<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 120
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 120
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. ROBERT A. FREEDMAN, ESQ.
GILBERT GALLARDO, ESQ. MICHAEL J. MCADAM, 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
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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. [_]
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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
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 2,300,000 shares $13.5625 $31,193,750 $9,453
</TABLE>
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(1) Includes 300,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for purposes of computing the
registration fee, based on the average of the high and low trading prices
for the Common Stock as reported by the Nasdaq National Market on January
24, 1997.
--------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 JANUARY 28, 1997
PROSPECTUS
2,000,000 SHARES
[LOGO
OF VISIGENIC SOFTWARE, INC.
APPEARS HERE]
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 1,180,000 shares are
being sold by the Company and 820,000 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."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol VSGN. On January 24, 1997, the last reported sale price of the Common
Stock was $14.00 per share. See "Price Range of Common Stock."
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5.
-----------
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
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<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 $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 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 and Proceeds to Company 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 , 1997, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST ROBERTSON, STEPHENS & COMPANY
, 1997
<PAGE>
[ART]
Visigenic, the Visigenic logo, VisiBroker, VisiODBC and VisiChannel 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 OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
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
independent provider of software tools for database access and distributed
object technologies for the Internet, Intranet and enterprise computing
environments. The Company's standards-based products facilitate the
development, deployment and management of distributed business applications by
providing database-independent access to leading databases and the
communication framework for distributed object applications.
In today's increasingly 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 business 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 business applications.
Visigenic provides key software components that enable developers and
information technology ("IT") professionals to develop, deploy and manage
distributed business applications. The Company believes business applications
increasingly will be comprised of objects, Java applets and databases that are
distributed on networks. 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 business applications. 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,
Oracle and Platinum technology. Additionally, the Company intends to leverage
its products and expertise to continue to exploit the opportunities 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 Borland, Cisco,
Compuware, Healtheon, Hewlett-Packard, Hitachi, Microsoft, Netscape, 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 120, San
Mateo, California, 94404. Its telephone number is (415) 286-1900. Its email
address is [email protected] and its Web site is located at 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.................... 1,180,000 shares
Common Stock offered by the Selling Stockholders....... 820,000 shares
Common Stock to be outstanding after the offering...... 13,895,390 shares (1)
Use of proceeds........................................ General corporate purposes,
including working capital
Nasdaq National Market symbol.......................... VSGN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
--------------------------------------- -------------------------------------
1996 1996
--------------------- --------------------------
PRO FORMA PRO FORMA
1994 1995 ACTUAL COMBINED (2) 1995 ACTUAL COMBINED (2)
------- ------- ------- ------------ --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................. $ -- $ 1,115 $ 5,575 $ 6,577 $ 3,305 $ 11,534 $ 11,666
Gross profit............ -- 820 4,564 5,303 2,567 9,705 9,761
Loss from operations.... (2,496) (4,723) (4,464) (6,422) (3,743) (18,461) (18,697)
Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (3,666) $ (18,271) $ (18,507)
Pro forma net loss per
share (3).............. -- -- $ (0.40) $ (0.57) $ (0.33) $ (1.51) $ (1.52)
Pro forma weighted
average common and
common equivalent
shares (3)............. -- -- 11,064 11,064 11,008 12,141 12,141
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED (4)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 9,064 $24,093
Working capital..................................... 11,286 26,315
Total assets........................................ 19,921 34,950
Stockholders' equity................................ 15,296 30,325
</TABLE>
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(1) Excludes 3,351,736 shares of Common Stock reserved for issuance under the
Company's stock plans, of which 2,321,735 shares of Common Stock are
issuable upon exercise of options outstanding as of December 31, 1996 at a
weighted average exercise price of $5.69 per share. See "Capitalization,"
"Management--Stock Plans" and Note 6 of Notes to Consolidated Financial
Statements of Visigenic.
(2) The Pro Forma Combined Statement of Operations data gives effect to the May
1996 acquisition of PostModern Computing Technologies Inc. as if it had
occurred on April 1, 1995. The acquisition was accounted for as a purchase
and resulted in the write-off of approximately $12.0 million of in process
product development in the quarter ended June 30, 1996. The Pro Forma
Combined Statement of Operations data for the year ended March 31, 1996
does not give effect to this write-off. 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 1,180,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $14.00 and the
receipt of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
----------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' overallotment option. See "Underwriting."
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
Limited Operating History and 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 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 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 December 31, 1996, the Company had cumulative operating losses
of $29.8 million, with net losses of $2.5 million, $4.6 million, $4.4 million
and $18.3 million for fiscal 1994, fiscal 1995, fiscal 1996 and the nine
months ended December 31, 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 and the
write-off of approximately $12.0 million of in process product development in
the quarter ended June 30, 1996 in connection with the acquisition of
PostModern. The Company expects to continue to devote substantial resources in
these areas and as a result will need to generate significant revenue in order
to achieve profitability. The Company currently anticipates that it will
operate at a loss through at least the end of 1997. The Company has
experienced substantial growth in revenue in fiscal 1996 and the first nine
months of fiscal 1997. The Company expects that prior growth rates of the
Company's software product revenue will not be sustainable in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Potential 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 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 database access and distributed object
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 the next twelve
months. 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
5
<PAGE>
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 and revenue from
one customer, Platinum technology, accounted for approximately 25% of the
Company's total revenue. For the nine months ended December 31, 1996,
approximately 55% of the Company's revenue was derived from ten customers, and
revenues from two customers, Platinum technology and Cisco, accounted for
approximately 14% and 13%, respectively, of the Company's total revenue. 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 be adversely affected. 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 force. The timing of such expansion and the
rate at which new development and sales 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 will 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."
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 access and distributed
object 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.
The Company's database access products are based on the Open Database
Connectivity ("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 and software vendors.
With the acquisition of PostModern in May 1996, the Company began to offer
standards-based distributed object products. The Company's current distributed
object 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, are just beginning to gain
widespread acceptance and compete with proprietary solutions such as
Microsoft's ActiveX and Distributed
6
<PAGE>
Component Object Model ("DCOM"). The distributed object software market is
relatively young and there are few proven products. Further, some of the
Company's distributed object 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 these markets fail to develop, develop more slowly than expected
or attract 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 these standards are
relatively new, not widely accepted and compete with other emerging standards,
to the extent that these standards 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."
