE NOTES
On May 24, 1996, the Company entered into a private placement with three
companies, whereby the Company issued 444,444 shares of Series C preferred
stock at $9.00 per share and issued an additional $2.0 million in convertible
notes bearing interest at 8.25% per annum. The proceeds from such financing
were used to finance the acquisition of PostModern.
Upon the closing of the Company's initial public offering, the Series C
preferred stock will automatically convert into an equal number of shares of
the Company's common stock, subject to adjustment in certain events. Upon the
closing of the Company's initial public offering, the principal amount of the
notes and all accrued interest will automatically convert into shares of the
Company's common stock at the lesser of $13.00 per share or the offering price
per share to the public.
P-5
<PAGE>
[Example of Visigenic
products being used
on the Internet
appears in color here]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCK-
HOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 26
Management............................................................... 41
Certain Transactions..................................................... 49
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,100,000 SHARES
[LOGO OF VISIGENIC SOFTWARE, INC.]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Stock being registered. Pursuant to the Registration Rights
Agreement dated March 31, 1993, as supplemented on May 10, 1996, the Company
is paying all of the expenses incurred on behalf of the Selling Stockholders
(other than underwriting discounts and commissions). All amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Registration fee...................................................... $ 9,160
NASD filing fee....................................................... 3,157
Nasdaq National Market fee............................................ *
Blue sky qualification fees and expenses.............................. 10,000
Printing and engraving expenses....................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Transfer agent and registrar fees..................................... *
Fee for Custodian for Selling Stockholders............................ *
Miscellaneous......................................................... *
--------
Total............................................................. $750,000
========
</TABLE>
--------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. The Company's Certificate of
Incorporation, as amended, and Bylaws provide that the Company shall indemnify
its directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition,
the Company intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Company,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising
from willful misconduct of a culpable nature) and to maintain directors' and
officers' liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Company and its officers and directors may be
sufficiently broad to permit indemnification of the Company's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 12, 1993, the date of its incorporation, the Company has sold
and issued the following unregistered securities (as adjusted where
appropriate for the proposed reverse stock split whereby each two outstanding
shares of Common Stock will be converted into one share of Common Stock):
(a) On March 3, 1993, the Company issued 2,000,000 shares of its Common Stock
to Roger Sippl at $0.08 per share, for an aggregate purchase price of
$160,000.
(b) On March 31, 1993, the Company issued 803,000 shares of its Series A
Preferred Stock to 55 stockholders at $2.40 per share, for an aggregate of
$1,927,200.
(c) In June 1993, the Company issued 37,500 shares of its Common Stock to 3
stockholders at $0.20 per share, for an aggregate purchase of $7,500.
(d) From December 1993 through January 1994, the Company issued 871,625 shares
of its Series B Preferred Stock to 40 stockholders at $4.00 per share, for
an aggregate of $3,486,500.
(e) From April 1994 through August 1994, the Company issued 625,000 shares of
its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an
aggregate of $2,500,000.
(f) From May 1995 through August 1995, the Company issued 1,375,000 shares of
its Series B Preferred Stock to 29 stockholders at $4.00 per share, for an
aggregate of $5,500,000.
(g) In April 1996, the Company entered into an Agreement and Plan of
Reorganization with PostModern Computing Technologies Inc. ("PostModern")
pursuant to which the Company issued 3,099,821 shares of its Common Stock,
and options to purchase 361,783 shares of its Common Stock to the seven
former shareholders and optionholders of PostModern.
(h) In May 1996, the Company entered into an Agreement and Plan of
Reorganization with Data Accessibility Solutions, Inc. ("DASI") pursuant
to which the Company issued 12,500 shares of its Common Stock to the two
former shareholders of DASI.
(i) In May 1996, the Company issued 444,444 shares of its Series C Preferred
Stock to three stockholders at $9.00 per share, for an aggregate of
$3,999,996.
(j) Between February 12, 1993 and May 31, 1996, the Company sold an aggregate
of 933,637 shares of its Common Stock to 47 stockholders for an aggregate
of $589,464.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of Prospectus included herein.
The issuances described in Items 15(a) through 15(f) and Item 15(i) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
a public offering. In addition, certain issuances described in Items 15(g) and
Item 15(h) were deemed to be exempt from registration under the Securities Act
in reliance on Section 3(a)(10) of the Securities Act. Certain issuances
described in Item 15(j) were deemed exempt from registration under the
Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder
as transactions pursuant to compensatory benefit plans and contracts relating
to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other
instruments issued in such transactions. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization between the Company and
PostModern Computing Technologies Inc., dated April 28, 1996.
3.1A* Certificate of Incorporation, as amended.
3.1B* Form of Restated Certificate of Incorporation to be filed after the
effectiveness of the offering.
3.2A Amended and Restated Bylaws.
3.2B* Proposed form of Bylaws to be adopted before the effective date of
this Registration Statement.
4.1* Specimen Common Stock Certificate of the Company.
4.2 Registration Rights Agreement between the Company and certain
investors dated March 31, 1993.
4.3 Supplemental Registration Rights Agreement between the Company and
certain investors dated May 10, 1996.
5.1* Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1* Form of Indemnification Agreement for directors and officers.
10.2 1995 Stock Option Plan and forms of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* 1996 Outside Directors Stock Option Plan.
10.5 Non-Compete and Non-Solicitation Agreement between the Company and
Jens Christensen dated April 28, 1996.
10.6 Non-Compete and Non-Solicitation Agreement between the Company and
Neguine Navab dated April 28, 1996.
10.7 Non-Compete and Non-Solicitation Agreement between the Company and
Prasad Mokkapatti dated April 28, 1996.
10.8 Convertible Note and Series C Preferred Stock Purchase Agreement by
and among the Company, Cisco Systems, Inc., Netscape Communications
Corporation and Platinum technology dated May 24, 1996.
10.9 Form of Convertible Promissory Note.
10.10* Source Code License Agreement, as amended, between the Company and
Microsoft Corporation ("Microsoft") dated June 20, 1995.
10.11* Source Code License Agreement between the Company and Microsoft
dated February 10, 1995.
10.12* Lease Agreement, as amended, between the Company and San Mateo
Office Limited, dated March 7, 1993.
11.1 Statement regarding computation of per share loss.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.0* Financial Data Schedule (available in EDGAR format only).
</TABLE>
--------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN MATEO, COUNTY OF
SAN MATEO, STATE OF CALIFORNIA, ON THE 19TH DAY OF JUNE 1996.
VISIGENIC SOFTWARE, INC.
/s/ Roger J. Sippl
By: _________________________________
ROGER J. SIPPL
CHIEF EXECUTIVE OFFICER AND
DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS ROGER J. SIPPL AND MARK HANSON, AND EACH
OF THEM ACTING INDIVIDUALLY, AS HIS ATTORNEY-IN-FACT, EACH WITH FULL POWER OF
SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL
AMENDMENTS TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY
MAY BE SIGNED BY OUR SAID ATTORNEY TO ANY AND ALL AMENDMENTS TO SAID
REGISTRATION STATEMENT.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Roger J. Sippl Chief Executive June 19, 1996
- ------------------------------------- Officer and
ROGER J. SIPPL Director (Principal
Executive Officer)
/s/ Glenn C. Myers Vice President-- June 19, 1996
- ------------------------------------- Finance (Principal
GLENN C. MYERS Financial and
Accounting Officer)
/s/ Gill Cogan Director June 19, 1996
- -------------------------------------
GILL COGAN
/s/ Cristina Morgan Director June 19, 1996
- -------------------------------------
CRISTINA MORGAN
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Michael Moritz Director June 19, 1996
- -------------------------------------
MICHAEL MORITZ
/s/ E. E. van Bronkhorst Director June 19, 1996
- -------------------------------------
E. E. VAN BRONKHORST
/s/ J. Sidney Webb Director June 19, 1996
- -------------------------------------
J. SIDNEY WEBB
/s/ Eric Young Director June 19, 1996
- -------------------------------------
ERIC YOUNG
/s/ Jens Christensen Director June 19, 1996
- -------------------------------------
JENS CHRISTENSEN
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
June 17, 1996
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization between the
Company and PostModern Computing Technologies Inc.,
dated April 28, 1996.
3.1A* Certificate of Incorporation, as amended.
3.1B* Form of Restated Certificate of Incorporation to be
filed after the effectiveness of the offering.
3.2A Amended and Restated Bylaws.
3.2B* Proposed form of Bylaws to be adopted before the
effective date of this Registration Statement.
4.1* Specimen Common Stock Certificate of the Company.
4.2 Registration Rights Agreement between the Company and
certain investors dated March 31, 1993.
4.3 Supplemental Registration Rights Agreement between
the Company and certain investors dated May 10, 1996.
5.1* Opinion of Gray Cary Ware & Freidenrich, A
Professional Corporation.
10.1* Form of Indemnification Agreement for directors and
officers.
10.2 1995 Stock Option Plan and forms of agreements
thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* 1996 Outside Directors Stock Option Plan.
10.5 Non-Compete and Non-Solicitation Agreement between
the Company and Jens Christensen dated April 28,
1996.
10.6 Non-Compete and Non-Solicitation Agreement between
the Company and Neguine Navab dated April 28, 1996.
10.7 Non-Compete and Non-Solicitation Agreement between
the Company and Prasad Mokkapatti dated April 28,
1996.
10.8 Convertible Note and Series C Preferred Stock
Purchase Agreement by and among the Company, Cisco
Systems, Inc., Netscape Communications Corporation
and Platinum technology dated May 24, 1996.
10.9 Form of Convertible Promissory Note.
10.10* Source Code License Agreement, as amended, between
the Company and Microsoft Corporation ("Microsoft")
dated June 20, 1995.
10.11* Source Code License Agreement between the Company and
Microsoft dated February 10, 1995.
10.12* Lease Agreement, as amended, between the Company and
San Mateo Office Limited, dated March 7, 1993.
11.1 Statement regarding computation of per share loss.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.0* Financial Data Schedule (available in EDGAR format
only).
</TABLE>
--------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
VISIGENIC SOFTWARE, INC.
2,100,000 SHARES/1/
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1996
HAMBRECHT & QUIST LLC
ROBERTSON, STEPHENS & COMPANY LLC
As Representatives of the Several
Underwriters Named on Schedule I hereto
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Visigenic Software, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 1,700,000 shares of its authorized but
unissued Common Stock, $.001 par value, and the stockholders of the Company
named in Schedule II hereto (herein collectively called the Selling
Securityholders) propose to sell an aggregate of 400,000 shares of Common Stock,
$.001 par value per share of the Company (herein called the Common Stock) (said
2,100,000 shares of Common Stock being herein called the Underwritten Stock).
The Company and the Selling Securityholders propose to grant to the
Underwriters (as hereinafter defined) an option to purchase up to 315,000
additional shares of Common Stock (herein called the Option Stock and with the
Underwritten Stock herein collectively called the Stock). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (no. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such
- -------------------
/1/ Plus an option to purchase from the Company [AND THE SELLING
SECURITYHOLDERS] up to _________ additional shares to cover over-allotments.
<PAGE>
registration statement (herein called the Effective Date), shall also mean (from
and after the effectiveness of such amendment) such registration statement as so
amended (including any Rule 462(b) registration statement). The term Prospectus
as used in this Agreement shall mean the prospectus relating to the Stock first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such
filing is required, as included in the Registration Statement) and, in the event
of any supplement or amendment to such prospectus after the Effective Date,
shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than [_________________], a
United Kingdom corporation which is inactive and conducts no business
operations.
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been
any materially adverse change in the business, properties, financial
condition or results of operations of the Company or its subsidiary,
whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor its subsidiary has entered into any
material transaction not referred to in the Registration Statement and the
Prospectus.
(iii) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which
Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the rules
and regulations of the Commission thereunder. On the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The Company's outstanding capital stock has been validly
authorized, is fully paid and nonassessable, was issued in compliance with
the registration and qualification provisions of
2
<PAGE>
applicable federal and state securities laws and was issued free of any
preemptive right, right of first refusal or similar right. The Stock is
duly and validly authorized, is (or, in the case of shares of the Stock to
be sold by the Company, will be, when issued and sold to the Underwriters
as provided herein) duly and validly issued, fully paid and nonassessable
and conforms to the description thereof in the Prospectus. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the Stock to be sold
by the Selling Securityholders or the issuance and sale of the Stock as
contemplated herein. No preemptive right, or right of first refusal in
favor of stockholders, exists with respect to the Stock, or the issue and
sale thereof, pursuant to the Certificate of Incorporation or Bylaws of the
Company, and there is no contractual preemptive right, right of first
refusal, right of co-sale or similar right which exists and has not been
waived with respect to the Stock being sold by the Selling Securityholders
or the issue and sale of the Stock.
(v) The Registration Statement has become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the
Prospectus is in effect and, to the Company's knowledge after inquiry, no
proceeding for that purpose has been instituted or is contemplated by the
Commission.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and
delivery by the Representatives, constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms, except as rights
to indemnity or contribution may be limited by federal or state securities
laws and except as enforcement (i) may be limited by the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance and other similar laws relating to or affecting the rights of
creditors generally, (ii) is subject to general principles of equity and
similar principles, including, without limitation, concepts of materiality,
reasonableness, unconscionability, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether considered in a proceeding in
equity or at law or (iii) is subject to the effect of public policy.
(vii) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, and
the issue and sale by the Company of the shares of Stock to be sold by the
Company as provided herein will not conflict with, or result in a breach
of, the Certificate of Incorporation or Bylaws of the Company or any
material agreement or instrument to which the Company is a party or any
applicable law or regulation, or any judgment, order, writ, injunction or
decree, of any jurisdiction, court or governmental instrumentality.
(viii) All holders of securities of the Company having rights to
the registration of shares of Common Stock, or other securities, because of
the filing of the Registration Statement by the Company have waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement.
(ix) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been (or will before
the Closing Date have been) obtained under the Securities Act and such as
may be required under state securities or blue sky laws in connection with
the purchase and distribution of the Stock by the Underwriters.
(x) The Company has timely filed all necessary federal, state
and foreign income and franchise tax returns and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the
best of the Company's knowledge, might be asserted against the Company that
could have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company; and all tax liabilities are adequately provided for on the books
of the Company.
3
<PAGE>
(xi) To the best of Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent; and the Company is
not aware of any existing or imminent labor disturbance by the employees of
any of its principal value added resellers, subcontractors, original
equipment manufacturers, authorized dealers or international distributors
that might be expected to result in a material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. No collective bargaining agreement
exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(xii) The consolidated financial statements, including the
notes thereto, and supporting schedules included in the Registration
Statement and the Prospectus present fairly the financial position of the
Company and PostModern Computing Technologies Inc. (herein called
PostModern) as of the dates indicated and the results of its operations for
the periods specified; except as otherwise stated in the Registration
Statement, said consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis; and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein.
Such consolidated financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods involved, are correct and complete, and are in
accordance with the books and records of the Company in all material
respects. The unaudited pro forma combined financial information (including
the related notes and supporting schedules) contained in the Prospectus
complies as to form in all material respects to the accounting requirements
of the Securities Act and the rules and regulations of the Commission
thereunder, and management of the Company believes that the assumptions
underlying the pro forma adjustments are reasonable. All necessary pro
forma adjustments have been properly applied to the historical amounts in
the compilation of the information and such information presents fairly
with respect to the respective combined entities presented therein the
financial position, results of operations, and other information purported
to be shown therein at the respective dates and for the respective periods
specified on a basis consistent with the audited financial statements
included in the Registration Statement and Prospectus. No other financial
statements are required by Form S-1 or otherwise to be included in the
Registration Statement or Prospectus.
(xiii) The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except (i) those, if any, reflected in the
financial statements (or elsewhere in the Prospectus), or (ii) those which
are not material in amount and do not materially adversely affect the use
made and proposed to be made of such property by the Company. The Company
holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of
the Company. Except as disclosed in the Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.
(xiv) Neither the Company nor, to the Company's knowledge, any
other party is in violation or breach of, or in default with respect to,
complying with any material provision of any contract, agreement,
instrument, lease, license, arrangement or understanding which is material
to the Company, and each such contract, agreement, instrument, lease,
license, arrangement and understanding is in full force and is the legal,
valid and binding obligation of the Company and, to the Company's
knowledge, the other parties thereto and is enforceable against the Company
and, to the Company's knowledge, against the other parties thereto in
accordance with its terms. The Company enjoys peaceful and undisturbed
possession under all leases and licenses under which it is operating. The
Company is not in violation or breach of, or in default with respect to,
any term of its Certificate of Incorporation or Bylaws.
(xv) To the best of its knowledge, the Company is not
infringing or otherwise violating any patent, copyright, trade secret,
trademark, service mark, trade name, technology, know-how or other
proprietary information or material of others. The Company has not received
any notice of infringement or conflict with (and the Company knows of no
conflict or infringement with) asserted rights
4
<PAGE>
of others with respect to any patents, copyrights, trademarks, service
marks, trade names, technology or know-how, which could have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(xvi) The Company owns or possesses sufficient licenses or
other rights to use all patents, copyrights, trade secrets, trademarks,
service marks, trade names, technology, know-how or other proprietary
information or materials necessary to conduct the business now being
conducted by the Company as described in the Prospectus. The Company owns
or possesses sufficient licenses or other rights to use all patents,
copyrights, trade secrets, trademarks, service marks, trade names,
technology, know-how or other proprietary information or materials
necessary to conduct the business now being conducted or proposed to be
conducted by the Company as described in the Prospectus.
(xvii) The Company (A) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants (herein called
Environmental Laws), (B) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business and (C) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have
a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(xviii) There is no legal or governmental proceeding pending or
threatened to which the Company or its subsidiary is a party or to which
any of the properties of the Company is subject that is required to be
described in the Registration Statement or the Prospectus and is not so
described, nor is there any statute, regulation, contract or other document
that is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that
is not described or filed.
(xix) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all governmental authorities, to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file such would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(xx) The Common Stock has been approved for listing on the
National Association of Securities Dealers Automated Quotation (Nasdaq)
National Market.
(xxi) The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the
offering and sale of the Shares other than the Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials permitted by
the Securities Act.
(xxii) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business, including, but not
limited to, insurance covering real and personal property owned or leased
by the Company and its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of
which insurance is in full force and effect. The Company has not been
refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company.
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(xxiii) Neither the Company nor any of its subsidiaries has at
any time during the last five (5) years in any jurisdiction (A) made any
unlawful contribution to any candidate for office, or failed to disclose
fully any contribution in violation of law, or (B) made any payment to any
governmental officer or official, or other person charged with similar
public or quasi-public duties other than payments required or permitted by
the laws of the United States.
(xxiv) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of
the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement
and the Prospectus.
(xxv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba.
(xxvi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions
are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (C) access
to its assets is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to differences.
(b) Each of the Selling Securityholders, severally and not jointly,
hereby represents and warrants as follows:
(i) Such Selling Securityholder has good and marketable
title to all the shares of Stock to be sold by such Selling Securityholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver
the same hereunder, subject, in the case of each Selling Securityholder, to
the rights of _____________________, as Custodian (herein called the
Custodian), and that upon the delivery of and payment for such shares of
the Stock hereunder, the several Underwriters will receive good and
marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the
Stock to be sold by such Selling Securityholder have been placed in custody
under a Custody Agreement for delivery under this Agreement with the
Custodian; such Selling Securityholder specifically agrees that the shares
of the Stock represented by the certificates so held in custody for such
Selling Securityholder are subject to the interests of the several
Underwriters and the Company, that the arrangements made by such Selling
Securityholder for such custody, including the Power of Attorney provided
for in such Custody Agreement, are to that extent irrevocable, and that the
obligations of such Selling Securityholder shall not be terminated by any
act of such Selling Securityholder or by operation of law, whether by the
death or incapacity of such Selling Securityholder (or, in the case of a
Selling Securityholder that is not an individual, the dissolution or
liquidation of such Selling Securityholder) or the occurrence of any other
event; if any such death, incapacity, dissolution, liquidation or other
such event should occur before the delivery of such shares of the Stock
hereunder, certificates for such shares of the Stock shall be delivered by
the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity, dissolution, liquidation or other event had
not occurred, regardless of whether the Custodian shall have received
notice of such death, incapacity, dissolution, liquidation or other event.
(iii) Such Selling Securityholder, who is a director or
officer of the Company (including such Selling Securityholder who is an
affiliate of a director or officer of the Company) or who beneficially owns
more than 5% of the Company's outstanding stock has reviewed the
Registration Statement and Prospectus and, although such Selling
Securityholder has not independently verified the
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accuracy or completeness of all the information contained therein, nothing
has come to the attention of such Selling Securityholder that would lead
such Selling Securityholder to believe that on the Effective Date, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on
the Effective Date the Prospectus contained and, on the Closing Date and
any later date on which Option Stock is to be purchased, contains any
untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iv) All information furnished in writing by or on behalf of
such Selling Securityholder for use in the Registration Statement and
Prospectus is, and on the Closing Date will be, true, correct, and
complete, and does not, and on the Closing Date will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading.
(v) Such Selling Securityholder, who is a director or
officer of the Company (including such Selling Securityholder who is an
affiliate of a director or officer of the Company) or who beneficially owns
more than 5% of the Company's outstanding stock has no reason to believe
that any representation or warranty of the Company set forth in Section
2(a) above is untrue or inaccurate in any material respect.
(vi) The sale of the Stock by such Selling Securityholder
pursuant hereto is not prompted by any adverse information concerning the
Company which is not set forth in the Registration Statement and
Prospectus.
(vii) The execution and delivery by such Selling
Securityholder of, and the performance by such Selling Securityholder of
its obligations under, this Agreement, the custody agreement signed by such
Selling Securityholder and the Custodian, relating to the deposit of the
Stock to be sold by such Selling Securityholder (herein called the Custody
Agreement) and the power of attorney appointing certain individuals as such
Selling Securityholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement (herein called the Power of Attorney) will not contravene any
provision of applicable law, or the certificate or articles of
incorporation or by-laws of such Selling Securityholder (if such Selling
Securityholder is a corporation), or any agreement or other instrument
binding upon such Selling Securityholder or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over such
Selling Securityholder, and no consent, approval, authorization or order of
or qualification with any court or governmental body or agency is required
for the performance by such Selling Securityholder of its obligations under
this Agreement, the Custody Agreement or the Power of Attorney of such
Selling Securityholder, except such as may be required under the Securities
Act or by the securities or Blue Sky laws of various states in connection
with the offer and sale of the Stock by the Underwriters.
(viii) Such Selling Securityholder has, and on the Closing Date
will have, the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement and
the Power of Attorney and to sell, transfer and deliver in the manner
provided in this Agreement the shares of Stock to be sold by such Selling
Securityholder.
(ix) Each of this Agreement, the Custody Agreement and the
Power of Attorney has been duly authorized, executed and delivered by or on
behalf of such Selling Securityholder and, assuming due authorization,
execution and delivery by the other parties thereto, constitutes a valid
and binding obligation of such Selling Securityholder enforceable in
accordance with its terms, except as rights to indemnity or contribution
may be limited by federal or state securities laws and except as
enforcement (i) may be limited by the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance and other
similar laws relating to or affecting the rights of creditors generally,
(ii) is subject to general principles of equity and similar principles,
including, without limitation, concepts of
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materiality, reasonableness, unconscionability, good faith and fair dealing
and the possible unavailability of specific performance, injunctive relief
or other equitable remedies, regardless of whether considered in a
proceeding in equity or at law or (iii) is subject to the effect of public
policy.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue and
sell 1,700,000 shares of the Underwritten Stock to the several Underwriters,
each Selling Securityholder agrees to sell to the several Underwriters the
number of shares of the Underwritten Stock set forth in Schedule II opposite the
name of such Selling Securityholder, and each of the Underwriters agrees to
purchase from the Company and the Selling Securityholders the respective
aggregate number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be sold
by the Company and the Selling Securityholders and purchased by the several
Underwriters shall be $___ per share. The obligation of each Underwriter to the
Company and each of the Selling Securityholders shall be to purchase from the
Company and the Selling Securityholders that number of shares of the
Underwritten Stock which represents the same proportion of the total number of
shares of the Underwritten Stock to be sold by each of the Company and the
Selling Securityholders pursuant to this Agreement as the number of shares of
the Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the Underwritten
Stock to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of the shares
of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the non-defaulting Underwriters fail so to make such arrangements
with respect to all such shares and portion, the number of shares of the Stock
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such shares of the Stock exceeds 10% of the total number of shares of
the Stock which all Underwriters agreed to purchase hereunder. If the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company and the Selling Securityholders shall have the
right, within 24 hours next succeeding the 24-hour period above referred to, to
make arrangements with other underwriters or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Securityholders shall make arrangements within the 24-
hour periods stated above for the purchase of all the shares of the Stock which
the defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any non-
defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company or the Selling Securityholders. Nothing in
this paragraph (b), and no action
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<PAGE>
taken hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company and the Selling Securityholders grant an option to the several
Underwriters to purchase, severally and not jointly, up to 315,000 shares in the
aggregate of the Option Stock from the Company and the Selling Securityholders
at the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said option may be exercised only to cover over-allotments in the sale of
the Underwritten Stock by the Underwriters and may be exercised in whole or in
part at any time (but not more than once) on or before the thirtieth day after
the date of this Agreement upon written or telegraphic notice by you to the
Company setting forth the aggregate number of shares of the Option Stock as to
which the several Underwriters are exercising the option. Delivery of
certificates for the shares of Option Stock, and payment therefor, shall be made
as provided in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total number
of shares of the Option Stock to be purchased by the several Underwriters as
such Underwriter is purchasing of the Underwritten Stock, as adjusted by you in
such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of
the Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the Prospectus,
and you on behalf of the respective Underwriters represent and warrant to the
Company that the statements made therein are correct.
5. Delivery of and Payment for the Stock
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 7:00 A.M., San Francisco time, on the date
two business days preceding the Closing Date), and payment therefor, shall be
made at the office of Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California 94306, at 7:00 a.m., San Francisco time, on the [fourth]/2/ business
day after the date of this Agreement, or at such time on such other day, not
later than seven full business days after such [fourth] business day, as shall
be agreed upon in writing by the Company, the Selling Securityholders and you.
The date and hour of such delivery and payment (which may be postponed as
provided in Section 3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Fenwick & West LLP, Two Palo
Alto Square, Palo Alto, California 94306, at 7:00 a.m., San Francisco time, on
the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made
to the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the
/2/ This assumes that the transaction will be priced after the close of market
and that T+4 will apply to the transaction. If the pricing took place
before or during market hours (which will generally not be the case), the
closing would be three business days after pricing.
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account of the Selling Securityholders, in each case by one or more certified or
official bank check or checks in next day funds (and the Company and the Selling
Securityholders agree not to deposit any such check in the bank on which drawn
until the day following the date of its delivery to the Company or the
Custodian, as the case may be). Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. Further Agreements of the Company and the Selling Securityholders. The
Company and the Selling Securityholders covenant and agree as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company and
the Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be issued,
to obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be
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advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
so that the Prospectus as so supplemented or amended will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time such Prospectus is delivered to such purchaser, not misleading. If,
after the initial public offering of the Stock by the Underwriters and during
such period, the Underwriters shall propose to vary the terms of offering
thereof by reason of changes in general market conditions or otherwise, you will
advise the Company in writing of the proposed variation, and, if in the opinion
either of counsel for the Company or of counsel for the Underwriters such
proposed variation requires that the Prospectus be supplemented or amended, the
Company will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company and the Selling Securityholders jointly and
severally agree to pay all costs and expenses incident to the performance of its
obligations under this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v)
the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The Selling
Securityholders will pay any transfer taxes incident to the transfer to the
Underwriters of the Shares of Stock being sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and
severally agree to reimburse you, for the account of the several Underwriters,
for blue sky fees and related disbursements (including counsel fees
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<PAGE>
and disbursements and cost of printing memoranda for the Underwriters) paid by
or for the account of the Underwriters or their counsel in qualifying the Stock
under state securities or blue sky laws and in the review of the offering by the
NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the sharing of any such expenses and costs.
(l) The Company hereby agrees that, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will
not, for a period of 180 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Stock to be sold to the Underwriters pursuant to this
Agreement, (B) shares of Common Stock issued by the Company upon the exercise of
options granted under the stock option plans of the Company (the "Option
Plans"), all as described in footnote (__) to the table under the caption
"Capitalization" in the Preliminary Prospectus, and (C) options to purchase
Common Stock granted under the Option Plans.
(m) The Selling Securityholders agree that, without your prior
written consent, the Selling Securityholders will not, directly or indirectly,
sell, offer, contract to sell, make any short sale, pledge or otherwise dispose
of any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for or any rights to purchase or acquire Common Stock for a
period of 180 days following the commencement of the public offering of the
Stock by the Underwriters.
(n) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(o) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
7. Indemnification and Contribution
(a) Subject to the provisions of paragraph (f) of this Section 7,
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Securities Exchange
Act of 1934, as amended (herein called the Exchange Act), or the common law or
otherwise, and the Company and the Selling Securityholders jointly and severally
agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses,
12
<PAGE>
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a) and
the representations and warranties of the Company and the Selling
Securityholders contained in Section 2 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter, each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
13
<PAGE>
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information
14
<PAGE>
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service
of a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders, without the
prior written consent of each Underwriter, will settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under the
indemnity, contribution and reimbursement agreements contained in the provisions
of this Section 7 and Section 11 hereof shall be limited to an amount equal to
the respective proceeds received by each such Selling Securityholder from the
sale to the Underwriters of the Stock in the initial public offering. The
Company and the Selling Securityholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible.
8. Termination. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company and the Selling
Securityholders if after the date of this Agreement trading in the Common Stock
shall have been suspended, or if there shall have occurred (i) the engagement in
hostilities or an escalation of major hostilities by the United States or the
declaration of war or a national emergency by the United States on or after the
date hereof, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, calamity, crisis or change in economic or political conditions
in the financial markets of the United States would, in the Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations
15
<PAGE>
of the Company, (v) declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
the Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
pursuant to this Section 8, there shall be no liability of the Company or the
Selling Securityholders to the Underwriters and no liability of the Underwriters
to the Company or the Selling Securityholders; provided, however, that in the
event of any such termination the Company and the Selling Securityholders agree
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Fenwick & West LLP, counsel for the Underwriters.
(c) You shall have received from Gray Cary Ware & Freidenrich,
counsel for the Company and the Selling Securityholders, an opinion, addressed
to the Underwriters and dated the Closing Date, covering the matters set forth
in Annex A hereto, and if Option Stock is purchased at any date after the
Closing Date, additional opinions from each such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements expressed
as of the Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, neither the Company nor its subsidiary has
entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein, (iv) neither the Company nor its subsidiary has any material
contingent obligations which are not disclosed in the Registration Statement and
the Prospectus, (v) there are not any pending or known threatened legal
proceedings to which the Company or its subsidiary is a party or of which
property of the Company or its subsidiary is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus, (vi)
there are not any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement which have not
been filed as required, (vii) the representations and warranties of the Company
herein are true and correct in all material respects as of the Closing Date or
any later date on which Option Stock is to be purchased, as the case may be, and
(viii) there has not been any material change in the market for securities in
general or in political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to make a
public offering of the Stock, or a material adverse change in
16
<PAGE>
market levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from Arthur Andersen LLP a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or its subsidiary which, in your sole
judgment, makes it impractical or inadvisable to proceed with the public
offering of the Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(g) You shall have received from Arthur Andersen LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at March 31, 1996, did not
disclose any weakness in internal controls that they considered to be material
weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by
the Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from
all directors, officers, stockholders and optionees whose options will vest, in
whole or in part, prior to January 31, 1997, agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, such person or
entity will not, for a period of 180 days following the commencement of the
public offering of the Stock by the Underwriters, directly or indirectly, (i)
sell, offer, contract to sell, make any short sale, pledge, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for or any rights to purchase or acquire Common Stock or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Fenwick & West LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
17
<PAGE>
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company or the Selling Securityholders to perform any agreement herein, to
fulfill any of the conditions herein, or to comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders agree to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholders under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be impr oper; provided, however, that (i) to the extent any such payment is
-----------------
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104, Attn.: Cristina M. Morgan (with a copy to the
General Counsel); and if to the Company or the Selling Securityholders, shall be
mailed, telegraphed or delivered to the Company or
18
<PAGE>
the Selling Shareholders at the Company's office, 951 Mariner's Island Blvd.,
Suite 460, San Mateo, CA 94404, Attn.: Roger J. Sippl. All notices given by
telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
- -----------------
Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
19
<PAGE>
Please sign and return to the Company and the Selling Securityholders the
enclosed duplicates of this letter, whereupon this letter will become a binding
agreement among the Company, the Selling Securityholders and the several
Underwriters in accordance with its terms.
Very truly yours,
VISIGENIC SOFTWARE, INC.
By:
------------------------------------
[Name]
[Title]
SELLING SECURITYHOLDERS:
---------------------------------------
[Name], Attorney-in-Fact
The foregoing Agreement is
hereby confirmed and
accepted as of the date first
above written.
HAMBRECHT & QUIST LLC
ROBERTSON, STEPHENS & COMPANY LLC
By Hambrecht & Quist LLC
By:
-----------------------------
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in Schedule I hereto.
20
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
------------ ---------
<S> <C>
Hambrecht & Quist LLC...............
Robertson, Stephens &
Company LLC.........................
---------
Total............................... 2,100,000
=========
</TABLE>
21
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Number of Shares of
Stock to be Sold Option
Name of Selling ---------------------------- Stock to be Sold
Securityholder ---------------------
- ---------------------------
<S> <C> <C>
___________ ___________
400,000
Total......... ___________ ___________
============================ =====================
</TABLE>
22
<PAGE>
ANNEX A
Matters to be Covered in the Opinion of Gray Cary Ware & Freidenrich
Counsel for the Company and the Selling Securityholders
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which its ownership or leasing
of property requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company), and has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of _________
shares of Preferred Stock, of which there are no shares outstanding, and
________ shares of Common Stock, $0.001 par value, of which there are
outstanding _______ shares (including the Underwritten Stock plus the number of
shares of Option Stock issued on the date hereof); proper corporate proceedings
have been taken validly to authorize such authorized capital stock; all of the
outstanding shares of such capital stock (including the Underwritten Stock and
the shares of Option Stock issued, if any) have been duly and validly issued and
are fully paid and nonassessable; any Option Stock purchased after the Closing
Date, when issued and delivered to and paid for by the Underwriters as provided
in the Underwriting Agreement, will have been duly and validly issued and be
fully paid and nonassessable; and no preemptive rights of, or rights of refusal
in favor of, stockholders exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual preemptive
rights that have not been waived, rights of first refusal or rights of co-sale
which exist with respect to the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration Statement
in answer to Items 9, 10 (insofar as it relates to such counsel) and 11(c) of
Form S-1 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items, and the description of the Company's stock option plans
and the options granted and which may be granted thereunder set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to said plans and options to the extent required by the Securities
Act and the rules and regulations of the Commission thereunder;
(vi) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(viii) (A) the Underwriting Agreement has been duly executed and delivered
by or on behalf of each of the Selling Securityholders; (B) the Custody
Agreement between the Selling Securityholders and ___________________, as
Custodian, and the Power of Attorney referred to in such Custody Agreement have
been duly executed and delivered by each of the Selling Securityholders; (C) the
Custody Agreement entered into by, and the Power of Attorney given by, such
Selling Securityholder is valid and binding on such Selling Securityholder; and
(D) each Selling Securityholder has full legal right and authority to enter into
the Underwriting Agreement and to sell, transfer and deliver in the manner
provided in the Underwriting Agreement the shares of Stock sold by such Selling
Securityholder hereunder;
(ix) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Certificate of Incorporation or Bylaws of the Company
or any agreement or instrument known to such counsel to which the Company is a
party or any applicable law or regulation, or so far as is known to such
counsel, any order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality;
(x) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xi) good and marketable title to the shares of Stock sold by the Selling
Securityholders under the Underwriting Agreement, free and clear of all liens,
encumbrances, equities, security interests and claims (other than any liens,
encumbrances, equities, security interests and claims that result from actions
taken against the Underwriters), has been transferred to the Underwriters who
have severally purchased such shares of Stock under the Underwriting Agreement,
assuming for the purpose of this opinion that the Underwriters purchased the
same in good faith without any notice of adverse claims; and
(xii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or any
later date on which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
23
<PAGE>
EXHIBIT 2.1
AGREEMENT AND
PLAN OF REORGANIZATION
DATED APRIL 28, 1996
BY AND BETWEEN
VISIGENIC SOFTWARE, INC.
AND
POST MODERN COMPUTING TECHNOLOGIES INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions..................................................... 1
1.1 "Affiliate"....................................................... 1
1.2 "Code"............................................................ 1
1.3 "Commission"...................................................... 1
1.4 "Dissenting Shares"............................................... 1
1.5 "Key Employees"................................................... 1
1.6 "Post Modern Products"............................................ 1
1.7 "Post Modern Shares".............................................. 1
1.8 "Securities"...................................................... 2
1.9 "Securities Act".................................................. 2
1.10 "Shareholders".................................................... 2
1.11 "Transaction Documents"........................................... 2
1.12 "Visigenic Products".............................................. 2
2. Plan of Reorganization.................................................. 2
2.1 The Merger........................................................ 2
2.2 Conversion of Shares and Substitution of Options.................. 2
2.3 Fractional Shares................................................. 3
2.4 Escrow Agreement.................................................. 3
2.5 Appraisal Rights.................................................. 3
2.6 The Closing....................................................... 4
2.7 Effective Time.................................................... 4
2.8 Tax Free Reorganization........................................... 4
2.9 Exemption from Registration; California Permit.................... 4
2.10 Restricted Securities............................................. 4
3. Representations and Warranties of Post Modern.......................... 5
3.1 Organization...................................................... 5
3.2 Capitalization.................................................... 5
3.3 Power, Authority and Validity..................................... 6
3.4 Financial Statements.............................................. 6
3.5 Tax Matters....................................................... 7
3.6 Tax Free Reorganization........................................... 7
3.7 Absence of Certain Changes or Events.............................. 8
3.8 Title and Related Matters......................................... 9
3.9 Proprietary Rights................................................ 9
3.10 Employee Benefit Plans............................................ 11
3.11 Bank Accounts..................................................... 11
3.12 Contracts......................................................... 11
3.13 Orders, Commitments and Returns................................... 13
3.14 Compliance With Law............................................... 13
3.15 Labor Difficulties; No Discrimination............................. 13
3.16 Trade Regulation.................................................. 14
3.17 Insider Transactions.............................................. 14
3.18 Employees, Independent Contractors and Consultants................ 14
3.19 Insurance......................................................... 14
3.20 Litigation........................................................ 14
3.21 Permit Application; Information Statement......................... 14
3.22 Governmental Authorizations and Regulations....................... 15
3.23 Subsidiaries...................................................... 15
3.24 Compliance with Environmental Requirements........................ 15
3.25 Corporate Documents............................................... 16
</TABLE>
<PAGE>
3.26 No Brokers........................................................ 16
3.27 Disclosure........................................................ 16
[CAPTION]
4. Representations and Warranties of Visigenic........................... 16
[C] [S] [C]
4.1 Organization...................................................... 16
4.2 Capitalization.................................................... 17
4.3 Power, Authority and Validity..................................... 17
4.4 Financial Statements.............................................. 18
4.5 Tax Matters....................................................... 18
4.6 Tax Free Reorganization........................................... 19
4.7 Absence of Certain Changes or Events.............................. 19
4.8 Title and Related Matters......................................... 20
4.9 Proprietary Rights................................................ 21
4.10 Employee Benefit Plans............................................ 22
4.11 Bank Accounts..................................................... 22
4.12 Contracts......................................................... 22
4.13 Orders, Commitments and Returns................................... 24
4.14 Compliance With Law............................................... 24
4.15 Labor Difficulties; No Discrimination............................. 24
4.16 Trade Regulation.................................................. 25
4.17 Insider Transactions.............................................. 25
4.18 Employees, Independent Contractors and Consultants................ 25
4.19 Insurance......................................................... 25
4.20 Litigation........................................................ 25
4.21 Permit Application; Information Statement......................... 26
4.22 Governmental Authorizations and Regulations....................... 26
4.23 Subsidiaries...................................................... 26
4.24 Compliance with Environmental Requirements........................ 26
4.25 Corporate Documents............................................... 27
4.26 No Brokers........................................................ 27
4.27 Disclosure........................................................ 27
[CAPTION]
5. Preclosing Covenants of Post Modern and Visigenic...................... 27
[C] [S] [C]
5.1 Material Consents................................................. 27
5.2 Employment Agreements, Other Commitments Terminated............... 27
5.3 Voting Agreement and Irrevocable Proxies.......................... 28
5.4 Advice of Changes................................................. 28
[CAPTION]
6. Mutual Covenants....................................................... 28
[C] [S] [C]
6.1 Conduct of Business............................................... 28
6.2 Shareholders' Tax Representations................................. 30
6.3 Conduct of Business............................................... 30
6.4 No Public Announcement............................................ 31
6.5 Other Negotiations................................................ 31
6.6 Due Diligence, Investigation, and Audits.......................... 31
6.7 Regulatory Filings; Consents; Reasonable Efforts.................. 31
6.8 Further Assurances................................................ 32
[CAPTION]
7. Closing Matters........................................................ 32
[C] [S] [C]
7.1 Filing of Certificate of Merger................................... 32
7.2 Exchange of Certificates.......................................... 32
7.3 Delivery of Documents............................................. 33
[CAPTION]
8. Conditions to Post Modern's Obligations................................ 33
[C] [S] [C]
8.1 Accuracy of Representations and Warranties........................ 33
ii
<PAGE>
Table of Contents, continued
8.2 Covenants......................................................... 33
8.3 No Litigation..................................................... 33
8.4 Authorizations.................................................... 33
8.5 Government Consents............................................... 33
8.6 Due Diligence..................................................... 33
8.7 Visigenic Certificate of Incorporation............................ 34
8.8 Supplemental Registration Rights Agreement........................ 34
8.9 Election of Vice President, Chief Technical Officer and Director.. 34
8.10 Voting Agreement.................................................. 34
8.11 No Adverse Development............................................ 34
8.12 Supplement to Stockholder Agreement............................... 34
8.13 Bonus Agreement................................................... 34
8.14 Dissenting Stockholders of Visigenic.............................. 34
8.15 Commitment from Mr. Roger Sippl................................... 34
8.16 Date of Closing................................................... 34
8.17 Payment to Listed Employees....................................... 34
8.18 Payment to Post Modern Shareholders............................... 34
8.19 Fairness Hearing.................................................. 35
8.20 Opinion of Visigenic's Counsel.................................... 35
8.21 Litigation; Violation of Law...................................... 35
8.22 Filing of Certificate of Merger................................... 35
9. Conditions to Visigenic's Obligations.................................. 35
9.1 Accuracy of Representations and Warranties........................ 35
9.2 Covenants......................................................... 35
9.3 No Litigation..................................................... 35
9.4 Authorizations.................................................... 35
9.5 Required Consents................................................. 35
9.6 Government Consents............................................... 36
9.7 Due Diligence..................................................... 36
9.8 Visigenic Certificate of Incorporation............................ 36
9.9 Non-Compete and Non-Solicitation Agreements....................... 36
9.10 Offers of Employment Accepted..................................... 36
9.12 Supplemental Registration Rights Agreement........................ 36
9.13 Voting Agreement.................................................. 36
9.14 Supplement to Stockholder Agreement............................... 36
9.15 Bonus Agreement................................................... 36
9.16 Date of Closing................................................... 36
9.17 Fairness Hearing.................................................. 36
9.18 Opinion of Post Modern's Counsel.................................. 36
10. Termination of Agreement............................................... 37
10.1 Termination...................................................... 37
10.2 Liability for Termination........................................ 37
10.3 Certain Effects of Termination................................... 37
10.4 Remedies......................................................... 37
10.5 Right to Damages................................................. 38
11. Indemnification........................................................ 38
11.1 Survival of Representations, Warranties, Covenants and Agreements 38
iii
<PAGE>
Table of Contents, continued
11.2 Indemnification by Post Modern................................... 39
11.3 Indemnification by Visigenic..................................... 40
11.4 Arbitration...................................................... 40
11.5 Limitation on Indemnification.................................... 41
11.6 The Shareholders Representatives; Power of Attorney.............. 41
11.7 Escrow........................................................... 41
<TABLE>
<CAPTION>
12. Miscellaneous.......................................................... 42
<C> <S> <C>
12.1 Governing Laws................................................... 42
12.2 Binding upon Successors and Assigns.............................. 42
12.3 Severability..................................................... 42
12.4 Entire Agreement................................................. 42
12.5 Counterparts..................................................... 42
12.6 Expenses......................................................... 43
12.7 Amendment and Waivers............................................ 43
12.8 Survival of Agreements........................................... 43
12.9 No Waiver........................................................ 43
12.10 Attorneys' Fees.................................................. 43
12.11 Notices.......................................................... 43
12.12 Time............................................................. 44
12.13 Construction of Agreement........................................ 44
12.14 No Joint Venture................................................. 44
12.15 Pronouns......................................................... 44
12.16 Further Assurances............................................... 44
12.17 Absence of Third Party Beneficiary Rights........................ 44
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
this 28th day of April, 1996, by and between Visigenic Software, Inc., a
Delaware corporation ("Visigenic"), and Post Modern Computing Technologies Inc.,
a California corporation ("Post Modern").