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 Borland, Cisco, Compuware, Healtheon, Hewlett-Packard,
Microsoft, Netscape, Oracle and Platinum technology. A relatively small number
of VAR and ISV customers have accounted for a significant percentage of the
Company's revenue. In fiscal 1996, ten VAR and ISV customers accounted for
approximately 78% of the Company's revenue, while in the nine months ended
December 31, 1996, ten VAR and ISV customers accounted for approximately 55%
of the Company's revenue. The Company intends to seek similar distribution
arrangements with other VARs and ISVs to embed the Company's technology in
their products 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, however, all of these agreements are non-
exclusive and do not require the VAR or ISV to make minimum purchases. 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 effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Product Concentration. Prior to the acquisition of PostModern in May 1996,
the Company derived substantially all of its revenue from the licensing of its
database access products, particularly its ODBC product line, and fees from
related services. Since the acquisition of PostModern, the Company has also
derived a significant portion of its revenue from its distributed object
products. The Company's database access and distributed object products and
services are each expected to continue to account for a significant portion of
the Company's revenue for the foreseeable future. As a result, a reduction in
demand or an 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."
7
<PAGE>
Dependence on the Internet and Intranets. The Company believes that sales of
its products, particularly its distributed object 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 effect 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 on a timely basis or at
all 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 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 VisiODBC 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, results of operations 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
8
<PAGE>
distributed object 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 and Sales
Personnel. The Company's future performance depends to a significant extent
upon the continued service of its key technical, development, sales and
marketing and management personnel. The loss of the services of any of these
individuals would have a material adverse effect on the Company. All employees
are employed at-will, and the Company has no fixed term employment agreements
with any of its employees. 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. An increase in the sales 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 number of
additional development and sales 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 access and distributed object 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,
results of operations and financial condition could be materially adversely
affected.
Management of Growth. 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 and to $11.5 million in the nine months ended December
31, 1996. In addition, the Company acquired PostModern in May 1996 as part of
its strategy of adding distributed object products to its product line. The
growth of the Company's business and the expansion of the Company's customer
base have placed a significant strain on the Company's management, operations
and financial systems. 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 hired a new Chief Financial Officer and a new Controller in
July 1996, a new Vice President, Marketing in September 1996, and a new Vice
President, Worldwide Sales in October 1996. 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, results of operations and financial condition.
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.
9
<PAGE>
Intense Competition. The Company's products are targeted at the emerging
markets for standards-based database access software and standards-based
distributed object 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 access market, the Company competes
principally against Intersolv. The Company's database access products also
indirectly compete against proprietary database access solutions from database
vendors. In the standards-based distributed object market, the Company
competes principally against two private companies, Iona and Expersoft. The
Company's distributed object products also compete against existing or
proposed distributed object 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 access and distributed object software
continues to develop and expand. In particular, relational database vendors
including Informix, Microsoft, Oracle and Sybase may offer standards-based
database access 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 products bundled with their operating systems. For instance, Microsoft
has introduced DCOM, which could reduce or 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, results of operations and financial condition. See
"Business--Competition."
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
10
<PAGE>
contracts for any reason, or if liabilities arose which were not effectively
limited, the Company's business, results of operations and financial condition
could be materially and adversely affected. See "Business--Product
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 products 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, results of operations 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, results of
operations and financial condition.
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 the base technology for the VisiODBC SDK products from
Microsoft, security technology it plans to use in several of its future
products from RSA Data Security, Inc. ("RSA") and Talarian SmartSockets from
Talarian for inclusion into a version of the Company's VisiChannel product
line. Microsoft has the right to terminate its license with the Company at any
time after delivery to the Company of the Microsoft SDK for ODBC 3.0, which
occurred in December 1996. In addition, in January 1997, Microsoft notified
the Company that Microsoft would convert its license to the Company from an
exclusive to a non-exclusive license. The Company's licenses with RSA and
Talarian may only be terminated for material breach. The Company has entered
into a joint technology agreement with JavaSoft, a subsidiary of Sun, 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
11
<PAGE>
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, results
of operations and financial condition. See "Business--Intellectual Property
and Other Proprietary Rights."
International Sales. The Company's export sales accounted for approximately
10% and 12% of the Company's total revenue in fiscal 1996 and the nine months
ended December 31, 1996, respectively. 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,
which is located 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 Something Good Corporation ("ASCII"), 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 is currently a "double byte" product, 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' over-allotment option), officers, directors and affiliates of
the Company will beneficially own approximately 46.4% of the Company's
outstanding Common Stock. As a result, these stockholders as a group may be
able to control the management and affairs of the Company and all matters
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."
The Company's Board of Directors ("Board of Directors" or "Board") has the
authority to issue up to 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
12
<PAGE>
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 Restated 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 voting power of all outstanding shares of the
Company's capital stock, that stockholders may not take action by written
consent, that the ability of stockholders to call special meetings of
stockholders and to raise matters at meetings of stockholders is restricted
and that certain amendments of the Company's Restated Certificate of
Incorporation, and all amendments by the stockholders of the Company's Amended
and Restated Bylaws, require the approval of holders of at least 66 2/3% of
the voting power of all outstanding shares. 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 purpose of
this offering is to increase the Company's equity capital. 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."
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has been, and is likely to continue to be, volatile. Factors such as new
product announcements or changes in product pricing policies by the Company or
its competitors, quarterly fluctuations in the Company's operating results,
announcements of technical innovations, announcements relating to strategic
relationships or acquisitions, changes in earnings estimates by analysts and
general conditions in the software development tools market, among other
factors, may have a significant impact on the market price of the Company's
Common Stock. Should the Company fail to introduce products on the schedule
expected, the Company's stock price could be adversely affected. In addition,
in recent years the stock market in general, and the shares of technology
companies in particular, have experienced extreme price fluctuations. This
volatility has had a substantial effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect
the market price of the Company's Common Stock. See"--Potential 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, 4,786,355 shares will be freely tradeable.
Commencing 90 days following the date of this offering and at various times
over a period of less than two years, 9,109,035 additional shares will become
freely tradeable upon the expiration of agreements not to sell such shares,
and subject to compliance with Rule 144 or 701 under the Securities Act, as
amended. Hambrecht & Quist LLC may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to such
agreements. See "Shares Eligible for Future Sale."
As of the effective date of the Registration Statement, the holders of
6,089,850 shares of the Company's Common Stock will be entitled to certain
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."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,180,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$15,029,000 (approximately $18,977,000 if the Underwriters' over-allotment
option is exercised in full). The principal purpose of the offering is to
increase the Company's equity capital. 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. A portion of the net 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.
PRICE RANGE OF COMMON STOCK
The Company effected its initial public offering on August 8, 1996 at a
price to the public of $7.50 per share. Since that date, the Common Stock has
been traded on the Nasdaq National Market under the symbol VSGN. Prior to that
date, there was no public market for the Common Stock.
The following table sets forth, for the fiscal period indicated, the high
and low sale prices per share for the Common Stock, all as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDING MARCH 31, 1997
Second Quarter (from August 8, 1996)..................... $13.250 $ 9.000
Third Quarter............................................ $17.750 $10.500
Fourth Quarter (through January 24, 1997)................ $15.750 $13.375
</TABLE>
On January 24, 1997 the last reported sale price of the Common Stock on the
Nasdaq National Market was $14.00 per share. As of January 24, 1997, there
were approximately 212 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock. 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. In addition, the Company's bank credit facility contains covenants
that prohibit the Company from paying dividends without prior bank consent.
14
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 31, 1996, and (ii) the capitalization as adjusted to reflect the
sale of 1,180,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price offered hereby of $14.00 and the receipt of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity (1):
Preferred stock, $0.001 par value, 2,000,000 shares
authorized, none issued and outstanding............ $ -- $ --
Common stock, $0.001 par value, 50,000,000 shares
authorized, 12,715,390 shares issued and
outstanding actual; 13,895,390 shares issued and
outstanding as adjusted............................ 12 13
Additional paid in capital.......................... 45,017 60,045
Accumulated deficit................................. (29,733) (29,733)
-------- -------
Stockholders' equity ............................. 15,296 30,325
-------- -------
Total capitalization............................ $ 15,296 $30,325
======== =======
</TABLE>
- --------
(1) Excludes 3,351,736 shares of Common Stock reserved for future issuance
pursuant to the Company's stock plans. As of December 31, 1996, options to
purchase 2,321,735 shares at a weighted average exercise price of $5.69
per share were outstanding. See "Management--Stock Plans" and Note 6 of
Notes to Consolidated Financial Statements of Visigenic.
15
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was $13.9
million or $1.09 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. Without taking into account any other change in such
net tangible book value after December 31, 1996, other than to give effect to
the sale by the Company of 1,180,000 shares offered hereby at an assumed
public offering price of $14.00 per share and receipt of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
December 31, 1996 would have been approximately $28.9 million, or $2.08 per
share. This represents an immediate increase in such net tangible book value
of $0.99 per share to existing stockholders and an immediate dilution of
$11.92 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share.................................. $14.00
Net tangible book value per share as of December 31, 1996 be-
fore the offering............................................. $1.09
Increase per share attributable to new investors............... 0.99
-----
Pro forma net tangible book value per share after the offering... 2.08
------
Dilution per share to new investors.............................. $11.92
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 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)...... 12,715,390 91.5% $45,029,000 73.2% $ 3.54
New investors(1).............. 1,180,000 8.5 16,520,000 26.8 $14.00
---------- ----- ----------- -----
Total....................... 13,895,390 100.0% $61,549,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 11,895,390 or approximately 85.6%
of the total number of shares of Common Stock outstanding after this
offering and will increase the number of shares held by new investors to
2,000,000 or approximately 14.4% of the total number of shares of Common
Stock outstanding after the offering (2,300,000 or 16.2% if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."
The above computations assume no exercise of options after December 31,
1996. As of December 31, 1996, there were outstanding options to purchase
2,321,735 shares of Common Stock at a weighted average exercise price of $5.69
per share. To the extent outstanding options are exercised, there will be
further dilution to new investors. See Note 6 of Notes to Consolidated
Financial Statements of Visigenic.
16
<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 financial data at December 31, 1996 and for the nine months ended
December 31, 1995 and 1996 have been derived from unaudited financial
statements of the Company included elsewhere in this Prospectus and which
include all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of its financial
position and results of operations for these periods. The following selected
pro forma combined statement of operations data for the year ended March 31,
1996 and the nine months ended December 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 results of operations
for the nine months ended December 31, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ending March 31, 1997 or
any other period. 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>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
---------------------------------------- ------------------------------
1996 1996
--------------------- --------------------------
PRO FORMA PRO FORMA
1994 (1) 1995 ACTUAL COMBINED (2) 1995 ACTUAL COMBINED (2)
-------- ------- ------- ------------ --------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Software products..... $ -- $ 892 $ 4,479 $ 4,783 $ 2,417 $ 9,895 $ 9,919
Service and other..... -- 223 1,096 1,794 888 1,639 1,747
------- ------- ------- ------- --------- ---------- ---------- ---
Total revenue....... -- 1,115 5,575 6,577 3,305 11,534 11,666
------- ------- ------- ------- --------- ---------- ---------- ---
Cost of revenue:
Software products..... -- 36 284 328 212 399 410
Service and other..... -- 259 727 946 526 1,430 1,495
------- ------- ------- ------- --------- ---------- ---------- ---
Total cost of
revenue............ -- 295 1,011 1,274 738 1,829 1,905
------- ------- ------- ------- --------- ---------- ---------- ---
Gross profit............ -- 820 4,564 5,303 2,567 9,705 9,761
------- ------- ------- ------- --------- ---------- ---------- ---
Operating expenses:
Product development... 1,393 3,160 4,348 5,888 3,130 6,650 6,714
Sales and marketing... 503 1,511 3,215 3,638 2,138 6,977 7,045
General and
administrative....... 600 872 1,465 1,677 1,042 1,814 1,888
Purchased in process
product development.. -- -- -- -- -- 12,364 12,364
Amortization of excess
of purchase price
over net assets
acquired............. -- -- -- 522 -- 361 447
------- ------- ------- ------- --------- ---------- ---------- ---
Total operating
expenses........... 2,496 5,543 9,028 11,725 6,310 28,166 28,458
------- ------- ------- ------- --------- ---------- ---------- ---
Loss from
operations......... (2,496) (4,723) (4,464) (6,422) (3,743) (18,461) (18,697)
Interest and other
income, net............ 42 94 85 85 77 190 190
------- ------- ------- ------- --------- ---------- ---------- ---
Net loss................ $(2,454) $(4,629) $(4,379) $(6,337) $ (3,666) $ (18,271) $ (18,507)
======= ======= ======= ======= ========= ========== ========== ===
Pro forma net loss per
share (3).............. $ (0.40) $ (0.57) $ (0.33) $ (1.51) $ (1.52)
======= ======= ========= ========== ========== ===
Pro forma weighted
average common and
common equivalent
shares (3)............. 11,064 11,064 11,008 12,141 12,141
======= ======= ========= ========== ========== ===
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------
DECEMBER 31,
1994 1995 1996 1996
------ ------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........ $2,901 $ 553 $2,399 $ 9,064
Working capital..... 2,722 488 816 11,286
Total assets........ 3,346 1,829 4,820 19,921
Stockholders'
equity............. 3,132 1,117 2,220 15,296
</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) The pro forma combined statement of operations data gives effect to the
May 1996 acquisition of PostModern as if it had occurred on April 1, 1995.