RECITAL
-------
WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement and pursuant to the Certificate of Merger attached hereto as Exhibit A
---------
("Certificate of Merger"), the respective Board of Directors and security
holders of Visigenic and Post Modern have approved the merger of Post Modern
with and into Visigenic (the "Merger"), whereby all of the outstanding shares of
common stock of Post Modern ("Post Modern Stock") will be converted into shares
of common stock of Visigenic ("Visigenic Common Stock"), and all outstanding
options to purchase Post Modern Stock will be exchanged for options to purchase
Visigenic Common Stock.
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.
AGREEMENT
---------
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Certain Definitions.
-------------------
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Code" shall mean the United States Internal Revenue Code of
1986, as amended.
1.3 "Commission" shall mean the United States Securities and Exchange
Commission.
1.4 "Dissenting Shares" shall mean those shares held by holders who
perfect their appraisal rights under the laws of California with respect
thereto.
1.5 "Key Employees" shall mean Jens Christensen, Neguine Navab,
Prasad Mokkapati, Suresh Challa, Johnathan Weedon and Alain Demour.
1.6 "Post Modern Products" shall mean all versions and
implementations of any product which has been or is being marketed by Post
Modern or currently is under development, and all patents, patent applications,
trade secrets, copyrights, trademarks, trade names and other proprietary rights
related thereto.
1.7 "Post Modern Shares" shall mean the shares of Post Modern capital
stock issued and outstanding at the effective time of the Merger, other than the
Dissenting Shares.
1
<PAGE>
1.8 "Securities" shall mean the Post Modern Shares, Dissenting Shares
and the Post Modern Options.
1.9 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.10 "Shareholders" shall mean the holders of the outstanding shares
of Post Modern Shares.
1.11 "Transaction Documents" shall mean all documents or agreements
attached as an exhibit or schedule hereto, and set forth on the Table of
Contents.
1.12 "Visigenic Products" shall mean all versions and implementations
of any product which has been or is being marketed by Visigenic or currently is
under development, and all patents, patent applications, trade secrets,
copyrights, trademarks, trade names and other proprietary rights related
thereto.
2. Plan of Reorganization.
----------------------
2.1 The Merger. Subject to the terms and conditions of this
----------
Agreement and the Certificate of Merger, Post Modern shall be merged with and
into Visigenic in accordance with the applicable provisions of the laws of the
State of California and the State of Delaware, and with the terms and conditions
of this Agreement and the Certificate of Merger, so that:
(a) At the Effective Time, Post Modern shall be merged with and
into Visigenic. As a result of the Merger, the separate corporate existence of
Post Modern shall cease and Visigenic shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation") and
shall succeed to and assume all of the rights and obligations of Visigenic in
accordance with the laws of California and Delaware.
(b) The Certificate of Incorporation and Bylaws of Visigenic in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws, respectively, of the Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) Subject to the terms of this Agreement, the directors and
officers of Visigenic immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation after the Effective Time.
Such directors and officers shall hold their position until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the Bylaws of the Surviving Corporation.
2.2 Conversion of Shares and Substitution of Options.
------------------------------------------------
(a) Each share of Post Modern Stock, issued and outstanding
immediately prior to the Effective Time, will, by virtue of the Merger and at
the Effective Time, and without further action on the part of any holder
thereof, be converted into that number of share(s) of fully paid and
nonassessable of Visigenic Common Stock determined by dividing 7,500,000 by the
sum of (i) all shares of common stock of Post Modern outstanding immediately
prior to the Effective Time, including shares of common stock of Post Modern
sold by the Shareholders to Visigenic for cash at the Closing, and (ii) all
securities and rights of Post Modern that are, directly or indirectly,
convertible into or exchangeable or exercisable for, or represent rights to
acquire shares of Post Modern's common stock, expressed as if converted,
exchanged and exercised in full, and outstanding immediately prior to the
Effective Time. As used in this Agreement, "Exchange Ratio" will mean the ratio
determined in
2
<PAGE>
accordance with the previous sentence (the shares of Visigenic Common Stock
issued pursuant hereto shall also be referred to as the "Merger Consideration").
(b) Each option to purchase shares of Post Modern Stock ("Post
Modern Option") that is outstanding immediately prior to the Effective Time
will, by virtue of the Merger and at the Effective Time, and without further
action on the part of any holder thereof, be assumed by Visigenic and converted
into an option (a "Visigenic Option") to purchase that number of shares of
Visigenic Common Stock determined by multiplying the number of shares of Post
Modern common stock issuable upon exercise of such option by the Exchange Ratio
(with the resulting number of shares of Visigenic Common Stock rounded down to
the nearest whole number). The exercise price per share of Visigenic Common
Stock purchasable under each such Visigenic Option will be equal to the exercise
price of the Post Modern Option (per share of Post Modern Stock) divided by the
Exchange Ratio (with the resulting amount rounded up to the nearest whole cent).
Continuous employment with Post Modern, whether occurring before or after the
Effective Time, shall be credited to an optionee for purposes of determining the
number of shares subject to exercise, vesting or repurchase after the Effective
Time. It is the intention of the parties that the assumption of Post Modern
Options shall meet the requirements of Section 424(a) of the Code and that,
therefore, the Post Modern Options assumed by Visigenic qualify following the
Effective Time as incentive stock options as defined in Section 422 of the Code
("incentive stock options") to the extent the Post Modern Options qualified as
incentive stock options prior to the Effective Time. After the Effective Time,
Visigenic shall issue to each holder of an outstanding Post Modern Option a
document evidencing the foregoing assumption by Visigenic. No fractional shares
of Visigenic Common Stock shall be issued in connection with options. All
fractional shares which would otherwise be issuable shall be rounded down to the
next full share. All of the other terms of each Visigenic Option will remain the
same as the corresponding assumed Post Modern Option.
2.3 Fractional Shares. No fractional shares of Visigenic Common
-----------------
Stock will be issued in connection with the Merger, but in lieu thereof, holders
of Post Modern Stock who would otherwise be entitled to receive a fraction of a
share of Visigenic Common Stock will receive from Visigenic, promptly after the
Effective Time, an agreed upon amount of cash equal to Four Dollars ($4.00) per
share of Visigenic Common Stock, multiplied by the fraction of a share of
Visigenic Common Stock to which such holder would otherwise be entitled.
2.4 Escrow Agreement. At the Effective Time, certificates
----------------
representing ten percent (10%) of the shares of the Visigenic Common Stock
issued to the holders of Post Modern Stock in the Merger shall be deposited in
escrow, on a pro rata basis; and upon each exercise of the Visigenic Options
that are issued to holders of Post Modern Options in the Merger, if such occurs
between the Effective Time and on or before the final escrow release date,
Visigenic will deposit in escrow ten percent (10%) of the shares of Visigenic
Common Stock issuable upon such exercise. Such shares (the "Post Modern Escrow
Shares") shall be held as collateral for Post Modern's indemnification
obligations under Section 11 and pursuant to the provisions of an escrow
agreement (the "Escrow Agreement") to be entered into between the parties, with
the terms of such agreement to be mutually agreed upon, which terms shall not be
inconsistent with the terms set forth in this Agreement.
2.5 Appraisal Rights. If holders of Post Modern Stock are entitled
----------------
to appraisal rights in connection with the Merger, any Dissenting Shares shall
not be converted into a right to receive Visigenic Common Stock but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the laws of the State
of California. Post Modern shall give Visigenic prompt notice of any demand
received by Post Modern for appraisal of Post Modern capital stock, and the
Representatives, as such term is defined in Section 11.6 herein, shall have the
right to control all negotiations and proceedings with respect to such demand,
provided that Visigenic shall have the right to participate in all such
negotiations and proceedings. Post Modern agrees that, except with the prior
written consent of Visigenic or as required under the General Corporation Law of
the State of California (the "CGCL"), it will not
3
<PAGE>
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of the CGCL, becomes entitled to
payment of the value of shares of Post Modern Stock shall receive payment
therefor (but only after the value therefor shall have been agreed upon or
finally determined pursuant to such provisions). In the event of legal
obligation, after the Effective Time of the Merger, to deliver a right to
receive Visigenic Common Stock to a holder of shares of Post Modern capital
stock who shall have failed to make an effective demand for appraisal or shall
have lost his status as a Dissenting Shareholder, Visigenic shall deliver, upon
surrender by such Dissenting Shareholder of his certificate or certificates
representing shares of Post Modern Stock, as applicable, the Visigenic Common
Stock to which such Dissenting Shareholder is then entitled under this Section
2.5 and the Certificate of Merger.
2.6 The Closing. Subject to termination of this Agreement as
-----------
provided in Section 10 below, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Gray Cary Ware
& Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California, as soon as possible upon the satisfaction or waiver of all
conditions set forth in Section 8 and Section 9 hereof (the "Closing Date"),
or such other time and place as is mutually agreeable to the parties.
2.7 Effective Time. Simultaneously with the Closing, the Certificate
--------------
of Merger shall be filed in the office of the Secretary of State of the State of
Delaware. The Merger shall become effective immediately upon the filing of the
Certificate of Merger with such office. The date and time of the effectiveness
of the Merger under the laws of Delaware is the "Effective Time."
2.8 Tax Free Reorganization. The parties intend to adopt this
-----------------------
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Code. Each party
agrees that it will not take or assert any position on any tax return, report or
otherwise which is inconsistent with the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. The Visigenic
Common Stock issued in the Merger will be issued solely in exchange for the Post
Modern Stock pursuant to this Agreement, and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the Post Modern Common Stock. Except for cash paid
pursuant to Section 8.14 hereof or in lieu of fractional shares, no
consideration that could constitute "other property" within the meaning of
Section 356 of the Code is being paid by Visigenic for the Post Modern Stock.
In addition, Visigenic represents now, and as of the Closing Date, that it
presently intends to continue Post Modern's historic business or use a
significant portion of Post Modern's business assets in a business.
2.9 Exemption from Registration; California Permit. The parties
----------------------------------------------
hereto expect that the Visigenic Common Stock to be issued in connection with
the Merger will be issued in a transaction exempt from registration under the
Securities Act, by reason of Section 3(a)(10) thereof, and that the Visigenic
Common Stock and Visigenic's assumption of the Post Modern Options and Post
Modern Warrants hereunder will be qualified under the CGCL, pursuant to Section
25121 thereof, after a fairness hearing has been held pursuant to the authority
granted by Section 25142 of such law. Each of Visigenic and Post Modern shall
use its best efforts to (a) file an application for such hearing and
qualification within ten (10) days from the date of this Agreement and (b) to
obtain such qualification promptly thereafter.
2.10 Restricted Securities. The Visigenic Common Stock will be
---------------------
subject to the following restrictions
(a) restrictions imposed by applicable state securities laws;
(b) certificates representing Visigenic Common Stock will bear
legends describing certain of the applicable restrictions on transferability
referred to in this Section 2.10.
4
<PAGE>
3. Representations and Warranties of Post Modern. Except as otherwise set
---------------------------------------------
forth in the "Post Modern Disclosure Schedule" provided to Visigenic on the date
hereof, Post Modern represents and warrants to Visigenic as set forth below. No
fact or circumstance disclosed to Visigenic shall constitute an exception to
these representations and warranties unless such fact or circumstance is set
forth in the Post Modern Disclosure Schedule or such supplements thereto as may
mutually be agreed upon in writing by Post Modern and Visigenic.
3.1 Organization. Post Modern is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of California
and has corporate power and authority to carry on its business as it is now
being conducted. Post Modern is duly qualified or licensed to do business and
in good standing in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary except where the
failure to be so qualified would not have a material adverse effect on the
operations, assets or financial condition or prospects (a "Material Adverse
Effect") of Post Modern. The Post Modern Disclosure Schedule contains a true
and complete listing of the locations of all sales offices, manufacturing
facilities, and any other offices or facilities of Post Modern and a true and
complete list of all states in which Post Modern maintains any employees. The
Post Modern Disclosure Schedule contains a true and complete list of all states
in which Post Modern is duly qualified to transact business as a foreign
corporation. True and complete copies of Post Modern's Articles of
Incorporation and Bylaws, as in effect on the date hereof and as to be in effect
as of the Closing, have been provided to Visigenic or its representatives.
3.2 Capitalization.
--------------
(a) The authorized capital of Post Modern consists, or will
consist prior to the Closing, of 20,000,000 shares of common stock, of which
7,360,000 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, none of which are outstanding.
(b) The Post Modern Disclosure Schedule accurately describes the
vesting schedules associated with such Post Modern Common Stock and Post Modern
Options.
(c) Post Modern does not have outstanding any preemptive or
subscription rights, options, warrants, rights to convert or exchange, capital
stock equivalents, or other rights to purchase or otherwise acquire any of Post
Modern's capital stock or other securities.
(d) All of the issued and outstanding shares of Post Modern's
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of Post Modern, have been issued in full compliance with all
applicable federal and state securities laws. None of Post Modern's issued and
outstanding shares of capital stock, or options or rights to purchase capital
stock of Post Modern, is subject to repurchase or redemption rights. There have
not been and are not outstanding any adjustments made or required to be made to
the conversion prices set forth in Post Modern's current Articles of
Incorporation. All of Post Modern's options have been issued in accordance with
its current stock option plan and in accordance with all state securities laws.
(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Post Modern's capital stock.
(f) Post Modern is not under any obligation to register under the
Securities Act any shares of its capital stock or any other of its securities
that might be issued in the future if the Merger were not consummated.
(g) Post Modern is not a party or subject to any agreement or
understanding (and, to Post Modern's best knowledge, there is no agreement or
understanding
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between or among any persons) that affects or relates to the voting or giving of
written consent with respect to any security.
3.3 Power, Authority and Validity.
-----------------------------
(a) Post Modern has the corporate power to enter into this
Agreement and the other Transaction Documents to which it is a party and to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Post Modern and on the Closing Date, by the shareholders
of Post Modern and no other corporate proceedings on the part of Post Modern are
necessary to authorize this Agreement, the other Transaction Documents and the
transactions contemplated herein and therein. Post Modern is not subject to or
obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or subject to any order or decree, which would be breached
or violated by or in conflict with its executing and carrying out this Agreement
and the transactions contemplated hereunder and under the Transaction Documents.
Except for (i) the filing of a certificate of merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which Post Modern is qualified to do business, and (ii)
filings under applicable securities laws, no consent of any person who is a
party to a contract which is material to Post Modern's business, nor consent of
any governmental authority, is required to be obtained on the part of Post
Modern to permit the transactions contemplated herein and continue the business
activities of Post Modern as previously conducted by Post Modern without
material adverse change. This Agreement is, and the other Transaction Documents
when executed and delivered by Post Modern shall be, the valid and binding
obligations of Post Modern enforceable in accordance with their respective
terms.
(b) The assumption by Visigenic of Post Modern Options in
accordance with Section 2.2 will not (i) give the optionees additional benefits
which they did not have under their options prior to such assumption (after
taking into account the existing provisions of the options, such as their
respective exercise prices and vesting schedules) or (ii) constitute a breach of
the Post Modern Stock Option Plan or any agreement entered into pursuant to such
plan.
3.4 Financial Statements.
--------------------
(a) Post Modern has delivered to Visigenic copies of Post
Modern's unaudited balance sheet as of March 31, 1996, and statements of
operations, shareholders' equity and cash flow for the period then-ended (the
"Post Modern Unaudited Financials") and the unaudited balance sheet as of
December 31, 1995, and statements of operations, shareholder's equity and cash
flow for the period then ended (collectively, the "Post Modern Financial
Statements").
(b) The Post Modern Financial Statements are complete and in
accordance with the books and records of Post Modern and present fairly the
financial position of Post Modern as of their historical dates. The Post Modern
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP")(except as to the Post Modern Unaudited
Financials, for the absence of footnotes) applied on a basis consistent with
prior periods. Except and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), Post Modern does not have, as of
the dates of such balance sheets, any liabilities or obligations (absolute or
contingent) of a nature required or customarily reflected in a balance sheet (or
the notes thereto) prepared in accordance with GAAP. The reserves, if any,
reflected on the Post Modern Financial Statements are adequate in light of the
contingencies with respect to which they are made.
(c) Post Modern has no debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Post Modern
Unaudited Financials, except for those (i) that may have been incurred after the
date of the Post Modern Financial Statements or (ii) that are not required by
GAAP to be included in a balance sheet or the notes thereto, except that Post
Modern has not established any
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reserves with respect to the costs and fees associated with this Agreement, the
other Transaction Documents, and the transactions contemplated hereby and
thereby. All material debts, liabilities, and obligations incurred after the
date of the Post Modern Financial Statements were incurred in the ordinary
course of business, and are usual and normal in amount both individually and in
the aggregate.
3.5 Tax Matters.
-----------
(a) Post Modern has fully and timely, properly and accurately
filed all tax returns and reports required to be filed by it, including all
federal, foreign, state and local tax returns and estimates for all years and
periods (and portions thereof) for which any such returns, reports or estimates
were due. All such returns, reports and estimates were prepared in the manner
required by applicable law. All income, sales, use, occupation, property or
other taxes or assessments due from Post Modern have been paid. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected on the Post Modern
Financial Statements are adequate and there are no tax liens on any property or
assets of Post Modern. There have been no audits or examinations of any tax
returns or reports by any applicable governmental agency. No state of facts
exists or has existed which would constitute grounds for the assessment of any
penalty or of any further tax liability beyond that shown on the respective tax
reports, returns or estimates. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state or
local income tax return or report for any period.
(b) All taxes which Post Modern has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) Post Modern is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(d) At no time has Post Modern been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) No payment which Post Modern is obliged to pay to any
director, officer, employee or independent contractor pursuant to the terms of
an employment agreement, severance agreement or otherwise will constitute an
excess parachute payment as defined in Section 280G of the Code.
(f) Post Modern is not currently under any contractual obligation
to pay any tax obligations of, or with respect to any transaction relating to,
any other person or to indemnify any other person with respect to any tax.
3.6 Tax Free Reorganization.
-----------------------
(a) Neither Post Modern nor, to the best of its knowledge, any
Post Modern shareholder has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
(b) To the best of Post Modern's knowledge, there is no plan or
intention by any Post Modern shareholder to sell, exchange or otherwise dispose
of more than fifty percent (50%) of the shares of Visigenic Common Stock to be
received in the Merger, including the ten percent (10%) of such shares which a
Post Modern shareholder may sell in an initial public offering of the securities
of Visigenic.
(c) Post Modern is not an investment company as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
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3.7 Absence of Certain Changes or Events. Since March 31, 1996, Post
------------------------------------
Modern has not:
(a) suffered any material adverse change in its financial
condition or in the operations of its business, nor any material adverse changes
in its balance sheet, (with the Post Modern Financial Statements and any
subsequent balance sheet analyzed as if each had been prepared according to
GAAP), and including but not limited to cash distributions or material decreases
in the net assets of Post Modern;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by Post Modern to its officers or employees, except
those occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Post Modern
or declared any direct or indirect redemption, retirement, purchase or other
acquisition by Post Modern of such shares;
(e) issued any shares of capital stock of Post Modern or any
warrants, rights, options or entered into any commitment relating to the shares
of Post Modern except for the issuance of Post Modern Shares pursuant to the
exercise of outstanding options;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset except in the ordinary course of its business;
(i) suffered any labor dispute;
(j) engaged in any activity or entered into any material
commitment or transaction (including without limitation any borrowing or capital
expenditure) other than in the ordinary course of business;
(k) incurred any liabilities except in the ordinary course of
business and consistent with past practice which would be required to be
disclosed in financial statements prepared in accordance with GAAP;
(l) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except those permitted under Section 3.8 hereof,
other than any purchase money security interests incurred in the ordinary course
of business;
(m) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of Ten Thousand Dollars
($10,000), or in the aggregate, in excess of Twenty Five Thousand Dollars
($25,000);
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(n) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with any of its Affiliates, officers, directors or shareholder or
any Affiliate or associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if
not so amended or terminated, would be required to be disclosed on the Post
Modern Disclosure Schedule; or
(p) agreed to take any action described in Sections 2.8, 3.6,
3.7, or 4.6 or outside of its ordinary course of business or which would
constitute a breach of any of the representations contained in this Agreement.
3.8 Title and Related Matters. Post Modern has good and marketable
-------------------------
title to all the properties, interests in properties and assets, real and
personal, reflected in the Post Modern Financial Statements or acquired after
the date of the Post Modern Financial Statements (except properties, interests
in properties and assets sold or otherwise disposed of since the date of the
Post Modern Financial Statements in the ordinary course of business), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and payable and except
for liens which in the aggregate do not secure more than Twenty Five Thousand
Dollars ($25,000) in liabilities. The equipment of Post Modern used in the
operation of its business is in good operating condition and repair. To Post
Modern's best knowledge, all real or personal property leases to which Post
Modern is a party are valid, binding, enforceable obligations of Post Modern
effective in accordance with their respective terms. There is not under any of
such leases any existing material default or event of default or event which,
with notice or lapse of time or both, would constitute a material default. The
Post Modern Disclosure Schedule contains a description of all real and personal
property leased or owned by Post Modern, identifying such property and, in the
case of real property, stating the monthly rental due, term of lease and square
feet leased. True and correct copies of Post Modern's leases have been provided
to Visigenic or its representatives.
3.9 Proprietary Rights.
------------------
(a) Post Modern owns all right, title and interest in and to, or
valid licenses for use of, all patents, copyrights, technology, software,
software tools, know-how, processes, trade secrets, trademarks, service marks,
trade names and other proprietary rights used in or necessary for the conduct of
Post Modern's business as conducted to the date hereof or contemplated,
including, without limitation, the technology and all proprietary rights
developed or discovered or used in connection with or contained in the Post
Modern Products, free and clear of all liens, claims and encumbrances (including
without limitation distribution rights) (all of which are referred to as "Post
Modern Proprietary Rights") and Post Modern has the right to transfer all such
rights to Visigenic as contemplated hereby. The foregoing representation as it
relates to Post Modern Third Party Technology (as hereinafter defined) is
limited to Post Modern's interest pursuant to the Post Modern Third Party
Licenses (as hereinafter defined), all of which are valid and enforceable and in
full force and effect and which grant Post Modern such rights to Post Modern
Third Party Technology as are employed in or necessary to the business of Post
Modern as conducted or proposed to be conducted. The Post Modern Disclosure
Schedule contains an accurate and complete description of (i) all patents,
trademarks (with separate listings of registered and unregistered trademarks),
trade names, and registered copyrights in or related to the Post Modern
Products, all applications and registration statements therefor, and a list of
all licenses and other agreements relating thereto, and (ii) a list of all
licenses and other agreements with third parties (the "Post Modern Third Party
Licenses") relating to any software, inventions, technology, know-how, or
processes that Post Modern is licensed or otherwise authorized by such third
parties to use, market, distribute or incorporate into products distributed by
Post Modern (such software, inventions, technology, know-how and processes are
collectively referred to as the "Post Modern Third Party Technology"). All of
Post Modern's trademark or trade name registrations related to the Post Modern
Products and all of Post Modern's copyrights in any of the Post Modern Products
are valid and in full force and effect; and consummation of the transactions
contemplated hereby will not alter or impair any such rights. No claims have
been
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asserted against Post Modern (and Post Modern is not aware of any claims which
are likely to be asserted against Post Modern or which have been asserted
against others) by any person challenging Post Modern's use, possession,
manufacture, sale or distribution of Post Modern Products under any patents,
trademarks, trade names, copyrights, trade secrets, software, technology, know-
how or processes utilized by Post Modern (including, without limitation, the
Post Modern Third Party Technology) or challenging or questioning the validity
or effectiveness of any license or agreement relating thereto (including,
without limitation, the Post Modern Third Party Licenses). There is no valid
basis for any claim of the type specified in the immediately preceding sentence
which could in any material way relate to or interfere with the currently
planned continued enhancement and exploitation by Post Modern of any of the Post
Modern Products. None of the Post Modern Products nor the use or exploitation
of any patents, trademarks, trade names, copyrights, software, technology, know-
how or processes by Post Modern in its current business infringes on the rights
of, constitutes misappropriation of, or in any way involves unfair competition
with respect to, any proprietary information or intangible property right of any
third person or entity, including without limitation any patent, trade secret,
copyright, trademark or trade name.
(b) Post Modern has not granted any third party any right to
manufacture, reproduce, distribute, market or exploit any of the Post Modern
Products or any adaptations, translations, or derivative works based on the Post
Modern Products or any portion thereof. Except with respect to the rights of
third parties to the Third Party Technology, no third party has any right to
manufacture, reproduce, distribute, market or exploit any works or materials of
which any of the Post Modern Products are a "derivative work" as that term is
defined in the United States Copyright Act, Title 17, U.S.C. Section 101.
(c) All designs, drawings, specifications, source code, object
code, documentation, flow charts and diagrams incorporating, embodying or
reflecting any of the Post Modern Products at any stage of their development
(the "Post Modern Components") were written, developed and created solely and
exclusively by employees of Post Modern without the assistance of any third
party or entity or were created by third parties who assigned ownership of their
rights to Post Modern by means of valid and enforceable consultant
confidentiality and invention assignment agreements, copies of which have been
delivered to Visigenic. Post Modern has at all times used commercially
reasonable efforts to treat the Post Modern Products and Post Modern Components
as containing trade secrets and has not disclosed or otherwise dealt with such
items in such a manner as to cause the loss of such trade secrets by release
into the public domain.
(d) To the best of Post Modern's knowledge, no employee of Post
Modern is in violation of any term of any employment contract, patent disclosure
agreement or any other contract or agreement relating to the relationship of any
such employee with Post Modern or, to the best of Post Modern's knowledge, any
other party because of the nature of the business conducted by Post Modern or
proposed to be conducted by Post Modern.
(e) Each person presently or previously employed by Post Modern
(including independent contractors, if any) with access to confidential
information has executed a confidentiality and non-disclosure agreement pursuant
to the form of agreement previously provided to Visigenic or its
representatives. Such confidentiality and non-disclosure agreements constitute
valid and binding obligations of Post Modern and such person, enforceable in
accordance with their respective terms. To the best of Post Modern's knowledge,
neither the execution or delivery of such agreements, nor the carrying on of
Post Modern's business as employees by such persons, nor the conduct of Post
Modern's business as currently anticipated, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any of such persons is
obligated.
(f) No product liability or warranty claims which individually or
in the aggregate could exceed Ten Thousand Dollars ($10,000) have been
communicated to or threatened against Post Modern nor, to the best of Post
Modern's knowledge, is there any specific situation, set of
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facts or occurrence that provides a basis for such claim. To the best knowledge
of Post Modern, the Post Modern Disclosure Schedule sets forth all material
defects known to Post Modern in the Post Modern Products that have been
commercially released. For purposes of this Section 3.9(f), Post Modern's Black
Widow shall be considered to have been commercially released.
3.10 Employee Benefit Plans. There is no unfunded prior service cost
----------------------
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Post Modern. Each
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, and other employee benefit or fringe benefit plans,
whether formal or informal, maintained by Post Modern conforms to all applicable
requirements of the Employees Retirement Income Security Act of 1974. The Post
Modern Disclosure Schedule lists and describes all profit-sharing, bonus,
incentive, deferred compensation, vacation, severance pay retirement, stock
option, group insurance or other plans (whether written or not) providing
employee benefits.
3.11 Bank Accounts. The Post Modern Disclosure Schedule sets forth
-------------
the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Post Modern maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.12 Contracts.
---------
(a) Post Modern has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Post Modern of any of its
products, inventions, technology, know-how, trademarks or trade names except in
the ordinary course of its business. True and correct copies of each document
or instrument described in the Post Modern Disclosure Schedule pursuant to this
Section 3.12(a) have been made available to Visigenic or its representatives.
(b) Post Modern has no agreements, contracts or commitments that
call for fixed and/or contingent payments or expenditures by or to Post Modern
of more than Twenty Five Thousand Dollars ($25,000). True and correct copies of
each document or instrument set forth in the Post Modern Disclosure Schedule
pursuant to this Section 3.12(b) have been made available to Visigenic or its
representatives.
(c) Without limiting the provisions of Section 3.9 and except for
any agreements with Visigenic, Post Modern has not granted to any third party
(including, without limitation, OEMs and site license customers) any rights to
reproduce or manufacture any of the Post Modern Products, nor has Post Modern
granted to any third party any exclusive rights of any kind with respect to any
of the Post Modern Products, including, without limitation, territorial
exclusivity or exclusivity with respect to particular versions, implementations
or translations of any of the Post Modern Products, nor has Post Modern granted
any third party any right to market any of the Post Modern Products under any
"private label" or "OEM" arrangements pursuant to which Post Modern is not
identified as the source of such goods. True and correct copies of each document
or instrument listed on the Post Modern Disclosure Schedule pursuant to this
Section 3.12(c) have been made available to Visigenic or its representatives.
(d) Post Modern has no purchase agreement, contract or commitment
that calls for fixed and/or contingent payments by Post Modern that are in
excess of the normal, ordinary and usual requirements of business.
(e) There is no outstanding sales contract, commitment or
proposal (including, without limitation, porting and development projects) of
Post Modern that is currently expected to result in any loss to Post Modern
(before allocation of overhead and administrative costs) upon completion or
performance thereof.
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(f) Post Modern has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium.
(g) Post Modern has no employment, independent contractor or
similar agreement, contract or commitment that is not terminable on no more than
thirty (30) days' notice without penalty or liability of any type, including
without limitation severance or termination pay.
(h) Post Modern has no currently effective collective bargaining
or union agreements, contracts or commitments.
(i) Post Modern is not restricted by agreement from competing
with any person or from carrying on its business anywhere in the world.
(j) Post Modern is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to Post Modern of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such liabilities, obligations and claims
as, in the aggregate, do not exceed Twenty Five Thousand Dollars ($25,000).
(k) Post Modern has not guaranteed any obligations of other
persons or made any agreements to acquire or guarantee any obligations of other
persons.
(l) Post Modern has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort which would permit the borrowing
by Post Modern of any sum not reflected in the Post Modern Financial Statements.
(m) All material contracts, agreements and instruments to which
Post Modern is a party are valid, binding, in full force and effect, and
enforceable by Post Modern in accordance with their respective terms. No such
material contract, agreement or instrument contains any material liquidated-
damages, penalty or similar provision. Post Modern has not received any notice
from any party to any such material contract, agreement or instrument that such
party intends to cancel, withdraw, modify or amend such contract, agreement or
arrangement.
(n) The Post Modern Disclosure Schedule lists all material
agreements pursuant to which Post Modern has agreed to manufacture for or supply
to any third party any Post Modern Products or components thereto. True and
correct copies of each document or instrument listed on the Post Modern
Disclosure Schedule pursuant to this Section 3.12(n) have been provided to
Visigenic or its representatives. The Post Modern Disclosure Schedule also lists
each vendor who manufactures for or supplies to Post Modern any material product
or component included in the Post Modern Products or is the sole source for any
product or component included in the Post Modern Products.
(o) Post Modern is not in default under or in breach or violation
of, nor, to the best of Post Modern's knowledge, is there any valid basis for
any claim of default by Post Modern under, or breach or violation by Post Modern
of, any contract, commitment or restriction to which Post Modern is a party or
to which it or any of its properties is bound, where such defaults, breaches, or
violations would, in the aggregate, have a Material Adverse Effect on Post
Modern. To the best of Post Modern's knowledge, no other party is in default
under or in breach or violation of, nor is there any valid basis for any claim
of default by any other party under or any breach or violation by any other
party of, any material contract, commitment, or restriction to which Post Modern
is bound or by which any of its properties is bound, where such defaults,
breaches, or violations would, in the aggregate, have a Material Adverse Effect
on Post Modern.
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(p) All agreements, contracts and commitments (the "Material
Contracts") listed or described in the Post Modern Disclosure Schedule pursuant
to this Section 3.12 are assumable, or will otherwise be the property of, the
Surviving Corporation following the Merger without further action by the
Surviving Corporation or Visigenic. If any of the Material Contracts are not
assumable by or will not be the property of, the Surviving Corporation following
the Merger, then Post Modern has described in the Post Modern Disclosure
Schedule such actions as is necessary for assumption of the Material Contract by
the Surviving Corporation.
3.13 Orders, Commitments and Returns. All accepted and unfilled
-------------------------------
orders entered into by Post Modern for the sale, license, or lease or other
disposition by Post Modern of its products, and all agreements, contracts, or
commitments for the purchase of supplies by Post Modern, were made in the
ordinary course of business. No outstanding purchase or outstanding lease
commitment of Post Modern is in excess of the normal, ordinary and usual
requirements of its business or was made at any price (on both a per unit and
aggregate basis) materially in excess of the current market price at the time
made, or contains terms and conditions materially more onerous to Post Modern
than those usual and customary in the industry.
3.14 Compliance With Law. Post Modern is in compliance with all
-------------------
applicable laws and regulations except where such failure would not have a
Material Adverse Effect on Post Modern. Neither Post Modern nor, to the best of
Post Modern's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. Post Modern has not participated directly or indirectly in
any boycotts or other similar practices affecting any of its customers. Post
Modern has complied at all times with any and all applicable federal, state and
foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products.
3.15 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Post Modern is not engaged in any unfair labor practice and
is not in material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against Post
Modern actually pending or to Post Modern's best knowledge threatened before the
National Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, or stoppage
actually pending or to Post Modern's best knowledge, threatened against Post
Modern.
(d) No union representation question exists respecting the
employees of Post Modern and, to Post Modern's best knowledge, no union
organizing activities are taking place.
(e) No grievance that might have an adverse effect on Post Modern
or the conduct of its business, nor any arbitration proceeding arising out of or
under any collective bargaining agreement is pending and, to Post Modern's best
knowledge, no claims therefor exist.
(f) No collective bargaining agreement that is binding on Post
Modern restricts it from relocating or closing any of its operations.
(g) Post Modern has not experienced any material work stoppage or
other material labor difficulty.
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(h) There is and has been no claim against Post Modern based on
actual or alleged race, age, sex, disability or other harassment or
discrimination, or similar tortious conduct, nor, to Post Modern's best
knowledge, is there any basis for any such claim.
3.16 Trade Regulation. Post Modern has not terminated its
----------------
relationship with or refused to ship Post Modern Products to any dealer,
distributor, OEM, third party marketing entity or customer which had theretofore
paid or been obligated to pay Post Modern in excess of Ten Thousand Dollars
($10,000) over any consecutive twelve (12) month period. All of the prices
charged by Post Modern in connection with the marketing or sale of any products
or services have been in compliance with all applicable laws and regulations.
No claims have been communicated or, to the best of Post Modern's knowledge,
threatened against Post Modern with respect to wrongful termination of any
dealer, distributor or any other marketing entity, discriminatory pricing, price
fixing, unfair competition, false advertising, or any other violation of any
laws or regulations relating to anti-competitive practices or unfair trade
practices of any kind, and no specific situation, set of facts, or occurrence
provides any basis for any such claim.
3.17 Insider Transactions. No Affiliate of Post Modern has any
--------------------
interest in (i) any material equipment or other property, real or personal,
tangible or intangible, including, without limitation, any item of intellectual
property, used in connection with or pertaining to the business of Post Modern,
or (ii) any creditor, supplier, customer, manufacturer, agent, representative,
or distributor of products of Post Modern; provided, however, that no such
Affiliate or other person shall be deemed to have such an interest solely by
virtue of the ownership of less than one percent (1%) of the outstanding stock
or debt securities of any publicly-held company, the stock or debt securities of
which are traded on a recognized stock exchange or quoted on the National
Association of Securities Dealers Automated Quotation System.
3.18 Employees, Independent Contractors and Consultants. The Post
--------------------------------------------------
Modern Disclosure Schedule lists and describes all currently effective
consulting, independent contractor and/or employment agreements and other
material agreements concluded with individual employees, independent contractors
or consultants to which Post Modern is a party. True and correct copies of all
such written agreements have been provided to Visigenic or its representatives.
All salaries and wages paid by Post Modern are in compliance with applicable
federal, state and local laws. Post Modern shall disclose in writing to
Visigenic the annual rate of compensation, including bonuses and other payments
of any kind of all employees. Post Modern's aggregate accrued vacation and
severance pay as of March 31, 1996, was not more than Sixty Thousand Dollars
($60,000).
3.19 Insurance. The Post Modern Disclosure Schedule contains a list
---------
of the principal policies of fire, liability and other forms of insurance held
by Post Modern.
3.20 Litigation. There are no suits, actions or proceedings pending
----------
or, to Post Modern's best knowledge, threatened against or affecting Post Modern
or which questions or challenges the validity of this Agreement. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Post Modern.
3.21 Permit Application; Information Statement. The information
-----------------------------------------
supplied by Post Modern and which is included in the application for issuance of
a permit (the "Permit Application") pursuant to Section 25121 of the California
Corporate Securities Act of 1968, as amended (the "California Law"), shall not,
at the time the fairness hearing is held pursuant to Section 25142 of the
California Law and at the time the qualification of such securities is effective
under such Section 25122 of the California Law, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Post Modern for inclusion in the information statement (the
"Information Statement") to be sent to the shareholders of Post Modern in
connection with the meeting of Post Modern's shareholders to
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consider this Agreement and the Merger (the "Post Modern Common Shareholders'
Meeting") shall not, on the date the Information Statement is first mailed to
shareholders of Post Modern, at the time of the Post Modern Common Shareholders'
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it was made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made in the Information Statement not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Post Modern Common Shareholders' Meetings which has become false
or misleading. If at any time prior to the Effective Time any event relating to
Post Modern or any of its Affiliates, officers or directors should be discovered
by Post Modern which should be set forth in an amendment to the Permit
Application or a supplement to the Information Statement, Post Modern shall
promptly inform Visigenic thereof.
3.22 Governmental Authorizations and Regulations. All licenses,
-------------------------------------------
franchises, permits and other governmental authorizations held by Post Modern
and material to its business are valid and sufficient for the business presently
carried on by Post Modern. The business of Post Modern is not being conducted
in violation of any law, ordinance or regulation of any governmental entity,
except for violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect on Post Modern.
3.23 Subsidiaries. Post Modern has no subsidiaries. Post Modern does
------------
not own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Post Modern does not control (directly
or indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
3.24 Compliance with Environmental Requirements.
------------------------------------------
(a) As of the date hereof, to the best knowledge of Post Modern,
no underground storage tanks are present under any property that Post Modern or
any of its subsidiaries has at any time owned, operated, occupied or leased. As
of the date hereof, except as set forth in the Post Modern Disclosure Schedule,
no Material amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "Hazardous Material"), are present as a result of the actions of Post Modern,
or any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water, that
Post Modern has at any time owned, operated, occupied or leased.
(b) At no time has Post Modern transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has Post Modern disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively, "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity.
(c) Post Modern currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of Post Modern as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to result in fines to
Post Modern in excess of Five Thousand Dollars ($5,000).
15
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(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending or, to the best knowledge of
Post Modern, threatened concerning any Environmental Permit or any Hazardous
Material Activity of Post Modern. Post Modern is not aware of any fact or
circumstance which could involve Post Modern in any environmental litigation or
impose upon Post Modern any environmental liability which would be reasonably
likely to exceed Five Thousand Dollars ($5,000).
3.25 Corporate Documents. Post Modern has furnished to Visigenic for
-------------------
its examination: (i) copies of its Articles of Incorporation and Bylaws; (ii)
its Minute Book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to Post Modern, or any securities
of Post Modern, and all applications for such permits, orders, and consents; and
(iv) the stock transfer books of Post Modern setting forth all transfers of any
capital stock. The corporate minute books, stock certificate books, stock
registers and other corporate records of Post Modern are complete and accurate
in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction.
3.26 No Brokers. Except for Hambrecht & Quist LLC, which Post Modern
----------
has retained for the Merger, neither Post Modern nor, to the best of Post
Modern's knowledge, any Post Modern shareholder is obligated for the payment of
fees or expenses of any broker or finder in connection with the origin,
negotiation or execution of this Agreement or the Certificate of Merger or in
connection with any transaction contemplated hereby or thereby.
3.27 Disclosure. No statements by Post Modern contained in this
----------
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4. Representations and Warranties of Visigenic. Except as otherwise set
-------------------------------------------
forth in the "Visigenic Disclosure Schedule" provided to Post Modern on the date
hereof, Visigenic represents and warrants to the shareholders of Post Modern as
set forth below. No fact or circumstance disclosed to Post Modern shall
constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the Visigenic Disclosure Schedule or such
supplements thereto as may mutually be agreed upon in writing by Visigenic and
Post Modern.
4.1 Organization. Visigenic is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and has
corporate power and authority to carry on its business as it is now being
conducted. Visigenic is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary except where the failure to be
so qualified would not have a Material Adverse Effect on Visigenic. The
Visigenic Disclosure Schedule contains a true and complete listing of the
locations of all sales offices, manufacturing facilities, and any other offices
or facilities of Visigenic and a true and complete list of all states in which
Visigenic maintains any employees. The Visigenic Disclosure Schedule contains a
true and complete list of all states in which Visigenic is duly qualified to
transact business as a foreign corporation. True and complete copies of
Visigenic's Certificate of Incorporation and Bylaws, as in effect on the date
hereof and as to be in effect as of the Closing, have been provided to Post
Modern or its representatives.