The acquisition was accounted for as a purchase and resulted in the write-
off of approximately $12.0 million of in process product development in
the quarter ended June 30, 1996. The pro forma combined statement of
operations data for the year ended March 31, 1996 does not give effect to
this write-off. 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
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 first recognized material
revenue in the fourth quarter of fiscal 1995. The Company shipped version 1.0
of the VisiODBC Software Development Kit ("SDK") and the VisiODBC Drivers in
November 1994, version 1.0 of its VisiChannel product in March 1996 and version
2.0 of its VisiODBC product line in June 1996. In May 1996, the Company
acquired PostModern, a supplier of distributed object technology, and began
selling VisiBroker for C++ and VisiBroker for Java, distributed object products
based on technology acquired from PostModern.
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 and consulting revenue and engineering development
fees. Prior to the acquisition of PostModern, the Company's revenue was
attributable to non-recurring license fees for its database access products,
particularly its VisiODBC product line, and fees from related services. Since
the acquisition of PostModern, the Company's revenue has been attributable to
non-recurring license fees for both its database access and its distributed
object products and fees from related services. The Company expects that such
products will account for substantially all of its license revenue 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,
results of operations 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 ninety 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 twelve 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 amount is 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
18
<PAGE>
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, accounted for approximately 25% of the Company's total revenue. For
the first nine months of fiscal 1997, licenses to the Company's ten largest
customers accounted for approximately 55% of the Company's total revenue and
licenses to two customers, Platinum technology and Cisco, accounted for
approximately 14% and 13%, respectively, 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 are
often lengthy (typically ranging from six to twelve months) and are 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 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,
results of operations, 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 and approximately 12% of total revenue for the first nine months of
fiscal 1997. 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, results of operations and financial condition. See
"Risk Factors--International Sales."
With the exception of the third quarter of fiscal 1996, the Company's revenue
has increased in each of the last eight quarters primarily due to growth in
software license revenue. 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 products 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
19
<PAGE>
channels and its customer support capabilities; activities of and acquisitions
by competitors; changes in database access and distributed object 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 end
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.
In fiscal 1995 and fiscal 1996, the Company's service and other revenue
consisted primarily of maintenance and consulting directly related to license
sales and development fees. In fiscal 1997, the Company began making a
significant investment in a professional services organization and a growing
portion of its service and other revenue consisted of consulting and training
revenues.
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 and CustomWare, Inc.
("CustomWare"), a professional services firm, effective December 3, 1996. The
acquisitions of PostModern and CustomWare were accounted for as a purchase in
the quarter ended June 30, 1996 and the quarter ended December 31, 1996,
respectively. See "--Purchased In Process Product Development and
Amortization." Except for certain condensed combined financial statements
included elsewhere in this Prospectus, PostModern's and CustomWare's financial
results prior to the effective date of their respective acquisitions are not
included in the Company's financial results presented herein.
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 VisiODBC 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 table sets forth for the periods indicated
the percentage of total revenue represented by certain line items from the
Company's Consolidated Statement of Operations. Amounts have not been
presented for fiscal 1994 as the Company did not record any revenue for that
period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------
1995 1996 1995 1996
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Software products................ 80.0% 80.3% 73.1% 85.8%
Service and other................ 20.0 19.7 26.9 14.2
------ ----- -------- --------
Total revenue.................. 100.0 100.0 100.0 100.0
------ ----- -------- --------
Cost of revenue:
Software products................ 3.3 5.1 6.4 3.5
Service and other................ 23.2 13.0 15.9 12.4
------ ----- -------- --------
Total cost of revenue.......... 26.5 18.1 22.3 15.9
------ ----- -------- --------
Gross profit....................... 73.5 81.9 77.7 84.1
------ ----- -------- --------
Operating expenses:
Product development.............. 283.4 78.0 94.7 57.7
Sales and marketing.............. 135.5 57.7 64.7 60.5
General and administrative....... 78.2 26.3 31.6 15.7
Purchased in process product de-
velopment....................... -- -- -- 107.2
Amortization of excess of pur-
chase price over net assets ac-
quired.......................... -- -- -- 3.1
------ ----- -------- --------
Total operating expenses:...... 497.1 162.0 191.0 244.2
------ ----- -------- --------
Loss from operations............... (423.6) (80.1) (113.3) (160.1)
Interest and other income, net..... 8.4 1.6 2.4 1.7
------ ----- -------- --------
Net loss........................... (415.2)% (78.5)% (110.9)% (158.4)%
====== ===== ======== ========
</TABLE>
REVENUE
Software Products. Software products revenue increased by 402% from $892,000
in fiscal 1995 to $4.5 million in fiscal 1996 and increased by 309% from $2.4
million in the first nine months of fiscal 1996 to $9.9 million in the first
nine months of fiscal 1997. The Company had no software products revenue in
fiscal 1994. The revenue increase from fiscal 1995 to fiscal 1996 was
primarily due to an increased volume of licensing of the Company's database
access products, resulting from an increase in the number of products offered
and the expansion of the Company's direct sales and telesales organizations.
The revenue increase from the first nine months of fiscal 1996 to the first
nine months of fiscal 1997 was primarily due to the increased volume of
licensing of distributed object products resulting from the acquisition of
PostModern and the Company's database access products.
Service and Other. Service and other revenue, including maintenance revenue,
development fees and consulting and training revenue, increased by 391% from
$223,000 in fiscal 1995 to $1.1 million in fiscal 1996 and increased by 85%
from $888,000 in the first nine months of fiscal 1996 to $1.6 million in the
first nine months of fiscal 1997. The Company had no service and other revenue
in fiscal 1994. The revenue increases from fiscal 1995 to fiscal 1996 and from
the first nine months of fiscal 1996 to the first nine months of fiscal
21
<PAGE>
1997 were due to the greater licensing of products to customers under
agreements with a maintenance component and growth in training, consulting and
development activities.
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 and
increased from $212,000 in the first nine months of fiscal 1996 to $399,000 in
the first nine months of fiscal 1997. The increases resulted from 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 and increased from $526,000 in the
first nine months of fiscal 1996 to $1.4 million in the first nine months of
fiscal 1997. This increase reflects the effect of fixed costs resulting from
the Company's investment during the first nine months of fiscal 1997 in a
larger professional services organization. The Company had no costs of service
and other revenue in fiscal 1994. The Company intends to continue investing
resources in its professional services organization and anticipates that the
cost of service and other revenue may exceed service and other revenue in
future periods.
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. Product development
expenses increased by 112% from $3.1 million in the first nine months of fiscal
1996 to $6.7 million in the first nine months of fiscal 1997. The increases in
the dollar amount of product development expenses were primarily attributable
to costs of additional personnel, including the engineering personnel from
PostModern beginning in June 1996, 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 been 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. Of the product development costs,
approximately $1.3 million in fiscal 1994 and $1.2 million in 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.
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. Sales and marketing expenses increased by 226% from
22
<PAGE>
$2.1 million in the first nine months of fiscal 1996 to $7.0 million in the
first nine months of fiscal 1997. 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. Of the sales and marketing costs, approximately $500,000
in fiscal 1994 and $900,000 in fiscal 1995 consisted of expenses relating to a
product the Company later chose not to introduce commercially, none of which
expenses was of a recurring nature. The Company plans to hire a substantial
number of sales and sales support personnel in 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.
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. General and
administrative expenses increased by 74% from $1.0 million in the first nine
months of fiscal 1996 to $1.8 million in the first nine months of fiscal 1997.
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 and
expenses associated with being a public company. 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.
PURCHASED IN PROCESS PRODUCT DEVELOPMENT AND AMORTIZATION
In May 1996, the Company completed the acquisition of PostModern which was
accounted for as a purchase in the quarter ended June 30, 1996. In December
1996, the Company completed the acquisition of CustomWare which was accounted
for as a purchase in the quarter ended December 31, 1996. In connection with
the acquisition of PostModern, the Company recorded a write-off in the quarter
ended June 30, 1996 of approximately $12.0 million of in process product
development. The remaining excess of purchase price over net assets acquired of
approximately $1.1 million will be amortized over two years. In connection with
the acquisition of CustomWare, the Company recorded a write-off in the quarter
ended December 31, 1996 of $350,000 of in process product development. The
remaining excess of purchase price over net assets acquired of approximately
$700,000 will be amortized over one year.
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.
Interest and other income, net, increased from $77,000 in the first nine months
of fiscal 1996 to $190,000 in the first nine months of fiscal 1997, primarily
due to the cash received from the Company's initial public offering, completed
August 8, 1996.
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.
23
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statements of operations for each of the
eight quarters ended December 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, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software products...... $ 500 $ 544 $ 1,033 $ 840 $2,062 $ 2,505 $ 3,222 $ 4,168
Service and other...... 155 367 268 253 208 456 600 583
------- ------ ------- ------- ------ -------- ------- -------
Total revenue........ 655 911 1,301 1,093 2,270 2,961 3,822 4,751
------- ------ ------- ------- ------ -------- ------- -------
Cost of revenue:
Software products...... 34 43 62 107 72 138 130 131
Service and other...... 105 146 180 200 201 295 402 733
------- ------ ------- ------- ------ -------- ------- -------
Total cost of
revenue............. 139 189 242 307 273 433 532 864
------- ------ ------- ------- ------ -------- ------- -------
Gross profit............ 516 722 1,059 786 1,997 2,528 3,290 3,887
------- ------ ------- ------- ------ -------- ------- -------
Operating expenses:
Product development.... 660 729 972 1,429 1,218 1,657 2,481 2,512
Sales and marketing.... 543 636 770 732 1,077 2,006 2,397 2,574
General and
administrative........ 324 335 336 371 423 473 628 713
Purchased in process
product development... -- -- -- -- -- 12,014 -- 350
Amortization of excess
of purchase price
over net assets
acquired.............. -- -- -- -- -- 43 129 189
------- ------ ------- ------- ------ -------- ------- -------
Total operating
expenses............ 1,527 1,700 2,078 2,532 2,718 16,193 5,635 6,338
------- ------ ------- ------- ------ -------- ------- -------
Loss from
operations.......... (1,011) (978) (1,019) (1,746) (721) (13,665) (2,345) (2,451)
Interest and other
income, net............ 4 1 28 48 8 6 42 142
------- ------ ------- ------- ------ -------- ------- -------
Net loss................ $(1,007) $ (977) $ (991) $(1,698) $ (713) $(13,659) $(2,303) $(2,309)
======= ====== ======= ======= ====== ======== ======= =======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software products...... 76.3% 59.7% 79.4% 76.9% 90.8% 84.6% 84.3% 87.7%
Service and other...... 23.7 40.3 20.6 23.1 9.2 15.4 15.7 12.3
------- ------ ------- ------- ------ -------- ------- -------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------ -------- ------- -------
Cost of revenue:
Software products...... 5.2 4.7 4.8 9.8 3.2 4.6 3.4 2.8
Service and other...... 16.0 16.0 13.8 18.3 8.8 10.0 10.5 15.4