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4.2 Capitalization.
--------------
(a) The authorized capital of Visigenic consists, or will consist
prior to the Closing, of:
(i) Preferred Stock. 12,000,000 shares of preferred stock
---------------
(the "Series A Preferred Stock"), of which 1,606,000 shares have been designated
Series A Preferred Stock, 1,606,000 of which are issued and outstanding, and
6,000,000 shares have been designated Series B Preferred Stock (the "Series B
Preferred Stock"), 5,743,250 of which are issued and outstanding. The Series A
Preferred Stock and the Series B Preferred Stock are collectively referred to
herein as "Preferred Stock." The rights, privileges and preferences of the
Preferred Stock are as stated in Visigenic's Certificate of Incorporation.
(ii) Common Stock. 30,000,000 shares of common stock ("Common
------------
Stock"), of which 5,671,809 shares are issued and outstanding.
(b) The Visigenic Disclosure Schedule accurately describes the
vesting schedules associated with such Visigenic Common Stock and Visigenic
Options.
(c) Visigenic does not have outstanding any preemptive or
subscription rights, options, warrants, rights to convert or exchange, capital
stock equivalents, or other rights to purchase or otherwise acquire any of
Visigenic's capital stock or other securities.
(d) All of the issued and outstanding shares of Visigenic's
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of Visigenic, have been issued in full compliance with all
applicable federal and state securities laws. None of Visigenic's issued and
outstanding shares of capital stock, or options or rights to purchase capital
stock of Visigenic, is subject to repurchase or redemption rights. There have
not been and are not outstanding any adjustments made or required to be made to
the conversion prices set forth in Visigenic's current Certificate of
Incorporation. All of Visigenic's options have been issued in accordance with
its current stock option plan and in accordance with all state securities laws.
(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Visigenic's capital stock.
(f) Visigenic is not under any obligation to register under the
Securities Act any shares of its capital stock or any other of its securities
that might be issued in the future if the Merger were not consummated.
(g) Visigenic is not a party or subject to any agreement or
understanding (and, to the best of Visigenic's knowledge, there is no agreement
or understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
4.3 Power, Authority and Validity. Visigenic has the corporate power
-----------------------------
to enter into this Agreement and the other Transaction Documents to which it is
a party and to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Visigenic and, on the Closing Date, by
the stockholders of Visigenic, and no other corporate proceedings on the part of
Visigenic are necessary to authorize this Agreement, the other Transaction
Documents and the transactions contemplated herein and therein. Visigenic is
not subject to or obligated under any charter, bylaw or contract provision or
any license, franchise or permit, or subject to any order or decree, which would
be breached or
17
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violated by or in conflict with its executing and carrying out this Agreement
and the transactions contemplated hereunder and under the Transaction Documents.
Except for (i) the filing of a certificate of merger with the Secretary of State
of the State of Delaware, and (ii) filings under applicable securities laws, no
consent of any person who is a party to a contract which is material to
Visigenic's business, nor consent of any governmental authority, is required to
be obtained on the part of Visigenic to permit the transactions contemplated
herein and continue the business activities of Visigenic as previously conducted
by Visigenic without material adverse change. This Agreement is, and the other
Transaction Documents when executed and delivered by Visigenic shall be, the
valid and binding obligations of Visigenic enforceable in accordance with their
respective terms.
4.4 Financial Statements.
--------------------
(a) Visigenic has delivered to Post Modern copies of Visigenic's
unaudited balance sheet as of March 31, 1996, and statements of operations,
stockholders' equity and cash flow for the period then-ended (the "Visigenic
Unaudited Financials") and the audited balance sheet as of March 31, 1995, and
statements of operations, stockholders' equity and cash flow for the period then
ended (collectively, the "Visigenic Financial Statements").
(b) The Visigenic Financial Statements are complete and in
accordance with the books and records of Visigenic and present fairly the
financial position of Visigenic as of their historical dates. The Visigenic
Financial Statements have been prepared in accordance with GAAP (except as to
the Visigenic Unaudited Financials, for the absence of footnotes) applied on a
basis consistent with prior periods. Except and to the extent reflected or
reserved against in such balance sheets (including the notes thereto), Visigenic
does not have, as of the dates of such balance sheets, any liabilities or
obligations (absolute or contingent) of a nature required or customarily
reflected in a balance sheet (or the notes thereto) prepared in accordance with
GAAP. The reserves, if any, reflected on the Visigenic Financial Statements are
adequate in light of the contingencies with respect to which they are made.
(c) Visigenic has no debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Visigenic
Unaudited Financials, except for those (i) that may have been incurred after the
date of the Visigenic Financial Statements or (ii) that are not required by GAAP
to be included in a balance sheet or the notes thereto, except that Visigenic
has not established any reserves with respect to the costs and fees associated
with this Agreement, the other Transaction Documents, and the transactions
contemplated hereby and thereby. All material debts, liabilities, and
obligations incurred after the date of the Visigenic Financial Statements were
incurred in the ordinary course of business, and are usual and normal in amount
both individually and in the aggregate.
4.5 Tax Matters.
-----------
(a) Visigenic has fully and timely, properly and accurately filed
all tax returns and reports required to be filed by them, including all federal,
foreign, state and local tax returns and estimates for all years and periods
(and portions thereof) for which any such returns, reports or estimates were
due. All such returns, reports and estimates were prepared in the manner
required by applicable law. All income, sales, use, occupation, property or
other taxes or assessments due from Visigenic have been paid. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected on the Visigenic
Financial Statements are adequate and there are no tax liens on any property or
assets of Visigenic. There have been no audits or examinations of any tax
returns or reports by any applicable governmental agency. No state of facts
exists or has existed which would constitute grounds for the assessment of any
penalty or of any further tax liability beyond that shown on the respective tax
reports, returns or estimates. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state or
local income tax return or report for any period.
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(b) All taxes which Visigenic has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) Visigenic is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(d) At no time has Visigenic been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) No payment which Visigenic is obliged to pay to any director,
officer, employee or independent contractor pursuant to the terms of an
employment agreement, severance agreement or otherwise will constitute an excess
parachute payment as defined in Section 280G of the Code.
(f) Visigenic is not currently under any contractual obligation
to pay any tax obligations of, or with respect to any transaction relating to,
any other person or to indemnify any other person with respect to any tax.
4.6 Tax Free Reorganization.
-----------------------
(a) Neither Visigenic nor, to the best of its knowledge, any
Visigenic stockholder has taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
(b) Visigenic is not an investment company as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
4.7 Absence of Certain Changes or Events. Since March 31, 1996,
------------------------------------
Visigenic has not:
(a) suffered any material adverse change in its financial
condition or in the operations of its business, nor any material adverse changes
in its balance sheet, (with the Visigenic Financial Statements and any
subsequent balance sheet analyzed as if each had been prepared according to
GAAP), and including but not limited to cash distributions or material decreases
in the net assets of Visigenic;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by Visigenic to its officers or employees, except
those occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Visigenic or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by Visigenic of such shares;
(e) issued any shares of capital stock of Visigenic or any
warrants, rights, options or entered into any commitment relating to the shares
of Visigenic except for the issuance of Visigenic Shares pursuant to the
exercise of outstanding options;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
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(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset except in the ordinary course of its business;
(i) suffered any labor dispute;
(j) engaged in any activity or entered into any material
commitment or transaction (including without limitation any borrowing or capital
expenditure) other than in the ordinary course of business;
(k) incurred any liabilities except in the ordinary course of
business and consistent with past practice which would be required to be
disclosed in financial statements prepared in accordance with GAAP;
(l) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except those permitted under Section 4.8 hereof,
other than any purchase money security interests incurred in the ordinary course
of business;
(m) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of Twenty Five Thousand
Dollars ($25,000), or in the aggregate, in excess of Two Hundred Thousand
Dollars ($200,000);
(n) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with any of its Affiliates, officers, directors or stockholder or
any Affiliate or associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if
not so amended or terminated, would be required to be disclosed on the Visigenic
Disclosure Schedule; or
(p) agreed to take any action described in this Section 4.7 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
4.8 Title and Related Matters. Visigenic has good and marketable
-------------------------
title to all the properties, interests in properties and assets, real and
personal, reflected in the Visigenic Financial Statements or acquired after the
date of the Visigenic Financial Statements (except properties, interests in
properties and assets sold or otherwise disposed of since the date of the
Visigenic Financial Statements in the ordinary course of business), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and payable and except
for liens which in the aggregate do not secure more than Fifty Thousand Dollars
($50,000) in liabilities. The equipment of Visigenic used in the operation of
its business is in good operating condition and repair. To the best of
Visigenic's knowledge, all real or personal property leases to which Visigenic
is a party are valid, binding, enforceable obligations of Visigenic effective in
accordance with their respective terms. There is not under any of such leases
any existing material default or event of default or event which, with notice or
lapse of time or both, would constitute a material default. The Visigenic
Disclosure Schedule contains a description of all real and personal property
leased or owned by Visigenic, identifying such property and, in the case of real
property, stating the monthly rental due, term of lease and square feet leased.
True and correct copies of Visigenic's leases have been provided to Post Modern
or its representatives.
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4.9 Proprietary Rights.
------------------
(a) Visigenic owns all right, title and interest in and to, or
valid licenses for use of, all patents, copyrights, technology, software,
software tools, know-how, processes, trade secrets, trademarks, service marks,
trade names and other proprietary rights used in or necessary for the conduct of
Visigenic's business as conducted to the date hereof or contemplated, including,
without limitation, the technology and all proprietary rights developed or
discovered or used in connection with or contained in the Visigenic Products,
free and clear of all liens, claims and encumbrances (including without
limitation distribution rights) (all of which are referred to as "Visigenic
Proprietary Rights"). The foregoing representation as it relates to Visigenic
Third Party Technology (as hereinafter defined) is limited to Visigenic's
interest pursuant to the Visigenic Third Party Licenses (as hereinafter
defined), all of which are valid and enforceable and in full force and effect
and which grant Visigenic such rights to Visigenic Third Party Technology as are
employed in or necessary to the business of Visigenic as conducted or proposed
to be conducted. The Visigenic Disclosure Schedule contains an accurate and
complete description of (i) all patents, trademarks (with separate listings of
registered and unregistered trademarks), trade names, and registered copyrights
in or related to the Visigenic Products, all applications and registration
statements therefor, and a list of all licenses and other agreements relating
thereto, and (ii) a list of all licenses and other agreements with third parties
(the "Visigenic Third Party Licenses") relating to any software, inventions,
technology, know-how, or processes that Visigenic is licensed or otherwise
authorized by such third parties to use, market, distribute or incorporate into
products distributed by Visigenic (such software, inventions, technology, know-
how and processes are collectively referred to as the "Visigenic Third Party
Technology"). All of Visigenic's trademark or trade name registrations related
to the Visigenic Products and all of Visigenic's copyrights in any of the
Visigenic Products are valid and in full force and effect; and consummation of
the transactions contemplated hereby will not alter or impair any such rights.
No claims have been asserted against Visigenic (and Visigenic is not aware of
any claims which are likely to be asserted against Visigenic or which have been
asserted against others) by any person challenging Visigenic's use, possession,
manufacture, sale or distribution of Visigenic Products under any patents,
trademarks, trade names, copyrights, trade secrets, software, technology, know-
how or processes utilized by Visigenic (including, without limitation, the
Visigenic Third Party Technology) or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto (including, without
limitation, the Visigenic Third Party Licenses). There is no valid basis for any
claim of the type specified in the immediately preceding sentence which could in
any material way relate to or interfere with the currently planned continued
enhancement and exploitation by Visigenic of any of the Visigenic Products. None
of the Visigenic Products nor the use or exploitation of any patents,
trademarks, trade names, copyrights, software, technology, know-how or processes
by Visigenic in its current business infringes on the rights of, constitutes
misappropriation of, or in any way involves unfair competition with respect to,
any proprietary information or intangible property right of any third person or
entity, including without limitation any patent, trade secret, copyright,
trademark or trade name.
(b) Visigenic has not granted any third party any right to
manufacture, reproduce, distribute, market or exploit any of the Visigenic
Products or any adaptations, translations, or derivative works based on the
Visigenic Products or any portion thereof. Except with respect to the rights of
third parties to the Visigenic Third Party Technology, no third party has any
right to manufacture, reproduce, distribute, market or exploit any works or
materials of which any of the Visigenic Products are a "derivative work" as that
term is defined in the United States Copyright Act, Title 17, U.S.C. Section
101.
(c) All designs, drawings, specifications, source code, object
code, documentation, flow charts and diagrams incorporating, embodying or
reflecting any of the Visigenic Products at any stage of their development (the
"Visigenic Components") were written, developed and created solely and
exclusively by employees of Visigenic without the assistance of any third party
or entity or were created by third parties who assigned ownership of their
rights to Visigenic by means of valid and enforceable consultant confidentiality
and invention assignment agreements, copies of
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which have been delivered to Post Modern. Visigenic has at all times used
commercially reasonable efforts to treat the Visigenic Products and Visigenic
Components as containing trade secrets and has not disclosed or otherwise dealt
with such items in such a manner as to cause the loss of such trade secrets by
release into the public domain.
(d) To the best of Visigenic's knowledge, no employee of
Visigenic is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with Visigenic or, to the best of Visigenic's
knowledge, any other party because of the nature of the business conducted by
Visigenic or proposed to be conducted by Visigenic.
(e) Each person presently or previously employed by Visigenic
(including independent contractors, if any) with access to confidential
information has executed a confidentiality and non-disclosure agreement pursuant
to the form of agreement previously provided to Post Modern or its
representatives. Such confidentiality and non-disclosure agreements constitute
valid and binding obligations of such person, enforceable in accordance with
their respective terms. To the best of Visigenic's knowledge, neither the
execution or delivery of such agreements, nor the carrying on of Visigenic's
business as employees by such persons, nor the conduct of Visigenic's business
as currently anticipated, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under any contract, covenant
or instrument under which any of such persons is obligated.
(f) No product liability or warranty claims which individually or
in the aggregate could exceed Twenty Five Thousand Dollars ($25,000) have been
communicated to or threatened against Visigenic nor, to the best of Visigenic's
knowledge, is there any specific situation, set of facts or occurrence that
provides a basis for such claim. To the best knowledge of Visigenic, the
Visigenic Disclosure Schedule sets forth all material defects known to Visigenic
in the Visigenic Products that have been commercially released.
4.10 Employee Benefit Plans. There is no unfunded prior service cost
----------------------
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Visigenic. Each bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option, and other employee benefit or fringe benefit plans, whether formal
or informal, maintained by Visigenic conforms to all applicable requirements of
the Employees Retirement Income Security Act of 1974. The Visigenic Disclosure
Schedule lists and describes all profit-sharing, bonus, incentive, deferred
compensation, vacation, severance pay, retirement, stock option, group insurance
or other plans (whether written or not) providing employee benefits.
4.11 Bank Accounts. The Visigenic Disclosure Schedule sets forth the
-------------
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Visigenic maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
4.12 Contracts.
---------
(a) Visigenic has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Visigenic of any of its
products, inventions, technology, know-how, trademarks or trade names except in
the ordinary course of its business. True and correct copies of each document or
instrument described in the Visigenic Disclosure Schedule pursuant to this
Section 4.12(a) have been made available to Post Modern or its representatives.
(b) Visigenic has no agreements, contracts or commitments that
call for fixed and/or contingent payments or expenditures by or to Visigenic of
more than Two Hundred Fifty Thousand Dollars ($250,000). True and correct copies
of each document or instrument set forth in the
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Visigenic Disclosure Schedule pursuant to this Section 4.12(b) have been made
available to Post Modern or its representatives.
(c) Without limiting the provisions of Section 4.9 and except for
any agreements with Post Modern, Visigenic has not granted to any third party
(including, without limitation, OEMs and site license customers) any rights to
reproduce or manufacture any of the Visigenic Products, nor has Visigenic
granted to any third party any exclusive rights of any kind with respect to any
of the Visigenic Products, including, without limitation, territorial
exclusivity or exclusivity with respect to particular versions, implementations
or translations of any of the Visigenic Products, nor has Visigenic granted any
third party any right to market any of the Visigenic Products under any "private
label" or "OEM" arrangements pursuant to which Visigenic is not identified as
the source of such goods.
(d) Visigenic has no purchase agreement, contract or commitment
that calls for fixed and/or contingent payments by Visigenic that are in excess
of the normal, ordinary and usual requirements of business.
(e) There is no outstanding sales contract, commitment or
proposal (including, without limitation, porting and development projects) of
Visigenic that is currently expected to result in any loss to Visigenic (before
allocation of overhead and administrative costs) upon completion or performance
thereof.
(f) Visigenic has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium.
(g) Visigenic has no employment, independent contractor or
similar agreement, contract or commitment that is not terminable on no more than
thirty (30) days' notice without penalty or liability of any type, including
without limitation severance or termination pay.
(h) Visigenic has no currently effective collective bargaining or
union agreements, contracts or commitments.
(i) Visigenic is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world.
(j) Visigenic is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to Visigenic of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such liabilities, obligations and claims
as, in the aggregate, do not exceed Fifty Thousand Dollars ($50,000).
(k) Visigenic has not guaranteed any obligations of other persons
or made any agreements to acquire or guarantee any obligations of other persons.
(l) Visigenic has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort which would permit the borrowing
by Visigenic of any sum not reflected in the Visigenic Financial Statements.
(m) All material contracts, agreements and instruments to which
Visigenic is a party are valid, binding, in full force and effect, and
enforceable by Visigenic in accordance with their respective terms. No such
material contract, agreement or instrument contains any material liquidated-
damages, penalty or similar provision. Visigenic has not received any notice
from any
23
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party to any such material contract, agreement or instrument that such party
intends to cancel, withdraw, modify or amend such contract, agreement or
arrangement.
(n) The Visigenic Disclosure Schedule lists all material
agreements pursuant to which Visigenic has agreed to manufacture for or supply
to any third party any Visigenic Products or components thereto. True and
correct copies of each document or instrument listed on the Visigenic Disclosure
Schedule pursuant to this Section 4.12(n) have been provided to Post Modern or
its representatives. The Visigenic Disclosure Schedule also lists each vendor
who manufactures for or supplies to Visigenic any material product or component
included in the Visigenic Products or is the sole source for any product or
component included in the Visigenic Products.
(o) Visigenic is not in default under or in breach or violation
of, nor, to the best of Visigenic's knowledge, is there any valid basis for any
claim of default by Visigenic under, or breach or violation by Visigenic of, any
contract, commitment or restriction to which Visigenic is a party or to which it
or any of its properties is bound, where such defaults, breaches, or violations
would, in the aggregate, have a Material Adverse Effect on Visigenic. To the
best of Visigenic's knowledge, no other party is in default under or in breach
or violation of, nor is there any valid basis for any claim of default by any
other party under or any breach or violation by any other party of, any material
contract, commitment, or restriction to which Visigenic is bound or by which any
of its properties is bound, where such defaults, breaches, or violations would,
in the aggregate, have a Material Adverse Effect on Visigenic.
4.13 Orders, Commitments and Returns. All accepted and unfilled
-------------------------------
orders entered into by Visigenic for the sale, license, or lease or other
disposition by Visigenic of its products, and all agreements, contracts, or
commitments for the purchase of supplies by Visigenic, were made in the ordinary
course of business. No outstanding purchase or outstanding lease commitment of
Visigenic are in excess of the normal, ordinary and usual requirements of its
business or was made at any price (on both a per unit and aggregate basis)
materially in excess of the current market price at the time made, or contains
terms and conditions materially more onerous to Visigenic than those usual and
customary in the industry.
4.14 Compliance With Law. Visigenic is in compliance with all
-------------------
applicable laws and regulations except where such failure would not have a
Material Adverse Effect on Visigenic. Neither Visigenic nor, to the best of
Visigenic's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. Visigenic has not participated directly or indirectly in
any boycotts or other similar practices affecting any of its customers.
Visigenic has complied at all times with any and all applicable federal, state
and foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products.
4.15 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Visigenic is not engaged in any unfair labor practice and is
not in material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against Visigenic
actually pending or, to Visigenic's best knowledge, threatened before the
National Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, or stoppage
actually pending or, to Visigenic's best knowledge, threatened against
Visigenic.
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(d) No union representation question exists respecting the
employees of Visigenic and, to Visigenic's best knowledge, no union organizing
activities are taking place.
(e) No grievance that might have an adverse effect on Visigenic
or the conduct of its business, nor any arbitration proceeding arising out of or
under any collective bargaining agreement is pending and, to Visigenic's best
knowledge, no claims therefor exist.
(f) No collective bargaining agreement that is binding on
Visigenic restrict it from relocating or closing any of its operations.
(g) Visigenic has not experienced any material work stoppage or
other material labor difficulty.
(h) There is and has been no claim against Visigenic based on
actual or alleged race, age, sex, disability or other harassment or
discrimination, or similar tortious conduct, nor, to Visigenic's best knowledge,
is there any basis for any such claim.
4.16 Trade Regulation. Visigenic has not terminated its relationship
----------------
with or refused to ship Visigenic Products to any dealer, distributor, OEM,
third party marketing entity or customer which had theretofore paid or been
obligated to pay Visigenic in excess of Twenty Five Thousand Dollars ($25,000)
over any consecutive twelve (12) month period. All of the prices charged by
Visigenic in connection with the marketing or sale of any products or services
have been in compliance with all applicable laws and regulations. No claims
have been communicated or to the best of Visigenic's knowledge, threatened
against Visigenic with respect to wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price fixing,
unfair competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and no specific situation, set of facts, or occurrence provides any
basis for any such claim.
4.17 Insider Transactions. No Affiliate of Visigenic has any interest
--------------------
in (i) any material equipment or other property, real or personal, tangible or
intangible, including, without limitation, any item of intellectual property,
used in connection with or pertaining to the business of Visigenic, or (ii) any
creditor, supplier, customer, manufacturer, agent, representative, or
distributor of products of Visigenic; provided, however, that no such Affiliate
or other person shall be deemed to have such an interest solely by virtue of the
ownership of less than one percent (1%) of the outstanding stock or debt
securities of any publicly-held company, the stock or debt securities of which
are traded on a recognized stock exchange or quoted on the National Association
of Securities Dealers Automated Quotation System.
4.18 Employees, Independent Contractors and Consultants. The
--------------------------------------------------
Visigenic Disclosure Schedule lists and describes all currently effective
consulting, independent contractor and/or employment agreements and other
material agreements concluded with individual employees, independent contractors
or consultants to which Visigenic is a party. True and correct copies of all
such written agreements have been provided to Post Modern or its
representatives. All salaries and wages paid by Visigenic are in compliance
with applicable federal, state and local laws. Visigenic shall disclose in
writing to Post Modern the annual rate of compensation, including bonuses and
other payments of any kind of all employees. Visigenic's aggregate accrued
vacation and severance pay as of March 31, 1996 was approximately One Hundred
Fifteen Thousand Dollars ($115,000).
4.19 Insurance. The Visigenic Disclosure Schedule contains a list of
---------
the principal policies of fire, liability and other forms of insurance held by
Visigenic.
4.20 Litigation. There are no suits, actions or proceedings pending
----------
or, to Visigenic's best knowledge, threatened against or affecting Visigenic or
which questions or challenges the validity
25
<PAGE>
of this Agreement. There is no judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against Visigenic.
4.21 Permit Application; Information Statement. The information
-----------------------------------------
supplied by Visigenic and which is included in the Permit Application shall not,
at the time the fairness hearing is held pursuant to Section 25142 of the
California Law and at the time the qualification of such securities is effective
under such Section 25122 of the California Law, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Visigenic for inclusion in the Information Statement shall not, on
the date the Information Statement is first mailed to shareholders of Post
Modern, at the time of the Post Modern Shareholder's Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Information Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Post
Modern Shareholders' Meeting which has become false or misleading. If, at any
time prior to the Effective Time, any event relating to Visigenic, or any of its
Affiliates, officers or directors should be discovered by Visigenic which should
be set forth in an amendment to the Permit Application or a supplement to the
Information Statement, Visigenic shall promptly inform Post Modern and shall
file such amendment.
4.22 Governmental Authorizations and Regulations. All licenses,
-------------------------------------------
franchises, permits and other governmental authorizations held by Visigenic and
material to its business are valid and sufficient for the business presently
carried on by Visigenic. The business of Visigenic is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for violations which either singly or in the aggregate do not and will not have
a Material Adverse Effect on Visigenic.
4.23 Subsidiaries. Visigenic has no subsidiaries. Visigenic does not
------------
own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Visigenic does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
4.24 Compliance with Environmental Requirements.
------------------------------------------
(a) As of the date hereof, to the best knowledge of Visigenic, no
underground storage tanks are present under any property that Visigenic or any
of its subsidiaries has at any time owned, operated, occupied or leased. As of
the date hereof, except as set forth in the Visigenic Disclosure Schedule, no
Material amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "Hazardous Material"), are present as a result of the actions of Visigenic,
or any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water, that
Visigenic has at any time owned, operated, occupied or leased.
(b) At no time has Visigenic transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has Visigenic disposed of, transported, sold, or
26
<PAGE>
manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity.
(c) Visigenic currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of Visigenic as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to result in fines to
Visigenic in excess of Fifteen Thousand Dollars ($15,000).
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending or, to the best knowledge of
Visigenic, threatened concerning any Environmental Permit or any Hazardous
Material Activity of Visigenic. Visigenic is not aware of any fact or
circumstance which could involve Visigenic in any environmental litigation or
impose upon Visigenic any environmental liability which would be reasonably
likely to exceed Fifteen Thousand Dollars ($15,000).
4.25 Corporate Documents. Visigenic has furnished to Post Modern for
-------------------
its examination: (i) copies of its Certificate of Incorporation and its Bylaws;
(ii) its Minute Book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the stockholders, the board of
directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to Visigenic, or any securities of
Visigenic, and all applications for such permits, orders, and consents; and (iv)
the stock transfer books of Visigenic setting forth all transfers of any capital
stock. The corporate minute books, stock certificate books, stock registers and
other corporate records of Visigenic are complete and accurate in all material
respects, and the signatures appearing on all documents contained therein are
the true signatures of the persons purporting to have signed the same. All
actions reflected in such books and records were duly and validly taken in
compliance with the laws of the applicable jurisdiction.
4.26 No Brokers. Neither Visigenic and, to the best of Visigenic's
----------
knowledge, any Visigenic stockholder is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Certificate of Merger or in connection with
any transaction contemplated hereby or thereby.
4.27 Disclosure. No statements by Visigenic contained in this
----------
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
5. Preclosing Covenants of Post Modern and Visigenic.
-------------------------------------------------
5.1 Material Consents. Post Modern shall exert reasonable, good
-----------------
faith commercial efforts to obtain any and all consents necessary for the
assumption of the Material Contracts by the Surviving Corporation concurrent
with the Merger as described in the Disclosure Schedule pursuant to Section
3.12(p) (the "Material Consents").
5.2 Employment Agreements, Other Commitments Terminated.
---------------------------------------------------
(a) Prior to the Contingencies Date, all employment agreements to
which Post Modern is a party shall be reviewed by Post Modern and Visigenic and,
as agreed between them, either terminated prior to the Contingencies Date or
assumed by Visigenic as of the Closing with such modifications as may be
acceptable to Post Modern, Visigenic and the employee party to such agreement.
As of the Contingencies Date, any obligation of Post Modern to issue options,
stock or
27
<PAGE>
warrants to any employee or consultant of Post Modern to whom such options,
stock or warrants have been offered or promised shall have been fulfilled to the
mutual satisfaction of Visigenic and Post Modern.
(b) Simultaneously with the execution of this Agreement, the Key
Employees shall each enter into a Non-Compete and Non-Solicitation Agreement
with Visigenic in the form attached hereto as Exhibit B.
---------
(c) At Closing, in order to induce certain Post Modern employees
to accept employment with Visigenic, Visigenic will make a payment (the
"Payment") in the amount and to the Post Modern employees (the "Listed
Employee") identified on Exhibit C hereto. Payments made to each Listed Employee
---------
shall be earned over 12 months, and shall vest a rate of 1/12 per month. In the
event a Listed Employee ceases to be employed by Visigenic during the bonus
vesting period other than because Visigenic has terminated his employment
without cause or the Listed Employee has been constructively discharged, the
Listed Employee shall repay the unvested portion of the Bonus to Visigenic upon
termination of employment.
5.3 Voting Agreement and Irrevocable Proxies.
----------------------------------------
(a) Post Modern shall use its best efforts, on behalf of
Visigenic and pursuant to the request of Visigenic, to cause holders of one
hundred percent (100%) of the Post Modern Shares issued and outstanding to
execute and deliver to Visigenic a voting agreement and irrevocable proxy,
substantially in the form attached hereto as Exhibit D-1, concurrently with the
execution of this Agreement. -----------
(b) Visigenic shall use its best efforts, on behalf of Post
Modern and pursuant to the request of Post Modern, to cause holders of more than
fifty percent (50%) of the shares of Visigenic Common Stock issued and
outstanding, including all holders of Visigenic Common Stock who are directors
of Visigenic, to execute and deliver to Post Modern a voting agreement and
irrevocable proxy, substantially in the form attached hereto as Exhibit D-2,
concurrently with the execution of this Agreement. -----------
5.4 Advice of Changes.
-----------------
(a) Post Modern will promptly advise Visigenic in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Post Modern contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (ii) of any material adverse change in
Post Modern's business, taken as a whole.
(b) Visigenic will promptly advise Post Modern in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Visigenic contained in this Agreement, if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect and (ii) of any material adverse change in Visigenic's
business, taken as a whole.
6. Mutual Covenants.
----------------
6.1 Conduct of Business by Post Modern. Until the Closing, Post
----------------------------------
Modern will continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will not, without the prior
written consent of Visigenic:
(a) borrow any money which borrowings exceed in the aggregate
Fifty Thousand Dollars ($50,000);
28
<PAGE>
(b) incur or commit to incur any capital expenditures in excess
of Fifty Thousand Dollars ($50,000) in the aggregate;
(c) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, intellectual property right or other property associated
with the business of Post Modern (including sales or transfers to Affiliates of
Post Modern), except for sales of inventory in the usual and ordinary course of
business;
(d) dispose of any of its assets, except inventory in the regular
and ordinary course of business;
(e) enter into any lease or contract for the purchase or sale of
any property, real or personal except in the ordinary course of business;
(f) pay any bonus, increased salary, or special remuneration to
any officer or employee, including any amounts for accrued but unpaid salary or
bonuses (other than amounts not in excess of normal payments made on a regular
basis);
(g) change accounting methods, except to conform to GAAP and to
conform to a March 31 fiscal year;
(h) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(i) amend or terminate any contract, agreement or license to
which it is a party except in the ordinary course of business;
(j) loan any amount to any person or entity, or guaranty or act
as a surety for any obligation;
(k) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, other than stock options granted as part of existing
stock option program or pursuant to any recapitalization plan disclosed to and
approved by Visigenic in its discretion (a "Recapitalization Plan");
(l) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(m) amend its Certificate of Incorporation or Articles of
Incorporation or Bylaws except as necessary to carry out a Recapitalization
Plan;
(n) make or change any election, change any annual accounting
period, adopt or change any accounting method, file any amended tax return,
enter into any closing agreement, settle any tax claim or assessment, surrender
any right to claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment, or take any other
action or omit to take any action, if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or omission
would have the effect of increasing the tax liability of Post Modern;
(o) do anything that would cause there to be material adverse
changes in its Financial Statements (with such Financial Statements analyzed as
if it had been prepared according to GAAP, and including but not limited to cash
distributions or material decreases in the net assets of
29
<PAGE>
Post Modern), except as would occur in the ordinary course of Post Modern's
business, between the date of the Post Modern Financial Statements and the
Closing Date; or
(p) agree to do any of the things described in the preceding
clauses Section 6.1(a) through (p).
6.2 Shareholders' Tax Representations. Post Modern will use its best
---------------------------------
efforts to cause each Post Modern shareholder holding at least one percent (1%)
of its shares to execute prior to the Closing a reasonable continuity of
interest representation concerning such shareholder's lack of plan or intention
to sell, exchange or otherwise dispose of shares of Visigenic Common Stock to be
received in the Merger.
6.3 Conduct of Business by Visigenic. Until the Closing, Visigenic
--------------------------------
will continue to conduct its business and maintain its business relationships in
the ordinary and usual course and will not, without the prior written consent of
Post Modern:
(a) borrow more than Six Million Five Hundred Thousand Dollars
($6,500,000), and all such borrowings shall not provide for more than thirty
three percent (33%) warrant coverage and shall not be due less than six (6)
months from the Closing Date;
(b) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, intellectual property right or other property associated
with the business of Visigenic (including sales or transfers to Affiliates of
Visigenic), except for the license of its products to customers in the usual and
ordinary course of business;
(c) dispose of any of its assets in excess of $100,000, except
inventory in the regular and ordinary course of business;
(d) enter into any lease or contract for the purchase or sale of
any property, real or personal except in the ordinary course of business;
(e) pay any bonus, increased salary, or special remuneration to
any officer or employee, including any amounts for accrued but unpaid salary or
bonuses (other than amounts not in excess of normal payments made on a regular
basis);
(f) change accounting methods;
(g) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock, except for the repurchase of any unvested stock;
(h) amend or terminate any contract, agreement or license to
which it is a party except in the ordinary course of business;
(i) loan any amount in excess of $100,000 to any person or
entity, or guaranty or act as a surety for any obligation;
(j) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, other than (i) stock options granted as part of an
existing or proposed stock option program or pursuant to any recapitalization
plan disclosed to and approved by Post Modern in its discretion, (ii) the
issuance of up to 2,000,000 of its capital stock in connection with the
acquisition of one or more other companies, or (iii) the sale and issuance of
any equity securities of Visigenic (or rights to acquire such securities) at a
price equal to or greater than $3.00 per share;
30
<PAGE>
(k) enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(l) amend its Certificate of Incorporation or Articles of
Incorporation or Bylaws except as necessary to carry out this Merger;
(m) make or change any election, change any annual accounting
period, adopt or change any accounting method, file any amended tax return,
enter into any closing agreement, settle any tax claim or assessment, surrender
any right to claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment, or take any other
action or omit to take any action, if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or omission
would have the effect of increasing the tax liability of Visigenic or Post
Modern;
(n) do anything that would cause there to be material adverse
changes in its Financial Statements (with such Financial Statements analyzed as
if it had been prepared according to GAAP, and including but not limited to cash
distributions or material decreases in the net assets of Visigenic), except as
would occur in the ordinary course of Visigenic's business, between the date of
the Visigenic Financial Statements, and the Closing Date; or
(o) agree to do any of the things described in the preceding
clauses Section 6.3(a) through (n).
6.4 No Public Announcement. The parties shall make no public
----------------------
announcement concerning this Agreement, their discussions or any other memos,
letters or agreements between the parties relating to the Merger until such time
as they agree to the contents of a mutually satisfactory press release which
they intend to publicly-release on the date of this Agreement. Either of the
parties, but only after reasonable consultation with the other, may make
disclosure if required under applicable law.
6.5 Other Negotiations. Between the date hereof and the Closing, or
------------------
such earlier date as Visigenic and Post Modern mutually agree to discontinue
discussions of the Merger (the "Expiration Date"), neither Visigenic nor Post
Modern will take any action to solicit, initiate, seek, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in
any negotiations with, any corporation, partnership, person or other entity or
group (other than discussions pursuant to this Agreement) regarding any
acquisition, any merger or consolidation with or involving Post Modern, or any
acquisition of any material portion of the stock or assets. Post Modern and
Visigenic agree that any such negotiations in progress as of the date hereof
will be terminated or suspended during such period.
6.6 Due Diligence, Investigation, and Audits. At such time prior to
----------------------------------------
the Closing as may be reasonably requested, each party shall make available to
the other party and the other party's employees, agents and representatives all
information concerning the operation, business and prospects of such party as
may be reasonably requested by the other party, including, without limitation,
making the working papers of such party's independent certified public
accountants available for inspection by the other party's independent certified
public accountants. Each party will cooperate with the other party for the
purpose of permitting the other party to discuss such party's business and
prospects with such party's customers, creditors, suppliers and other persons
having business dealings with such party, subject to reasonable confidentiality
obligations between the parties.
6.7 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
------------------------------------------------
terms and conditions of this Agreement, Post Modern and Visigenic shall use
their respective best efforts to (i) make all necessary filings with respect to
the Merger and this Agreement under the Securities Act, and applicable blue sky
or similar securities laws and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto and shall supply all
additional information requested in
31
<PAGE>
connection therewith; (ii) make merger notification or other appropriate filings
with federal, state or local governmental bodies or applicable foreign
governmental agencies and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto and shall supply all additional
information requested in connection therewith; (iii) obtain all consents,
waivers, approvals, authorizations and orders required in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger; and (iv) take, or cause to be taken, all appropriate action, and do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement.
6.8 Further Assurances. Prior to and following the Closing, each
------------------
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
7. Closing Matters.
---------------
7.1 Filing of Certificate of Merger. On the date of the Closing, but
-------------------------------
not prior to the Closing, the Certificate of Merger shall be filed with the
offices of the Secretary of State of the State of Delaware and the merger of
Post Modern with and into Visigenic shall be consummated.
7.2 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to the Closing Date, Visigenic shall
--------------
appoint Gray Cary Ware & Freidenrich to act as exchange agent (the "Exchange
Agent") in the Merger.
(b) Visigenic to Provide Stock. Promptly after the Effective Time
--------------------------
of the Merger (but in no event later than ten (10) business days thereafter),
Visigenic shall make available for exchange in accordance with Section 2 and
the Merger Agreement, through such reasonable procedures as Visigenic may adopt,
the shares of Visigenic Common Stock issuable pursuant to Section 2 and the
Merger Agreement in exchange for outstanding shares of Post Modern Stock (less
the number of shares of Visigenic Common Stock to be deposited in escrow
pursuant to Section 2.4).
(c) Exchange Procedures. As soon as practicable after the
-------------------
Effective Time of the Merger (but no later than fifteen (15) days thereafter),
the Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time of the Merger
represented outstanding shares of Post Modern Stock (the "Certificates"), whose
shares are being converted into Visigenic Common Stock pursuant to Section 2
and the Merger Agreement, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and which
shall be in such form and have such other provisions as Visigenic may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for Visigenic Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Visigenic together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive the number of shares of Visigenic Common Stock to which such holder is
entitled pursuant to Section 2 hereof (less the number of shares of Visigenic
Common Stock to be deposited in escrow pursuant to Section 2.4). The Certificate
so surrendered shall immediately be canceled. Visigenic shall make customary
provisions for lost stock certificates. In the event of a transfer of ownership
of Post Modern Stock that is not registered in the transfer records of Post
Modern, the appropriate number of shares of Visigenic Common Stock may be
delivered to a transferee if the Certificate representing such Post Modern Stock
is presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
7.2, each Certificate shall be deemed at any time after the Effective Time of
the Merger to
32
<PAGE>
represent the right to receive upon such surrender the number of shares of
Visigenic Common Stock as provided by this Section 7.2 and by the Delaware
General Corporations Law.
(d) No Further Ownership Rights in Post Modern Stock. All
------------------------------------------------
Visigenic Common Stock delivered upon the surrender for exchange of shares of
Post Modern Stock in accordance with the terms hereof shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such shares of
Post Modern Stock. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Post Modern
Stock that were outstanding immediately prior to the Effective Time of the
Merger. If, after the Effective Time of the Merger, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section 7.2.
7.3 Delivery of Documents. On or before the Contingencies Date (as
---------------------
defined below) or at the Closing, the parties shall deliver the documents, and
shall perform the acts, which are set forth in Section 8 and Section 9, as
specified in such Sections, including delivery of the counterpart signature
pages of the Transaction Documents executed by Post Modern and/or Visigenic, as
the case may be. All documents which Post Modern shall deliver or cause to be
delivered shall be in form and substance reasonably satisfactory to Visigenic.
All documents which Visigenic shall deliver or cause to be delivered shall be in
form and substance reasonably satisfactory to Post Modern.
8. Conditions to Post Modern's Obligations. Unless otherwise provided
---------------------------------------
below, Post Modern's obligations to close the transactions contemplated under
this Agreement are subject to the fulfillment or satisfaction by May 10, 1996
(the "Contingencies Date"), of each of the following conditions (any one or more
of which may be waived by Post Modern, but only in a writing signed by Post
Modern):
8.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Visigenic set forth in Section 4 shall be true in all
material respects on and as of the Contingencies Date with the same force and
effect as if they had been made at the Contingencies Date, and Post Modern shall
receive a certificate to such effect from an officer of Visigenic.
8.2 Covenants. Visigenic shall have performed and complied with all
---------
of its covenants contained in Sections 5 and 6 on or before the Contingencies
Date, and Post Modern shall receive a certificate from Visigenic to such effect
signed by an officer of Visigenic.
8.3 No Litigation. On and as of the Contingencies Date, no
-------------
litigation or proceeding shall be threatened or pending against Visigenic with
the purpose or with the probable effect of enjoining or preventing the
consummation of any of the transactions contemplated by this Agreement, and Post
Modern shall receive a certificate to such effect signed by an officer of
Visigenic.
8.4 Authorizations. Post Modern shall have received from Visigenic
--------------
written evidence that the execution, delivery and performance of Visigenic's
obligations under this Agreement and the Certificate of Merger have been duly
and validly approved and authorized by the Board of Directors of Visigenic and,
as of the Closing, by the holders of the outstanding shares of capital stock of
Visigenic.
8.5 Government Consents. There shall have been obtained at or prior
-------------------
to the Contingencies Date such permits or authorizations other than a permit of
the California Commissioner of Corporations (the "Commissioner") issued with
respect to the Merger pursuant to Section 25121 of the California Corporate
Securities Law, and there shall have been taken such other action, as may be
required by any regulatory authority having jurisdiction over the parties and
the subject matter and the actions herein proposed to be taken.
8.6 Due Diligence. The results of Post Modern's business,
-------------
technology, legal and accounting due diligence review with respect to Visigenic
shall not reveal any material misstatement
33
<PAGE>
or omission in the Visigenic Disclosure Schedule or previously undisclosed
material liabilities of Visigenic.
8.7 Visigenic Certificate of Incorporation. Visigenic shall have
--------------------------------------
amended and restated its Certificate of Incorporation in substantially the form
attached hereto as Exhibit E.
---------
8.8 Supplemental Registration Rights Agreement. Visigenic shall have
------------------------------------------
executed and delivered to the Shareholders a Supplemental Registration Rights
Agreement in substantially the form attached hereto as Exhibit F.
---------
8.9 Election of Vice President, Chief Technical Officer and Director.
----------------------------------------------------------------
Jens Christensen shall have been elected Vice President and Chief Technical
Officer of Visigenic, and shall have been elected a director of Visigenic.
8.10 Voting Agreement. Visigenic, holders of a majority of
----------------
Visigenic's outstanding shares, and the Shareholders shall have entered into a
Voting Agreement, substantially in the form attached hereto as Exhibit G.
---------
8.11 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of Visigenic since the date of this
Agreement.
8.12 Supplement to Stockholder Agreement. Visigenic and Mr. Sippl
-----------------------------------
shall have entered into a Supplement to Stockholder Agreement, substantially in
the form attached hereto as Exhibit H.