------- ------ ------- ------- ------ -------- ------- -------
Total cost of
revenue............. 21.2 20.7 18.6 28.1 12.0 14.6 13.9 18.2
------- ------ ------- ------- ------ -------- ------- -------
Gross profit............ 78.8 79.3 81.4 71.9 88.0 85.4 86.1 81.8
------- ------ ------- ------- ------ -------- ------- -------
Operating expenses:
Product development.... 100.8 80.1 74.7 130.7 53.7 56.0 64.9 52.9
Sales and marketing.... 82.9 69.8 59.2 67.0 47.4 67.7 62.7 54.2
General and
administrative........ 49.4 36.8 25.8 33.9 18.6 16.0 16.4 15.0
Purchased in process
product development... -- -- -- -- -- 405.7 -- 7.4
Amortization of excess
of purchase price
over net assets
acquired.............. -- -- -- -- -- 1.5 3.5 3.9
------- ------ ------- ------- ------ -------- ------- -------
Total operating
expenses............ 233.1 186.7 159.7 231.6 119.7 546.9 147.5 133.4
------- ------ ------- ------- ------ -------- ------- -------
Loss from
operations.......... (154.3) (107.4) (78.3) (159.7) (31.7) (461.5) (61.4) (51.6)
Interest and other
income, net............ 0.6 0.2 2.1 4.3 0.3 0.2 1.1 3.0
------- ------ ------- ------- ------ -------- ------- -------
Net loss................ (153.7)% (107.2)% (76.2)% (155.4)% (31.4)% (461.3)% (60.3)% (48.6)%
======= ====== ======= ======= ====== ======== ======= =======
</TABLE>
24
<PAGE>
With the exception of the third quarter of fiscal 1996, the Company's revenue
has increased in each of the eight quarters ending December 31, 1996. The
decline in 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 of
fiscal 1996. The Company's cost of services and other revenue increased in the
quarter ended December 31, 1996 relative to the prior quarters due to the
addition of personnel and the inclusion of one month of expenses related to
CustomWare, which the Company acquired effective December 3, 1996. Similarly,
primarily as a result of the acquisition of PostModern in May 1996 and the
hiring of additional personnel in connection with the Company's distributed
object business, the Company's product development expenses increased
significantly in the two quarters ended December 31, 1996. 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.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, the Company completed the initial public offering of its
common stock. The Company sold 2,015,000 shares of Common Stock for net
proceeds of approximately $13.2 million. Prior to its initial public offering,
the Company financed its operations and met its capital requirements primarily
from proceeds from the private sales of Preferred and Common Stock. At December
31, 1996 the Company's principal sources of liquidity included cash and cash
equivalents of $9.1 million and a $3.0 million revolving line of credit
agreement which expires on July 15, 1997. Advances under the agreement, which
bear interest at the bank's prime lending rate plus 1.0%, are limited to 80% of
the Company's eligible accounts receivable and are secured by substantially all
of the assets and contractual rights of the Company. The line of credit
agreement also contains certain financial restrictions and covenants. As of
December 31, 1996, the Company was in compliance with these financial
restrictions and covenants. See Note 3 of Notes to Consolidated Financial
Statements of Visigenic. There were no borrowings outstanding under the
agreement as of December 31, 1996.
The Company's operating activities used cash of $2.2 million in fiscal 1994,
$4.6 million in fiscal 1995, $2.6 million in fiscal 1996 and $9.3 million in
the first nine months of fiscal 1997. 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
increased use of cash in the first nine months of fiscal 1997 was primarily due
to an increase in accounts receivable.
The Company used $477,000, $378,000, $1.1 million and $3.5 million of net
cash during fiscal 1994, fiscal 1995, fiscal 1996 and the first nine months of
fiscal 1997, respectively, for investing activities, due primarily to purchases
of property and equipment. Financing activities provided $5.6 million, $2.6
million, $5.5 million and $19.4 million of net cash during fiscal 1994, fiscal
1995, fiscal 1996 and the first nine months of fiscal 1997, respectively, due
to the issuance of Preferred and Common Stock and convertible notes and debt
financing.
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
December 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.
25
<PAGE>
BUSINESS
OVERVIEW
Visigenic Software, Inc. ("Visigenic" or the "Company") is a leading
independent provider of software tools for database access and distributed
object technologies for the Internet, Intranet and enterprise computing
environments. The Company's standards-based products facilitate the
development, deployment and management of distributed business applications by
providing database-independent access to leading databases and the
communication framework for distributed object 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 Borland, Cisco, Compuware, Healtheon,
Hewlett-Packard, Hitachi, Microsoft, Netscape, Oracle, Platinum technology and
Software AG.
INDUSTRY BACKGROUND
In today's increasingly 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. 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 access solutions.
. The increasing use of object technologies to provide distributed business
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 Access
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, 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 database access
application programming interface ("API") for C and C++ developers building
DBMS-independent applications. With ODBC, a single application can access
multiple databases on multiple platforms, avoiding the need for developers to
write different 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++, PowerSoft PowerBuilder
and the Oracle 2000 family, and Seagate Crystal Reports.
As the popularity of the Java programming language has increased, the need
for a database-independent data access solution for Java applications has
grown. JavaSoft, a subsidiary of Sun Microsystems, developed the Java Database
Connectivity ("JDBC") API to meet this requirement and provide a common base on
which higher level tools and interfaces can be built. Similar to the ODBC API,
the JDBC API provides a DBMS-independent interface to SQL databases from Java
applications and applets. Most leading DBMS and tools vendors have endorsed and
are developing products using the JDBC API.
26
<PAGE>
The Company believes that organizations will require standards-based database
access solutions like ODBC and JDBC to provide an open, consistent interface to
the multiple DBMSs that they support. Further, the Company believes that
database access must be centralized on the server to facilitate the
development, deployment, and management of distributed business applications
for the Internet, Intranet and enterprise computing environments.
Distributed Object Connectivity
In today's rapidly evolving computing environments, enterprises require
improved software application architectures as well as improved database
access. 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 a 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 application logic
resides on the most appropriate system.