---------
8.13 Bonus Agreement. Visigenic shall have entered into a Bonus
---------------
Agreement, substantially in the form attached hereto as Exhibit I, with each of
---------
the Post Modern shareholders set forth on Exhibit C hereto.
8.14 Dissenting Stockholders of Visigenic. In the event that holders
------------------------------------
of more than two percent (2%) of the outstanding capital stock of Visigenic
exercise their dissenters rights and dissent to the Merger (the "Excess
Dissenters"), Visigenic shall have secured financing on or prior to the date
amounts must be paid to the Excess Dissenters, which, if it is equity financing,
shall be raised at no less than Four Dollars ($4.00) per share, and, if it is
debt financing, shall comply with Section 6.3(a), to cover any payments required
to be made by Visigenic to such Excess Dissenters.
8.15 Commitment from Mr. Roger Sippl. Mr. Sippl shall have executed
-------------------------------
and delivered a commitment letter regarding his future purchase of Visigenic
shares in certain circumstances, in a form approved by Visigenic and Post Modern
prior to the execution and delivery of this Agreement.
8.16 Date of Closing. The Closing shall have occurred not later than
---------------
June 30, 1996, or such later date as the parties may mutually agree.
8.17 Payment to Listed Employees. At the Closing, Visigenic shall pay
---------------------------
the amounts set forth on Exhibit C hereto to each Listed Employee.
---------
8.18 Payment to Post Modern Shareholders. At the Closing, Visigenic
-----------------------------------
shall pay to those shareholders of Post Modern (the "Selling Shareholders")
named on Exhibit J hereto, an amount equal to $4.00 (multiplied by the Exchange
---------
Ratio) per share for purchase of the number of Post Modern shares listed on
Exhibit J.
- ---------
34
<PAGE>
8.19 Fairness Hearing. As of the Closing, a fairness hearing shall
----------------
have been held before the Commissioner, and the Commissioner shall have issued a
permit for the issuance of the Visigenic Common Stock issuable pursuant to the
terms of this Agreement.
8.20 Opinion of Visigenic's Counsel. At the Closing, Post Modern
------------------------------
shall have received from counsel to Visigenic, an opinion dated the Closing Date
in substantially the form attached hereto as Exhibit K.
----------
8.21 Litigation; Violation of Law. As of the Closing, (i) no
----------------------------
litigation or proceeding shall be threatened or pending against Visigenic for
the purpose or with the probable effect of enjoining or preventing the
consummation of any of the transactions contemplated by this Agreement and (ii)
the consummation of the transactions contemplated by this Agreement shall not
result in a material violation of any applicable federal or state law or
regulation.
8.22 Filing of Certificate of Merger. As of the Closing, the
-------------------------------
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
9. Conditions to Visigenic's Obligations. Unless otherwise provided
-------------------------------------
below, the obligations of Visigenic are subject to the fulfillment or
satisfaction by the Contingencies Date, of each of the following conditions (any
one or more of which may be waived by Visigenic, but only in a writing signed by
Visigenic):
9.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Post Modern contained in Section 3 shall be true in all
material respects on and as of the Contingencies Date with the same force and
effect as if they had been made at the Contingencies Date, and Visigenic shall
receive a certificate from Post Modern to such effect with respect to the
representations and warranties of Post Modern executed by the President and
Chief Financial Officer of Post Modern.
9.2 Covenants. Post Modern shall have performed and complied with
---------
all of its covenants contained in Sections 5 and 6 on or before the
Contingencies Date, and Visigenic shall receive a certificate from Post Modern
to such effect signed by the President and Chief Financial Officer of Post
Modern.
9.3 No Litigation. On and as of the Contingencies Date, no
-------------
litigation or proceeding shall be threatened or pending against Post Modern for
the purpose or with the probable effect of enjoining or preventing the
consummation of any of the transactions contemplated by this Agreement, or which
would have a Material Adverse Effect on Post Modern subsequent to the Closing
(and no judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator shall be
outstanding against Post Modern) and Visigenic shall receive a certificate from
Post Modern to such effect signed by the President and Chief Financial Officer
of Post Modern.
9.4 Authorizations. Visigenic shall have received from Post Modern
--------------
written evidence that the execution, delivery and performance of this Agreement
and the Certificate of Merger have been duly and validly approved and authorized
by its Board of Directors and, as of the Closing, by the holders of at least
ninety-seven percent (97%) of the outstanding shares of capital stock of Post
Modern. Visigenic shall have received a certificate from Post Modern to such
effect signed by the President and Chief Financial Officer of Post Modern.
9.5 Required Consents. Visigenic shall have received all written
-----------------
consents, assignments, waivers, authorizations or other certificates (including
Material Consents) reasonably deemed necessary by Visigenic's legal counsel to
provide for the continuation in full force and effect or assignment or
termination of any and all contracts and leases of Post Modern.
35
<PAGE>
9.6 Government Consents. There shall have been obtained at or prior
-------------------
to the Contingencies Date such permits or authorizations and there shall have
been taken such other action, as may be required by any regulatory authority
having jurisdiction over the parties and the subject matter and the actions
herein proposed to be taken.
9.7 Due Diligence. The results of Visigenic's business, technology,
-------------
legal and accounting due diligence with respect to Post Modern shall not reveal
any material misstatement or omission in the Post Modern Disclosure Schedule or
previously undisclosed material liabilities of Post Modern.
9.8 Visigenic Certificate of Incorporation. Visigenic shall have
--------------------------------------
amended and restated its Certificate of Incorporation in substantially the form
attached hereto as Exhibit E.
---------
9.9 Non-Compete and Non-Solicitation Agreements. The Key Employees
-------------------------------------------
shall have entered into the Non-Compete and Non-Solicitation Agreements
referenced in Section 5.2(b) above.
9.10 Offers of Employment Accepted. Current employees of Post Modern
-----------------------------
designated by Visigenic shall have accepted offers to be employed by Post Modern
and/or Visigenic after the Merger.
9.11 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of Post Modern since the date of this
Agreement.
9.12 Supplemental Registration Rights Agreement. The Shareholders
------------------------------------------
shall have executed a Supplemental Registration Rights Agreement in
substantially the form attached hereto as Exhibit F.
---------
9.13 Voting Agreement. The Shareholders shall have entered into a
----------------
Voting Agreement with Visigenic and the holders of a majority of Visigenic's
outstanding shares , substantially in the form attached hereto as Exhibit G.
---------
9.14 Supplement to Stockholder Agreement. The Shareholders shall have
-----------------------------------
entered into a Supplement to Stockholder Agreement, substantially in the form
attached hereto as Exhibit H.
---------
9.15 Bonus Agreement. Each of the Post Modern employees set forth on
---------------
Exhibit C hereto shall have entered into a Bonus Agreement, substantially in the
form attached hereto as Exhibit I.
---------
9.16 Date of Closing. The Closing shall have occurred not later than
---------------
June 30, 1996, or such later date as the parties may mutually agree.
9.17 Fairness Hearing. As of the Closing, a fairness hearing shall
----------------
have been held before the Commissioner, and the Commissioner shall have issued a
permit for the issuance of the Visigenic Common Stock issuable pursuant to the
terms of this Agreement.
9.18 Opinion of Post Modern's Counsel. At the Closing, Visigenic
--------------------------------
shall have received from counsel to Post Modern, an opinion dated the Closing
Date in substantially the form attached hereto as Exhibit L.
---------
9.19 Litigation; Violation of Law. As of the Closing, (i) no
----------------------------
litigation or proceeding shall be threatened or pending against Visigenic for
the purpose or with the probable effect of enjoining or preventing the
consummation of any of the transactions contemplated by this Agreement
36
<PAGE>
and (ii) the consummation of the transactions contemplated by this Agreement
shall not result in a material violation of any applicable federal or state law
or regulation.
9.20 Filing of Certificate of Merger. As of the Closing, the
-------------------------------
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
10. Termination of Agreement.
------------------------
10.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing by the mutual written consent of each of the parties hereto.
This Agreement may also be terminated and abandoned:
(a) By Visigenic if any of the conditions precedent to
Visigenic's obligations pursuant to Section 9 shall not have been fulfilled at
and as of either the Contingencies Date or the Closing, specified in
Section 10.
(b) By Post Modern if any of the conditions precedent to Post
Modern's obligations pursuant to Section 8 above shall not have been fulfilled
at and as of either the Contingencies Date or the Closing, specified in
Section 10.
(c) By either Post Modern or Visigenic, if the Merger is not
effected by June 30, 1996.
Any termination of this Agreement under this Section 10.1 shall be effected
by the delivery of written notice of the terminating party to the other parties
hereto.
10.2 Liability for Termination. Any termination of this Agreement
-------------------------
pursuant to this Section 10 shall be without further obligation or liability
upon any party in favor of any other party hereto; provided, that if such
termination shall result from the willful failure of a party to carry out its
obligations under this Agreement, then such party shall be liable for losses
incurred by the other parties as set forth in Section 10.5. The provisions of
this Section 10.2 shall survive termination.
10.3 Certain Effects of Termination. In the event of the termination
------------------------------
of this Agreement by either Post Modern or Visigenic as provided in Section 10.1
hereof:
(a) each party, if so requested by the other party, will (i)
return promptly every document (other than documents publicly available)
furnished to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, and
any copies thereof which may have been made, and will cause its representatives
and any representatives of financial institutions and investors and others to
whom such documents were furnished promptly to return such documents and any
copies thereof any of them may have made, or (ii) destroy such documents and
cause its representatives and such other representatives to destroy such
documents, and such party shall deliver a certificate executed by its president
or vice president stating to such effect; and
(b) Post Modern and Visigenic shall continue to abide by the
provisions of the Mutual Nondisclosure Agreement between Visigenic and Post
Modern entered into as of April 17, 1996. This Section 10.3 shall survive any
termination of this Agreement.
10.4 Remedies. No party shall be limited to the termination right
--------
granted in Section 10.1 hereto by reason of the nonfulfillment of any condition
to such party's closing obligations but may, in the alternative, elect to do one
of the following:
37
<PAGE>
(a) proceed to close despite the nonfulfillment of any closing
condition, it being understood that consummation of the transactions
contemplated hereby shall be deemed a waiver of any misrepresentation or breach
of warranty or covenant and of any party's rights and remedies with respect
thereto to the extent that the other party shall have actual knowledge of such
misrepresentation or breach and the Closing shall nonetheless take place; or
(b) decline to close, terminate this Agreement as provided in
Section 10.1 hereof, and thereafter seek damages to the extent permitted in
Section 10.5 hereof.
10.5 Right to Damages. If this Agreement is terminated pursuant to
----------------
Section 10.1 hereof, neither party hereto shall have any claim against the other
except if the circumstances giving rise to such termination were caused by the
other party's wilful failure to comply with a material covenant set forth
herein, in which event the following applies:
(a) If Post Modern terminates this Agreement as a result of a
wilful breach by Visigenic of one or more of the covenants contained in Sections
5 or 7 hereof, Post Modern and Visigenic each agrees that it would be
impracticable and/or extremely difficult to fix or establish the actual damages
sustained by Post Modern, and that One Million Dollars ($1,000,000) (the
"Damages") is a reasonable approximation of such damages considering all of the
circumstances existing as of the date hereof. Accordingly, in the event Post
Modern terminates this Agreement by reason of Visigenic's wilful breach of the
covenants contained in Sections 5 or 7 hereof, the Damages shall constitute
and be deemed to be the agreed and liquidated damages of Post Modern and shall
be paid by Visigenic to Post Modern as Post Modern's sole and exclusive remedy.
(b) If Visigenic terminates this Agreement as a result of a
wilful breach by Post Modern of one or more of the covenants contained in
Sections 5, 6 or 7 hereof, Post Modern and Visigenic each agrees that it
would be impracticable and/or extremely difficult to fix or establish the actual
damages sustained by Visigenic, and that the Damages is a reasonable
approximation of such damages considering all of the circumstances existing as
of the date hereof. Accordingly, in the event Visigenic terminates this
Agreement by reason of Post Modern's wilful breach of the covenants contained in
Sections 5, 6 or 7 hereof, the Damages shall constitute and be deemed to be
the agreed and liquidated damages of Visigenic and shall be paid by Post Modern
to Visigenic as Visigenic's sole and exclusive remedy.
11. Indemnification.
---------------
11.1 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements.
----------
(a) The representations, warranties, covenants and agreements of
the parties contained in Sections 3, 4, and 6.8 of this Agreement or in any
writing delivered pursuant to such sections, to the extent that a breach or
default in any such representations, warranties, covenants or agreements is not
as a result of fraud, shall not terminate at, but rather shall survive, the
Closing Date and shall terminate on the first anniversary of the Closing Date or
such other date as specified in such provisions; provided, however, that such
-------- -------
representations, warranties, covenants and agreements shall survive as to any
claim or demand made prior to their termination date until such claim or demand
is fully paid or otherwise resolved by the parties hereto in writing or by a
court of competent jurisdiction.
(b) The covenants and agreements of the parties contained in
Sections 5 and 6 (other than 6.8), 7, 8 and 9 of this Agreement shall
terminate at and shall not survive the Closing Date, except for covenants that
by their own terms apply after the Closing Date.
38
<PAGE>
11.2 Indemnification by Post Modern.
------------------------------
(a) General.
-------
(i) Post Modern shall, indemnify and hold harmless
Visigenic, its directors and officers, and each other person, if any, who
controls Visigenic within the meaning of the Securities Act ("Controlling
Persons") in respect of any and all claims, losses, damages, liabilities,
demands, assessments, judgments, costs and expenses (including, without
limitation, settlement costs and any legal or other expenses for investigating,
bringing or defending any actions or threatened actions) reasonably incurred by
Visigenic, any of its directors, officers or Controlling Persons in connection
with each and all of the following:
(A) any misrepresentation or breach of any warranty
made by Post Modern in this Agreement or in any schedule, exhibit, certificate
or other instrument contemplated by this Agreement; and
(B) the breach of any covenant, agreement or obligation
of the Shareholders contained in this Agreement or any other instrument
contemplated by this Agreement.
(C) the payment to dissenting shareholders in excess of
the value of Post Modern Stock based upon a value of Post Modern of Four Dollars
($4.00) at the time of the Merger and the payment of legal fees and costs in
excess of Ten Thousand Dollars ($10,000) incurred in connection with any legal
action instituted by a legal shareholder of Post Modern in connection with the
Merger, including any action by a dissenting shareholder.
(ii) In no event shall the liability under this Section
11.2(a) of Post Modern exceed the amount of Post Modern Escrow Shares.
(b) Claims for Indemnification.
--------------------------
(i) Whenever any claim shall arise for indemnification under
this Section 11, Visigenic shall describe such claim in a written notice
("Notice of Claim") to the Representatives and, when known, specify the facts
constituting the basis for such claim and the amount or an estimate of the
amount of such claim. Each Notice of Claim shall (A) be signed by a proper
representative of Visigenic, (B) contain a description of the claim, (C) specify
the amount of such claim, and (D) state that, in the opinion of the signer
thereof, such Notice of Claim is valid under the terms of Section 11 hereof and
is being given by Visigenic in good faith.
(ii) Visigenic shall give the Representatives prompt notice
of any claim for indemnification hereunder resulting from, or in connection
with, any claim or legal proceeding by a person who is not a party to this
Agreement ("Third Party Claim") and, with respect to any Third Party Claim,
Visigenic shall undertake the defense thereof by representatives reasonably
satisfactory to Visigenic and the Representatives. Visigenic shall not have the
right to settle or compromise or enter into any binding agreement to settle or
compromise, or consent to entry of any judgment arising from, any such claim or
proceeding in its sole discretion without the prior written consent of the
Representatives. The Representatives shall have the right to participate in any
such defense of a Third Party Claim with advisory counsel of their own choosing
at their own expense. In the event Visigenic, within a reasonable time after
notice of any Third Party Claim, fails to defend, the Representatives shall have
the right to undertake the defense, compromise or settlement of such Third Party
Claim on behalf of, and for the account of, the Shareholders, at the expense and
risk of the Shareholders to the extent of their liability set forth in Section
11. The Representatives, without Visigenic's written consent, shall not settle
or compromise any such Third Party Claim or consent to entry of any judgment
that does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to Visigenic and/or Visigenic's subsidiary or
subsidiaries, or affiliate or
39
<PAGE>
affiliates, as the case may be, an unconditional release from all liability in
respect of such Third Party Claim. Notwithstanding any provision herein to the
contrary, failure of Visigenic to give any notice of any Third Party Claim
required by this Section 11 shall not constitute a waiver of Visigenic's right
to indemnification or a defense to any claim by Visigenic hereunder.
(c) Manner of Indemnification. All indemnification by Post
------------------------------
Modern hereunder shall be effected by the transferring and assigning to Post
Modern Escrow Shares having a value equal to the amount of the indemnification
liability, using an agreed amount of cash equal to $4.00 per share of Visigenic
Common Stock until either (i) the 12-month anniversary of the Closing Date, or
(ii) the escrow is exhausted, whichever occurs first.
11.3 Indemnification by Visigenic.
----------------------------
(a) General.
-------
(i) Visigenic shall indemnify and hold harmless the
Shareholders in respect of any and all claims, losses, damages, liabilities,
demands, assessments, judgments, costs and expenses (including, without
limitation, settlement costs and any legal or other expenses for investigating,
bringing or defending any actions or threatened actions) reasonably incurred by
the Shareholders in connection with each and all of the following:
(A) any misrepresentation or breach of any warranty
made by Visigenic in this Agreement or in any schedule, exhibit, certificate or
other instrument contemplated by this Agreement; and
(B) the breach of any covenant, agreement or obligation
of Visigenic contained in this Agreement or any other instrument contemplated by
this Agreement, except for covenants that by their own terms apply after the
Closing Date.
(ii) In no event shall the liability under Section
11.3(a)(i) of Visigenic exceed Three Million Dollars ($3,000,000).
(b) Claims for Indemnification. Any claim for indemnification
--------------------------
which the Shareholders may have against Visigenic hereunder must be specifically
described in a written notice which is delivered to Visigenic; otherwise, the
Shareholders shall not be entitled to any indemnification by Visigenic relating
to such claim.
(c) Manner of Indemnification. All indemnification by Visigenic
-------------------------
under Section 11.3(a) shall be effected by the paying to Shareholders, on a pro
rata basis, funds having a value equal to the amount of the indemnification
liability, until either (i) the 12-month anniversary of the Closing Date, or
(ii) the amount specified in Section 11.3(a)(ii) is exhausted, whichever occurs
first.
11.4 Arbitration. If a party makes a good faith determination that a
-----------
breach (or potential breach) of any of the confidentiality, non-competition, or
intellectual property rights provisions of this Agreement by the other party (or
the Shareholders) may result in damages or consequences that will be immediate,
severe, and incapable of adequate redress after the fact, so that a temporary
restraining order or other immediate injunctive relief is necessary for a
realistic and adequate remedy, that party may seek immediate injunctive relief
without first seeking relief through arbitration. After the court has ruled on
the request for injunctive relief, the parties will thereafter proceed with
arbitration of the dispute and stay the litigation pending arbitration. Subject
to the foregoing, any dispute arising out of this Agreement, or its performance
or breach, shall be resolved by binding arbitration under the Commercial
Arbitration Rules (the "AAA Rules") of the American Arbitration Association (the
"AAA"). This arbitration provision is expressly made pursuant to and shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties
hereto agree that pursuant to Section 9 of the Federal Arbitration Act, a
judgment of the United States District Courts
40
<PAGE>
for the Northern District of California shall be entered upon the award made
pursuant to the arbitration. A single arbitrator, who shall have the authority
to allocate the costs of any arbitration initiated under this paragraph, shall
be selected according to the AAA Rules within ten (10) days of the submission to
the AAA of the response to the statement of claim or the date on which any such
response is due, whichever is earlier. The arbitrator shall conduct the
arbitration in accordance with the Federal Rules of Evidence. The arbitrator
shall decide the amount and extent of pre-hearing discovery which is
appropriate. The arbitrator shall have the power to enter any award of monetary
and/or injunctive relief (including the power issue permanent injunctive relief
and also the power to reconsider any prior request for immediate injunctive
relief by either of the parties and any order as to immediate injunctive relief
previously granted or denied by a court in response to a request therefor by
either of the parties), including the power to render an award as provided in
Rule 43 of the AAA Rules; provided, however, that the arbitrator shall not have
-------- -------
the power to award punitive damages under any circumstances (whether styled as
punitive, exemplary, or treble damages, or any penalty or punitive type of
damages) regardless of whether such damages may be available under applicable
law, the parties hereby waiving their rights to recover any such damages. The
arbitrator shall award the prevailing party its costs and reasonable attorneys'
fees, and the losing party shall bear the entire cost of the arbitration,
including the arbitrator's fees. All arbitration shall be held in Palo Alto,
California. In addition to the above court, the arbitration award may be
enforced in any court having jurisdiction over the parties and the subject
matter of the arbitration. Notwithstanding the foregoing, the parties
irrevocably submit to the nonexclusive jurisdiction of the state and federal
courts situated where the respondent is domiciled or resides as of the Effective
Date in any action to enforce an arbitration award. With respect to any request
for immediate injunctive relief, that state and federal courts in Palo Alto,
California, shall have nonexclusive jurisdiction and venue over any such
disputes.
11.5 Limitation on Indemnification. No indemnified party hereunder
-----------------------------
will be entitled to make a claim against any indemnifying party under Section
11.2 unless and until the aggregate amount of indemnifiable losses incurred
exceeds Fifty Thousand Dollars ($50,000), and then only to the extent of the
excess.
11.6 The Shareholders Representatives; Power of Attorney. The
---------------------------------------------------
Shareholders shall appoint Jens Christensen, Neguine Navab and Prasad Mokkapati
as their true and lawful attorneys-in-fact, agents and representatives (the
"Representatives"), with full power of substitution and resubstitution, to
negotiate and sign all amendments to this Agreement, and all other documents in
connection with the transactions contemplated by this Agreement. Should any
Representative be unable or unwilling to serve or to appoint his successor to
serve in his stead, and unless the Shareholders appoint a successor to serve in
his stead, such Shareholders shall be deemed to be represented by the remaining
Representative or the Board of Directors of Post Modern should the remaining
Representative be unable or unwilling to serve in his capacity. All actions by
the Representatives shall be by majority vote.
11.7 Escrow.
------
(a) Post Modern Escrow Shares shall be placed with an escrow
agent, satisfactory to Visigenic, Post Modern and the Representatives for a
period beginning on the Closing Date and ending on the 12-month anniversary of
the Closing Date, to be disbursed solely upon the joint signatures of Visigenic,
Post Modern and the Representatives, all as set forth below. Disbursements from
the escrow shall be made for the payment of amounts, if any, to satisfy the
indemnification rights of Visigenic and Post Modern pursuant to Section 11
hereof.
(b) The Post Modern Escrow Shares shall be disbursed during the
term hereof at any time or from time to time, Visigenic may give the
Representatives a Notice of Claim. Such Notice of Claim must be for a specified
amount.
(i) Post Modern and/or the Representatives may give
Visigenic a written notice ("Notice of Objection") (A) attaching a copy of such
Notice of Claim, (B) stating that, in
41
<PAGE>
the good faith opinion of the Representatives, the claim described in such
Notice of Claim is invalid (either in whole or in specified party) under the
terms of Section 11 hereof, (C) giving the reasons for the alleged invalidity,
and (D) stating that, based on such alleged invalidity, the Representatives
object to the payment of any portion of the Post Modern Escrow Shares to the
requesting party on account thereof. In the event that a Notice of Objection
alleges that a Notice of Claim is only partially invalid, each of Post Modern
and the Representatives, within thirty (30) days of the receipt of such Notice
of Claim, agree to pay over to Visigenic that portion of the amounts specified
in such Notice of Claim as to which no objection is made. Post Modern and/or
the Representatives are not required to agree to make any payments to Visigenic
in respect of a Notice of Claim that has been objected to in a Notice of
Objection given to Post Modern and/or the Representatives as aforesaid except
(X) as provided in the immediately preceding sentence, or (Y) in accordance with
an order of any arbitration panel initiated by any of the parties hereto
pursuant to paragraph (v) below.
(ii) Visigenic, Post Modern and the Representatives agree to
submit to final and binding arbitration any and all disputes Post Modern and/or
the Representatives have specified in a Notice of Objection or Visigenic has
specified in a Notice of Claim to which the Representatives have not responded
within thirty (30) days of receipt of such Notice of Claim. Any such dispute
subject to arbitration in accordance with the AAA Rules as provided in Section
11 hereof.
(c) The escrow shall be terminated on the 12-month anniversary of
the Closing Date; provided, however, that the escrow may continue beyond such
-------- -------
12 month anniversary, if Visigenic has asserted indemnification claims, and any
such claims remain unsatisfied.
12. Miscellaneous.
-------------
12.1 Governing Laws. It is the intention of the parties hereto that
--------------
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
12.2 Binding upon Successors and Assigns. Subject to, and unless
-----------------------------------
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
12.3 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
12.4 Entire Agreement. This Agreement, the exhibits hereto, the
----------------
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become
42
<PAGE>
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as signatories.
12.6 Expenses. Except as provided to the contrary herein, each party
--------
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement, the exhibits hereto, and
the other Transaction Documents. If the Merger is consummated, all investment
banking, broker's and finder's fees incurred by Post Modern and/or its
shareholders in connection with the Merger will be deemed to be expenses of the
shareholders, will be borne by the shareholders of Post Modern and will not
become obligations of Post Modern.
12.7 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
12.8 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto and shall
terminate on the date one year after the Closing Date.
12.9 No Waiver. The failure of any party to enforce any of the
---------
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
12.10 Attorneys' Fees. Should suit be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party shall be the party
entitled to recover its costs of suit, regardless of whether such suit proceeds
to final judgment. A party not entitled to recover its costs shall not be
entitled to recover attorneys' fees. No sum for attorneys' fees shall be
counted in calculating the amount of a judgment for purposes of determining if a
party is entitled to recover costs or attorneys' fees.
12.11 Notices. Any notice provided for or permitted under this
-------
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
12.11.
Post Modern: Post Modern Computing Technologies Inc.
1975 Landings Drive
Mountain View, CA 94043
Attention: Jens Christensen
With copy to: Fenwick & West LLP
2 Palo Alto Square
Palo Alto, CA 94306
Attention: Mark C. Stevens
43
<PAGE>
Visigenic: Visigenic Software, Inc.
951 Mariner's Island Boulevard
San Mateo, CA 94404
Attention: Roger J. Sippl
With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: George H. Hohnsbeen II
Such notice will be treated as having been received upon actual receipt.
12.12 Time. Time is of the essence of this Agreement.
----
12.13 Construction of Agreement. This Agreement has been
-------------------------
negotiated by the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
12.14 No Joint Venture. Nothing contained in this
----------------
Agreement shall be deemed or construed as creating a joint venture or
partnership between any of the parties hereto. No party is by virtue of this
Agreement authorized as an agent, employee or legal representative of any other
party. No party shall have the power to control the activities and operations
of any other and their status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party shall have any
power or authority to bind or commit any other. No party shall hold itself out
as having any authority or relationship in contravention of this Section 12.14.
12.15 Pronouns. All pronouns and any variations thereof
--------
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person, persons, entity or entities may require.
12.16 Further Assurances. Each party agrees to cooperate
------------------
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
12.17 Absence of Third Party Beneficiary Rights. No
-----------------------------------------
provisions of this Agreement are intended, nor shall be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, stockholder, partner of any party hereto or any
other person or entity except employees and shareholders of Post Modern
specifically referred to herein, and, except as so provided, all provisions
hereof shall be personal solely between the parties to this Agreement.
44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
VISIGENIC SOFTWARE, INC. POST MODERN COMPUTING TECHNOLOGIES INC.
By: By:
------------------------------- -----------------------------------
Title: Title:
---------------------------- --------------------------------
45
<PAGE>
EXHIBIT 3.2A
AMENDED AND RESTATED
BYLAWS
OF
VISIGENIC SOFTWARE, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - STOCKHOLDERS..................................................... 1
Section 1.1. Annual Meeting............................................ 1
Section 1.2. Special Meetings.......................................... 1
Section 1.3. Notice of Meetings........................................ 1
Section 1.4. Quorum.................................................... 2
Section 1.5. Organization.............................................. 2
Section 1.6. Conduct of Business....................................... 2
Section 1.7. Notice of Stockholder Business............................ 2
Section 1.8. Proxies and Voting........................................ 3
Section 1.9. Stock List................................................ 3
Section 1.10. Stockholder Action by Written Consent..................... 4
ARTICLE II - BOARD OF DIRECTORS.............................................. 4
Section 2.1. Number and Term of Office................................. 4
Section 2.2. Vacancies and Newly Created Directorships................. 4
Section 2.3. Removal................................................... 5
Section 2.4. Regular Meetings.......................................... 5
Section 2.5. Special Meetings.......................................... 5
Section 2.6. Quorum.................................................... 5
Section 2.7. Participation in Meetings by Conference Telephone......... 5
Section 2.8. Conduct of Business....................................... 6
Section 2.9. Powers.................................................... 6
Section 2.10. Action Without Meeting.................................... 6
Section 2.11. Compensation of Directors................................. 7
Section 2.12. Nomination of Director Candidates......................... 7
ARTICLE III - COMMITTEES..................................................... 7
Section 3.1. Committees of the Board of Directors...................... 7
Section 3.2. Conduct of Business....................................... 7
ARTICLE IV - OFFICERS........................................................ 8
Section 4.1. Generally................................................. 8
Section 4.2. Chairman of the Board..................................... 8
Section 4.3. President................................................. 8
Section 4.4. Vice President............................................ 8
Section 4.5. Chief Financial Officer................................... 9
Section 4.6. Secretary................................................. 9
Section 4.7. Delegation of Authority................................... 9
Section 4.8. Removal................................................... 9
Section 4.9. Action With Respect to Securities of Other Corporations... 10
i
<PAGE>
ARTICLE V - STOCK............................................................ 10
Section 5.1. Certificates of Stock..................................... 10
Section 5.2. Transfers of Stock........................................ 10
Section 5.3. Record Date............................................... 10
Section 5.4. Lost, Stolen or Destroyed Certificates.................... 10
Section 5.5. Regulations............................................... 11
ARTICLE VI- NOTICES.......................................................... 11
Section 6.1. Notices................................................... 11
Section 6.2. Waivers................................................... 11
ARTICLE VII - MISCELLANEOUS.................................................. 11
Section 7.1. Facsimile Signatures...................................... 11
Section 7.2. Corporate Seal............................................ 12
Section 7.3. Reliance Upon Books, Reports and Records.................. 12
Section 7.4. Fiscal Year............................................... 12
Section 7.5. Time Periods.............................................. 12
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 12
Section 8.1. Right to Indemnification.................................. 12
Section 8.2. Right of Claimant to Bring Suit........................... 13
Section 8.3. Indemnification of Employees and Agents................... 14
Section 8.4 Non-Exclusivity of Rights................................. 14
Section 8.5. Indemnification Contracts................................. 14
Section 8.6. Insurance................................................. 14
Section 8.7. Effect of Amendment....................................... 14
Section 8.8. Savings Clause............................................ 15
ARTICLE IX - AMENDMENTS...................................................... 15
ii
<PAGE>
BYLAWS
OF
VISIGENIC SOFTWARE, INC.
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.1. Annual Meeting.
----------- --------------
An annual meeting of the stockholders, for the election of directors
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
months after the organization of the corporation or after its last annual
meeting of stockholders.
Section 1.2. Special Meetings.
----------- ----------------
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by (a) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption), (b) the Chairman of the Board, (c) the President or (d) the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting, and shall be held at such place, on such date, and at such time
as they shall fix. Business transacted at special meetings shall be confined to
the purpose or purposes stated in the notice.
Section 1.3. Notice of Meetings.
----------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
1
<PAGE>
Section 1.4. Quorum.
----------- ------
At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law or by the
Certificate of Incorporation.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5. Organization.
----------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or, in
his absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. The
secretary of the meeting shall be such person as the chairman appoints.
Section 1.6. Conduct of Business.
----------- -------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
Section 1.7. Notice of Stockholder Business.
----------- ------------------------------
At an annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) properly brought before the meeting
by or at the direction of the Board of Directors, or (c) properly brought before
an annual meeting by a stockholder and if, and only if, the notice of a special
meeting provides for business to be brought before the meeting by stockholders,
properly brought before the special meeting by a stockholder. For business to
be properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal offices of the Corporation no later than (i) in the case of an
annual meeting, ninety (90) days before the anticipated date of the next annual
meeting, under the assumption that the
2
<PAGE>
next annual meeting will occur on the same calendar day as the day of the most
recent annual meeting, and (ii) in the case of a special meeting, ten (10) days
prior to date of such meeting. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
or special meeting (1) a brief description of the business desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the annual or special meeting, (2) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such business,
(3) the class and number of shares of the Corporation which are beneficially
owned by the stockholder, and (4) any material interest of the stockholder in
such business. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual or special meeting except in accordance
with the procedures set forth in this Section 1.7. The chairman of an annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 1.8. Proxies and Voting.
----------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors, and except where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. Every vote
taken by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or the Certificate of Incorporation or
the Bylaws of this Corporation, all other matters shall be determined by a
majority of the votes cast.
Section 1.9. Stock List.
----------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified
3
<PAGE>
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
Section 1.10. Stockholder Action by Written Consent.
------------ -------------------------------------
An action which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the actions so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes which
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. All such consents shall
be filed with the secretary of the corporation and shall be maintained in the
corporate records. Prompt notice of the taking of a corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.1. Number and Term of Office.
----------- -------------------------
The number of directors shall initially be one (1), and, thereafter,
the number and term of office shall be fixed from time to time by, or in the
manner provided in, the Certificate of Incorporation.
Section 2.2. Vacancies and Newly Created Directorships.
----------- -----------------------------------------
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, or other cause
(other than removal from office by a vote of the stockholders) may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
4
<PAGE>
Section 2.3. Removal.
----------- -------
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, but only by the affirmative vote
of the holders of at least a majority of the voting power of its then
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Vacancies in the
Board of Directors resulting form such removal may be filled by (i) a majority
of the directors then in office, though less than a quorum, or (ii) the
stockholders at a special meeting of the stockholders properly called for that
purpose, by the vote of the holders of a plurality of the shares entitled to
vote at such special meeting. Directors so chosen shall hold office until the
next annual meeting of stockholders.
Section 2.4. Regular Meetings.
----------- ----------------
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 2.5. Special Meetings.
----------- ----------------
Special meetings of the Board of Directors may be called by one-third
of the directors then in office (rounded up to the nearest whole number), by the
chairman of the board or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he shall fix. Notice of
the place, date, and time of each such special meeting shall be given to each
director who does not waive the right to a notice by (i) mailing written notice
not less than five (5) days before the meeting, (ii) sending notice one (1) day
before the meeting by an overnight courier service and two (2) days before the
meeting if by overseas courier service, or (iii) by telephoning, telecopying,
telegraphing or personally delivering the same not less than twenty-four (24)
hours before the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 2.6. Quorum.
----------- ------
At any meeting of the Board of Directors, a majority of the total
number of authorized directors shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
Section 2.7. Participation in Meetings by Conference Telephone.
----------- -------------------------------------------------
Members of the Board of Directors, or of any committee of the Board of
Directors, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
5
<PAGE>
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
Section 2.8. Conduct of Business.
----------- -------------------
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 2.9. Powers.
----------- ------
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in connection
therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to pass on the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
Section 2.10. Action Without Meeting.
------------ ----------------------
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting, if all members of the board
shall individually
6
<PAGE>
or collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
Section 2.11. Compensation of Directors.
------------ -------------------------
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 2.12. Nomination of Director Candidates.
------------ ---------------------------------
Subject to any limitations stated in the Certificate of Incorporation
of this Corporation, nominations for the election of Directors may be made by
the Board of Directors or a proxy committee appointed by the Board of Directors
or by any stockholder entitled to vote in the election of Directors.
ARTICLE III
-----------
COMMITTEES
----------
Section 3.1. Committees of the Board of Directors.
----------- ------------------------------------
The Board of Directors, by a vote of a majority of the whole Board,
may from time to time designate one or more committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any
committee so designated may exercise the power and authority of the Board of
Directors to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee and
any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may by unanimous vote appoint another member of the
Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 3.2. Conduct of Business.
----------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-half of the authorized members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event all members of the
7
<PAGE>
committee shall constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing. Such
written consent or consents shall be filed with the minutes of the proceedings
of such committee.
ARTICLE IV
----------
OFFICERS
--------
Section 4.1. Generally.
----------- ---------
The officers of the Corporation shall consist of a President, a
Secretary and a Chief Financial Officer. The Corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more Vice
Presidents, and such other officers as may from time to time be appointed by the
Board of Directors. Officers shall be elected by the Board of Directors, which
shall consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold office at the pleasure of the Board,
until his successor is elected and qualified or until his earlier resignation or
removal. Any number of offices may be held by the same person.
Section 4.2. Chairman of the Board.
----------- ---------------------
The Chairman of the Board, if there shall be such an officer, shall,
if present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or as provided by these Bylaws.
Section 4.3. President and Chief Executive Officer.
----------- -------------------------------------
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 general manager and 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 other officers,
employees and agents of the Corporation. He shall preside at all meetings of
the stockholders. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and 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 by these Bylaws. He shall have power
to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized by the Board of Directors.
Section 4.4. Vice President.
----------- --------------
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, the Vice President
8
<PAGE>
designated by the Board of Directors, shall perform 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, if any, 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 or these Bylaws.
Section 4.5. Chief Financial Officer.
----------- -----------------------
The Chief Financial Officer shall keep and maintain or cause to be
kept and maintained, adequate and correct financial books and records of account
of the Corporation in written form or any other form capable of being converted
into written form.
The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. He shall disburse
all 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 by these Bylaws.
Section 4.6. Secretary.
----------- ---------
The Secretary shall keep, or cause to be kept, a book of minutes in
written form of the proceedings of the Board of Directors, committees of the
Board, and stockholders. Such minutes shall include all waivers of notice,
consents to the holding of meetings, or approvals of the minutes of meetings
executed pursuant to these Bylaws or the General Delaware Corporation Law. The
Secretary shall keep, or cause to be kept at the principal executive office or
at the office of the Corporation's transfer agent or registrar, a record of its
stockholders, giving the names and addresses of all stockholders and the number
and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 4.7. Delegation of Authority.
----------- -----------------------
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
Section 4.8. Removal.
----------- -------
Any officer of the Corporation may be removed at any time, with or
without cause, by the Board of Directors.
9
<PAGE>
Section 4.9. Action With Respect to Securities of Other Corporations.
----------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V
---------
STOCK
-----
Section 5.1. Certificates of Stock.
----------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and the
Secretary, an Assistant Secretary or the Chief Financial Officer, certifying the
number of shares owned by him or her. Any or all the signatures on the
certificate may be facsimile.
Section 5.2. Transfers of Stock.
----------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 5.4 of these Bylaws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 5.3. Record Date.
----------- -----------
The Board of Directors may fix a record date, which shall not be more
than sixty (60) nor fewer than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate action
in writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
to any change, conversion or exchange of stock or with respect to any other
lawful action.
Section 5.4. Lost, Stolen or Destroyed Certificates.
----------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
10
<PAGE>
Section 5.5. Regulations.
----------- -----------
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
----------
NOTICES
-------
Section 6.1. Notices.
----------- -------
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram, mailgram or
commercial courier service. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at this last known address as
the same appears on the books of the Corporation. The time when such notice is
received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or
dispatched, if delivered through the mails or by telegram, courier or mailgram,
shall be the time of the giving of the notice.
Section 6.2. Waivers.
----------- -------
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice for such
meeting, except when the person attends a meeting for the express purpose of
objecting, and does in fact object, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.1. Facsimile Signatures.
----------- --------------------
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these Bylaws, facsimile signatures of any
officer or officers of the
11
<PAGE>
Corporation may be used whenever and as authorized by the Board of Directors or
a committee thereof.
Section 7.2. Corporate Seal.
----------- --------------
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Chief Financial Officer or by
an Assistant Secretary or other officer designated by the Board of Directors.
Section 7.3. Reliance Upon Books, Reports and Records.
----------- ----------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the Corporation, including reports made to the Corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser.
Section 7.4. Fiscal Year.
----------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 7.5. Time Periods.
----------- ------------
In applying any provision of these Bylaws which require that an act be
done or not done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
ARTICLE VIII
------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 8.1. Right to Indemnification.
----------- ------------------------
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such
12
<PAGE>
Proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the General Corporation Law of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said Law permitted the Corporation to
provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 8.2, the Corporation
- -------- -------
shall indemnify any such person seeking indemnity in connection with a
Proceeding (or part thereof) initiated by such person only if such Proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
Such right shall be a contract right and shall include the right to be paid by
the Corporation expenses incurred in defending any such Proceeding in advance of
its final disposition; provided, however, that, if required by the General
-------- -------
Corporation Law of Delaware, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such Proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Section or otherwise.
Any indemnification as provided herein (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of a director, officer, employee or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of Delaware. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 8.2. Right of Claimant to Bring Suit.
----------- -------------------------------
If a claim under Section 8.1 is not paid in full by the Corporation
within ninety (90) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Corporation) that the claimant has not met the
standards of
13
<PAGE>
conduct which make it permissible under the General Corporation Law of Delaware
for the Corporation to indemnify the claimant for the amount claimed. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
Section 8.3. Indemnification of Employees and Agents.
----------- --------------------------------- ------
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and to the advancement of
related expenses, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article with respect to the indemnification of
and advancement of expenses to directors and officers of the Corporation.
Section 8.4 Non-Exclusivity of Rights.
----------- -------------------------
The rights conferred on any person by Sections 8.1, 8.2 and 8.3 shall
not be exclusive of any other right which such persons may have or hereafter
acquire under any statute, provisions of the Certificate of Incorporation, by-
law, agreement, vote of stockholders or disinterested directors or otherwise.
Section 8.5. Indemnification Contracts.
----------- -------------------------
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to those provided for in this Article VIII.
Section 8.6. Insurance.
----------- ---------
The Corporation may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expenses, liability
or loss under Delaware General Corporation Law.
Section 8.7. Effect of Amendment.
----------- -------------------
Any amendment, repeal or modification of any provision of this Article
VIII by the stockholders or the directors of the Corporation shall not adversely
affect any right or
14
<PAGE>
protection of a director or officer of the Corporation existing at the time of
such amendment, repeal or modification.
Section 8.8. Savings Clause.
----------- --------------
If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee and agent of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the fullest extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
ARTICLE IX
----------
AMENDMENTS
----------
The Board of Directors is expressly empowered to adopt, amend, alter
or repeal Bylaws of the Corporation, subject to the right of the stockholders to
adopt, amend, alter or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt,
amend, alter or repeal the Bylaws of the Corporation.
15
<PAGE>
EXHIBIT 42
VISIGENIC SOFTWARE, INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Registration Rights............................................. 2
Certain Definitions........................................ 2
(a) "Commission"........................................ 2
(b) "Exchange Act"...................................... 2
(c) "Holder"............................................ 2
(d) "Securities Act".................................... 2
(e) "Registrable Securities"............................ 2
(f) The terms "register", "registered" and "registration" 2
(g) "Registration Expenses"............................. 2
(h) "Selling Expenses".................................. 3
1.2 Piggyback Registration..................................... 3
1.3 Expenses of Registration................................... 4
1.4 Registration Procedures.................................... 4
1.5 Delay of Registration...................................... 4
1.6 Indemnification............................................ 4
1.7 Lockup Agreement........................................... 7
1.8 Information by Holder...................................... 7
1.9 Rule 144 Reporting......................................... 7
1.10 Transfer of Registration Rights............................ 7
1.11 Termination of Registration Rights......................... 8
1.12 Other Registration Rights.................................. 8
2. Miscellaneous................................................... 9
2.1 Waivers and Amendments..................................... 9
2.2 Governing Law.............................................. 9
2.3 Successors and Assigns..................................... 9
2.4 Entire Agreement........................................... 9
2.5 Notices, etc..... ......................................... 9
2.6 No Waivers................................................. 10
2.7 Separability............................................... 10
2.8 Titles and Subtitles....................................... 10
2.9 Counterparts............................................... 10
2.10 Attorneys' Fees............................................ 10
</TABLE>
REGISTRATION RIGHTS AGREEMENT
i
<PAGE>
VISIGENIC SOFTWARE, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of March 31, 1993 by
and among VISIGENIC SOFTWARE, INC., a Delaware corporation, with its principal
office located at 951 Mariner's Island Boulevard, San Mateo, California 94404
(the "Company") and each of the investors who has executed a signature page to
this Agreement that has been countersigned on behalf of the Company (referred to
below collectively as the "Purchasers" and each, individually, as a
"Purchaser").
RECITALS:
--------
A. The Company and the Purchasers are entering into a Series A Preferred
Stock Purchase Agreement (the "Purchase Agreement") pursuant to which, subject
to the satisfaction of certain conditions, the Purchasers are agreeing to
purchase from the Company a total of up to 1,606,000 shares of Series A
Preferred Stock of the Company (the "Preferred Shares") on the terms set forth
in the Purchase Agreement.
B. The Company has issued shares of Common Stock to its founder, Roger J.
Sippl, and to its current employees and plans to issue additional shares of
Common Stock to its employees, directors and consultants in the future.
C. The Company expects to issue shares of its capital stock to investors
in the future, if investors are willing to invest in the Company. By this
Agreement, the Company, the holders of outstanding Common Stock, and the
Purchasers desire to authorize the Company either to grant such investors: (i)
registration rights under this Agreement, or (ii) other registration rights,
which may be more favorable to such investors than the rights set forth in this
Agreement, in each case without the need to obtain any consent of other parties
to this Agreement.
D. By this Agreement, the Company, the holders of outstanding Common
Stock, and the Purchasers desire to provide for registration rights with respect
to: (i) outstanding shares of Common Stock, (ii) shares of Common Stock issued
to the Company's employees, directors and consultants in the future, to the
holders of which the Company grants registration rights under this Agreement,
(iii) shares of Common Stock issuable upon conversion of the Preferred Shares,
and (iv) shares of capital stock issued by the Company in the future, to the
holders of which the Company grants registration rights, all on the terms set
forth below.
REGISTRATION RIGHTS AGREEMENT
1
<PAGE>
AGREEMENT:
---------
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms will have the following respective meanings:
(a) "Commission" will mean the Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Exchange Act" will mean the Securities Exchange Act
------------
of 1934, as amended, or any similar federal statute and the rules and
regulations thereunder, all as the same will be in effect at the time.
(c) "Holder" will mean any holder of Registrable Securities
------
which have not been sold to the public.
(d) "Securities Act" will mean the Securities Act of 1933,
--------------
as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same will be in effect at the time.
(e) "Registrable Securities" means (i) shares of Common
----------------------
Stock outstanding as of the date of this Agreement, (ii) shares of Common Stock
issued by the Company after the date of this Agreement to its employees,
directors and consultants pursuant to equity incentive arrangements approved by
the Company's Board of Directors, to the holders of which the Company grants
registration rights under this Agreement, (iii) shares of Common Stock issued or
issuable upon conversion of the Preferred Shares, (iv) shares of Common Stock
issued or issuable upon conversion of any shares of Preferred Stock issued by
the Company in the future, to the holders of which the Company grants the
registration rights set forth in Section 1 of this Agreement, (v) any shares of
common stock of the Company issued as (or issuable upon the conversion of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to or in replacement of the shares identified in the
foregoing clauses of this subsection (e) of Section 1.1.
(f) The terms "register", "registered" and "registration"
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
(g) "Registration Expenses" will mean all expenses incurred
---------------------
by the Company in complying with this Section 1, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and
2 REGISTRATION RIGHTS AGREEMENT
<PAGE>
disbursements of counsel for the Company, reasonable fees and disbursements of
one special counsel for the Holders for each such registration, blue sky fees
and expenses and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which will be paid in any event by the Company and excluding the
fees of counsel other than one special counsel for the Holders).
(h) "Selling Expenses" will mean all underwriting discounts and
----------------
selling commissions applicable to the sale of the Registrable Securities and all
fees and expenses of legal counsel for a Holder, other than the special counsel
referred to in Section 1.1(g) above.
1.2 Piggyback Registration.
----------------------
(a) If at any time or from time to time, the Company will
determine to register any of its securities, other than (i) a registration
relating solely to employee benefit plans on Form S-1, S-8 or similar forms
which may be promulgated in the future, or (ii) a registration on Form S-4 or
similar forms which may be promulgated in the future relating solely to a
Commission Rule 145 transaction, the Company will:
(A) promptly give to each Holder written notice thereof; and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder or Holders, except as set forth in Subsection
1.2(b).
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company will so advise the Holders as a part of the written notice given
pursuant to Subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.2 will be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting will
(together with the Company and the other stockholders, if any, distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the Underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.2, if the
Underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the Underwriter may limit the amount of securities
to be included in the registration and underwriting by the Company's
stockholders or exclude such securities entirely. The number of shares that may
be included in the registration and underwriting by the Holders will be
allocated among the Holders in proportion to the number of Registrable
Securities then held by each. If any such stockholder disapproves of the terms
of any
3 REGISTRATION RIGHTS AGREEMENT
<PAGE>
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the Underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting will be excluded from such registration.
1.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Section 1.2 will be borne by the Company. All Selling Expenses relating to
securities registered by the Holders will be borne by the Holders of such
securities pro rata on the basis of the number of Registrable Securities so
registered.
1.4 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will, upon request, inform each Holder as to the status of each such
registration, qualification and compliance. At its expense the Company will:
(a) Keep such registration, and any qualification or compliance
under state securities laws which the Company determines to obtain, effective
for a period of one hundred eighty (180) days or until the Holder or Holders
have completed the distribution described in the registration statement relating
thereto, whichever first occurs;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) Use its efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company will not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
1.5 Delay of Registration. No Holder will have any right to take any
---------------------
action to restrain, enjoin or otherwise delay any registration pursuant to
Section 1.2 hereof as a result of any controversy that may arise with respect to
the interpretation or implementation of this Agreement.
1.6 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors, employees, partners, legal counsel and accountants, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which any registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out
4 REGISTRATION RIGHTS AGREEMENT
<PAGE>
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act, Exchange Act or
state securities laws applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors, employees, partners, legal counsel and accountants, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by or on behalf of such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, employees, partners, legal counsel and accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers, directors, employees, partners, legal counsel and
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, employees, partners, legal counsel, accountants, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent that
such untrue statement or omission is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by or on behalf of such Holder and stated to be specifically for
use therein. Notwithstanding the foregoing, in no event will a Holder be liable
for any such claims, losses, damages, or liabilities in excess of the proceeds,
net of underwriting discounts and commissions, received by such Holder in the
offering, except in the event of fraud by such Holder.
5 REGISTRATION RIGHTS AGREEMENT
<PAGE>
(c) Each party entitled to indemnification under this Section
1.6 (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and will
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval will not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein will not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure is prejudicial to the
Indemnifying Party in defending such claim or litigation. No Indemnifying Party,
in the defense of any such claim or litigation, will, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Subject to the foregoing, the
Indemnifying Party will promptly advance all expenses incurred by the
Indemnified party in connection with the investigation and defense of any claim
as to which indemnity may be sought pursuant to this Agreement after written
request therefor (but no earlier than incurred) by the Indemnified Party to the
Indemnifying Party. The Indemnified Party will repay such amounts advanced if
and to the extent that it is ultimately determined that the Indemnified Party is
not entitled to indemnification or contribution under this Agreement.
(d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, will contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in any underwriting
agreement entered into in connection with the relevant public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement will be controlling.
6 REGISTRATION RIGHTS AGREEMENT
<PAGE>
1.7 Lockup Agreement. In consideration for the Company agreeing to
----------------
its obligations under this Section 1, each Holder agrees, in connection with the
initial registration of the Company's securities, that upon the request of the
Company or the Underwriter, such Holder will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or Underwriter, as the case may be, for
a period of up to 180 days after the effective date of such registration;
provided, however, that such Holder will have no obligation to enter into the
agreement described herein unless all executive officers and directors of the
Company are required to enter into similar agreements.
1.8 Information by Holder. As a condition to the inclusion of their
---------------------
Registrable Securities, the Holder or Holders of Registrable Securities included
in any registration will furnish to the Company such information regarding such
Holder or Holders and the distribution proposed by such Holder or Holders as the
Company may request in writing and as will be reasonably required in connection
with any registration, qualification or compliance contemplated in Section 1.2
of this Agreement.
1.9 Rule 144 Reporting. With a view to making available to the
------------------
Holders the benefits of certain rules and regulations of the Commission which
may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration statement under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) So long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as such Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.10 Transfer of Registration Rights. Subject to Section 7 of the
-------------------------------
Purchase Agreement and corresponding or similar provisions of other agreements
7 REGISTRATION RIGHTS AGREEMENT
<PAGE>
entered into by the Company and holders of its securities, the right to cause
the Company to register their Registrable Securities granted to the Holders by
the Company under Section 1.2 may be assigned by a Holder to an affiliate of the
Holder or to a transferee or assignee of the lesser of 50,000 shares or 100% of
such Holder's Registrable Securities, as adjusted for any stock split, stock
dividend or other recapitalization, so long as the Company is given written
notice by the Holder at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned.
1.11 Termination of Registration Rights. The obligations of the
----------------------------------
Company pursuant to this Section 1 will terminate upon the earlier to occur of
(a) the fifth anniversary of the effective date of the Company's first
underwritten registered offering to the general public of its securities or, (b)
with respect to any Holder, when all of the Registrable Securities of such
Holder may be sold under Rule 144 in a three-month period.
1.12 Other Registration Rights.
-------------------------
(a) If the Company issues shares of its Common Stock in the
future to its employees, directors and consultants pursuant to equity incentive
arrangements approved by the Company's Board of Directors, the Company, when
authorized by its Board of Directors, and without any consent or approval of
other parties to this Agreement, may grant such employees, directors and
consultants registration rights under Section 1 of this Agreement, whereupon
such persons will become "Holders", and shares of the Company's Common Stock
issued or issuable to them will become "Registrable Securities", for all
purposes of this Agreement (including, without limitation, Section 2.1 below).
(b) If the Company issues shares of its capital stock to
investors in the future, the Company, when authorized by its Board of Directors,
and without any consent or approval of other parties to this Agreement, may
grant such investors: (a) registration rights under Section 1 of this Agreement,
whereupon such investors will become "Holders", and shares of the Company's
Common Stock issued or issuable to them with respect to such capital stock will
become "Registrable Securities", for all purposes of this Agreement (including,
without limitation, Section 2.1 below), or (b) other rights with respect to the
registration of capital stock held by them, including demand registration
rights, which may be more favorable to such investors than the rights set forth
in this Agreement are to the Holders.
(c) Any employee, director, consultant or investor referred to
in this Section 1.12 to whom the Company has granted rights under Section 1 of
this Agreement will become a party to this Agreement by executing and delivering
to the Company a signature page to this Agreement which is then countersigned on
behalf of the Company.
8 REGISTRATION RIGHTS AGREEMENT
<PAGE>
(d) Nothing in this Agreement will limit the Company's right to
offer, sell and issue its capital stock in the future on terms determined by the
Company's Board of Directors, or require any consent or approval of any of the
other parties to this Agreement to any of such actions, or obligate the Company
to offer or otherwise make available to other holders of its capital stock any
such capital stock or rights.
2. Miscellaneous.
-------------
2.1 Waivers and Amendments. With the written consent of the Company
----------------------
and the record holders of a majority of the outstanding Registrable Securities,
any provision of this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended, and with the same consent
the Company, when authorized by its Board of Directors, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement. Any
waiver, amendment or supplement to which such consents are obtained will be
binding upon all Holders. Upon the effectuation of each such waiver, amendment
or supplement, the Company will promptly give written notice thereof to the
Holders who have not previously received notice thereof or consented thereto in
writing. In addition, each Holder, as to such Holder only, may consent in
writing to any such waiver, amendment or supplement, which will be binding upon
such Holder. No amendment, waiver or supplement to this Agreement will be
effective unless agreed to in writing by the party against whom enforcement is
sought or, in the case of any Holder, by such Holder or Holders of a majority of
the outstanding Registrable Securities.
2.2 Governing Law. This Agreement will be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
2.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof will inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties
hereto.
2.4 Entire Agreement. This Agreement, the exhibits to this Agreement
----------------
and the other documents delivered pursuant hereto or incorporated by reference
herein constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof and supersede all prior
oral and written understandings, agreements and commitments by or between the
parties hereto.
2.5 Notices, etc. All notices and other communications required or
-------------
permitted hereunder will be in writing and will be mailed by certified or
registered mail, postage prepaid, addressed (a) if to a party other than the
Company, at the address of such party set forth on such party's signature page
to this Agreement, or at such other address as such party furnishes to the
Company in writing, or (b) if to the Company, at its address set forth at the
beginning of this Agreement, or at such other address as the Company furnishes
to the other parties to this Agreement.
9 REGISTRATION RIGHTS AGREEMENT
<PAGE>
2.6 No Waivers. No failure on the part of any party to exercise or
----------
delay in exercising any right hereunder will be deemed a waiver thereof, nor
will any such failure or delay, or any single or partial exercise of any such
right, preclude any further or other exercise of such right or any other right.
2.7 Separability. If any provision of this Agreement, or the
------------
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
2.8 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original, but all of which together will
constitute one instrument.
2.10 Attorneys' Fees. In the event of any action, suit or proceeding
---------------
for the breach of this Agreement or misrepresentation by any party, the
prevailing party will be entitled to reasonable attorneys' fees, costs and
expenses incurred in such action, suit or proceeding.
10 REGISTRATION RIGHTS AGREEMENT
<PAGE>
The parties have executed this Agreement as of the day and year first
above written.
VISIGENIC SOFTWARE, INC.
By:
-------------------------------
Roger J. Sippl, President
PURCHASER:
Name:
-----------------------------
(Please print or type)
Signature:
------------------------
----------------------------------
Address
----------------------------------
REGISTRATION RIGHTS AGREEMENT
<PAGE>
SUPPLEMENTAL REGISTRATION RIGHTS AGREEMENT
This Supplemental Registration Rights Agreement (the "Agreement") is
entered into this 10th day of May, 1996, by and among Visigenic Software, Inc.,
a Delaware corporation (the "Company"), and each of the shareholders of Post
Modern (as defined below) who has executed a signature page to this Agreement
that has been countersigned on behalf of the Company (referred to below
collectively as the "Shareholders" and each, individually, as a "Shareholder").
RECITALS:
--------
A. The Company has entered into an Agreement and Plan of Reorganization
(the "Reorganization Agreement") pursuant to which Post Modern Computing
Technologies Inc., a California corporation ("Post Modern"), will merge with and
into the Company (the "Merger"), and all outstanding shares of common stock of
Post Modern held by the Shareholders will be converted into shares of the
Company's Common Stock.
B. The Company has previously entered into a Registration Rights Agreement
(the "Rights Agreement") dated March 31, 1993, pursuant to which the Company
granted registration rights with respect to the securities of the Company owned
by the Purchasers, as that term is defined in the Rights Agreement.
C. By this Agreement, the Company and the Shareholders desire to provide
for registration rights with respect to ten percent (10%) of the shares (the
"Shares") of the Company's Common Stock issued to the Shareholders pursuant to
the Merger.
AGREEMENT:
---------
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. For all purposes of the Rights Agreement, each Shareholder's Shares
shall be "Registrable Securities," as that term is defined in Section 1.1(e) of
the Rights Agreement, with respect to the Company's initial public offering of
Common Stock, but no subsequent public offerings of the Company; provided,
however, that no Shareholder shall be entitled to registration of more than 10%
of his Shares.
2. For all purposes of the Rights Agreement, each Shareholder shall be a
"Purchaser" as that term is defined in Section 1.1(e) of the Rights Agreement,
with respect to the Company's initial public offering of Common Stock, but no
subsequent public offerings of the Company.
3. The Rights Agreement may be amended or modified only in accordance with
the terms and conditions set forth in Section 2.1 of the Rights Agreement.
<PAGE>
4. This Agreement will be governed in all respects by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within California. This
Agreement constitutes the full and entire understanding and agreement among the
parties with regard to the subjects hereof and supersedes all prior written and
oral agreements, representations and commitments, if any, among the parties with
respect to such subjects. This Agreement may be executed in any number of
counterparts, each of which will be an original, but all of which together will
constitute one instrument. Any provision of this Agreement may be waived or
modified only by a written instrument signed by the Company and Shareholders
owning a majority of the Shares.
5. Notwithstanding any other provision of this Agreement, this Agreement
shall become effective only upon the closing of the Merger, and if such closing
does not occur, this Agreement shall be void ab initio and have no force and
effect.
The parties have executed this Agreement as of the day and year first above
written.
VISIGENIC SOFTWARE, INC.
By:
-------------------------------------
SHAREHOLDER
----------------------------------------
Signature
----------------------------------------
(Please print or type name)
----------------------------------------
Address
----------------------------------------
City, State, Zip Code
<PAGE>
EXHIBIT 4.3
SUPPLEMENTAL REGISTRATION RIGHTS AGREEMENT
This Supplemental Registration Rights Agreement (the "Agreement") is
entered into this 10th day of May, 1996, by and among Visigenic Software, Inc.,
a Delaware corporation (the "Company"), and each of the shareholders of Post
Modern (as defined below) who has executed a signature page to this Agreement
that has been countersigned on behalf of the Company (referred to below
collectively as the "Shareholders" and each, individually, as a "Shareholder").
RECITALS:
--------
A. The Company has entered into an Agreement and Plan of Reorganization
(the "Reorganization Agreement") pursuant to which Post Modern Computing
Technologies Inc., a California corporation ("Post Modern"), will merge with and
into the Company (the "Merger"), and all outstanding shares of common stock of
Post Modern held by the Shareholders will be converted into shares of the
Company's Common Stock.
B. The Company has previously entered into a Registration Rights Agreement
(the "Rights Agreement") dated March 31, 1993, pursuant to which the Company
granted registration rights with respect to the securities of the Company owned
by the Purchasers, as that term is defined in the Rights Agreement.
C. By this Agreement, the Company and the Shareholders desire to provide
for registration rights with respect to ten percent (10%) of the shares (the
"Shares") of the Company's Common Stock issued to the Shareholders pursuant to
the Merger.
AGREEMENT:
---------
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. For all purposes of the Rights Agreement, each Shareholder's Shares
shall be "Registrable Securities," as that term is defined in Section 1.1(e) of
the Rights Agreement, with respect to the Company's initial public offering of
Common Stock, but no subsequent public offerings of the Company; provided,
however, that no Shareholder shall be entitled to registration of more than 10%
of his Shares.
2. For all purposes of the Rights Agreement, each Shareholder shall be a
"Purchaser" as that term is defined in Section 1.1(e) of the Rights Agreement,
with respect to the Company's initial public offering of Common Stock, but no
subsequent public offerings of the Company.
3. The Rights Agreement may be amended or modified only in accordance with
the terms and conditions set forth in Section 2.1 of the Rights Agreement.
4. This Agreement will be governed in all respects by the laws of the
State of California as such laws are applied to agreements between California
residents entered into
<PAGE>
and to be performed entirely within California. This Agreement constitutes the
full and entire understanding and agreement among the parties with regard to the
subjects hereof and supersedes all prior written and oral agreements,
representations and commitments, if any, among the parties with respect to such
subjects. This Agreement may be executed in any number of counterparts, each of
which will be an original, but all of which together will constitute one
instrument. Any provision of this Agreement may be waived or modified only by a
written instrument signed by the Company and Shareholders owning a majority of
the Shares.
5. Notwithstanding any other provision of this Agreement, this Agreement
shall become effective only upon the closing of the Merger, and if such closing
does not occur, this Agreement shall be void ab initio and have no force and
effect.
The parties have executed this Agreement as of the day and year first above
written.
VISIGENIC SOFTWARE, INC.
By:
---------------------------------------
SHAREHOLDER
__________________________________________
Signature
__________________________________________
(Please print or type name)
__________________________________________
Address
__________________________________________
City, State, Zip Code
<PAGE>
Exhibit 10.2
VISIGENIC SOFTWARE, INC.
1995 STOCK OPTION PLAN
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Visigenic Software, Inc. 1995 Stock Option
Plan (the "Plan") is hereby established effective as of April 18, 1995 (the
"Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the Effective Date.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "Company" means Visigenic Software, Inc., a Delaware
corporation, or any successor corporation thereto.
1
<PAGE>
(e) "Consultant" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "Director" means a member of the Board or
of the board of directors of any other Participating Company.
(g) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value" means, as of any date, the value of a
share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(j) "Insider" means an officer or a Director of the Company
or any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(k) "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either (i) an Option intended to be (as set forth in
the Option Agreement), and which qualifies as, an "Incentive Stock Option"
within the meaning of Section 422(b) of the Code or (ii) a "Nonstatutory Stock
Option" which is not intended to be (as set forth in the Option Agreement), or
which does not qualify as, an Incentive Stock Option.
(l) "Optionee" means a person who has been granted one or
more Options.
(m) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
(n) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(o) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
2
<PAGE>
(p) "Participating Company Group" means, at any point in
time, all corporations collectively which are then Participating Companies.
(q) "Rule 16b-3" means Rule 16b-3 as promulgated under
the Exchange Act, as amended from time to time, or any successor rule or
regulation.
(r) "Stock" means the common stock, par value $0.001,
of the Company, as adjusted from time to time in accordance with Section 4.2.
(s) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(t) "Ten Percent Owner Optionee" means an Optionee who,
at the time an Option is granted to the Optionee, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular.
Use of the term "or" is intended to include the conjunctive as well as the
disjunctive.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 Powers of the Board. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
3
<PAGE>
(c) to determine the Fair Market Value of shares of stock or
other property;
(d) to determine the terms and conditions of each Option
(which need not be identical), including, without limitation, the exercise price
of the Option, the method of payment for shares purchased upon the exercise of
the Option, the method for satisfaction of any tax withholding obligation
arising in connection with the Option, including by the withholding or delivery
of shares of stock, the timing and terms of the exercisability or vesting of the
Option, the time of the expiration of the Option, the effect of the Optionee's
termination of employment or service with the Participating Company Group, and
all other terms and conditions of the Option not inconsistent with the terms of
the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to delegate to any proper officer of the Company the
authority to grant one or more Options, without further approval of the Board,
to any person eligible pursuant to Section 5, other than a person who, at the
time of such grant, is an Insider; provided, however, that (i) such Options
shall not be granted to any one person within any fiscal year of the Company for
more than fifty thousand (50,000) shares in the aggregate, (ii) the exercise
price per share of each such Option shall be equal to 100% of the Fair Market
Value of a share of Stock on the date of grant, and (iii) each such Option shall
be subject to the terms and conditions of the appropriate standard form of
Option Agreement approved by the Board and shall conform to the provisions of
the Plan and such other guidelines as shall be established from time to time by
the Board;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.3 Disinterested Administration. With respect to participation by
Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be
4
<PAGE>
administered by the Board in compliance with the "disinterested administration"
requirements, if any, of Rule 16b-3.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be four million (4,000,000) and shall
consist, in whole or in part, of authorized but unissued shares or treasury
shares of Stock. In the event that any outstanding Option for any reason expires
or is terminated or canceled or shares of Stock acquired, subject to repurchase,
upon the exercise of an Option are repurchased by the Company, the shares of
Stock allocable to the unexercised portion of such Option, or such repurchased
shares of Stock, shall again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price of
any outstanding Options. If a majority of the shares which are of the same class
as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to a Transfer of
Control (as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option.
5. Eligibility and Option Limitations.
----------------------------------
5.1 Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees" shall include prospective Employees to whom Options are granted in
connection with written offers of employment with the Participating Company
Group, and "Consultants" shall include prospective Consultants to whom Options
are granted in connection with written offers of engagement with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.
5.2 Directors Serving on Committee. At any time that any class of
equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
5
<PAGE>
compliance with the "disinterested administration" requirements, if any, of Rule
16b-3, while a member, shall be eligible to be granted an Option.
5.3 Option Grant Restrictions. Any person who is not an Employee on
the date an Option is granted to such person may be granted only a Nonstatutory
Stock Option. An Incentive Stock Option granted to a prospective Employee upon
the condition that such person become an Employee shall be deemed granted on the
date such person commences service with a Participating Company, with an
exercise price determined as of such date in accordance with Section 6.1.
5.4 Fair Market Value Limitation. To the extent that the aggregate
Fair Market Value (determined at the time the Option is granted) of stock with
respect to which Incentive Stock Options are exercisable by an Optionee for the
first time during any calendar year (under all stock option plans of the
Participating Company Group, including the Plan) exceeds One Hundred Thousand
Dollars ($100,000), the portion of such options which exceeds such amount shall
be treated as Nonstatutory Stock Options. This Section 5.4 shall be applied by
taking Incentive Stock Options into account in the order in which they were
granted. If the Code is amended to provide for a different limitation from that
set forth in this Section 5.4, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.4, the Optionee may designate which
portion of such Option the Optionee is exercising and may request that separate
certificates representing each such portion be issued upon the exercise of the
Option. In the absence of such designation, the Optionee shall be deemed to have
exercised the Incentive Stock Option portion of the Option first .
6. Terms and Conditions of Options. Options shall be evidenced by Option
-------------------------------
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the date the Option is granted, (b)
the exercise price per share for a Nonstatutory Stock Option shall be not less
than eighty-five percent (85%) of the Fair Market Value of a share of Stock on
the date the Option is granted, and (c) no Option granted to a Ten Percent Owner
Optionee shall have an exercise price per share less than one hundred ten
percent (110%) of the Fair Market Value of a share of Stock on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than the
6
<PAGE>
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 Exercise Period. Options shall be exercisable at such time or
times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the date such Option is
granted, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted, and (c) no Option granted to a prospective Employee or
prospective Consultant may become exercisable prior to the date on which such
person commences service with a Participating Company.
6.3 Payment of Exercise Price.
(a) Forms of Payment Authorized. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Same-Day Sale"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
7
<PAGE>
(c) Same-Day Sale. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Same-Day Sale.
(d) Payment by Promissory Note. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be due and payable not
more than ten (10) years after the Option is exercised, and interest shall be
payable at least annually and at a rate at least equal to the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. The Board shall have the authority to permit or require the Optionee
to secure any promissory note used to exercise an Option with the shares of
Stock acquired upon the exercise of the Option or with other collateral
acceptable to the Company. Unless otherwise provided by the Board, in the event
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of shares of
Stock having a Fair Market Value, as determined by the Company, equal to all or
any part of the federal, state, local and foreign taxes, if any, required by law
to be withheld by the Participating Company Group with respect to such Option.
Alternatively, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding or otherwise, to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option. The Company shall have no
obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied.
7. Standard Forms of Option Agreement.
----------------------------------
7.1 Incentive Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Incentive Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as a
8
<PAGE>
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Immediately Exercisable Nonstatutory Stock
Option Agreement adopted by the Board concurrently with its adoption of the Plan
and as amended from time to time.
7.3 Standard Term of Options. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall be exercisable for a term of ten (10) years.
7.4 Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are not immediately
exercisable.
8. Transfer of Control.
-------------------
8.1 Definition. A "Transfer of Control" shall be deemed to have
occurred in the event that any of the following occurs with respect to the
Company:
(a) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the voting stock of
the Company wherein the stockholders of the Company immediately before such sale
or exchange do not retain in substantially the same proportions as their
ownership of shares of the Company's voting stock immediately before such event,
directly or indirectly (including, without limitation, through their ownership
of shares of the voting stock of a corporation which, as a result of such sale
or exchange, owns the Company either directly or through one or more
subsidiaries), at least a majority of the beneficial interest in the voting
stock of the Company immediately after such sale or exchange;
(b) a merger or consolidation wherein the stockholders of the
Company immediately before such merger or consolidation do not retain in
substantially the same proportions as their ownership of shares of the Company's
voting stock immediately before such event, directly or indirectly (including,
without limitation, through their ownership of shares of the voting stock of a
corporation which, as a result of such merger or consolidation, owns the Company
either directly or through one or more subsidiaries), at least a majority of the
beneficial interest in the voting stock of the Company immediately after such
merger or consolidation;
9
<PAGE>
(c) the sale, exchange, or transfer of all or substantially
all of the assets of the Company (other than a sale, exchange, or transfer to
one or more corporations (the "Transferee Corporation(s)") wherein the
stockholders of the Company immediately before such sale, exchange, or transfer
retain in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before such event, directly or indirectly
(including, without limitation, through their ownership of shares of the voting
stock of a corporation which owns the Transferee Corporation(s) either directly
or through one or more subsidiaries), at least a majority of the beneficial
interest in the voting stock of the Transferee Corporation(s) immediately after
such event); or
(d) a liquidation or dissolution of the Company.
8.2 Effect of Transfer of Control on Options. In the event of
a Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under outstanding Options or substitute substantially equivalent options for the
Acquiring Corporation's stock for outstanding Options. The Company shall provide
each Optionee holding an outstanding Option with at least ten (10) days advance
written notice of the pending Transfer of Control prior to the consummation
thereof. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. If the corporation the stock of which is
subject to the outstanding Options immediately prior to a Transfer of Control
described in Section 8.1(a) is the surviving or continuing corporation, the
outstanding Options shall be deemed to have been assumed by the Acquiring
Corporation for purposes of this Section 8.2.
9. Provision of Information. At least annually, copies of the Company's
------------------------
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. Nontransferability of Options. During the lifetime of the Optionee,
-----------------------------
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10
<PAGE>
11. Transfer of Company's Rights. In the event any Participating Company
----------------------------
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired upon the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the Fair Market
Value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this Section 11 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this Section 11 shall not
constitute a defense or otherwise prevent the exercise of the repurchase right
by the assignee of such right.
12. Indemnification. In addition to such other rights of indemnification
---------------
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
13. Termination or Amendment of Plan. The Board may terminate or amend
--------------------------------
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options, and (c) no expansion in the class of persons eligible
to receive Nonstatutory Stock Options. In any event, no termination or amendment
of the Plan may adversely affect any then outstanding Option or any unexercised
portion thereof, without the consent of the Optionee, unless such termination or
11
<PAGE>
amendment is necessary to comply with any applicable law or government
regulation.
14. Stockholder Approval. The Plan or any increase in the maximum number
--------------------
of shares of Stock issuable thereunder as provided in Section 4.1 (the "Maximum
Shares") shall be approved by the stockholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Maximum Shares previously
approved by the stockholders shall become exercisable no earlier than the date
of stockholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Visigenic Software, Inc. 1995 Stock Option Plan was duly adopted
by the Board on April 18, 1995.
----------------------------------
Glenn C. Myers, Secretary
12
<PAGE>
PLAN HISTORY
------------
April 18, 1995 Board adopts Plan, with an initial reserve of
1,500,000 shares.
_______________, 1995 Stockholders approve Plan, with an initial
reserve of 1,500,000 shares.
_________, 1996 Board confirms amendment to Plan to delegate
authority to officers to grant options.
April 24, 1996 Board amends plan to increase share reserve to
4,000,000 shares and to make certain other
amendments required by California Department of
Corporations.
__________, 1996 Stockholders approve amendment to plan to
increase share reserve to 4,000,000 shares.
13
<PAGE>
STANDARD FORM OF
VISIGENIC SOFTWARE, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
14
<PAGE>
STANDARD FORM OF
VISIGENIC SOFTWARE, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
VISIGENIC SOFTWARE, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "Option
Agreement") is made and entered into as of ___________, 199_, by and between
Visigenic Software, Inc. and ___________________________ (the "Optionee").
The Company has granted to the Optionee an option to purchase certain shares
of Stock, upon the terms and conditions set forth in this Option Agreement (the
"Option"). The Option shall in all respects be subject to the terms and
conditions of the Visigenic Software, Inc. 1995 Stock Option Plan (the "Plan"),
the provisions of which are incorporated herein by reference.
1. Definitions and Construction.
----------------------------
1.1 Definitions. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "Date of Option Grant" means ________________________ , 199_.
(b) "Number of Option Shares" means ___________________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "Exercise Price" means $ ____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
1
<PAGE>
(d) "Initial Exercise Date" means the later of the Date of Option
Grant or the date the Optionee's Service commences.
(e) "Initial Vesting Date" means the date occurring six (6) months
after (check one):
___ the Date of Option Grant.
___ __________________ , 199_, the date the
Optionee's Service commenced.
(f) "Vested Ratio" means, on any relevant date, the ratio determined
as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/8
provided the Optionee's Service
is continuous from the later of
the Date of Option Grant or the
Optionee's Service
commencement date until the
Initial Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.
(h) "Disability" means the inability of the Optionee, in the opinion
of a qualified physician, to perform the major duties of the Optionee's position
with the Participating Company Group because of the sickness or injury of the
Optionee.
(i) "Securities Act" means the Securities Act of 1933, as
amended.
2
<PAGE>
(j) "Service" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company. (NOTE: If the Option is exercised more than three (3)
months after the date on which the Optionee ceased to be an Employee (other than
by reason of death or a permanent and total disability as defined in Section
22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option
and not as an Incentive Stock Option to the extent required by Section 422 of
the Code.)
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is intended to include the conjunctive as well
as the disjunctive.
2. Tax Status of the Option. This Option is intended to be an Incentive
------------------------
Stock Option within the meaning of Section 422(b) of the Code, but the Company
does not represent or warrant that this Option qualifies as such. The Optionee
should consult with the Optionee's own tax advisor regarding the tax effects of
this Option and the requirements necessary to obtain favorable income tax
treatment under Section 422 of the Code, including, but not limited to, holding
period requirements. (NOTE: If the aggregate Exercise Price of the Option (that
is, the Exercise Price multiplied by the Number of Option Shares) plus the
aggregate exercise price of any other Incentive Stock Options held by the
Optionee (whether granted pursuant to the Plan or any other stock option plan of
the Participating Company Group) is greater than One Hundred Thousand Dollars
($100,000), the Optionee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an Incentive Stock
Option.)
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
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4. Exercise of the Option.
----------------------
4.1 Right to Exercise.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares less the number of shares previously acquired upon exercise of
the Option, subject to the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase rights set forth in Section 11,
Section 12, and Section 13. Notwithstanding the foregoing, except as provided
in Section 4.1(b), the aggregate Fair Market Value of the shares of Stock with
respect to which the Optionee may exercise the Option for the first time during
any calendar year, when added to the aggregate Fair Market Value of the shares
subject to any other Incentive Stock Options granted to the Optionee under all
stock option plans of the Participating Company Group prior to the Date of
Option Grant which are exercisable for the first time during such calendar year,
shall not exceed One Hundred Thousand Dollars ($100,000). For purposes of the
preceding sentence, the Fair Market Value of any shares shall be determined as
of the time the option with respect to such shares is granted. Such limitation
on exercise shall be referred to in this Option Agreement as the "$100,000
Exercise Limitation."
(b) Notwithstanding any other provision of this Option Agreement,
if compliance with the $100,000 Exercise Limitation as set forth in Section
4.1(a) will result in the exercisability of any Vested Shares (as defined in
Section 11.2) being delayed more than thirty (30) days beyond the date such
shares become Vested Shares (the "Vesting Date"), the Option shall be deemed to
be two (2) options. The first option shall be for the maximum portion of the
Number of Option Shares that can comply with the $100,000 Exercise Limitation
without causing the Option to be unexercisable in the aggregate as to Vested
Shares on the Vesting Date for such shares. The second option, which shall not
be treated as an Incentive Stock Option as described in section 422(b) of the
Code, shall be for the balance of the Number of Option Shares; that is, those
such shares which, on the respective Vesting Date for such shares, would be
unexercisable if included in the first option and thereby made subject to the
$100,000 Exercise Limitation. Shares treated as subject to the second option
shall be exercisable on the same terms and at the same time as set forth in this
Option Agreement; provided, however, that (a) the second sentence of Section
4.1(a) shall not apply to the second option and (b) each such share shall become
a Vested Share on the Vesting Date such share must first be allocated to the
second option pursuant to the preceding sentence. Unless the Optionee
specifically elects to the contrary in the Optionee's written notice of
exercise, the first option shall be deemed to be exercised first to the maximum
possible extent and then the second option shall be deemed to be exercised.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
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number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3 Payment of Exercise Price.
(a) Forms of Payment Authorized. Except as otherwise provided
below, payment of the aggregate Exercise Price for the number of shares of Stock
for which the Option is being exercised shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a Same-
Day Sale, as defined in Section 4.3(c), (iv) in the Company's sole discretion at
the time the Option is exercised, by cash for a portion of the aggregate
Exercise Price not less than the par value of the shares being acquired and the
Optionee's promissory note for the balance of the aggregate Exercise Price, or
(v) by any combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) Same-Day Sale. A "Same-Day Sale" means the assignment in a
form acceptable to the Company of the proceeds of a sale of some or all of the
shares of Stock acquired upon the exercise of the Option pursuant to a program
or procedure approved by the Company (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System). The Company
reserves, at any and all times, the right, in the Company's sole and
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absolute discretion, to decline to approve or terminate any such program or
procedure.
(d) Payment by Promissory Note. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable four (4) years after the date the Option is exercised.
Interest on the principal balance of the promissory note shall be payable in
annual installments at the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for, any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option. The Optionee is cautioned that the Option is not exercisable unless
the tax withholding obligations of the Participating Company Group are
satisfied. Accordingly, the Optionee may not be able to exercise the Option
when desired even though the Option is vested, and the Company shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Same-Day Sale, the certificate for the shares as to which
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, the heirs of the Optionee.
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4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option 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. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
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7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of twelve (12) months after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date. (NOTE: If the Option
is exercised more than three (3) months after the date on which the Optionee's
Service as an Employee terminated as a result of a Disability other than a
permanent and total disability as defined in Section 22(e)(3) of the Code, the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, (i) the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date, and (ii)
solely for purposes of computing the Vested Ratio, the Optionee shall be given
credit for an additional twelve (12) months of continuous Service; provided,
however, that in no event shall the Vested Ratio exceed 1/1. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within thirty (30) days after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
7.2 Additional Limitations on Option Exercise. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3(a).
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7.3 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as
to the tax consequences of any such delayed exercise. The Optionee should
consult with the Optionee's own tax advisor as to the tax consequences to the
Optionee of any such delayed exercise.
7.4 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any
such delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
7.5 Leave of Absence. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. Ownership Change and Transfer of Control.
----------------------------------------
8.1 Definitions.
(a) An "Ownership Change" shall be deemed to have occurred in the
event any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the voting stock of
the Company;
(ii) a merger or consolidation in which the Company is a
party;
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(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more corporations (the "Transferee Corporation(s)") wherein
the stockholders of the Company immediately before such sale, exchange, or
transfer retain in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before such event, directly or
indirectly (including, without limitation, through their ownership of shares of
the voting stock of a corporation which owns the Transferee Corporation(s)
either directly or through one or more subsidiaries), at least a majority of the
beneficial interest in the voting stock of the Transferee Corporation(s)
immediately after such event); or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean
(i) an Ownership Change described in Sections 8.1(a)(i) or
8.1(a)(ii) wherein the stockholders of the Company immediately before such
Ownership Change do not retain in substantially the same proportions as their
ownership of shares of the Company's voting stock immediately before such
Ownership Change, directly or indirectly (including, without limitation, through
their ownership of shares of the voting stock of a corporation which, as a
result of such Ownership Change, owns the Company either directly or through one
or more subsidiaries), at least a majority of the beneficial interest in the
voting stock of the Company immediately after such Ownership Change; or
(ii) an Ownership Change described in Sections 8.1(a)(iii)
or 8.1(a)(iv).
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under the Option or substitute a substantially equivalent option for the
Acquiring Corporation's stock for the Option. The Company shall provide the
Optionee with at least ten (10) days advance written notice of the pending
Transfer of Control prior to the consummation thereof. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. If the
corporation the stock of which is subject to the Option immediately prior to the
Transfer of Control is the surviving or continuing corporation in an Ownership
Change described in Section 8.1(a)(i), the Option shall be deemed to
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have been assumed by the Acquiring Corporation for purposes of this Option
Agreement.
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option.
10. Rights as a Stockholder, Employee, Director or Consultant. The
---------------------------------------------------------
Optionee shall have no rights as a stockholder with respect to any shares
covered by the Option until the date on which all of the conditions under this
Option Agreement to an effective exercise of the Option have been satisfied. No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date of such effective exercise of the Option,
except as provided in Section 9. Nothing in this Option Agreement shall confer
upon the Optionee any right to continue in the Service of a Participating
Company or interfere in any way with any right of the Participating Company
Group to terminate the Optionee's Service as an Employee, Director or
Consultant, as the case may be, at any time.
11. Unvested Share Repurchase Option.
--------------------------------
11.1 Grant of Unvested Share Repurchase Option. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, other than pursuant to a Termination
After Transfer of Control as defined in Section 11.2 below if the Optionee is an
Employee or Director, or if the Optionee, the Optionee's legal representative,
or other holder of shares acquired upon exercise of the Option attempts to sell,
exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an
Ownership Change) any shares acquired upon exercise of the Option which exceed
the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option"). The Unvested Share Repurchase Option shall terminate in
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<PAGE>
the event of a Termination After Transfer of Control if the Optionee is an
Employee or Director.
11.2 Definitions.
(a) Vested Shares and Unvested Shares. The "Vested Shares" shall
mean, on any given date, a number of shares of Stock equal to the Number of
Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of Stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
(b) Termination After Transfer of Control.
(i) "Termination After Transfer of Control" shall mean
either of the following events occurring after a Transfer of Control:
(1) termination by the Participating Company Group of
the Optionee's Service with the Participating Company Group for any reason other
than Termination for Cause (as defined below); or
(2) the Optionee's resignation from Service with the
Participating Company Group immediately following any Constructive Termination
(as defined below).
(ii) Notwithstanding any provision herein to the contrary,
Termination After Transfer of Control shall not include any termination of the
Optionee's Service with the Participating Company Group which (1) is a
Termination for Cause (as defined below); (2) is a result of the Optionee's
death or Disability; (3) is a result of the Optionee's voluntary termination of
Service other than upon Constructive Termination (as defined below); or (4)
occurs prior to the effectiveness of a Transfer of Control.