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, which are 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 business applications
because they 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 communication and interoperability between objects that are distributed
over a network. The Common Object Request Broker Architecture ("CORBA")
specification, developed by the Object Management Group, 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 new and legacy applications using
ORBs, CORBA also specifies the Internet Inter-ORB Protocol ("IIOP"), which
defines a standard distributed messaging protocol for communication between
objects. IIOP is being adopted as a standard for communication between and
among distributed objects, and leading vendors, such as Netscape and Oracle,
have announced IIOP as a foundation technology for future product offerings.
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 specification, 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
framework. This meant that building enterprise-wide distributed applications
entailed writing a new, proprietary communication framework--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 framework 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
communication framework.
The Internet and Intranets Increase the Need for Distributed Applications
The Internet has become the most significant new medium for communication
between and among businesses, educational and government organizations and
individuals. The widespread use of the Internet by enterprises has resulted in
the emergence of Intranets, internal information systems based upon the
Internet infrastructure. The Internet and 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.
27
<PAGE>
The Internet and distributed object technologies are accelerating the
importance of distributed business applications. The Internet provides an
effective platform for fostering the growth of distributed object applications
while new distributed object technology is improving the quality of these
applications. The Internet and distributed object technologies are driving a
change in how organizations design, develop, deploy, and maintain business
applications. The Company believes new applications will be built from sets of
objects that run on the Internet and Intranets, interact with each other
through an Object Request Broker and access data using standards-based
database access technology.
VISIGENIC SOLUTION
Visigenic provides key software components that enable developers and IT
professionals to develop, deploy and manage distributed business applications.
The Company provides software tools for database access and distributed
objects for the Internet, Intranet and enterprise computing environments. The
Company's cross-platform database access products, based on the ODBC and JDBC
APIs, are open, flexible and cost effective for developing, deploying and
maintaining DBMS-independent applications. The Company's distributed object
products, consisting of CORBA-compliant Object Request Brokers, provide a
communication framework and enable the development and deployment of reliable,
flexible and cost-effective distributed business 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 which integrate legacy applications. The Company's
database access products provide application developers with the flexibility
to implement the database connection on the client, on the server or across
the Internet. The Company's distributed object products allow developers to
build applications that can be distributed over multiple client and server
machines and can interoperate with other CORBA-compliant and legacy
applications. This flexibility allows the enterprise to adapt its application
architecture to meet changing business and computing requirements.
Simplification of Distributed Application Development. Visigenic's products
simplify application development by reducing the time and expertise required
to develop applications. The Company's database access products allow
developers to access multiple DBMSs by writing to a single API rather than to
multiple proprietary APIs. The Company's distributed object products provide
the developer with the communication framework required for distributed object
applications, allowing the developer to focus on developing objects that
incorporate core business logic and facilitating the reuse of these objects in
multiple applications.
Simplification of Distributed Application Deployment. Visigenic's products
simplify the deployment of distributed applications. The VisiChannel product
line is based on Visigenic's server-centric ODBC and JDBC architecture that
shifts the database software components from clients to servers, thereby
simplifying deployment and centralizing administration. VisiBroker's agent-
based architecture reduces the deployment and administration effort for
distributed applications by dynamically tracking and documenting the existence
and location of all distributed objects on the network.
Support of Open Industry Standards. Visigenic's products for database access
and distributed objects 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 access standards
such as ODBC, X/Open SQL Access, and JDBC and distributed object standards
such as CORBA 2.0 and IIOP.
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 that reduce the
time and resources required to manage distributed applications. VisiChannel
Manager lets administrators view and manage all VisiChannel-
28
<PAGE>
based data access activity and key information about each active connection.
VisiBroker enables the management of distributed object applications with its
facility for monitoring the location, status and usage of distributed objects.
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 business 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 access
and distributed object technology. 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 standards-
setting organizations. For example, the Company was instrumental in
accelerating ODBC's acceptance as a standard for heterogeneous database access
by licensing certain ODBC enabling technology from Microsoft and providing the
VisiODBC SDK on Macintosh, OS/2 and many UNIX platforms. In addition, the
Company has developed the first commercial implementation of IIOP in its ORB
products. The Company intends to continue promoting 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 incorporate the Company's database access 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 VisiBroker
for C++ and VisiBroker for Java products and is a worldwide distributor
of the VisiBroker product line.
. Microsoft has entered into a series of agreements to incorporate certain
of the Company's VisiODBC products with certain Microsoft products and
to license to the Company the Microsoft ODBC SDK and test suites for
non-Microsoft operating systems.
. Netscape is a strategic investor in the Company and has entered into a
license agreement to incorporate VisiBroker for Java into Netscape's
client products, Navigator 4.0 and Communicator, and VisiBroker for C++
into Netscape's server products, Enterprise 3.0 and FastTrack 3.0.
. Oracle has entered into a license agreement with the Company to
incorporate the Company's VisiODBC 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 incorporate the Company's VisiODBC,
VisiChannel and VisiBroker products with certain Platinum technology
products.
Provide a Broad Suite of Integrated Products. The Company offers a suite of
software tools for database access and distributed objects. The Company intends
to develop new products, enhance its current products and continue to integrate
its database access technology with its distributed object technology to
address the requirements of the development, deployment and management of
business applications.
Leverage Product Sales by Providing Professional Services. To address the
growing demand for expertise in IIOP, CORBA and the development of distributed
object applications, the Company employs a staff of
29
<PAGE>
professional consultants and trainers who are experienced in database access
and distributed object technologies. The Company intends to continue to develop
and grow its professional service organization as a key differentiating
component of its sales strategy.
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 access, distributed objects
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 Internet/Intranet Market Opportunities. The Company
believes that the emergence of the Internet and Intranets will significantly
increase the market for database access and distributed object connectivity
software. Visigenic intends to leverage its products and expertise in
heterogeneous database access and distributed objects to exploit the market
opportunity for distributed applications for the Internet and Intranets.
Expand Distribution Channels Worldwide. To achieve broad distribution of its
database access and distributed object 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.