(c) Termination for Cause. "Termination for Cause" shall mean
termination by the Participating Company Group of the Optionee's Service with
the Participating Company Group for any of the following reasons: (i) theft,
dishonesty, or falsification of any Participating Company records; (ii) improper
use or disclosure of a Participating Company's confidential or proprietary
information; (iii) any action by the Optionee which has a detrimental effect on
a Participating Company's reputation or business; (iv) the Optionee's failure or
inability to perform any reasonable assigned duties after written notice from
the Participating Company Group of, and a reasonable opportunity to cure, such
failure or inability; (v) any material breach by the Optionee of any employment
agreement between the Optionee and the Participating Company Group, which breach
is not cured pursuant to the terms of such agreement; or (vi) the Optionee's
conviction of any criminal
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<PAGE>
act which impairs the Optionee's ability to perform his or her duties with the
Participating Company Group.
(d) Constructive Termination. "Constructive Termination" shall
mean any one or more of the following:
(i) without the Optionee's express written consent, the
assignment to the Optionee of any duties, or any limitation of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Transfer of Control;
(ii) without the Optionee's express written consent, the
relocation of the principal place of the Optionee's employment to a location
that is more than fifty (50) miles from the Optionee's principal place of
employment immediately prior to the date of the Transfer of Control, or the
imposition of travel requirements substantially more demanding of the Optionee
than such travel requirements existing immediately prior to the date of the
Transfer of Control;
(iii) any failure by the Participating Company Group to pay,
or any material reduction by the Participating Company Group of, (1) the
Optionee's base salary in effect immediately prior to the date of the Transfer
of Control (unless reductions comparable in amount and duration are concurrently
made for all other employees of the Participating Company Group with
responsibilities, organizational level and title comparable to the Optionee's),
or (2) the Optionee's bonus compensation, if any, in effect immediately prior to
the date of the Transfer of Control (subject to applicable performance
requirements with respect to the actual amount of bonus compensation earned by
the Optionee); or
(iv) any failure by the Participating Company Group to (1)
continue to provide the Optionee with the opportunity to participate, on terms
no less favorable than those in effect for the benefit of any employee group
which customarily includes a person holding the employment position or a
comparable position with the Participating Company Group then held by the
Optionee, in any benefit or compensation plans and programs, including, but not
limited to, the Participating Company Group's life, disability, health, dental,
medical, savings, profit sharing, stock purchase and retirement plans, if any,
in which the Optionee was participating immediately prior to the date of the
Transfer of Control, or their equivalent, or (2) provide the Optionee with all
other fringe benefits (or their equivalent) from time to time in effect for the
benefit of any employee group which customarily includes a person holding the
employment position or a comparable position with the Participating Company
Group then held by the Optionee.
11.3 Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days
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after (a) termination of the Optionee's Service (or exercise of the Option, if
later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if
at all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.
11.4 Payment for Shares and Return of Shares to Company. The purchase
price per share being repurchased by the Company shall be an amount equal to the
Optionee's original cost per share, as adjusted pursuant to Section 9 (the
"Repurchase Price"). The Company shall pay the aggregate Repurchase Price to
the Optionee in cash within thirty (30) days after the date of personal delivery
or mailing of the written notice of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.
11.5 Assignment of Unvested Share Repurchase Option. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6 Ownership Change. Except as otherwise provided herein, in the
event of an Ownership Change, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of Unvested Shares shall be immediately subject to the
Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested
Shares" for all purposes of the Unvested Share Repurchase Option with the same
force and effect as the Unvested Shares immediately prior to the Ownership
Change. While the aggregate Repurchase Price shall remain the same after such
Ownership Change, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change shall be
adjusted as appropriate. For purposes of determining the Vested Ratio following
an Ownership Change, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the event constituting the Ownership Change. The other provisions of
this Section 11 notwithstanding, the Unvested Share Repurchase Option shall
terminate and be of no further force and effect upon the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option.
14
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12. Right of First Refusal.
----------------------
12.1 Grant of Right of First Refusal. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"Transfer Shares") to any person or entity, including, without limitation, any
stockholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 12 (the "Right of First Refusal"). For purposes of
this Section 12, a change in record ownership of any Vested Shares (other than
any such change pursuant to a decree of divorce or marital separation or similar
order, or by any property settlement agreement, or upon death, incompetence or
bankruptcy of the Optionee) shall be deemed a transfer subject to the Right of
First Refusal whether or not such change in record ownership results in a change
in the beneficial ownership of such shares.
12.2 Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the Fair Market
Value of the Transfer Shares, as determined by the Board in good faith, subject
to Section 15. If the Optionee proposes to transfer any Transfer Shares to more
than one Proposed Transferee, the Optionee shall provide a separate Transfer
Notice for the proposed transfer to each Proposed Transferee. The Transfer
Notice shall be signed by both the Optionee and the Proposed Transferee and must
constitute a binding commitment of the Optionee and the Proposed Transferee for
the transfer of the Transfer Shares to the Proposed Transferee subject only to
the Right of First Refusal.
12.3 Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 Exercise of Right of First Refusal. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth
15
<PAGE>
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's right to exercise
the Right of First Refusal with respect to any proposed transfer described in
any other Transfer Notice, whether or not such other Transfer Notice is issued
by the Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
12.5 Failure to Exercise Right of First Refusal. If the Company fails
to exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of
the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the
right to demand further assurances from the Optionee and the Proposed Transferee
(in a form satisfactory to the Company) that the transfer of the Transfer Shares
was actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
12.6 Transferees of Transfer Shares. All transferees of the Transfer
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 12 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 12 are met.
16
<PAGE>
12.7 Transfers Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change. If the consideration received pursuant to such transfer or
exchange consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of Section
12.9 below result in a termination of the Right of First Refusal.
12.8 Assignment of Right of First Refusal. The Company shall have the
right to assign the Right of First Refusal at any time, whether or not there has
been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9 Early Termination of Right of First Refusal. The other
provisions of this Section 12 notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "public market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
12.10 Death, Incompetence or Bankruptcy of Purchaser. In the event
of the Optionee's death, incompetence or bankruptcy, the Company will have an
option to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the appropriate personal representative of the Optionee
otherwise agree) at a purchase price equal to the Fair Market Value of the
Transfer Shares, as of the date of the Optionee's death, incompetence or
bankruptcy, as determined by the Board subject to Section 15. For purposes of
this Option Agreement, the incompetence of the Optionee will be deemed to have
occurred upon the entry by a court of competent jurisdiction of an order
adjudicating the Optionee incompetent to manage the Optionee's person or estate,
and the bankruptcy of the Optionee will be deemed to have occurred when the
Optionee obtains or becomes subject to an order for relief under the Bankruptcy
Code or has executed and delivered an assignment for the benefit of the
Optionee's creditors. The Company may exercise this option by delivery to the
appropriate personal representative of the Optionee of a notice of exercise
within sixty (60) days after an officer of the Company first becomes aware of
the death, incompetency or bankruptcy of the Optionee. Notwithstanding the
other provisions of this Section 12, the Company's option pursuant to this
Section 12.10 and not the Right of First Refusal will apply to transfers arising
from the Optionee's death, incompetence or bankruptcy. The Company's option
pursuant to this Section 12.10 will be deemed to be part of the Right of First
Refusal for purposes of Section 12.6 above and Sections 16 and 20.4 below. The
Company's option pursuant to this Section
17
<PAGE>
12.10 will terminate, and be of no further force and effect, upon any
termination of the Right of First Refusal pursuant to Section 12.9 above.
13. Repurchase Rights Upon Marital Dissolution.
------------------------------------------
13.1 Repurchase from Spouse.
(a) In the event of the dissolution of the Optionee's marriage or
the Optionee's legal separation from his or her spouse, the Optionee shall have
the right and option to purchase from his or her spouse all or any portion of
the shares acquired upon exercise of the Option (i) awarded to the spouse
pursuant to a decree of dissolution of marriage or separation or any other order
by any court of competent jurisdiction or by any property settlement agreement
(whether or not incorporated by reference in any such decree), or (ii)
transferred by the Optionee to the spouse by gift prior to the dissolution or
separation. The Optionee shall purchase such shares for a price equal to the
Fair Market Value of such shares as determined by the Board in good faith,
subject to Section 15, and upon the terms set forth below. The Optionee shall
exercise his or her right, if at all, within thirty (30) days of the entry of
any such decree or property settlement agreement by delivery to the Optionee's
spouse of written notice of exercise, specifying the number of shares that the
Optionee elects to purchase. The purchase price for the shares shall be paid by
delivery of a check for the purchase price.
(b) In the event the Optionee does not exercise his or her right
to purchase all of the shares acquired upon exercise of the Option which are
awarded to the Optionee's spouse, the Optionee shall provide written notice to
the Company of the number of such shares available for purchase within thirty
(30) days of the entry of the decree or property settlement agreement. The
Company shall then have the right to purchase at any time within thirty (30)
days after delivery of such notice any of the shares not acquired by the
Optionee directly from the Optionee's spouse at the same price and otherwise on
the same terms that were available to the Optionee.
(c) The rights of the Optionee and the Company pursuant to this
Section 13 are hereinafter referred to as the "Repurchase Rights Upon Marital
Dissolution."
13.2 Effect on Right of First Refusal. The Right of First Refusal set
forth in Section 12 above shall apply to any gift of shares acquired upon
exercise of the Option made by the Optionee to the Optionee's spouse at the time
of any such gift, but shall not apply in the case of any award of shares to the
Optionee's spouse pursuant to a court decree or property settlement agreement
or, at the time of any dissolution of the Optionee's marriage or marital
separation, with respect to shares transferred by the Optionee by gift to the
spouse prior to the dissolution, all of which transfers shall be subject to the
Repurchase Rights Upon Marital Dissolution.
18
<PAGE>
13.3 Ownership Change. Consideration consisting of stock of a
Participating Company received pursuant to an Ownership Change with respect to
shares acquired upon exercise of the Option shall remain subject to the
Repurchase Rights Upon Marital Dissolution unless the provisions of Section 13.4
below result in a termination of such rights.
13.4 Early Termination of Repurchase Rights Upon Marital Dissolution.
The other provisions of this Section 13 notwithstanding, the Repurchase Rights
Upon Marital Dissolution shall terminate and be of no further force and effect
upon (a) the occurrence of a Transfer of Control, unless the Acquiring
Corporation assumes the Company's rights and obligations under the Option or
substitutes a substantially equivalent option for the Acquiring Corporation's
stock for the Option, or (ii) the existence of a public market, as defined in
Section 12.9 above, for the class of shares subject to the Repurchase Rights
Upon Marital Dissolution.
14. Spousal Consent. If the Optionee is married on the date of this
---------------
Option Agreement, the Optionee's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective on the date hereof. Such consent shall not
---------
be deemed to confer or convey to the spouse any rights in the Option or the
shares issuable upon the exercise thereof that do not otherwise exist by
operation of law or the agreement of the parties. If the Optionee should marry
or remarry subsequent to the date of this Option Agreement, the Optionee shall
within thirty (30) days thereafter obtain his or her new spouse's
acknowledgement of and consent to the existence and binding effect of all
restrictions contained in this Option Agreement by signing an additional Consent
of Spouse in the form of Exhibit A. Failure to provide an additional Consent of
---------
Spouse shall be treated as a transfer of all of the shares previously acquired
by the Optionee upon exercise of the Option, if any, to such spouse and trigger
the Company's Right of First Refusal under Section 12 above.
15. Appraisal. In the case of: (a) the Company's exercise of its Right of
---------
First Refusal pursuant to Section 12 above with respect to a bona fide gift or
involuntary transfer referred to therein, (b) the Company's option pursuant to
Section 12.10 upon the Optionee's death, incompetence or bankruptcy, or (c) the
Optionee's or the Company's exercise of their Repurchase Rights Upon Marital
Dissolution pursuant to Section 13 above, if the Objecting Party (as defined
below) disagrees with the valuation determined by the Board, the Objecting Party
may, by giving written notice to the Company within ten (10) days after being
informed of the valuation, request that the value of the shares at issue be
determined by an independent appraiser to be selected by the Company. The
Company shall select an appraiser to determine the value of such shares within
fifteen (15) days after the Company's actual receipt of the Objecting Party's
notice disputing the valuation determined by the Board. Such appraiser shall be
subject to the approval of the Objecting Party, which approval the Objecting
Party shall not unreasonably withhold or delay. The Objecting Party's approval
or refusal to approve the appraiser must be given before the appraiser announces
a valuation. The value of
19
<PAGE>
such shares, as determined by the appraiser, shall be conclusively binding on
all of the parties concerned. The expenses of appraisal shall be borne equally
by the Company and the Objecting Party. Any time required to resolve a
valuation dispute shall be added to the time periods in which the Company may
exercise its rights under Sections 12, 12.10, and 13 above and the Optionee may
exercise his or her rights vis-a-vis his or her spouse pursuant to Section 13
above. As used in this Section 15, the term "Objecting Party" means the
Optionee or, in the case of Section 13 above only, the Optionee's spouse.
16. Escrow.
------
16.1 Establishment of Escrow. To ensure that shares subject to the
Unvested Share Repurchase Option, the Right of First Refusal, or the Repurchase
Rights Upon Marital Dissolution or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an escrow agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. In the event of an Ownership Change or change in
stock subject to the provisions of this Option Agreement as described in Section
17, any and all new, substituted or additional securities or other property to
which the Optionee is entitled by reason of the Optionee's ownership of shares
of Stock acquired upon exercise of the Option that remain, following such
Ownership Change or change described in Section 17, subject to the Unvested
Share Repurchase Option, the Right of First Refusal, or the Repurchase Rights
Upon Marital Dissolution or any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
16.2 Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Unvested Share Repurchase Option, the Right of First Refusal,
and the Repurchase Rights Upon Marital Dissolution and after full repayment of
any promissory note secured by the shares in escrow, but not more frequently
than twice each calendar year, the escrow agent shall deliver to the Optionee
the shares no longer subject to such restrictions and no longer securing any
promissory note.
16.3 Notices and Payments. In the event the shares held in escrow are
subject to the Company's exercise of the Unvested Share Repurchase Option, the
Right of First Refusal, or the Repurchase Rights Upon Marital Dissolution, the
notices required to be given to the Optionee shall be given to the escrow agent,
and any payment required to be given to the Optionee shall be given to the
escrow agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
20
<PAGE>
17. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new, substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Unvested Share Repurchase Option,
the Right of First Refusal, the Repurchase Rights Upon Marital Dissolution, and
any security interest held by the Company with the same force and effect as the
shares subject to the Unvested Share Repurchase Option, the Right of First
Refusal, the Repurchase Rights Upon Marital Dissolution, and such security
interest immediately before such event.
18. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
----------------------------------------------
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.
19. Rules of the Commissioner of Corporations. The Optionee is hereby
-----------------------------------------
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following
text are references to the California Corporations Code.
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
21
<PAGE>
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants, or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants, or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113, or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
22
<PAGE>
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend prominently stamped or printed
thereon in capital letters of not less than 10-point size reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
20. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option, the Right of First Refusal and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this
23
<PAGE>
Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
20.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
20.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
20.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
20.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
20.5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs,
THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ______________. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
21. Public Offering. The Optionee hereby agrees that in the event of any
---------------
underwritten public offering of stock, including an initial public offering of
stock,
24
<PAGE>
made by the Company pursuant to an effective registration statement filed under
the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The foregoing limitation shall remain in effect for the two (2)
year period immediately following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to have any force or
effect. The Optionee shall be subject to this Section provided and only if the
officers and directors of the Company are also subject to similar arrangements.
22. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
23. Termination or Amendment. The Board may terminate or amend the Plan
------------------------
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
24. Integrated Agreement. This Option Agreement and the Plan constitute
--------------------
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group other than
those as set forth or provided for herein or therein. To the extent
contemplated herein or therein, the provisions of this Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
25
<PAGE>
25. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
VISIGENIC SOFTWARE, INC.
By:______________________________________
Title:___________________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, the Right of First Refusal set forth in Section
12, and the Repurchase Rights Upon Marital Dissolution set forth in Section 13,
and hereby accepts the Option subject to all of the terms and provisions
thereof. The Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan and a copy of
Section 260.141.11 of the Rules of the Commissioner of Corporations of the State
of California regarding restriction on transfer.
OPTIONEE
Date:_____________________________ _________________________________________
26
<PAGE>
EXHIBIT A
---------
CONSENT OF SPOUSE
The undersigned, being the spouse of _______________________ does hereby
acknowledge that the undersigned has read and is familiar with the provisions of
the above Option Agreement. The undersigned is aware that Section 13 provides
my spouse and the Company the option to purchase all of the shares of stock
acquired by my spouse upon exercise of the Option (the "Shares") of which I may
become possessed as a result of a gift from my spouse or a court decree or any
property settlement in any domestic litigation.
I hereby agree that my interest, if any, in the Shares will be irrevocably
bound by the Option Agreement and further understand and agree that any
community property interest I may have in the Shares will be similarly bound by
the Option Agreement.
I agree to the sale and purchase described in Section 13 of the Option
Agreement and I hereby consent to the sale of the Shares by my spouse or my
spouse's legal representative in accordance with the provisions of the Option
Agreement. Further, as part of the consideration for the Option Agreement, I
agree that at my death, if I have not disposed of any interest of mine in the
Shares by an outright bequest of said shares to my spouse, then my spouse and
the Company will have the same rights against my legal representative to
purchase any interest of mine in the Shares as they would have had pursuant to
Section 13 of the Option Agreement if I had acquired the Shares pursuant to a
court decree in domestic litigation.
I am aware that the legal, financial and related matters contained in the
-------------------------------------------------------------------------
Option Agreement are complex and that I am free to seek independent professional
- --------------------------------------------------------------------------------
guidance or counsel with respect to this Consent. I have either sought such
- ----------------------------------------------------------------------------
guidance or counsel or determined after reviewing the Option Agreement carefully
- --------------------------------------------------------------------------------
that I waive such right.
- -----------------------
Dated:____________________________ _________________________________________
(signature)
_________________________________________
(name printed)
27
<PAGE>
EXAMPLE OF APPLICATION OF EXCEPTION TO $100,000 EXERCISE LIMITATION (SECTION
- ----------------------------------------------------------------------------
4.1(b))
- -------
Number of Option Shares: 600,000
Date of Option Grant: 2/1/95
Fair Market Value on Date of Option Grant: $1.00
$100,000 Exercise Limitation per calendar year: 100,000 shares
Option vests at the rate of 1/48 per month (12,500 shares).
ISO portion is 425,000 and NSO portion is 175,000 determined as follows:
<TABLE>
<CAPTION>
=======================================================================================
Vesting Date Cumulative Total Cumulative ISO Cumulative NSO Cumulative
$100,000 Exercise Vested Shares Vested Shares Vested Shares
Limit
=======================================================================================
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
2-1-95 100,000 0
- ---------------------------------------------------------------------------------------
3-1-95 12,500 12,500 0
- ---------------------------------------------------------------------------------------
4-1-95 25,000 25,000 0
- ---------------------------------------------------------------------------------------
5-1-95 37,500 37,500 0
- ---------------------------------------------------------------------------------------
6-1-95 50,000 50,000 0
- ---------------------------------------------------------------------------------------
7-1-95 62,500 62,500 0
- ---------------------------------------------------------------------------------------
8-1-95 75,000 75,000 0
- ---------------------------------------------------------------------------------------
9-1-95 87,500 87,500 0
- ---------------------------------------------------------------------------------------
10-1-95 100,000 100,000 0
- ---------------------------------------------------------------------------------------
11-1-95 112,500 100,000 12,500
- ---------------------------------------------------------------------------------------
12-1-95 125,000 100,000 25,000
- ---------------------------------------------------------------------------------------
1-1-96 200,000 137,500 112,500 25,000
- ---------------------------------------------------------------------------------------
2-1-96 150,000 125,000 25,000
- ---------------------------------------------------------------------------------------
3-1-96 162,500 137,500 25,000
- ---------------------------------------------------------------------------------------
4-1-96 175,000 150,000 25,000
- ---------------------------------------------------------------------------------------
5-1-96 187,500 162,500 25,000
- ---------------------------------------------------------------------------------------
6-1-96 200,000 175,000 25,000
- ---------------------------------------------------------------------------------------
7-1-96 212,500 187,500 25,000
- ---------------------------------------------------------------------------------------
8-1-96 225,000 200,000 25,000
- ---------------------------------------------------------------------------------------
9-1-96 237,500 200,000 37,500
- ---------------------------------------------------------------------------------------
10-1-96 250,000 200,000 50,000
- ---------------------------------------------------------------------------------------
11-1-96 262,500 200,000 62,500
- ---------------------------------------------------------------------------------------
12-1-96 275,000 200,000 75,000
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Vesting Date Cumulative Total Cumulative ISO Cumulative NSO Cumulative
$100,000 Exercise Vested Shares Vested Shares Vested Shares
Limit
<C> <S> <C> <C> <C>
===================================================================================================
1-1-97 300,000 287,500 212,500 75,000
- ---------------------------------------------------------------------------------------------------
2-1-97 300,000 225,000 75,000
- ---------------------------------------------------------------------------------------------------
3-1-97 312,500 237,500 75,000
- ---------------------------------------------------------------------------------------------------
4-1-97 325,000 250,000 75,000
- ---------------------------------------------------------------------------------------------------
5-1-97 337,500 262,500 75,000
- ---------------------------------------------------------------------------------------------------
6-1-97 350,000 275,000 75,000
- ---------------------------------------------------------------------------------------------------
7-1-97 362,500 287,500 75,000
- ---------------------------------------------------------------------------------------------------
8-1-97 375,000 300,000 75,000
- ---------------------------------------------------------------------------------------------------
9-1-97 387,500 300,000 87,500
- ---------------------------------------------------------------------------------------------------
10-1-97 400,000 300,000 100,000
- ---------------------------------------------------------------------------------------------------
11-1-97 412,500 300,000 112,500
- ---------------------------------------------------------------------------------------------------
12-1-97 425,000 300,000 125,000
- ---------------------------------------------------------------------------------------------------
1-1-98 400,000 437,500 312,500 125,000
- ---------------------------------------------------------------------------------------------------
2-1-98 450,000 325,000 125,000
- ---------------------------------------------------------------------------------------------------
3-1-98 462,500 337,500 125,000
- ---------------------------------------------------------------------------------------------------
4-1-98 475,000 350,000 125,000
- ---------------------------------------------------------------------------------------------------
5-1-98 487,500 362,500 125,000
- ---------------------------------------------------------------------------------------------------
6-1-98 500,000 375,000 125,000
- ---------------------------------------------------------------------------------------------------
7-1-98 512,500 387,500 125,000
- ---------------------------------------------------------------------------------------------------
8-1-98 525,000 400,000 125,000
- ---------------------------------------------------------------------------------------------------
9-1-98 537,500 400,000 137,500
- ---------------------------------------------------------------------------------------------------
10-1-98 550,000 400,000 150,000
- ---------------------------------------------------------------------------------------------------
11-1-98 562,000 400,000 162,500
- ---------------------------------------------------------------------------------------------------
12-1-98 575,000 400,000 175,000
- ---------------------------------------------------------------------------------------------------
1-1-99 500,000 587,500 412,500 175,000
- ---------------------------------------------------------------------------------------------------
2-1-99 600,000 425,000 175,000
===================================================================================================
</TABLE>
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
VISIGENIC SOFTWARE, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the "Option
Agreement") is made and entered into as of ___________, 199_, by and between
Visigenic Software, Inc. and ___________________________ (the "Optionee").
The Company has granted to the Optionee an option to purchase certain shares
of Stock, upon the terms and conditions set forth in this Option Agreement (the
"Option"). The Option shall in all respects be subject to the terms and
conditions of the Visigenic Software, Inc. 1995 Stock Option Plan (the "Plan"),
the provisions of which are incorporated herein by reference.
1. Definitions and Construction.
----------------------------
1.1 Definitions. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "Date of Option Grant" means ________________________ , 199_.
(b) "Number of Option Shares" means ___________________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "Exercise Price" means $ ____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
1
<PAGE>
(d) "Initial Exercise Date" means the later of the Date of Option
Grant or the date the Optionee's Service commences.
(e) "Initial Vesting Date" means the date occurring six (6) months
after (check one):
the Date of Option Grant.
--- -------------------------
___ __________________ , 199_ , the date the
Optionee's Service commenced.
(f) "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/8
provided the Optionee's Service
is continuous from the later of
the Date of Option Grant or the
Optionee's Service
commencement date until the
Initial Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.
(h) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician, to perform the major duties of the Optionee's
position with the Participating Company Group because of the sickness or injury
of the Optionee.
(i) "Securities Act" means the Securities Act of 1933, as
amended.
2
<PAGE>
(j) "Service" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is intended to include the conjunctive as well
as the disjunctive.
2. Tax Status of the Option. This Option is intended to be a
------------------------
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in Section 11, Section 12 and Section 13.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by
3
<PAGE>
confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3 Payment of Exercise Price.
(a) Forms of Payment Authorized. Except as otherwise provided below,
payment of the aggregate Exercise Price for the number of shares of Stock for
which the Option is being exercised shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of whole shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a Same-
Day Sale, as defined in Section 4.3(c), (iv) in the Company's sole discretion at
the time the Option is exercised, by cash for a portion of the aggregate
Exercise Price not less than the par value of the shares being acquired and the
Optionee's promissory note for the balance of the aggregate Exercise Price, or
(v) by any combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) Same-Day Sale. A "Same-Day Sale" means the assignment in a form
acceptable to the Company of the proceeds of a sale of some or all of the shares
of Stock acquired upon the exercise of the Option pursuant to a program or
procedure approved by the Company (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System). The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to decline to approve or terminate any such program or procedure.
(d) Payment by Promissory Note. No promissory note shall be permitted
if an exercise of the Option using a promissory note would be a violation of any
law. Unless otherwise specified by the Board at the time the
4
<PAGE>
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable four (4) years after the date the Option is exercised.
Interest on the principal balance of the promissory note shall be payable in
annual installments at the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for, any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option. Upon request by the Optionee and subject to approval by the
Company, in its sole discretion, and compliance with any applicable conditions
or restrictions imposed by Rule 16b-3 if the Optionee is an Insider, the Company
may withhold from the shares of Stock acquired by the Optionee upon the exercise
of the Option a number of whole shares having a Fair Market Value, determined by
the Company as of the date of exercise, not in excess of the minimum amount of
tax required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of Option
exercise, share withholding pursuant to the preceding sentence shall not be
permitted unless the Optionee makes a proper and timely election, covering the
aggregate number of shares of Stock acquired upon such exercise with respect to
which such determination is deferred, to accelerate the determination of such
tax withholding obligation to the date of Option exercise. Any adverse
consequences to the Optionee, including tax consequences and consequences under
Section 16 of the Exchange Act, if applicable, arising in connection with such
share withholding procedure shall be the sole responsibility of the Optionee.
The Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
5
<PAGE>
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares or release such shares from any escrow
provided for herein.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Same-Day Sale, the certificate for the shares as to which
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option 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. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6
<PAGE>
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, (i) the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date, and (ii)
solely for purposes of computing the Vested Ratio, the Optionee shall be given
credit for an additional twelve (12) months of continuous Service; provided,
however, that in no event shall the Vested Ratio exceed 1/1. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 Additional Limitations on Option Exercise. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3(a).
7
<PAGE>
7.3 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.4 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.5 Leave of Absence. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. Ownership Change and Transfer of Control.
----------------------------------------
8.1 Definitions.
(a) An "Ownership Change" shall be deemed to have occurred in the
event any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the voting stock of
the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more corporations (the "Transferee Corporation(s)") wherein
the stockholders of the Company immediately before such sale, exchange, or
transfer retain in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before such event, directly or
indirectly
8
<PAGE>
(including, without limitation, through their ownership of shares of the voting
stock of a corporation which owns the Transferee Corporation(s) either directly
or through one or more subsidiaries), at least a majority of the beneficial
interest in the voting stock of the Transferee Corporation(s) immediately after
such event); or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean
(i) an Ownership Change described in Sections 8.1(a)(i) or
8.1(a)(ii) wherein the stockholders of the Company immediately before such
Ownership Change do not retain in substantially the same proportions as their
ownership of shares of the Company's voting stock immediately before such
Ownership Change, directly or indirectly (including, without limitation, through
their ownership of shares of the voting stock of a corporation which, as a
result of such Ownership Change, owns the Company either directly or through one
or more subsidiaries), at least a majority of the beneficial interest in the
voting stock of the Company immediately after such Ownership Change; or
(ii) an Ownership Change described in Sections 8.1(a)(iii)
or 8.1(a)(iv).
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under the Option or substitute a substantially equivalent option for the
Acquiring Corporation's stock for the Option. The Company shall provide the
Optionee with at least ten (10) days advance written notice of the pending
Transfer of Control prior to the consummation thereof. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. If the
corporation the stock of which is subject to the Option immediately prior to the
Transfer of Control is the surviving or continuing corporation in an Ownership
Change described in Section 8.1(a)(i), the Option shall be deemed to have been
assumed by the Acquiring Corporation for purposes of this Option Agreement.
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
9
<PAGE>
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option.
10. Rights as a Stockholder, Employee, Director or Consultant. The
---------------------------------------------------------
Optionee shall have no rights as a stockholder with respect to any shares
covered by the Option until the date on which all of the conditions under this
Option Agreement to an effective exercise of the Option have been satisfied. No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date of such effective exercise of the Option,
except as provided in Section 9. Nothing in this Option Agreement shall confer
upon the Optionee any right to continue in the Service of a Participating
Company or interfere in any way with any right of the Participating Company
Group to terminate the Optionee's Service as an Employee, Director or
Consultant, as the case may be, at any time.
11. Unvested Share Repurchase Option.
--------------------------------
11.1 Grant of Unvested Share Repurchase Option. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, other than pursuant to a Termination
After Transfer of Control as defined in Section 11.2 below if the Optionee is an
Employee or Director, or if the Optionee, the Optionee's legal representative,
or other holder of shares acquired upon exercise of the Option attempts to sell,
exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an
Ownership Change) any shares acquired upon exercise of the Option which exceed
the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option"). The Unvested Share Repurchase Option shall terminate in
the event of a Termination After Transfer of Control if the Optionee is an
Employee or Director.
11.2 Definitions.
(a) Vested Shares and Unvested Shares. The "Vested Shares" shall
mean, on any given date, a number of shares of Stock equal to the
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Number of Option Shares multiplied by the Vested Ratio determined as of such
date and rounded down to the nearest whole share. On such given date, the
"Unvested Shares" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.
(b) Termination After Transfer of Control.
(i) "Termination After Transfer of Control" shall mean either of
the following events occurring after a Transfer of Control:
(1) termination by the Participating Company Group of the
Optionee's Service with the Participating Company Group for any reason other
than Termination for Cause (as defined below); or
(2) the Optionee's resignation from Service with the
Participating Company Group immediately following any Constructive Termination
(as defined below).
(ii) Notwithstanding any provision herein to the contrary,
Termination After Transfer of Control shall not include any termination of the
Optionee's Service with the Participating Company Group which (1) is a
Termination for Cause (as defined below); (2) is a result of the Optionee's
death or Disability; (3) is a result of the Optionee's voluntary termination of
Service other than upon Constructive Termination (as defined below); or (4)
occurs prior to the effectiveness of a Transfer of Control.
(c) Termination for Cause. "Termination for Cause" shall mean
termination by the Participating Company Group of the Optionee's Service with
the Participating Company Group for any of the following reasons: (i) theft,
dishonesty, or falsification of any Participating Company records; (ii) improper
use or disclosure of a Participating Company's confidential or proprietary
information; (iii) any action by the Optionee which has a detrimental effect on
a Participating Company's reputation or business; (iv) the Optionee's failure or
inability to perform any reasonable assigned duties after written notice from
the Participating Company Group of, and a reasonable opportunity to cure, such
failure or inability; (v) any material breach by the Optionee of any employment
agreement between the Optionee and the Participating Company Group, which breach
is not cured pursuant to the terms of such agreement; or (vi) the Optionee's
conviction of any criminal act which impairs the Optionee's ability to perform
his or her duties with the Participating Company Group.
(d) Constructive Termination. "Constructive Termination" shall
mean any one or more of the following:
(i) without the Optionee's express written consent, the
assignment to the Optionee of any duties, or any limitation of the Optionee's
11
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responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Transfer of Control;
(ii) without the Optionee's express written consent, the
relocation of the principal place of the Optionee's employment to a location
that is more than fifty (50) miles from the Optionee's principal place of
employment immediately prior to the date of the Transfer of Control, or the
imposition of travel requirements substantially more demanding of the Optionee
than such travel requirements existing immediately prior to the date of the
Transfer of Control;
(iii) any failure by the Participating Company Group to
pay, or any material reduction by the Participating Company Group of, (1) the
Optionee's base salary in effect immediately prior to the date of the Transfer
of Control (unless reductions comparable in amount and duration are concurrently
made for all other employees of the Participating Company Group with
responsibilities, organizational level and title comparable to the Optionee's),
or (2) the Optionee's bonus compensation, if any, in effect immediately prior to
the date of the Transfer of Control (subject to applicable performance
requirements with respect to the actual amount of bonus compensation earned by
the Optionee); or
(iv) any failure by the Participating Company Group to
(1) continue to provide the Optionee with the opportunity to participate, on
terms no less favorable than those in effect for the benefit of any employee
group which customarily includes a person holding the employment position or a
comparable position with the Participating Company Group then held by the
Optionee, in any benefit or compensation plans and programs, including, but not
limited to, the Participating Company Group's life, disability, health, dental,
medical, savings, profit sharing, stock purchase and retirement plans, if any,
in which the Optionee was participating immediately prior to the date of the
Transfer of Control, or their equivalent, or (2) provide the Optionee with all
other fringe benefits (or their equivalent) from time to time in effect for the
benefit of any employee group which customarily includes a person holding the
employment position or a comparable position with the Participating Company
Group then held by the Optionee.
11.3 Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if
at all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.
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<PAGE>
11.4 Payment for Shares and Return of Shares to Company. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase
Price to the Optionee in cash within thirty (30) days after the date of personal
delivery or mailing of the written notice of the Company's exercise of the
Unvested Share Repurchase Option. For purposes of the foregoing, cancellation
of any indebtedness of the Optionee to any Participating Company shall be
treated as payment to the Optionee in cash to the extent of the unpaid principal
and any accrued interest canceled. The shares being repurchased shall be
delivered to the Company by the Optionee at the same time as the delivery of the
Repurchase Price to the Optionee.
11.5 Assignment of Unvested Share Repurchase Option. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6 Ownership Change. Except as otherwise provided herein, in the
event of an Ownership Change, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of Unvested Shares shall be immediately subject to the
Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested
Shares" for all purposes of the Unvested Share Repurchase Option with the same
force and effect as the Unvested Shares immediately prior to the Ownership
Change. While the aggregate Repurchase Price shall remain the same after such
Ownership Change, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change shall be
adjusted as appropriate. For purposes of determining the Vested Ratio following
an Ownership Change, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the event constituting the Ownership Change. The other provisions of
this Section 11 notwithstanding, the Unvested Share Repurchase Option shall
terminate and be of no further force and effect upon the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option.
12. Right of First Refusal.
----------------------
12.1 Grant of Right of First Refusal. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"Transfer Shares") to any person or entity, including, without limitation, any
stockholder of the Participating Company Group, the Company shall have the right
to repurchase the
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Transfer Shares under the terms and subject to the conditions set forth in this
Section 12 (the "Right of First Refusal"). For purposes of this Section 12, a
change in record ownership of any Vested Shares (other than any such change
pursuant to a decree of divorce or marital separation or similar order, or by
any property settlement agreement, or upon death, incompetence or bankruptcy of
the Optionee) shall be deemed a transfer subject to the Right of First Refusal
whether or not such change in record ownership results in a change in the
beneficial ownership of such shares.
12.2 Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the Fair Market
Value of the Transfer Shares, as determined by the Board in good faith, subject
to Section 15. If the Optionee proposes to transfer any Transfer Shares to more
than one Proposed Transferee, the Optionee shall provide a separate Transfer
Notice for the proposed transfer to each Proposed Transferee. The Transfer
Notice shall be signed by both the Optionee and the Proposed Transferee and must
constitute a binding commitment of the Optionee and the Proposed Transferee for
the transfer of the Transfer Shares to the Proposed Transferee subject only to
the Right of First Refusal.
12.3 Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 Exercise of Right of First Refusal. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same
14
<PAGE>
Proposed Transferee. If the Company exercises the Right of First Refusal, the
Company and the Optionee shall thereupon consummate the sale of the Transfer
Shares to the Company on the terms set forth in the Transfer Notice within sixty
(60) days after the date the Transfer Notice is delivered to the Company (unless
a longer period is offered by the Proposed Transferee); provided, however, that
in the event the Transfer Notice provides for the payment for the Transfer
Shares other than in cash, the Company shall have the option of paying for the
Transfer Shares by the present value cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Company. For
purposes of the foregoing, cancellation of any indebtedness of the Optionee to
any Participating Company shall be treated as payment to the Optionee in cash to
the extent of the unpaid principal and any accrued interest canceled.
12.5 Failure to Exercise Right of First Refusal. If the Company fails
to exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of
the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the
right to demand further assurances from the Optionee and the Proposed Transferee
(in a form satisfactory to the Company) that the transfer of the Transfer Shares
was actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
12.6 Transferees of Transfer Shares. All transferees of the Transfer
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 12 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 12 are met.
12.7 Transfers Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change. If the consideration received pursuant to such transfer or
exchange consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of Section
12.9 below result in a termination of the Right of First Refusal.
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<PAGE>
12.8 Assignment of Right of First Refusal. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9 Early Termination of Right of First Refusal. The other
provisions of this Section 12 notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "public market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
12.10 Death, Incompetence or Bankruptcy of Purchaser. In the event
of the Optionee's death, incompetence or bankruptcy, the Company will have an
option to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the appropriate personal representative of the Optionee
otherwise agree) at a purchase price equal to the Fair Market Value of the
Transfer Shares, as of the date of the Optionee's death, incompetence or
bankruptcy, as determined by the Board subject to Section 15. For purposes of
this Option Agreement, the incompetence of the Optionee will be deemed to have
occurred upon the entry by a court of competent jurisdiction of an order
adjudicating the Optionee incompetent to manage the Optionee's person or estate,
and the bankruptcy of the Optionee will be deemed to have occurred when the
Optionee obtains or becomes subject to an order for relief under the Bankruptcy
Code or has executed and delivered an assignment for the benefit of the
Optionee's creditors. The Company may exercise this option by delivery to the
appropriate personal representative of the Optionee of a notice of exercise
within sixty (60) days after an officer of the Company first becomes aware of
the death, incompetency or bankruptcy of the Optionee. Notwithstanding the
other provisions of this Section 12, the Company's option pursuant to this
Section 12.10 and not the Right of First Refusal will apply to transfers arising
from the Optionee's death, incompetence or bankruptcy. The Company's option
pursuant to this Section 12.10 will be deemed to be part of the Right of First
Refusal for purposes of Section 12.6 above and Sections 16 and 19.4 below. The
Company's option pursuant to this Section 12.10 will terminate, and be of no
further force and effect, upon any termination of the Right of First Refusal
pursuant to Section 12.9 above.
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13. Repurchase Rights Upon Marital Dissolution.
------------------------------------------
13.1 Repurchase from Spouse.
(a) In the event of the dissolution of the Optionee's marriage
or the Optionee's legal separation from his or her spouse, the Optionee shall
have the right and option to purchase from his or her spouse all or any portion
of the shares acquired upon exercise of the Option (i) awarded to the spouse
pursuant to a decree of dissolution of marriage or separation or any other order
by any court of competent jurisdiction or by any property settlement agreement
(whether or not incorporated by reference in any such decree), or (ii)
transferred by the Optionee to the spouse by gift prior to the dissolution or
separation. The Optionee shall purchase such shares for a price equal to the
Fair Market Value of such shares as determined by the Board in good faith,
subject to Section 15, and upon the terms set forth below. The Optionee shall
exercise his or her right, if at all, within thirty (30) days of the entry of
any such decree or property settlement agreement by delivery to the Optionee's
spouse of written notice of exercise, specifying the number of shares that the
Optionee elects to purchase. The purchase price for the shares shall be paid by
delivery of a check for the purchase price.
(b) In the event the Optionee does not exercise his or her right
to purchase all of the shares acquired upon exercise of the Option which are
awarded to the Optionee's spouse, the Optionee shall provide written notice to
the Company of the number of such shares available for purchase within thirty
(30) days of the entry of the decree or property settlement agreement. The
Company shall then have the right to purchase at any time within thirty (30)
days after delivery of such notice any of the shares not acquired by the
Optionee directly from the Optionee's spouse at the same price and otherwise on
the same terms that were available to the Optionee.
(c) The rights of the Optionee and the Company pursuant to this
Section 13 are hereinafter referred to as the "Repurchase Rights Upon Marital
Dissolution."
13.2 Effect on Right of First Refusal. The Right of First Refusal set
forth in Section 12 above shall apply to any gift of shares acquired upon
exercise of the Option made by the Optionee to the Optionee's spouse at the time
of any such gift, but shall not apply in the case of any award of shares to the
Optionee's spouse pursuant to a court decree or property settlement agreement
or, at the time of any dissolution of the Optionee's marriage or marital
separation, with respect to shares transferred by the Optionee by gift to the
spouse prior to the dissolution, all of which transfers shall be subject to the
Repurchase Rights Upon Marital Dissolution.
13.3 Ownership Change. Consideration consisting of stock of a
Participating Company received pursuant to an Ownership Change with respect to
shares acquired upon exercise of the Option shall remain subject to the
Repurchase
17
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Rights Upon Marital Dissolution unless the provisions of Section 13.4 below
result in a termination of such rights.
13.4 Early Termination of Repurchase Rights Upon Marital Dissolution.
The other provisions of this Section 13 notwithstanding, the Repurchase Rights
Upon Marital Dissolution shall terminate and be of no further force and effect
upon (a) the occurrence of a Transfer of Control, unless the Acquiring
Corporation assumes the Company's rights and obligations under the Option or
substitutes a substantially equivalent option for the Acquiring Corporation's
stock for the Option, or (ii) the existence of a public market, as defined in
Section 12.9 above, for the class of shares subject to the Repurchase Rights
Upon Marital Dissolution.
14. Spousal Consent. If the Optionee is married on the date of this
---------------
Option Agreement, the Optionee's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective on the date hereof. Such consent shall not
---------
be deemed to confer or convey to the spouse any rights in the Option or the
shares issuable upon the exercise thereof that do not otherwise exist by
operation of law or the agreement of the parties. If the Optionee should marry
or remarry subsequent to the date of this Option Agreement, the Optionee shall
within thirty (30) days thereafter obtain his or her new spouse's
acknowledgement of and consent to the existence and binding effect of all
restrictions contained in this Option Agreement by signing an additional Consent
of Spouse in the form of Exhibit A. Failure to provide an additional Consent of
---------
Spouse shall be treated as a transfer of all of the shares previously acquired
by the Optionee upon exercise of the Option, if any, to such spouse and trigger
the Company's Right of First Refusal under Section 12 above.
15. Appraisal. In the case of: (a) the Company's exercise of its Right of
---------
First Refusal pursuant to Section 12 above with respect to a bona fide gift or
involuntary transfer referred to therein, (b) the Company's option pursuant to
Section 12.10 upon the Optionee's death, incompetence or bankruptcy, or (c) the
Optionee's or the Company's exercise of their Repurchase Rights Upon Marital
Dissolution pursuant to Section 13 above, if the Objecting Party (as defined
below) disagrees with the valuation determined by the Board, the Objecting Party
may, by giving written notice to the Company within ten (10) days after being
informed of the valuation, request that the value of the shares at issue be
determined by an independent appraiser to be selected by the Company. The
Company shall select an appraiser to determine the value of such shares within
fifteen (15) days after the Company's actual receipt of the Objecting Party's
notice disputing the valuation determined by the Board. Such appraiser shall be
subject to the approval of the Objecting Party, which approval the Objecting
Party shall not unreasonably withhold or delay. The Objecting Party's approval
or refusal to approve the appraiser must be given before the appraiser announces
a valuation. The value of such shares, as determined by the appraiser, shall be
conclusively binding on all of the parties concerned. The expenses of appraisal
shall be borne equally by the Company and the Objecting Party. Any time
required to resolve a valuation dispute
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<PAGE>
shall be added to the time periods in which the Company may exercise its rights
under Sections 12, 12.10, and 13 above and the Optionee may exercise his or her
rights vis-a-vis his or her spouse pursuant to Section 13 above. As used in
this Section 15, the term "Objecting Party" means the Optionee or, in the case
of Section 13 above only, the Optionee's spouse.
16. Escrow.
------
16.1 Establishment of Escrow. To ensure that shares subject to the
Unvested Share Repurchase Option, the Right of First Refusal, the Repurchase
Rights Upon Marital Dissolution or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an escrow agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. In the event of an Ownership Change or change in
stock subject to the provisions of this Option Agreement as described in Section
17, any and all new, substituted or additional securities or other property to
which the Optionee is entitled by reason of the Optionee's ownership of shares
of Stock acquired upon exercise of the Option that remain, following such
Ownership Change or change described in Section 17, subject to the Unvested
Share Repurchase Option, the Right of First Refusal, or the Repurchase Rights
Upon Marital Dissolution or any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
16.2 Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Unvested Share Repurchase Option, the Right of First Refusal,
and the Repurchase Rights Upon Marital Dissolution, and after full repayment of
any promissory note secured by the shares in escrow, but not more frequently
than twice each calendar year, the escrow agent shall deliver to the Optionee
the shares no longer subject to such restrictions and no longer securing any
promissory note.
16.3 Notices and Payments. In the event the shares held in escrow are
subject to the Company's exercise of the Unvested Share Repurchase Option, the
Right of First Refusal, or the Repurchase Rights Upon Marital Dissolution, the
notices required to be given to the Optionee shall be given to the escrow agent,
and any payment required to be given to the Optionee shall be given to the
escrow agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
17. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount
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of any of the outstanding stock of the corporation the stock of which is subject
to the provisions of this Option Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Unvested Share Repurchase Option, the Right
of First Refusal, the Repurchase Rights Upon Marital Dissolution, and any
security interest held by the Company with the same force and effect as the
shares subject to the Unvested Share Repurchase Option, the Right of First
Refusal, the Repurchase Rights Upon Marital Dissolution, and such security
interest immediately before such event.
18. Rules of the Commissioner of Corporations. The Optionee is hereby
-----------------------------------------
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following
text are references to the California Corporations Code.
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants, or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants, or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
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<PAGE>
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113, or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Sections 25111,
25112, or 25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
21
<PAGE>
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend prominently stamped or
printed thereon in capital letters of not less than 10-point size reading as
follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
19. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option, the Right of First Refusal and any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to,
the following:
19.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OF HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
19.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
19.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
22
<PAGE>
19.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
20. Public Offering. The Optionee hereby agrees that in the event of any
---------------
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The foregoing limitation shall remain in effect for the two (2)
year period immediately following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to haveany force or
effect. The Optionee shall be subject to this Section provided and only if the
officers and directors of the Company are also subject to similar arrangements.
21. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
22. Termination or Amendment. The Board may terminate or amend the Plan
------------------------
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
23. Integrated Agreement. This Option Agreement and the Plan constitute
--------------------
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group other than
those as set forth or provided for herein or therein. To the extent contemplated
herein or therein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
23
<PAGE>
24. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
VISIGENIC SOFTWARE, INC.
By:___________________________
Title:________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, the Right of First Refusal set forth in Section
12, and the Repurchase Rights Upon Marital Dissolution set forth in Section 13,
and hereby accepts the Option subject to all of the terms and provisions
thereof. The Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan and a copy of
Section 260.141.11 of the Rules of the Commissioner of Corporations of the State
of California regarding restriction on transfer.
OPTIONEE
Date:________________________________ ______________________________________
24
<PAGE>
EXHIBIT A
---------
CONSENT OF SPOUSE
The undersigned, being the spouse of ___________________________ does
hereby acknowledge that the undersigned has read and is familiar with the
provisions of the above Option Agreement. The undersigned is aware that Section
13 provides my spouse and the Company the option to purchase all of the shares
of stock acquired by my spouse upon exercise of the Option (the "Shares") of
which I may become possessed as a result of a gift from my spouse or a court
decree or any property settlement in any domestic litigation.
I hereby agree that my interest, if any, in the Shares will be irrevocably
bound by the Option Agreement and further understand and agree that any
community property interest I may have in the Shares will be similarly bound by
the Option Agreement.
I agree to the sale and purchase described in Section 13 of the Option
Agreement and I hereby consent to the sale of the Shares by my spouse or my
spouse's legal representative in accordance with the provisions of the Option
Agreement. Further, as part of the consideration for the Option Agreement, I
agree that at my death, if I have not disposed of any interest of mine in the
Shares by an outright bequest of said shares to my spouse, then my spouse and
the Company will have the same rights against my legal representative to
purchase any interest of mine in the Shares as they would have had pursuant to
Section 13 of the Option Agreement if I had acquired the Shares pursuant to a
court decree in domestic litigation.
I am aware that the legal, financial and related matters contained in the
-------------------------------------------------------------------------
Option Agreement are complex and that I am free to seek independent professional
- --------------------------------------------------------------------------------
guidance or counsel with respect to this Consent. I have either sought such
- ---------------------------------------------------------------------------
guidance or counsel or determined after reviewing the Option Agreement carefully
- --------------------------------------------------------------------------------
that I waive such right.
- ------------------------
Dated: ____________________________ ________________________________________
(signature)
________________________________________
(name printed)
25
<PAGE>
Exhibit 10.5
NON-COMPETE AND NON-SOLICITATION AGREEMENT
This NON-COMPETE AND NON-SOLICITATION AGREEMENT (the "Agreement") is
entered into this 28th day of April, 1996, by and between Jens Christensen, an
individual ("Employee"), and Visigenic Software, Inc., a Delaware corporation
("Visigenic").
RECITALS
A. Post Modern Computing Technologies Inc., a California corporation
("Post Modern"), is engaged throughout the United States of America and the
world in the business of developing, marketing, selling and supporting
(including training and consulting services) object request broker software and
object services software (such as persistence service, collection service,
transaction service, security service, naming service and event service) and
directly related tools and consulting services (the "Business"). For purposes
of this Agreement, the "Business" shall be deemed to include any similar
successor technology to object request broker software and object services
software, and shall be deemed not to include (i) end users applications
development that uses object request broker tool software and (ii) all divisions
of a multi-divisional company that engages in the Business and that generates
less than ten percent (10%) of its total annual revenues from the Business,
other than the division that engages in the Business.
B. Pursuant to that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated April 28, 1996, by and between Visigenic and
Post Modern, Visigenic is acquiring Post Modern through a merger of Post Modern
with and into Visigenic (the "Merger"). After the Merger becomes effective, the
separate existence of Post Modern shall cease and Visigenic as the surviving
corporation in the Merger shall continue its corporate existence under the laws
of the State of Delaware and will continue to operate the Business.
C. Employee is a holder of capital stock or options to acquire the capital
stock of Post Modern and is a key employee of Post Modern. Employee has been
actively involved in the design, development, manufacture and marketing of Post
Modern's products, and shall become an employee of Visigenic upon the
effectiveness of the Merger.
D. This Agreement is entered into by Employee in consideration of and as
an inducement to Visigenic to consummate the Merger.
NOW, THEREFORE, the parties agree as follows:
1. Covenant Not to Compete. Employee agrees that for a period of three
-----------------------
(3) years from the effective time of the Merger, unless Visigenic does not
complete an initial public offering of its securities prior to March 31, 1997,
in which event Employee agrees that for a period of one (1) year from the
effective time of Merger, he will not, directly or indirectly, individually or
as an owner, partner, shareholder, joint venturer, corporate officer, director,
employee, consultant, principal, agent, trustee or licensor, or in any other
similar capacity whatsoever of or for any person, firm, partnership, company or
corporation (other than Visigenic), throughout the United States of America and
the world, (a) own, manage,
1
<PAGE>
operate, sell, control or participate in the ownership, management, operation,
sales or control of any business engaged in the Business (b) accept employment
with a customer of Visigenic with the intent or purpose of depriving Visigenic
of business performed by Post Modern or Visigenic by transferring such work to a
department, division or affiliate of the customer or to a third party; or (c)
request or advise any of the customers, suppliers or other business contacts of
Visigenic with which Employee had contact while employed at Post Modern to
withdraw, curtail, cancel or not increase their business with Visigenic.
Notwithstanding the foregoing, Employee is permitted to own as a passive
investor up to a two percent (2%) interest in any publicly traded entity.
2. Covenant Not to Solicit. Employee further agrees that, during the
-----------------------
period of the covenants set forth in Paragraph 1 ("Covenant Not to Compete")
above, he will not directly or indirectly recruit, induce or attempt to persuade
any person who on the date hereof is, or subsequent thereto becomes, an
employee, sales representative or consultant of Visigenic to terminate his or
her relationship with Visigenic, and will not accept or respond to resumes or
inquiries from any such person.
3. Cancellation of Existing Contracts. Visigenic and Employee agree that
----------------------------------
any existing employment, non-competition or change-in-control agreements between
Employee and Post Modern will be canceled upon the effectiveness of the Merger
without any severance or compensation sum due to Employee by Visigenic or Post
Modern.
4. Reasonableness. Employee agrees that the covenants provided for in
--------------
Paragraphs 1 ("Covenant Not to Compete") and 2 ("Covenant Not to Solicit")
hereof, including the term and the geographical area encompassed therein, are
necessary and reasonable in order to protect Visigenic in the conduct of its
business and the utilization of its assets, tangible and intangible, including
goodwill, and to preserve and protect the tangible and intangible assets of the
Business, including Post Modern's goodwill, and the customers and trade secrets
of which Employee has and will have knowledge, and in consideration for
Visigenic's entering into and performing under the Reorganization Agreement.
Both parties agree that the execution, delivery and performance of this
Agreement is in consideration of and a condition to the consummation of the
Merger, and the parties do not ascribe and cannot ascribe a separate
consideration or value to the covenants provided herein.
5. Confidentiality. Employee shall be subject to the terms of Visigenic's
---------------
standard form of employee confidentiality agreement, a copy of which is attached
hereto as Exhibit A.
---------
6. Construction. The covenants contained in this Agreement shall be
------------
construed as a series of separate covenants, one for each of the counties in
each of the states of the United States of America, one for each province of
Canada, and one for each country in the world. It is the desire and intent of
the parties that these covenants shall be enforced to the fullest extent
permissible under applicable law. If any particular provision or portion of
Paragraph 1 ("Covenant Not to Compete") or 2 ("Covenant Not to Solicit") shall
be adjudicated to be invalid or unenforceable, this Agreement shall be deemed
amended to revise those provisions or portions to the minimum extent necessary
to render them enforceable. Such amendment shall apply only with respect to the
operation of the paragraph in the particular jurisdiction in which such
adjudication was made. If, in any judicial proceeding, a court of competent
jurisdiction shall refuse to enforce any of the
2
<PAGE>
separate geographical covenants deemed included in this Agreement, then such
unenforceable geographical covenants shall be deemed deleted from this Agreement
to the extent necessary to permit the remaining separate covenants to be
enforced.
7. Injunctive Relief. It is expressly agreed between the parties that
-----------------
monetary damages would be inadequate to compensate Visigenic for any breach by
Employee of his covenants and agreements set forth herein. Accordingly,
Employee agrees and acknowledges that any such violation or threatened violation
will cause irreparable injury to Visigenic and that, in addition to any other
remedies which may be available, Visigenic shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any such breach by Employee, without the necessity of proving
actual damages.
8. Amendments; Governing Law. This Agreement contains the entire
-------------------------
agreement of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, covenants, or undertakings, other
than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter. No provision hereof may be waived, altered or amended, except by
written instrument signed by all of the parties hereto. This Agreement shall be
governed, construed and enforced in accordance with the laws of the State of
California. All disputes arising under this Agreement shall be brought in the
federal and state courts located in California, as permitted by law, and each of
the parties hereby consents to the personal jurisdiction, service of process and
venue of such courts.
9. Successors and Assigns. Neither this Agreement nor any of the rights
----------------------
or obligations of Employee arising under this Agreement may be assigned or
transferred without Visigenic's prior written consent. This Agreement will be
for the benefit of Visigenic's successors and assigns, and will be binding on
Employee's heirs and legal representatives.
10. Notices. Any notice or other communication under this Agreement shall
-------
be in writing, signed by the party making the same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Employee: Jens Christensen
1975 Landings Drive
Mountain View, CA 94043
with a copy to: Fenwick & West LLP
2 Palo Alto Square
Palo Alto, CA 94306
Attn: Mark C. Stevens
If to Visigenic: Visigenic Software, Inc.
951 Mariner's Island Blvd.
San Mateo, CA 94404
with a copy to: Gray Cary Ware & Freidenrich
3
<PAGE>
400 Hamilton Avenue
Palo Alto, CA 94301
Attn: George H. Hohnsbeen II
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
11. Severability. The parties agree that construction of this Agreement
------------
shall be in favor of its reasonable nature, legality and enforceability, and
that any construction causing unenforceability shall yield to a construction
permitting enforceability. It is agreed that the noncompetition,
nonsolicitation, nondisclosure and nonhiring covenants and provisions of this
Agreement are severable, and that if any single covenant or provision or
multiple covenants or provisions should be found unenforceable, the entire
Agreement and remaining covenants and provisions shall not fail but shall be
construed as enforceable without any severed covenant or provision in accordance
with the tenor of this Agreement. The parties specifically agree that no
covenant or provision of this Agreement shall be invalidated because of
overbreadth insofar as the parties acknowledge the scope of the covenants and
provisions contained herein to be reasonable and necessary for the protection of
Visigenic and not unduly restrictive upon Employee. However, should a court or
any other trier of fact or law determine not to enforce any covenant or
provision of this Agreement as written due to overbreadth, then the parties
agree that said covenant or provision shall be enforced to the extent
reasonable, with the court or such trier to make any necessary revisions to said
covenant or provision to permit its enforceability.
12. Effectiveness. Notwithstanding any other provision of this Agreement,
-------------
this Agreement shall become effective only upon the closing of the Merger, and
if such closing does not occur, this Agreement shall be void ab initio and have
no force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYEE
------------------------------------------------
VISIGENIC SOFTWARE, INC.:
By:
---------------------------------------------
Print Name:
-------------------------------------
Title:
------------------------------------------
5
<PAGE>
EXHIBIT A
---------
FORM OF STANDARD VISIGENIC EMPLOYEE CONFIDENTIALITY AGREEMENT
6
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
This NON-COMPETE AND NON-SOLICITATION AGREEMENT (the "Agreement") is
entered into this 28th day of April, 1996, by and between Neguine Navab, an
individual ("Employee"), and Visigenic Software, Inc., a Delaware corporation
("Visigenic").
RECITALS
A. Post Modern Computing Technologies Inc., a California corporation
("Post Modern"), is engaged throughout the United States of America and the
world in the business of developing, marketing, selling and supporting
(including training and consulting services) object request broker software and
object services software (such as persistence service, collection service,
transaction service, security service, naming service and event service) and
directly related tools and consulting services (the "Business"). For purposes of
this Agreement, the "Business" shall be deemed to include any similar successor
technology to object request broker software and object services software, and
shall be deemed not to include (i) end users applications development that uses
object request broker tool software and (ii) all divisions of a multi-divisional
company that engages in the Business and that generates less than ten percent
(10%) of its total annual revenues from the Business, other than the division
that engages in the Business.
B. Pursuant to that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated April 28, 1996, by and between Visigenic and
Post Modern, Visigenic is acquiring Post Modern through a merger of Post Modern
with and into Visigenic (the "Merger"). After the Merger becomes effective, the
separate existence of Post Modern shall cease and Visigenic as the surviving
corporation in the Merger shall continue its corporate existence under the laws
of the State of Delaware and will continue to operate the Business.
C. Employee is a holder of capital stock or options to acquire the
capital stock of Post Modern and is a key employee of Post Modern. Employee has
been actively involved in the design, development, manufacture and marketing of
Post Modern's products, and shall become an employee of Visigenic upon the
effectiveness of the Merger.
D. This Agreement is entered into by Employee in consideration of and as
an inducement to Visigenic to consummate the Merger.
NOW, THEREFORE, the parties agree as follows:
1. Covenant Not to Compete. Employee agrees that for a period of
-----------------------
three (3) years from the effective time of the Merger, unless Visigenic does not
complete an initial public offering of its securities prior to March 31, 1997,
in which event Employee agrees that for a period of one (1) year from the
effective time of Merger, he will not, directly or indirectly, individually or
as an owner, partner, shareholder, joint venturer, corporate officer, director,
employee, consultant, principal, agent, trustee or licensor, or in any other
similar capacity whatsoever of or for any person, firm, partnership, company or
corporation (other than Visigenic), throughout the United States of America and
the world, (a) own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of any business engaged in
the Business (b) accept employment with a customer of Visigenic
1
<PAGE>
with the intent or purpose of depriving Visigenic of business performed by Post
Modern or Visigenic by transferring such work to a department, division or
affiliate of the customer or to a third party; or (c) request or advise any of
the customers, suppliers or other business contacts of Visigenic with which
Employee had contact while employed at Post Modern to withdraw, curtail, cancel
or not increase their business with Visigenic. Notwithstanding the foregoing,
Employee is permitted to own as a passive investor up to a two percent (2%)
interest in any publicly traded entity.
2. Covenant Not to Solicit. Employee further agrees that, during the
-----------------------
period of the covenants set forth in Paragraph ("Covenant Not to Compete")
above, he will not directly or indirectly recruit, induce or attempt to persuade
any person who on the date hereof is, or subsequent thereto becomes, an
employee, sales representative or consultant of Visigenic to terminate his or
her relationship with Visigenic, and will not accept or respond to resumes or
inquiries from any such person.
3. Cancellation of Existing Contracts. Visigenic and Employee agree that
----------------------------------
any existing employment, non-competition or change-in-control agreements between
Employee and Post Modern will be canceled upon the effectiveness of the Merger
without any severance or compensation sum due to Employee by Visigenic or Post
Modern.
4. Reasonableness. Employee agrees that the covenants provided for in
--------------
Paragraphs 1 ("Covenant Not to Compete") and 2 ("Covenant Not to Solicit")
hereof, including the term and the geographical area encompassed therein, are
necessary and reasonable in order to protect Visigenic in the conduct of its
business and the utilization of its assets, tangible and intangible, including
goodwill, and to preserve and protect the tangible and intangible assets of the
Business, including Post Modern's goodwill, and the customers and trade secrets
of which Employee has and will have knowledge, and in consideration for
Visigenic's entering into and performing under the Reorganization Agreement.
Both parties agree that the execution, delivery and performance of this
Agreement is in consideration of and a condition to the consummation of the
Merger, and the parties do not ascribe and cannot ascribe a separate
consideration or value to the covenants provided herein.
5. Confidentiality. Employee shall be subject to the terms of
---------------
Visigenic's standard form of employee confidentiality agreement, a copy of which
is attached hereto as Exhibit A.
---------
6. Construction. The covenants contained in this Agreement shall be
------------
construed as a series of separate covenants, one for each of the counties in
each of the states of the United States of America, one for each province of
Canada, and one for each country in the world. It is the desire and intent of
the parties that these covenants shall be enforced to the fullest extent
permissible under applicable law. If any particular provision or portion of
Paragraph 1 ("Covenant Not to Compete") or 2 ("Covenant Not to Solicit") shall
be adjudicated to be invalid or unenforceable, this Agreement shall be deemed
amended to revise those provisions or portions to the minimum extent necessary
to render them enforceable. Such amendment shall apply only with respect to the
operation of the paragraph in the particular jurisdiction in which such
adjudication was made. If, in any judicial proceeding, a court of competent
jurisdiction shall refuse to enforce any of the separate geographical covenants
deemed included in this Agreement, then such unenforceable geographical
covenants shall be deemed deleted from this Agreement to the extent necessary to
permit the remaining separate covenants to be enforced.
2
<PAGE>
7. Injunctive Relief. It is expressly agreed between the parties that
-----------------
monetary damages would be inadequate to compensate Visigenic for any breach by
Employee of his covenants and agreements set forth herein. Accordingly,
Employee agrees and acknowledges that any such violation or threatened violation
will cause irreparable injury to Visigenic and that, in addition to any other
remedies which may be available, Visigenic shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any such breach by Employee, without the necessity of proving
actual damages.
8. Amendments; Governing Law. This Agreement contains the entire
-------------------------
agreement of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, covenants, or undertakings, other
than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter. No provision hereof may be waived, altered or amended, except by
written instrument signed by all of the parties hereto. This Agreement shall be
governed, construed and enforced in accordance with the laws of the State of
California. All disputes arising under this Agreement shall be brought in the
federal and state courts located in California, as permitted by law, and each of
the parties hereby consents to the personal jurisdiction, service of process and
venue of such courts.
9. Successors and Assigns. Neither this Agreement nor any of the rights
----------------------
or obligations of Employee arising under this Agreement may be assigned or
transferred without Visigenic's prior written consent. This Agreement will be
for the benefit of Visigenic's successors and assigns, and will be binding on
Employee's heirs and legal representatives.
10. Notices. Any notice or other communication under this Agreement shall
-------
be in writing, signed by the party making the same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Employee: Neguine Navab
1975 Landings Drive
Mountain View, CA 94043
with a copy to: Fenwick & West LLP
2 Palo Alto Square
Palo Alto, CA 94306
Attn: Mark C. Stevens
If to Visigenic: Visigenic Software, Inc.
951 Mariner's Island Blvd.
San Mateo, CA 94404
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attn: George H. Hohnsbeen II
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
3
<PAGE>
11. Severability. The parties agree that construction of this Agreement
------------
shall be in favor of its reasonable nature, legality and enforceability, and
that any construction causing unenforceability shall yield to a construction
permitting enforceability. It is agreed that the noncompetition,
nonsolicitation, nondisclosure and nonhiring covenants and provisions of this
Agreement are severable, and that if any single covenant or provision or
multiple covenants or provisions should be found unenforceable, the entire
Agreement and remaining covenants and provisions shall not fail but shall be
construed as enforceable without any severed covenant or provision in accordance
with the tenor of this Agreement. The parties specifically agree that no
covenant or provision of this Agreement shall be invalidated because of
overbreadth insofar as the parties acknowledge the scope of the covenants and
provisions contained herein to be reasonable and necessary for the protection of
Visigenic and not unduly restrictive upon Employee. However, should a court or
any other trier of fact or law determine not to enforce any covenant or
provision of this Agreement as written due to overbreadth, then the parties
agree that said covenant or provision shall be enforced to the extent
reasonable, with the court or such trier to make any necessary revisions to said
covenant or provision to permit its enforceability.
12 Effectiveness. Notwithstanding any other provision of this Agreement,
-------------
this Agreement shall become effective only upon the closing of the Merger, and
if such closing does not occur, this Agreement shall be void ab initio and have
no force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYEE
-----------------------------------------
VISIGENIC SOFTWARE, INC.:
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
5
<PAGE>
EXHIBIT A
---------
FORM OF STANDARD VISIGENIC EMPLOYEE CONFIDENTIALITY AGREEMENT
6
<PAGE>
Exhibit 10.7
NON-COMPETE AND NON-SOLICITATION AGREEMENT
This NON-COMPETE AND NON-SOLICITATION AGREEMENT (the "Agreement") is
entered into this 28th day of April, 1996, by and between Prasad Mokkapati, an
individual ("Employee"), and Visigenic Software, Inc., a Delaware corporation
("Visigenic").
RECITALS
A. Post Modern Computing Technologies Inc., a California corporation
("Post Modern"), is engaged throughout the United States of America and the
world in the business of developing, marketing, selling and supporting
(including training and consulting services) object request broker software and
object services software (such as persistence service, collection service,
transaction service, security service, naming service and event service) and
directly related tools and consulting services (the "Business"). For purposes
of this Agreement, the "Business" shall be deemed to include any similar
successor technology to object request broker software and object services
software, and shall be deemed not to include (i) end users applications
development that uses object request broker tool software and (ii) all divisions
of a multi-divisional company that engages in the Business and that generates
less than ten percent (10%) of its total annual revenues from the Business,
other than the division that engages in the Business.
B. Pursuant to that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated April 28, 1996, by and between Visigenic and
Post Modern, Visigenic is acquiring Post Modern through a merger of Post Modern
with and into Visigenic (the "Merger"). After the Merger becomes effective, the
separate existence of Post Modern shall cease and Visigenic as the surviving
corporation in the Merger shall continue its corporate existence under the laws
of the State of Delaware and will continue to operate the Business.
C. Employee is a holder of capital stock or options to acquire the capital
stock of Post Modern and is a key employee of Post Modern. Employee has been
actively involved in the design, development, manufacture and marketing of Post
Modern's products, and shall become an employee of Visigenic upon the
effectiveness of the Merger.
D. This Agreement is entered into by Employee in consideration of and as
an inducement to Visigenic to consummate the Merger.
NOW, THEREFORE, the parties agree as follows:
1. Covenant Not to Compete. Employee agrees that for a period of three
-----------------------
(3) years from the effective time of the Merger, unless Visigenic does not
complete an initial public offering of its securities prior to March 31, 1997,
in which event Employee agrees that for a period of one (1) year from the
effective time of Merger, he will not, directly or indirectly, individually or
as an owner, partner, shareholder, joint venturer, corporate officer, director,
employee, consultant, principal, agent, trustee or licensor, or in any other
similar capacity whatsoever of or for any person, firm, partnership, company or
corporation (other than Visigenic), throughout the United States of America and
the world, (a) own, manage,
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operate, sell, control or participate in the ownership, management, operation,
sales or control of any business engaged in the Business (b) accept employment
with a customer of Visigenic with the intent or purpose of depriving Visigenic
of business performed by Post Modern or Visigenic by transferring such work to a
department, division or affiliate of the customer or to a third party; or (c)
request or advise any of the customers, suppliers or other business contacts of
Visigenic with which Employee had contact while employed at Post Modern to
withdraw, curtail, cancel or not increase their business with Visigenic.
Notwithstanding the foregoing, Employee is permitted to own as a passive
investor up to a two percent (2%) interest in any publicly traded entity.
2. Covenant Not to Solicit. Employee further agrees that, during the
-----------------------
period of the covenants set forth in Paragraph 1 ("Covenant Not to Compete")
above, he will not directly or indirectly recruit, induce or attempt to persuade
any person who on the date hereof is, or subsequent thereto becomes, an
employee, sales representative or consultant of Visigenic to terminate his or
her relationship with Visigenic, and will not accept or respond to resumes or
inquiries from any such person.
3. Cancellation of Existing Contracts. Visigenic and Employee agree that
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any existing employment, non-competition or change-in-control agreements between
Employee and Post Modern will be canceled upon the effectiveness of the Merger
without any severance or compensation sum due to Employee by Visigenic or Post
Modern.
4. Reasonableness. Employee agrees that the covenants provided for in
--------------
Paragraphs 1 ("Covenant Not to Compete") and 2 ("Covenant Not to Solicit")
hereof, including the term and the geographical area encompassed therein, are
necessary and reasonable in order to protect Visigenic in the conduct of its
business and the utilization of its assets, tangible and intangible, including
goodwill, and to preserve and protect the tangible and intangible assets of the
Business, including Post Modern's goodwill, and the customers and trade secrets
of which Employee has and will have knowledge, and in consideration for
Visigenic's entering into and performing under the Reorganization Agreement.
Both parties agree that the execution, delivery and performance of this
Agreement is in consideration of and a condition to the consummation of the
Merger, and the parties do not ascribe and cannot ascribe a separate
consideration or value to the covenants provided herein.
5. Confidentiality. Employee shall be subject to the terms of Visigenic's
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standard form of employee confidentiality agreement, a copy of which is attached
hereto as Exhibit A.
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6. Construction. The covenants contained in this Agreement shall be
------------
construed as a series of separate covenants, one for each of the counties in
each of the states of the United States of America, one for each province of
Canada, and one for each country in the world. It is the desire and intent of
the parties that these covenants shall be enforced to the fullest extent
permissible under applicable law. If any particular provision or portion of
Paragraph 1 ("Covenant Not to Compete") or 2 ("Covenant Not to Solicit") shall
be adjudicated to be invalid or unenforceable, this Agreement shall be deemed
amended to revise those provisions or portions to the minimum extent necessary
to render them enforceable. Such amendment shall apply only with respect to the
operation of the paragraph in the particular jurisdiction in which such
adjudication was made. If, in any judicial proceeding, a court of competent
jurisdiction shall refuse to enforce any of the
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separate geographical covenants deemed included in this Agreement, then such
unenforceable geographical covenants shall be deemed deleted from this Agreement
to the extent necessary to permit the remaining separate covenants to be
enforced.
7. Injunctive Relief. It is expressly agreed between the parties that
-----------------
monetary damages would be inadequate to compensate Visigenic for any breach by
Employee of his covenants and agreements set forth herein. Accordingly,
Employee agrees and acknowledges that any such violation or threatened violation
will cause irreparable injury to Visigenic and that, in addition to any other
remedies which may be available, Visigenic shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any such breach by Employee, without the necessity of proving
actual damages.
8. Amendments; Governing Law. This Agreement contains the entire
-------------------------
agreement of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, covenants, or undertakings, other
than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter. No provision hereof may be waived, altered or amended, except by
written instrument signed by all of the parties hereto. This Agreement shall be
governed, construed and enforced in accordance with the laws of the State of
California. All disputes arising under this Agreement shall be brought in the
federal and state courts located in California, as permitted by law, and each of
the parties hereby consents to the personal jurisdiction, service of process and
venue of such courts.
9. Successors and Assigns. Neither this Agreement nor any of the rights
----------------------
or obligations of Employee arising under this Agreement may be assigned or
transferred without Visigenic's prior written consent. This Agreement will be
for the benefit of Visigenic's successors and assigns, and will be binding on
Employee's heirs and legal representatives.
10. Notices. Any notice or other communication under this Agreement shall
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be in writing, signed by the party making the same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Employee: Prasad Mokkapati
1975 Landings Drive
Mountain View, CA 94043
with a copy to: Fenwick & West LLP
2 Palo Alto Square
Palo Alto, CA 94306
Attn: Mark C. Stevens
If to Visigenic: Visigenic Software, Inc.
951 Mariner's Island Blvd.
San Mateo, CA 94404
with a copy to: Gray Cary Ware & Freidenrich
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400 Hamilton Avenue
Palo Alto, CA 94301
Attn: George H. Hohnsbeen II
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
11. Severability. The parties agree that construction of this Agreement
------------
shall be in favor of its reasonable nature, legality and enforceability, and
that any construction causing unenforceability shall yield to a construction
permitting enforceability. It is agreed that the noncompetition,
nonsolicitation, nondisclosure and nonhiring covenants and provisions of this
Agreement are severable, and that if any single covenant or provision or
multiple covenants or provisions should be found unenforceable, the entire
Agreement and remaining covenants and provisions shall not fail but shall be
construed as enforceable without any severed covenant or provision in accordance
with the tenor of this Agreement. The parties specifically agree that no
covenant or provision of this Agreement shall be invalidated because of
overbreadth insofar as the parties acknowledge the scope of the covenants and
provisions contained herein to be reasonable and necessary for the protection of
Visigenic and not unduly restrictive upon Employee. However, should a court or
any other trier of fact or law determine not to enforce any covenant or
provision of this Agreement as written due to overbreadth, then the parties
agree that said covenant or provision shall be enforced to the extent
reasonable, with the court or such trier to make any necessary revisions to said
covenant or provision to permit its enforceability.
12 Effectiveness. Notwithstanding any other provision of this Agreement,
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this Agreement shall become effective only upon the closing of the Merger, and
if such closing does not occur, this Agreement shall be void ab initio and have
no force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYEE
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VISIGENIC SOFTWARE, INC.:
By:
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Print Name:
--------------------
Title:
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EXHIBIT A
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FORM OF STANDARD VISIGENIC EMPLOYEE CONFIDENTIALITY AGREEMENT
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Exhibit 10.8
VISIGENIC SOFTWARE, INC.
CONVERTIBLE NOTE AND SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE>
VISIGENIC SOFTWARE, INC.
CONVERTIBLE NOTE AND SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
This Agreement is entered into as of May 24, 1996 by and among Visigenic
Software, Inc., a Delaware corporation, with its principal office located at 951
Mariner's Island Boulevard, San Mateo, California 94404 (the "Company") and each
investor who has executed a signature page to this Agreement that has been
countersigned on behalf of the Company (referred to below collectively as the
"Purchasers" and each, individually, as a "Purchaser").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. Authorization and Sale of the Securities.
----------------------------------------
1.1 Authorization; Filing of Corporate Documents. The Company has
--------------------------------------------
authorized the issuance of up to 888,888 shares of its Series C Preferred Stock
(the "Preferred Shares"), and up to $4,000,000 principal amount of Convertible
Promissory Notes in the form attached hereto as Exhibit A (the "Notes"),
---------
pursuant to the terms and conditions of this Agreement. (The Preferred Shares
and the Notes are sometimes collectively referred to herein as the
"Securities"). Attached hereto as Exhibit B and Exhibit C are forms of a
--------- ---------
Certificate of Amendment of Restated Certificate of Incorporation (the
"Certificate of Amendment") and a Certificate of Designation of Series C
Preferred Stock (the "Certificate of Designation"), respectively, to be filed by
the Company with the Secretary of State of Delaware on or before the Closing (as
defined below). Among other things, the Certificate of Amendment sets forth an
increase in the number of authorized shares of Preferred Stock to 10,000,000
shares. The Certificate of Designation sets forth the rights, preferences and
privileges of the Preferred Shares.
1.2 Issuance and Sale of Preferred Shares. Subject to the terms
-------------------------------------
and conditions of this Agreement, at the Closing the Company will issue and sell
to each Purchaser and each Purchaser will purchase from the Company, the number
of Preferred Shares set forth on a signature page to this Agreement signed by
such Purchaser and countersigned on behalf of the Company, at a purchase price
of $4.50 per share. The sale of Preferred Shares to each of the Purchasers is a
separate sale.
1.3 Loan Commitments; Issuance and Sale of Notes. Subject to
--------------------------------------------
the terms and conditions of this Agreement and the Notes, each Purchaser hereby
agrees to loan to the Company the amount (the "Loan Commitment") set forth on a
signature page to this Agreement signed by such Purchaser and countersigned on
behalf of the Company. Except as provided below, the Company may draw against
the Loan Commitments at any time on or after the Closing and prior to October
31, 1996 upon ten days' prior written notice (a "Draw Notice"). Each draw
against the Loan
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Commitments must be for at least $1 million, allocated pro rata among the
investors in proportion to their original Loan Commitments. Each Purchaser will
transmit by wire transfer funds in the amount specified in the Draw Notice, for
delivery on the date specified in the Draw Notice, to an account designated by
the Company. Each draw against the Loan Commitments will be evidenced by a
Note, which the Company shall deliver to the Purchaser with the Draw Notice, but
which shall be dated as of the date the Company receives funds from the
Purchaser. If the Company has not completed an initial public offering of its
Common Stock by August 30, 1996, the Company may draw against the Loan
Commitments as follows: in order to draw between August 31, 1996 and September
30, 1996, the Company must have achieved at least 90% of its $3 million revenue
forecast for the June quarter, and in order to draw after September 30, 1996,
the Company must have achieved at least 90% of its $4 million revenue forecast
for the September quarter. The Company shall have no obligation to draw any
amount against the Purchasers' Loan Commitments. The Notes will be subordinate
to the Company's capitalized lease obligations, trade credit and any
indebtedness to commercial lenders, and the Purchasers shall execute and deliver
any additional documents the Company may reasonably request for the purpose of
confirming and effectuating such subordination. The sale of Notes to each of
the Purchasers is a separate sale.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Dates.
-------------
(a) The closing (the "Closing") of the purchase and sale of the
Preferred Shares to the Purchasers will be held at the offices of Gray Cary Ware
& Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California, at a time selected by the Company, on May 24, 1996, or at such other
time and place as the Company and the Purchasers acquiring a majority of the
Preferred Shares at the Closing may agree.
(b) At its option, the Company may schedule one or more
additional closings (the "Additional Closings") for the purchase and sale of all
Preferred Shares not sold at the Closing on such date or dates after the Closing
as the Company may determine, but not later than 30 days after the Closing.
Pursuant to this Agreement, the Company may sell Preferred Shares at the
Additional Closings, if any, without any waiver, consent or approval of the
Purchasers who participated in the Closing. Each purchaser of Preferred Shares
at any Additional Closing will become a party to this Agreement and will be a
"Purchaser", and such purchaser's Preferred Shares will be "Preferred Shares",
for all purposes of this Agreement after such Additional Closing.
2.2 Delivery. Subject to the terms of this Agreement, at the
--------
Closing and at each Additional Closing, the Company will deliver to each
Purchaser participating in the Closing or such Additional Closing one or more
stock certificates representing the number of Preferred Shares set forth on a
signature page to this Agreement signed by such Purchaser and countersigned on
behalf of the Company,
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against payment of the purchase price therefor by check payable to the order of
the Company or by wire transfer.
3. Representations and Warranties of the Company. Except as set forth on
---------------------------------------------
a Schedule of Exceptions attached to this Agreement as Exhibit D, the Company
---------
hereby represents and warrants to each Purchaser as follows:
3.1 Organization and Standing; Charter.
----------------------------------
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware and is in good standing under
such laws. The Company has the requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted. The
Company is duly qualified to transact business as a foreign corporation in
California and all other jurisdictions in which it is required to be so
qualified and with respect to which the failure to be so qualified could have a
material adverse affect on the Company.
(b) The Company has delivered to each Purchaser a copy of its
Restated Certificate of Incorporation, as in effect immediately prior to the
filing of the Certificate of Amendment and the Certificate of Designation, a
copy of its Registration Rights Agreement dated as of March 31, 1993, as
supplemented to date (the "Registration Rights Agreement"), and a copy of its
Stockholder Agreement dated as of May 26, 1995, as supplemented to date (the
"Stockholder Agreement"). The Company has delivered to each Purchaser who is
purchasing not less than 200,000 Preferred Shares at the Closing a copy of a Co-
Sale Agreement dated as of December 17, 1993 among Roger J. Sippl and certain
shareholders, as amended to date (the "Co-Sale Agreement"), and Supplement
Number One thereto. (The Registration Rights Agreement, the Stockholder
Agreement and the Co-Sale Agreement, are referred to collectively below as the
"Related Agreements").
3.2 Corporate Power. The Company has now, or will have at the
---------------
date of the Closing, all requisite legal and corporate power to enter into this
Agreement and the Related Agreements, to sell the Securities, and to carry out
and perform its obligations under the terms of this Agreement and the Related
Agreements.
3.3 Subsidiaries. The Company does not control, directly or
------------
indirectly, or have an interest in, any other corporation, association or
business entity.
3.4 Capitalization. The authorized capital stock of the Company
--------------
consists, or as of the Closing, will consist, of 30,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock, of which 1,606,000 shares have
been designated as Series A Preferred Stock, 6,000,000 shares have been
designated as Series B Preferred Stock and 1,000,000 shares will have been
designated as Series C Preferred Stock. Immediately prior to the Closing there
will be issued and outstanding [5,671,809] shares of Common Stock, 1,606,000
shares of Series A Preferred Stock and
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5,743,250 shares of Series B Preferred Stock. All such issued and outstanding
shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock
have been duly authorized and validly issued, are fully paid and nonassessable,
and have been issued in compliance with all applicable state and federal laws
concerning the issuance of securities. As of the Closing, there will be no
outstanding rights, plans, options, warrants, conversion rights or agreements
for the purchase or acquisition from the Company of any shares of its capital
stock, except as disclosed in Exhibit D and except that (a) an aggregate of
---------
888,888 shares of Common Stock will have been reserved for issuance upon the
conversion of the Preferred Shares (the "Common Shares"), (b) an aggregate of
888,888 shares of Common Stock have been reserved for issuance upon conversion
of the Notes, (c) an aggregate of 1,606,000 shares of Common Stock have been
reserved for issuance upon conversion of the Company's Series A Preferred Stock,
(d) an aggregate of 5,743,250 shares of Common Stock have been reserved for
issuance upon conversion of the Company's outstanding Series B Preferred Stock,
and (e) a total of 1,958,500 shares of the Company's Common Stock not yet issued
have been approved for issuance by the Company's Board of Directors pursuant to
equity incentive arrangements also approved by the Company's Board of Directors,
and a total of 1,933,364 shares not yet committed for issuance remain available
for issuance under such arrangements.
3.5 Authorization.
-------------
(a) All corporate action on the part of the Company, its
officers, directors and stockholders necessary for (i) the sale and issuance of
the Securities pursuant hereto, (ii) the issuance of the Common Shares and the
shares of Common Stock issuable upon conversion of the Notes, and (iii) the
execution, performance and delivery by the Company of this Agreement has been
taken or will be taken prior to the Closing. This Agreement and the Related
Agreements are valid and binding obligations of the Company, enforceable against
it in accordance with their respective terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies.
(b) The Preferred Shares and Common Shares (collectively, the
"Equity Securities") and the shares of Common Stock issuable upon conversion of
the Notes, when issued in compliance with the provisions of this Agreement, will
be validly issued, fully paid and nonassessable, and will be free of any liens
or encumbrances; provided, however, that the such securities and the Notes may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or otherwise required by such laws at the time a
transfer is proposed.
(c) Except as have been exercised or waived, no stockholder of
the Company has any right of first refusal or any preemptive rights in
connection with the issuance of the Equity Securities, the Notes or the shares
of Common Stock issuable upon conversion of the Notes.
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3.6 Patents, Trademarks, etc. To its knowledge, the Company owns
-------------------------
or has the right to use, free and clear of all liens, charges, claims and
restrictions, all patents, trademarks, service names, trade names, copyrights,
licenses and rights necessary to its business as now conducted or proposed to be
conducted. The Company has received no notice that it is infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any of the foregoing. The Company is not obligated or under any
liability whatever to make payments by way of royalties, fees or otherwise to
any person or entity under any option, license or agreement of any kind with
respect to any patent, trademark, trade name, copyright or other intangible
asset.
3.7 Compliance with Other Instruments. The Company is not in
---------------------------------
violation of its Certificate of Incorporation or Bylaws, or in any material
respect of any material mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation by which the Company is
bound or to which the Company's property is subject. Execution, delivery and
performance of this Agreement and the Related Agreements on the part of the
Company, and the issuance and sale of the Securities pursuant hereto, will not
result in any such violation, will not accelerate performance under the terms of
any agreement, and will not constitute an event that, with the lapse of time or
action by a third party, will result in a default under any of the foregoing.
3.8 Employees.
---------
(a) To the Company's knowledge, no employee of the Company is in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the right of any such employee to be
employed by the Company because of the nature of the business conducted or to be
conducted by the Company or for any other reason, and the continued employment
by the Company of its present employees will not result in any such violations.
To the Company's knowledge, no third party may assert a valid claim against the
Company with respect to the use by the Company of any information which the
Company would be prohibited from using under any such prior contracts or
agreements or any laws applicable to unfair competition, trade secrets or
proprietary information.
(b) All current employees and consultants of the Company have
signed and delivered to the Company agreements regarding the nondisclosure of
proprietary information, the Company's ownership of work product, and assignment
to the Company of inventions in substantially the form approved by the Company's
Board of Directors.
3.9 Litigation, etc. There are no actions, proceedings or
----------------
investigations pending or, to the Company's knowledge, threatened against the
Company, which, either in any case or in the aggregate, might result in any
material adverse change in the business, prospects, conditions, affairs or
operations of the Company or in any of its properties or assets, or in any
material impairment of the
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right or ability of the Company to carry on its business as now conducted or as
proposed to be conducted, or in any material liability on the part of the
Company.
3.10 Registration Rights. Except as otherwise provided in the
-------------------
Registration Rights Agreement, the Company has no obligation to register under
the Securities Act of 1933, as amended (the "Securities Act"), any of its
outstanding securities.
3.11 Governmental Consent, etc. No consent, approval or authorization
--------------------------
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement and the Related Agreements, or the offer, sale or
issuance of the Securities or the consummation of any other transaction
contemplated hereby, except, if required, qualifications or filings under the
Securities Act, the California Corporate Securities Law of 1968 (the "California
Law") and other applicable blue sky laws, which qualifications or filings, if
required, will be obtained or made and will be effective within the period
required by law.
3.12 Securities Act. Subject to the accuracy of the Purchasers'
--------------
representations in Section 4 hereof, the offer and sale of the Securities in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act and the
qualification requirements of Section 25100 of the California Law.
3.13 Finder's Fees. The Company (i) represents and warrants
-------------
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
the Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which the Company, or any of its employees or representatives,
are responsible.
3.14 Financial Statements. The Company has delivered to each
--------------------
Purchaser audited financial statements for the Company's fiscal year ended March
31, 1995 and an unaudited income statement and balance sheet (collectively the
"Financial Statements") for the Company's fiscal year ended March 31, 1996 (the
"Balance Sheet Date"). The Financial Statements were prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods indicated (except that the unaudited financial statements are subject to
normal year end audit and adjustments and do not contain footnotes required by
generally accepted accounting principles), are correct and complete and fairly
present the financial position of the Company at the date thereof and the
results of operations of the Company for the periods covered thereby.
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3.15 Changes. Since the Balance Sheet Date there has not been:
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(a) Any material change in the assets, liabilities, financial
condition or operations of the Company other than changes in the ordinary course
of business, none of which individually or in the aggregate have had a material
adverse effect on such assets, liabilities, financial condition or operations of
the Company;
(b) Any change, except nonmaterial changes in the ordinary
course of business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the properties or business of the
Company;
(d) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(e) Any loan made by the Company to its employees, officers or
directors other than travel advances made in the ordinary course of business or
under the terms of stock option or stock purchase plans or agreements;
(f) Any increase in the compensation of any of the officers or
directors of the Company other than normal increases consistent with past
practices;
(g) Any declaration or payment of any dividend or other
distribution of the assets of the Company or any redemption, purchase or other
acquisition of shares of its capital stock except for shares repurchased from
employees and consultants in connection with the termination of services;
(h) Any material labor organization activity affecting the
Company nor any labor dispute involving the Company or, to the Company's
knowledge, any of the Company's employees;
(i) To the best of the Company's knowledge, any other event or
condition of any character which has materially adversely affected or may be
reasonably expected to materially adversely affect the business or prospects of
the Company; or
(j) Any agreement entered into by the Company to do any of the
matters covered by subparagraphs 3.15(a) through 3.15(i).
3.16 Certain Company Transactions: No Conflict of Interest. The
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Company is not indebted, directly or indirectly, to any of its officers,
directors, employees or shareholders or to their respective spouses or children,
in any amount whatsoever; none of said officers, directors, employees or
shareholders, or, to the Company's knowledge, any members of their immediate
families, are indebted to the
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Company or, to the Company's knowledge, any corporation or entity with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company. No officer or director
of the Company, or, to the Company's knowledge, any member of their immediate
families, or, to the Company's knowledge, any employee or shareholder of the
Company or any member of an employee's or a shareholder's immediate family, has
any direct or indirect ownership interest in any corporation or entity which has
a business relationship with the Company or which competes with the Company
except for ownership of securities of a publicly traded company which do not
constitute more than one percent (1%) of the outstanding securities of such
company. No officer or director of the Company, or, to the Company's knowledge,
any member of their immediate families, or, to the Company's knowledge, any
employee or shareholder of the Company or any member of an employee's or a
shareholder's immediate family, is, directly or indirectly, interested in any
material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any person, firm or corporation. As used in
this section 3.16, the phrase "to the Company's knowledge" means actual
knowledge of the Company's Chairman and Chief Executive Officer, President and
Chief Operating Officer, and Chief Financial Officer, without inquiry.
4. Representations and Warranties of Purchasers; Restrictions on
-------------------------------------------------------------
Transfer.
--------
4.1 Representations and Warranties by Each Purchaser. Each Purchaser
------------------------------------------------
represents and warrants to the Company as follows:
(a) Purchaser realizes that the purchase of the Securities is a
highly speculative investment.
(b) Purchaser is able, without impairing Purchaser's financial
condition, to bear the economic risk of the purchase of the Securities pursuant
to the terms of this Agreement, to hold the Securities for an indefinite period
of time and to suffer a complete loss of Purchaser's investment.
(c) Prior to executing and delivering this Agreement, the
Purchaser has received and reviewed carefully this Agreement, the Related
Agreements and each exhibit to this Agreement.
(d) The Purchaser has such knowledge and experience in financial
and business matters that the Purchaser is capable of (i) evaluating the merits
and risks of the purchase of the Securities pursuant to the terms of this
Agreement and (ii) protecting the Purchaser's interests in connection therewith.
(e) Unless Purchaser has initialed the signature page to this
Agreement in the appropriate blank, Purchaser has a preexisting personal or
business relationship with one or more of the officers and directors of the
Company consisting of personal or business contacts of a nature and duration to
enable Purchaser to be
8
<PAGE>
aware of the character, business acumen and general business and financial
circumstances of the person(s) with whom such relationship(s) exists.
(f) The Purchaser and the Purchaser's representatives have been
solely responsible for such Purchaser's own "due diligence" investigation of the
Company and its management and business, for such Purchaser's own analysis of
the merits and risks of this investment, and for such Purchaser's own analysis
of the fairness and desirability of the terms of the investment; in taking any
action or performing any role relative to the arranging of the proposed
investment, the Purchaser has acted solely in the Purchaser's own interest, and
acknowledges that none of the other Purchasers (or any of their agents or
employees) has acted as an agent of such Purchaser.
(g) The Purchaser and its representatives and legal counsel have
been afforded full and free access to corporate books, financial statements,
records, contracts, documents and other information concerning the Company and
its offices and facilities, have been afforded an opportunity to ask such
questions of the Company's officers, employees, agents, accountants and
representatives concerning the Company's business, operations, financial
condition, assets, liabilities and other relevant matters as they have deemed
necessary or desirable, and have been given all such information as has been
requested, in order to evaluate the merits and risks of the prospective
investments contemplated herein.
(h) The securities issuable pursuant to this Agreement are being
acquired for the Purchaser's own account, in each case for investment and not
with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act.
(i) The Purchaser understands that the securities issuable
pursuant to this Agreement have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act pursuant to Section 4(2)
of the Securities Act and/or Regulation D promulgated under the Securities Act,
that the Company has no present intention of registering such securities, that
such securities must be held by the Purchaser indefinitely, and that the
Purchaser must therefore bear the economic risk of such investment indefinitely,
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from registration. The Purchaser understands that such securities
are restricted securities within the meaning of Rule 144 under the Securities
Act, which allows limited resale of such securities under certain conditions;
that, in any event, such exemption from registration under Rule 144 will not be
available for at least two years, and even then will not be available unless the
other conditions of Rule 144 are complied with.
(j) The Purchaser has the full capacity, right, power and
authority to enter into and perform this Agreement, and this Agreement
constitutes the valid and binding obligation of the Purchaser enforceable in
accordance with its terms.
9
<PAGE>
(k) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Purchaser is required in connection with the valid execution and delivery of
this Agreement.
(l) Unless Purchaser has initialed the signature page to this
Agreement in the appropriate blank, Purchaser is an "accredited investor" as
defined in Rule 501 of Regulation D of the Securities and Exchange Commission
because Purchaser satisfies any of the following standards: (i) Purchaser's
individual net worth or joint net worth with Purchaser's spouse exceeds
$1,000,000 as of the date of this Agreement, or (ii) Purchaser had individual
income of more than $200,000 in each of the last two years, or joint income with
Purchaser's spouse of more than $300,000 in each of such years, and Purchaser
reasonably expects to reach at least the same income level in the current year,
or (iii) Purchaser is an organization and qualifies as an accredited investor
under a provision of Rule 501 not described in clauses (i) and (ii) above.
(m) Purchaser (i) represents and warrants that Purchaser has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby agrees to indemnify and to hold the Company and
the other Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which Purchaser, or any of Purchaser's employees or
representatives, are responsible.
(n) The Purchaser has either consulted with Purchaser's own legal
counsel and other advisors and representatives regarding the transactions
contemplated by this Agreement or, having had the opportunity to consult with
such persons regarding such transactions, has chosen not to do so of Purchaser's
own volition. Purchaser acknowledges that Purchaser's interests are not being
---
represented by Gray Cary Ware & Freidenrich, A Professional Corporation, which
is the Company's legal counsel.
4.2 Legend. Each certificate or instrument representing securities
------
issuable pursuant to this Agreement will be endorsed with the following legends:
(a) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
10
<PAGE>
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY OR ITS ASSIGNEE, A
"STANDSTILL" AGREEMENT, A VOTING AGREEMENT AND IRREVOCABLE PROXY, AND AN
ADDITIONAL RESTRICTION ON TRANSFER SET FORTH IN AGREEMENTS BETWEEN THE
COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A
COPY OF EACH OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
(c) Any other legends required by California law or other
applicable state blue sky laws.
The Company need not register a transfer of any securities issuable pursuant to
this Agreement, and may also instruct its transfer agent not to register the
transfer of such securities, unless the conditions specified in this Agreement
are satisfied.
4.3 Removal of Legend and Transfer Restrictions.
-------------------------------------------
(a) Any legend endorsed on a certificate pursuant to Section 4.2(a)
and any stop transfer instructions applicable to such certificate regarding the
restrictions set forth in such legend will be removed and the Company will issue
a certificate without such legend to the holder thereof if such securities are
registered under the Securities Act and a prospectus meeting the requirements of
Section 10 of the Securities Act is available, if such legend may be properly
removed under the terms of Rule 144 promulgated under the Securities Act, or if
such holder provides the Company with an opinion of counsel for such holder
which counsel is reasonably satisfactory to legal counsel for the Company, to
the effect that a public sale, transfer or assignment of such securities may be
made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 4.2(c)
and the stop transfer instructions with respect to such securities will be
removed upon receipt by the Company of an order of the California Department of
Corporations or other appropriate blue sky authority authorizing such removal.
4.4 Notice of Proposed Transfers. The holder of each certificate or
----------------------------
instrument representing securities issuable pursuant to this Agreement by
acceptance thereof agrees to comply in all respects with the provisions of this
Section 4.4. Prior to any proposed transfer of any such securities, and subject
to Section 7 below, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof will give
written notice to the Company of such holder's intention to effect such
transfer. Each such notice will describe the manner and circumstances of the
proposed transfer in a manner satisfactory to the Company. Unless in the
opinion of counsel to the Company the transaction is in compliance with Rule 144
or otherwise exempt from registration, the notice required by this
11
<PAGE>
Section 4.4 will be accompanied by either (i) a written opinion of legal counsel
addressed to the Company and reasonably satisfactory in form and content to the
Company's counsel to the effect that the proposed transfer may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Securities and Exchange Commission (the "Commission") to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto. Upon the satisfaction of the requirements of this Section 4.4 the
holders of such securities will be entitled to transfer them in accordance with
the terms of the notice delivered by the holder to the Company. Each
certificate or instrument evidencing securities transferred as above provided
will bear the appropriate restrictive legends set forth in Section 4.2 unless
such legends would be removable pursuant to Section 4.3.
5. Conditions to Closing.
---------------------
5.1 Conditions to Obligations of the Purchasers. The obligation of
-------------------------------------------
each Purchaser to purchase Preferred Shares at the Closing and to loan amounts
to the Company in accordance with the provisions of this Agreement is subject to
the fulfillment at or prior to the Closing of the following conditions, any of
which may be waived by such Purchaser:
(a) Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
3 hereof will be true and correct in all material respects when made, and will
be true and correct in all material respects on the date of the Closing with the
same force and effect as if they had been made on and as of the date of the
Closing, and the Company will have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the date of the
Closing.
(b) Filing with the Delaware Secretary of State. Prior to the
-------------------------------------------
Closing, the Company will have filed the Certificate of Amendment and the
Certificate of Designation with the Secretary of State of Delaware.
(c) Registration Rights Agreement. The Company will have executed
-----------------------------
and delivered to such Purchaser a signature page to the Registration Rights
Agreement or a different written instrument having the same effect, and such
Purchaser shall have become a party to such agreement with rights thereunder.
(d) Stockholder Agreement. The Company will have executed and
---------------------
delivered to such Purchaser a signature page to the Stockholder Agreement or a
different written instrument having the same effect, and such Purchaser shall
have become a party to such agreement with rights thereunder.
(e) Corporate Proceedings; Waivers and Consents. At or prior to the
-------------------------------------------
Closing, all corporate and other proceedings to be taken by the Company and all
waivers, consents and permits on the part of, or with respect to, the Company
12
<PAGE>
necessary or appropriate for consummation of the transactions contemplated by
this Agreement will have been taken or obtained.
(f) Compliance Certificate. The Company will have delivered to the
----------------------
Purchasers a Certificate, executed by its President or any of its Vice
Presidents and dated the date of the Closing, certifying as to the fulfillment
of the conditions specified in Sections (a), (b), (c), (d), and (e) of this
Section 5.1.
(g) Co-Sale Agreement. Roger Sippl will have executed and delivered
-----------------
to each Purchaser purchasing not less than 200,000 Preferred Shares at the
Closing a signature page to Supplement Number One to the Co-Sale Agreement.
(h) Legal Investment. At the time of the Closing, the purchase of
----------------
the Preferred Shares by the Purchasers hereunder will be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
(i) Blue Sky Matters. All consents, approvals, qualifications and/or
----------------
registrations required to be obtained or effected under any applicable United
States state securities or blue sky laws in connection with the issuance, sale
and delivery of the Securities will have been obtained or effected.
(j) Legal Opinion. The Purchasers will have received from the
-------------
Company's legal counsel an opinion addressing the matters identified on Exhibit
-------
E in a form reasonably satisfactory to the Purchasers.
- --
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Preferred Shares at the Closing is subject to
the fulfillment at or prior to the Closing of the following conditions, any of
which may be waived by the Company:
(a) Incorporation of Conditions. The conditions set forth in
---------------------------
subsections (b), (e), (h) and (i) of Section 5.1 will have been fulfilled.
(b) Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Purchasers in
- -----------
Section 4 hereof will be true and correct when made, and will be true and
correct on the date of the Closing with the same force and effect as if they had
been made on and as of the date of the Closing, and the Purchasers will have
performed all obligations and conditions herein required to be performed or
observed by them on or prior to the date of the Closing.
(c) Stockholder Agreement. Each Purchaser will have executed and
---------------------
delivered to the Company a signature page to the Stockholder Agreement.
5.3 Additional Closings. Unless the Company and any Purchaser of
-------------------
Preferred Shares at an Additional Closing otherwise agree in writing, at any
13
<PAGE>
Additional Closing: (a) the Company and the Purchaser will execute and deliver
this Agreement, the Registration Rights Agreement and the Stockholder Agreement,
(b) the Purchaser will deliver to the Company payment for the Preferred Shares
purchased in accordance with Section 2.2, (c) the Company will deliver to the
Purchaser a stock certificate evidencing the Preferred Shares purchased, and (d)
all conditions set forth in Sections 5.1 and 5.2 will be conditions to the
obligations of such Purchaser and the Company, respectively, at such Additional
Closing except the conditions set forth in subsection (a) and (f) of Section
5.1.
6. Affirmative Covenants of the Company. The Company hereby covenants
------------------------------------
and agrees as follows:
6.1 Financial Reports to Purchasers.
-------------------------------
(a) Within 120 days after the end of each fiscal year of the
Company, the Company will furnish each Purchaser financial statements of the
Company, audited by an accounting firm of recognized standing selected by the
Company, which will include a profit and loss statement, a statement of
stockholders' equity and a statement of changes in financial position for such
fiscal year and a balance sheet as at the last day thereof.
(b) The Company will furnish each Purchaser which purchases at
least 125,000 Preferred Shares pursuant to this Agreement (i) within 45 days
after the end of each of the first three fiscal quarters of each fiscal year,
unaudited financial statements of the Company, which will include an income
statement and a statement of changes in financial position for such fiscal
quarter and a balance sheet as at the last day thereof, each prepared in
accordance with generally accepted accounted principles, consistently applied;
and (ii) a copy of any operating budget prepared by the Company's management for
the ensuing fiscal year.
6.2 Limitations on Assignability. Subject to Section 7 below, the
----------------------------
rights contained in Sections 6.1 and 6.2 will be assignable by a Purchaser (or
any permitted assignee of such rights) in conjunction with a transfer to any
transferee of at least fifty percent (50%) of its Securities, except that such
rights will not be transferable to any competitor of the Company or its
affiliates without the prior written consent of the Company.
6.3 Termination of Rights to Certain Reports. All rights of the
----------------------------------------
Purchasers set forth in Section 6.2 will terminate upon the first to occur of
(i) the date on which the Company is required to file reports with the
Securities and Exchange Commission pursuant to Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), by reason of the Company
having registered any of its securities pursuant to Section 12(g) of the
Exchange Act, or (ii) the closing date of the first sale of the Company's
securities in a public offering registered under the Securities Act.
14
<PAGE>
6.4 Grant of Registration Rights. The Common Shares issued or
----------------------------
issuable to each Purchaser will constitute "Registrable Securities" for purposes
of the Registration Rights Agreement, as the same may be amended from time to
time, and the Company hereby grants to each Purchaser all rights of a "Holder"
under the Registration Rights Agreement, as the same may be amended from time to
time, with respect to such Common Shares.
6.5 Grant of Right of First Offer. The Preferred Shares and Common
-----------------------------
Shares issued or issuable to each Purchaser will constitue "Preferred Shares" or
"Common Shares," as applicable under the Stockholder Agreement, as the same may
be amended from time to time, and the Company hereby grants to each Purchaser
all rights of a "Qualified Holder" under the Stockholder Agreement, as the same
may be amended from time to time, with respect to such Preferred Shares and
Common Shares.
7. Covenants of Purchasers.
-----------------------
7.1 Standstill. Each Purchaser agrees that it will not, prior to the
----------
fifth anniversary of the Closing, unless such Purchaser has obtained prior
written approval of the Company's Board of Directors or except as otherwise
permitted by Section 7.3 below:
(a) Directly or indirectly acquire Beneficial Ownership (as
defined in Section 7.2 below) of voting securities of the Company representing
more than 10% of the Total Voting Power of the Company.
(b) Become a "participant" in a "solicitation" of proxies, as
those terms are defined in Rule 14a-11 and Rule 14a-1, respectively, of
Regulation 14A under the Exchange Act in respect of any voting securities of the
Company.
(c) Form or join any group or otherwise act in concert with any
third person for the purpose of voting, purchasing or disposing of the Company's
securities; or
(d) Deposit any securities of the Company in a voting trust or
subject them to a voting agreement or other arrangement of similar effect.
7.2 "Beneficial Ownership". The Purchaser will be deemed to have
----------------------
"Beneficial Ownership" of voting securities of the Company if the Purchaser or
its affiliates, directly or indirectly, through any contract, arrangement,
understanding or relationship, have or share the power to (i) vote or direct the
voting of such voting securities or (ii) dispose of or direct the disposition of
such voting securities.
7.3 Non-negotiated Offer. Nothing in Section 7.1 above shall prevent
--------------------
a Purchaser from acquiring Voting Stock without regard to the limitation set
forth in Section 7.1 above if, after the Company has completed an initial public
offering, an offer not approved in advance by the Company's Board of Directors
is made by
15
<PAGE>
another person or group (which is not controlled by or under common control with
the Purchaser) to purchase or exchange for cash or other consideration any
Voting Stock which is a bona fide offer and which, if successful, would result
in such person or group owning or having the rights to acquire more than 30% of
the Total Voting Power of the Company then in effect and such offer is not
withdrawn or terminated prior to the Purchaser acquiring Voting Stock in
response thereto. If such an offer is made and then either withdrawn or
terminated, the Purchaser shall again be subject to the limitation set forth in
Section 7.1 above, commencing on the day the Company gives the Purchaser written
notice of such withdrawal or termination; provided, however, that this provision
shall not require the Purchaser to breach any legally binding obligations to
acquire shares of the Company's Voting Stock in force at the time such notice is
given; and provided further, however, that if such Purchaser acquires additional
shares as permitted by this Section 7.3, the percentage limitation set forth in
Section 7.1(a) above will be increased to the percentage corresponding to the
total number of shares held by such Purchaser and not acquired in violation of
this Section 7.3 or Section 7.1 above.
7.4 Voting.
------
(a) To the extent provided by Delaware law, holders of Shares
will be entitled to vote as a separate series with respect to any proposed
amendment of the Company's Restated Certificate of Incorporation, as amended
from time to time (the "Charter"), that would change the rights of such holders
so as to affect them adversely and would not so affect other series of the
Company's Preferred Stock. With respect, however, to any proposed amendment to
the Charter described in subsections (a)(i) and (a)(ii) below, the Purchasers'
votes with respect to such amendments will be cast as provided in such
subsections:
(i) With respect to any such amendment that would reduce
the automatic conversion price of the Preferred Shares so as to ensure that the
Preferred Shares automatically are converted in connection with the Company's
initial public offering of Common Stock (the "IPO"), the Purchasers' votes will
be cast in accordance with the recommendation of the Company's Board of
Directors with respect to such amendment.
(ii) With respect to any such amendment that would
implement changes to the Charter approved by the Board, generally relating to
anti-takeover protection, and of the type Silicon Valley technology companies
normally make to take effect when they become public companies (including,
without limitation, the items set forth on Exhibit F attached), the Purchasers'
---------
votes will be cast for, against and in abstention in the same proportions as the
aggregate votes of all other holders of Preferred Stock with respect to such
amendment.
(b) Each Purchaser, as the holder of Voting Stock, shall be
present, in person or by proxy, at all meetings of stockholders of the Company,
so that all shares of Voting Stock beneficially owned by the Purchaser may be
counted for the purposes of determining the presence of a quorum at such
meetings.
16
<PAGE>
(c) As used in this Section 7.4 the term "vote" and derivative
words shall mean: to cast or withhold votes, or abstain from voting, in
accordance with the requirements of this Section 7.4 as to all matters subject
to a vote of some or all holders of Voting Stock, and to give or withhold all
consents, approvals, waivers and the like, or to abstain from such action, in
accordance with the requirements of this Section 7.4 as to all matters subject
to any consent, approval, waiver or the like of some or all holders of the
Company's outstanding securities.
(d) This voting agreement will terminate at such time as no
shares of Series C Preferred Stock of the Company are outstanding.
7.5 Irrevocable Proxy. In order to secure the agreement set forth in
-----------------
Section 7.4 above, each Purchaser hereby irrevocably appoints and constitutes
Mark Hanson and Glenn Myers, and either of them (the "Proxyholders"), as the
Purchaser's agents and proxies, with full power of substitution, to cast or
withhold all votes and give or withhold all consents, approvals and waivers of
the Purchaser's Voting Stock as provided in Section 7.4 of this Agreement. The
proxy granted by the Purchaser to the Proxyholders hereby is granted as of the
date of this Agreement and shall be irrevocable and continue in full force and
effect so long until terminated in accordance with the terms of this Agreement.
Any proxies previously granted with respect to the Purchaser's Voting Stock are
hereby revoked. The Purchaser authorizes the Proxyholders to substitute any
other person or entity to act hereunder, to revoke such substitution, and to
file this Agreement and any substitution or revocation of substitution with the
Secretary of the Company.
7.6 Restriction on Transfer. Prior to the closing of the Company's
-----------------------
initial public offering, a Purchaser may not transfer in any transaction Notes,
Preferred Shares or underlying shares of Common Stock having an original
purchase price from the Company of less than $1 million.
7.7 Legends. All certificates evidencing Preferred Shares held by
-------
the Purchasers will bear a legend or legends referring to the voting agreement,
irrevocable proxy and restriction on transfer provided for in this Section 7.
7.8 Certain Definitions As used in this Agreement, the following
-------------------
terms shall have the following meanings:
(a) The term "Total Voting Power of the Company" means the total
number of votes which may be cast in the election of directors of the Company at
any meeting of stockholders of the Company if all securities entitled to vote in
the election of directors of the Company were present and voted at such meeting
(other than votes that may be cast only upon the happening of a contingency).
(b) The term "Voting Stock" means the Common Stock, Preferred
Stock and any other securities issued by the Company having the ordinary power
to vote in the election of directors of the Company (other than securities
having such power only upon the happening of a contingency).
17
<PAGE>
8. Miscellaneous.
-------------
8.1 Waivers and Amendments. With the written consent of the Company
----------------------
and the record holders of a majority of the outstanding Preferred Equivalents
(as defined below), any provision of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely) or amended, and with the
same consent the Company, when authorized by its Board of Directors, may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that in the case of Section 6.1(b) above, the consent of
Purchasers required for any such waiver, amendment or supplement will be the
consent of holders of a majority of the Preferred Equivalents having rights
under such provisions. Any waiver, amendment or supplement to which such
consents are obtained will be binding upon all Purchasers. Upon the
effectuation of each such waiver, amendment or supplement, the Company will
promptly give written notice thereof to the record holders of the Securities who
have not previously received notice thereof or consented thereto in writing. In
addition, any holder of Preferred Equivalents, as to such holder only, may
consent in writing to any such waiver, amendment or supplement, which will be
binding upon such holder. The term "Preferred Equivalents" means, at any time,
all then outstanding Equity Securities (including any Common Shares or any and
all securities obtained upon conversion of the Preferred Shares or exchange of
the Preferred Shares or Common Shares and as adjusted for stock dividends, stock
splits, recapitalizations and the like) taken together as one group, after
treating all such Equity Securities as if converted into Common Stock. No
amendment, waiver or supplement to this Agreement will be effective unless
agreed to in writing by the party against whom enforcement is sought or, in the
case of any holder of Preferred Equivalents, by such holder or holders of a
majority of the outstanding Preferred Equivalents.
8.2 Governing Law. This Agreement will be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
8.3 Survival. The representations, warranties, covenants and
--------
agreements made herein will survive the execution of this Agreement and the
Closing of the transactions contemplated hereby.
8.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof will inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties
hereto. No Purchaser may assign its rights to purchase the Preferred Shares and
the Company may not assign its rights to receive the proceeds of such purchase.
8.5 Entire Agreement. This Agreement, the exhibits to this Agreement
----------------
and the other documents delivered pursuant hereto or incorporated by reference
herein constitute the full and entire understanding and agreement among
18
<PAGE>
the parties with regard to the subjects hereof and thereof and supersede all
prior oral and written understandings, agreements and commitments with regard to
such subjects by or among the parties hereto.
8.6 Notices, etc. All notices and other communications required or
-------------
permitted hereunder will be in writing and will be mailed by certified or
registered mail, postage prepaid, addressed (a) if to a Purchaser, at the
address of the Purchaser set forth on such Purchaser's signature page to the
Agreement, or at such other address as the Purchaser will have furnished to the
Company in writing, or (b) if to the Company, at its address set forth at the
beginning of this Agreement, or at such other address as the Company will have
furnished to the Purchasers.
8.7 No Waivers. No failure on the part of any party to exercise or
----------
delay in exercising any right hereunder will be deemed a waiver thereof, nor
will any such failure or delay, or any single or partial exercise of any such
right, preclude any further or other exercise of such right or any other right.
8.8 Separability. If any provision of this Agreement, or the
------------
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
8.9 Expenses. The Company and each Purchaser will each bear its
--------
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby.
8.10 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original, but all of which together will
constitute one instrument.
8.12 Attorneys' Fees. In the event of any action, suit or proceeding
---------------
for the breach of this Agreement or misrepresentation by any party, the
prevailing party will be entitled to reasonable attorneys' fees, costs and
expenses incurred in such action, suit or proceeding.
8.13 Subscriptions Subject to Acceptance. As to any prospective
-----------------------------------
investor's investment, this Agreement will not be binding upon the Company
unless the Company receives a signature page to this Agreement executed and
delivered by
19
<PAGE>
such prospective investor, such signature page is then executed by an officer of
the Company, and the conditions set forth in Section 5.2 of this Agreement have
been satisfied or waived.
8.14 No California Qualification. THE SALE OF THE SECURITIES WHICH
---------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
SUCH QUALIFICATION. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
20
<PAGE>
The parties have executed this Agreement as of the day and year first above
written.
VISIGENIC SOFTWARE, INC.
By:
-------------------------------
Roger J. Sippl, CEO
PURCHASER:
------------------------
Name:
-----------------------------
(Please print or type)
Signature:
------------------------
----------------------------------
Address
----------------------------------
Number of Preferred Shares to be
Purchased by Purchaser:
----------------------------------
Amount of Purchaser's Loan Commitment:
----------------------------------
If Purchaser is not an "accredited investor"
---
(as defined in Section 4.1(l) above),
Purchaser should initial here:
----------------------------------
If Purchaser does not have a "preexisting
---
relationship" with an officer or director of
the Company (as described in Section 4.1(e)
above), Purchaser should initial here:
----------------------------------
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
VISIGENIC SOFTWARE, INC.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$______________ San Mateo, California
May ____, 1996
FOR VALUE RECEIVED, and subject to the conversion provisions set forth
below, VISIGENIC SOFTWARE, INC., a Delaware corporation (the "Company"),
promises to pay to _____________________ ("Holder") or order, at its office
located at __________________________ or such other place or places as the
holder of this Note may from time to time designate in writing, the principal
sum of ____________________________________ Dollars ($________________), and
accrued interest thereon, as provided herein.
A. Loan.
----
1. Interest. Interest shall accrue with respect to the principal sum
--------
hereunder from the date of this Note until such principal is paid or converted
as provided herein at a rate of ______% per annum. Interest will be compounded
annually and will be calculated on the basis of the actual number of days
elapsed over a 360 day year.
2. Payment of Principal and Interest. The principal outstanding
---------------------------------
hereunder and the interest accrued and unpaid shall be due and payable on May
____, 1999.
3. Prepayment. The Company shall have the right to prepay, in whole or
----------
in part, the principal outstanding and/or the interest accrued hereunder at any
time, without penalty.
4. Default. In case one or more of the following events (whatever the
-------
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body) an Event of Default shall have occurred and be continuing:
(a) Default in the payment of any interest upon this Note as and when
the same shall become due and payable, and continuance of such default for a
period of ten (10) business days after receipt by Company of notice of such
default from the holder of this Note; or
1
<PAGE>
(b) Default in the payment of all or any part of the principal or any
installment of the principal of this Note or any of them, as and when the same
shall become due and payable and continuance of such default from a period of
ten (10) business days after receipt by Company of notice of such default from
the holder of this Note; or
(c) An involuntary case or other proceeding shall be commenced against
Company seeking liquidation, reorganization or other relief with respect to it
or its debts under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or seeking the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Company or for any substantial part of the property of Company or the winding up
or liquidation of the affairs of Company, and such case or proceeding shall
remain unstayed and undismissed for a period of 30 days, or an order for relief
shall be entered against Company under the federal bankruptcy laws as now or
hereafter in effect; or
(d) Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Company or for any substantial part of the property of Company or Company shall
make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they come due, or shall take any corporate action
to authorize any of the foregoing;
Then, and in each and every such case (other than an Event of Default
specified in paragraphs (c) or (d)), unless all of the principal amount of this
Note shall have already become due and payable, the Holder, for so long as it
holds more than 50% of the aggregate principal amount of this Note, by notice in
writing to Company, may declare the entire principal amount of this Note and the
interest accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. In an Event of
Default specified in paragraphs (c) or (d) occurs with respect to Company, the
principal of and accrued interest on this Note shall become and be immediately
due and payable without any declaration or other act on the part of the holder.
Presentment, demand, protest and all other notices of any kind are hereby
expressly waived by Company.
No right or remedy herein conferred upon or served to the holder of this
Debenture is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
B. Conversion of Loan. Holder shall have the right to automatically convert
------------------
up to _____% of the then outstanding principal and interest under this Note into
shares of Common Stock of the Company (the "Conversion Shares") at the
Conversion Price (as defined below) at the time in effect immediately upon the
closing of an underwritten public offering of the Company's Common Stock
registered under the Securities Act of 1933, as amended, in which proceeds to
the Company are not less than $3.33 per share. The Company will give Holder
written notice of such offering and Holder must exercise such conversion right
by giving Company written
2
<PAGE>
notice within _____ days after receiving such Company's notice and surrending
this Note to Company for issuance of a replacement note for the unconverted
balance of principal and interest. The Conversion Price shall initially be
$____________, subject to adjustment for any stock splits, stock dividends and
the like to the capital stock of Company.
C. Other Provisions.
----------------
1. Amendment Provisions. This Note may not be amended or modified, nor
--------------------
may any of its terms be waived, except by written instruments signed by the
Company and the Holder, and then only to the extent set forth therein.
2. Severability. If any provision of this Note is determined to be
------------
invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions of this Note
shall not in any way be affected or impaired thereby and this Note shall
nevertheless be binding between the Company and the holder.
3. Binding Effect. This Note shall be binding upon, and shall inure to
--------------
the benefit of, the Company and the Holder hereof and their respective
successors and assigns.
4. Holder Not a Stockholder. Prior to the conversion of this Note as
------------------------
provided above, the holder, as the Holder of this Note, shall not be entitled to
any of the rights of a stockholder of the Company.
5. Notices. Any notice required or desired to be served, given or
-------
delivered hereunder shall be addressed to the party to be notified as follows:
If to the Company: Visigenic Software, Inc.
951 Mariner's Island, Suite 460
San Mateo, California 94403
Attention: Glenn Myers
Facsimile: (415) 286-2463
If to Holder: To the address set forth on page one hereof
or to such other address as each party designates to the other by notice in the
manner herein prescribed.
6. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California, as such laws are applied to
agreements entered into and to be performed solely in California by California
residents.
7. Collection Costs. If principal and interest is not paid in full when
----------------
it becomes due, the undersigned hereby agrees to pay the Holder, in addition to
such amount owed pursuant to this Note, all costs and expenses of collection,
including a reasonable sum for attorneys' fees as fixed by a court of competent
jurisdiction.
3
<PAGE>
8. Waiver. Acceptance of partial or delinquent payment from the
------
undersigned hereunder, or the failure or partial failure or delay of the Holder
to exercise any right hereunder shall not constitute a waiver or partial waiver
of any obligation of the undersigned or any right of the Holder under this Note,
and shall not affect in any way the right to require full performance at any
time thereafter.
VISIGENIC SOFTWARE, INC.
By:______________________________________
Glenn Myers
Chief Financial Officer
4
<PAGE>
EXHIBIT 10.9
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
VISIGENIC SOFTWARE, INC.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$______________ San Mateo, California
May ____, 1996
FOR VALUE RECEIVED, and subject to the conversion provisions set forth
below, VISIGENIC SOFTWARE, INC., a Delaware corporation (the "Company"),
promises to pay to _____________________ ("Holder") or order, at its office
located at __________________________ or such other place or places as the
holder of this Note may from time to time designate in writing, the principal
sum of ____________________________________ Dollars ($________________), and
accrued interest thereon, as provided herein.
A. Loan.
----
1. Interest. Interest shall accrue with respect to the principal sum
--------
hereunder from the date of this Note until such principal is paid or converted
as provided herein at a rate of ______% per annum. Interest will be compounded
annually and will be calculated on the basis of the actual number of days
elapsed over a 360 day year.
2. Payment of Principal and Interest. The principal outstanding
---------------------------------
hereunder and the interest accrued and unpaid shall be due and payable on May
____, 1999.
3. Prepayment. The Company shall have the right to prepay, in whole or
----------
in part, the principal outstanding and/or the interest accrued hereunder at any
time, without penalty.
4. Default. In case one or more of the following events (whatever the
-------
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body) an Event of Default shall have occurred and be continuing:
(a) Default in the payment of any interest upon this Note as and when
the same shall become due and payable, and continuance of such default for a
period of ten (10) business days after receipt by Company of notice of such
default from the holder of this Note; or
1
<PAGE>
(b) Default in the payment of all or any part of the principal or any
installment of the principal of this Note or any of them, as and when the same
shall become due and payable and continuance of such default from a period of
ten (10) business days after receipt by Company of notice of such default from
the holder of this Note; or
(c) An involuntary case or other proceeding shall be commenced against
Company seeking liquidation, reorganization or other relief with respect to it
or its debts under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or seeking the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Company or for any substantial part of the property of Company or the winding up
or liquidation of the affairs of Company, and such case or proceeding shall
remain unstayed and undismissed for a period of 30 days, or an order for relief
shall be entered against Company under the federal bankruptcy laws as now or
hereafter in effect; or
(d) Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Company or for any substantial part of the property of Company or Company shall
make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they come due, or shall take any corporate action
to authorize any of the foregoing;
Then, and in each and every such case (other than an Event of Default
specified in paragraphs (c) or (d)), unless all of the principal amount of this
Note shall have already become due and payable, the Holder, for so long as it
holds more than 50% of the aggregate principal amount of this Note, by notice in
writing to Company, may declare the entire principal amount of this Note and the
interest accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. In an Event of
Default specified in paragraphs (c) or (d) occurs with respect to Company, the
principal of and accrued interest on this Note shall become and be immediately
due and payable without any declaration or other act on the part of the holder.
Presentment, demand, protest and all other notices of any kind are hereby
expressly waived by Company.
No right or remedy herein conferred upon or served to the holder of this
Debenture is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
B. Conversion of Loan. Holder shall have the right to automatically convert
------------------
up to _____% of the then outstanding principal and interest under this Note into
shares of Common Stock of the Company (the "Conversion Shares") at the
Conversion Price (as defined below) at the time in effect immediately upon the
closing of an underwritten public offering of the Company's Common Stock
registered under the Securities Act of 1933, as amended, in which proceeds to
the Company are not less than $3.33 per share. The Company will give Holder
written notice of such offering and Holder must exercise such conversion right
by giving Company written
2
<PAGE>
notice within _____ days after receiving such Company's notice and surrending
this Note to Company for issuance of a replacement note for the unconverted
balance of principal and interest. The Conversion Price shall initially be
$____________, subject to adjustment for any stock splits, stock dividends and
the like to the capital stock of Company.
C. Other Provisions.
----------------
1. Amendment Provisions. This Note may not be amended or modified, nor
--------------------
may any of its terms be waived, except by written instruments signed by the
Company and the Holder, and then only to the extent set forth therein.
2. Severability. If any provision of this Note is determined to be
------------
invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions of this Note
shall not in any way be affected or impaired thereby and this Note shall
nevertheless be binding between the Company and the holder.
3. Binding Effect. This Note shall be binding upon, and shall inure to
--------------
the benefit of, the Company and the Holder hereof and their respective
successors and assigns.
4. Holder Not a Stockholder. Prior to the conversion of this Note as
------------------------
provided above, the holder, as the Holder of this Note, shall not be entitled to
any of the rights of a stockholder of the Company.
5. Notices. Any notice required or desired to be served, given or
-------
delivered hereunder shall be addressed to the party to be notified as follows:
If to the Company: Visigenic Software, Inc.
951 Mariner's Island, Suite 460
San Mateo, California 94403
Attention: Glenn Myers
Facsimile: (415) 286-2463
If to Holder: To the address set forth on page one hereof
or to such other address as each party designates to the other by notice in the
manner herein prescribed.
6. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California, as such laws are applied to
agreements entered into and to be performed solely in California by California
residents.
7. Collection Costs. If principal and interest is not paid in full when
----------------
it becomes due, the undersigned hereby agrees to pay the Holder, in addition to
such amount owed pursuant to this Note, all costs and expenses of collection,
including a reasonable sum for attorneys' fees as fixed by a court of competent
jurisdiction.
3
<PAGE>
8. Waiver. Acceptance of partial or delinquent payment from the
------
undersigned hereunder, or the failure or partial failure or delay of the Holder
to exercise any right hereunder shall not constitute a waiver or partial waiver
of any obligation of the undersigned or any right of the Holder under this Note,
and shall not affect in any way the right to require full performance at any
time thereafter.
VISIGENIC SOFTWARE, INC.
By:_________________________
Glenn Myers
Chief Financial Officer
4
<PAGE>
EXHIBIT 11.1
VISIGENIC SOFTWARE, INC.
STATEMENTS OF COMPUTATION OF PRO FORMA COMMON
SHARES AND EQUIVALENTS
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1996
----------------------------------
Actual Pro Forma(1)
-------- ------------
<S> <C> <C>
Primary
Net loss $ (4,379) $ (6,347)
======== ========
Weighted average common shares outstanding 2,799 2,799
Weighted average common equivalent shares:
Weighted average preferred stock outstanding 2,875 2,875
Adjustments to reflect requirements of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 83:
Common stock issuances 3,121 3,121
Preferred stock issuances 1,069 1,069
Common stock option grants 1,112 1,112
-------- --------
Pro forma total weighted average common shares and
equivalents 10,976 10,976
======== ========
Pro forma net loss per share $ (0.40) $ (0.58)
======== ========
Fully Diluted
Net loss $ (4,379) $ (6,347)
======== ========
Weighted average common shares outstanding 2,799 2,799
Weighted average common equivalent shares:
Weighted average preferred stock outstanding 2,875 2,875
Adjustments to reflect requirements of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 83:
Common stock issuances 3,121 3,121
Preferred stock issuances 1,069 1,069
Common stock option grants 1,112 1,112
-------- --------
Pro forma total weighted average common shares and
equivalents 10,976 10,976
======== ========
Pro forma net loss per share $ (0.40) $ (0.58)
======== ========
</TABLE>
(1) See Note 9 of Notes to Consolidated Financial Statements of Visigenic and
Pro Forma Condensed Combined Financial Statements.