30
<PAGE>
PRODUCTS
The Company provides software tools for database access and distributed
object technologies for Internet, Intranet and enterprise computing
environments. The Company's products provide key software components that
enable developers and IT professionals to develop, deploy and manage
distributed business applications.
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 ACCESS
- -------------------------------------------------------------------------
VisiODBC Drivers 11/94 6/96 Windows 3.1 $95-$150/Driver
and DriverSet Windows 95 $295-$595/DriverSet
Windows NT
UNIX
Macintosh
OS/2
- -------------------------------------------------------------------------
VisiODBC SDK 11/94 6/96 UNIX $995/user
Macintosh
OS/2
- -------------------------------------------------------------------------
VisiChannel for ODBC 3/96 9/96 Windows 95 $500-$700/user
Windows NT
UNIX
- -------------------------------------------------------------------------
DISTRIBUTED OBJECT TECHNOLOGY
- -------------------------------------------------------------------------
VisiBroker for C++ 9/94 12/96 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/runtime
- -------------------------------------------------------------------------
VisiBroker for Java 4/96 12/96 Windows 95 $3,000-$5,000/
Windows NT developer
UNIX $150-$250/runtime
- -------------------------------------------------------------------------
VisiBroker Naming 12/96 12/96 Windows 95 $995/developer
Service for C++ and Windows NT
Java UNIX
- -------------------------------------------------------------------------
VisiBroker Events 12/96 12/96 Windows 95 $1,495/developer
Service for C++ and Windows NT
Java UNIX
</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.
31
<PAGE>
Database Access Products
The Visigenic software tools for database access are based on the ODBC and
JDBC standards and enable database access independent of both the DBMS and
platform. The database access products include the VisiODBC Drivers and
DriverSets, VisiODBC SDKs, VisiChannel for ODBC and VisiChannel for JDBC.
[DIGITIZED ARTWORK OF VISIODBC DRIVERS]
VisiODBC Drivers and DriverSets. The VisiODBC Drivers and DriverSets provide
cross-platform access to multiple SQL relational DBMSs--including Adabas, CA-
Ingres, IBM DB2, Informix, Microsoft SQL Server, Oracle and Sybase SQL Server
(DBLib and CTLib)--from any ODBC-enabled application. The VisiODBC 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 VisiODBC 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 the VisiODBC Oracle driver.
Likewise, to access an Informix DBMS, Microsoft Excel would send the same SQL
calls through a VisiODBC Informix driver. The Company sells VisiODBC drivers
separately or as the VisiODBC DriverSet, which consists of the full set of
VisiODBC drivers available for each platform. VisiODBC Drivers are available
for Windows, Windows NT, HP-UX, IBM AIX, SGI Irix, SCO, Solaris, and Power
Macintosh and OS/2. The Company initially released VisiODBC Drivers and
DriverSets in November 1994.
VisiODBC SDKs. VisiODBC SDKs allow developers to develop vendor-independent
database applications and ODBC drivers. Using the VisiODBC SDKs, developers
write database-independent C and C++ applications that communicate
simultaneously with multiple databases from different vendors. Each VisiODBC
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, HP-UX, IBM AIX,
SGI Irix, SCO, Solaris, Sun OS, Macintosh, Power Macintosh and OS/2. Visigenic
currently has the right to license and port the Microsoft ODBC SDK versions
2.X and 3.0 for Windows to all non-Microsoft platforms. The Company released
its first VisiODBC SDK in November 1994.
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<PAGE>
VISICHANNEL ARCHITECTURE
[DIGITIZED ARTWORK OF VISICHANNEL]
VisiChannel for ODBC. VisiChannel for ODBC provides an architecture that
simplifies database access in large distributed application environments such
as the Internet, Intranets and enterprise computing environment. VisiChannel
for ODBC'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 VisiChannel
Server for ODBC, where server-side ODBC drivers manage the actual database
connections. Since database connections are centralized, VisiChannel for ODBC
can reduce the time and resources spent on deploying and managing database
applications. In addition, the VisiChannel Manager is a monitoring tool that
allows IT professionals to monitor all VisiChannel connections and adjust
system configuration parameters from a single location.
VisiChannel for ODBC can be deployed for use with existing ODBC applications
without any changes to the client application. VisiChannel for ODBC is
optimized for large-scale ODBC traffic and runs over standard TCP/IP
transports, enabling it to be used for database access across the Internet.
The Company initially released VisiChannel for ODBC in March 1996. The
VisiChannel Server for ODBC is available for Windows NT, HP-UX and Sun
Solaris, and VisiChannel Clients are available for Windows, Windows NT, HP-UX,
and Sun Solaris. The Company expects to begin shipping VisiChannel Servers and
Clients for additional UNIX platforms in the first half of 1997.
VisiChannel for JDBC. VisiChannel for JDBC is a database access architecture
that enables Java applications or applets to access data through the Java
Database Connectivity, or JDBC, standard. As Internet, Intranet and Web-based
applications built in Java emerge, VisiChannel for JDBC will provide an
important solution for standards-based, high performance database access.
VisiChannel for JDBC is currently in beta test. The Company expects
VisiChannel for JDBC to be commercially available in the first half of 1997.
VisiChannel for JDBC is the first product to integrate Visigenic's database
access and CORBA/IIOP distributed object technologies. Its architecture
consists of a thin JDBC all-Java client side driver that communicates to a
VisiChannel for JDBC Server using the Internet standard, IIOP. The VisiChannel
for JDBC Server, using the ODBC database access standard, accesses data via
the appropriate ODBC database driver, either
33
<PAGE>
supplied with VisiChannel (Oracle, Sybase, Informix), or by third parties. This
allows enterprises to leverage their investment in their existing ODBC database
access infrastructure.
Distributed Object Products
Visigenic develops and markets two Object Request Broker products: VisiBroker
for C++ and VisiBroker for Java. Visigenic's ORBs, which are based on the CORBA
specification, provide an object-oriented solution for the development and
deployment of distributed applications. The VisiBroker product line also
includes two object services, Events and Naming, that are service extensions to
the CORBA specification. These services are extensions that developers
frequently need when implementing distributed object applications. In addition,
the Company has developed VisiBridge, a bridge from Microsoft ActiveX and DCOM
to CORBA-based applications.
VISIBROKER FOR JAVA AND VISIBROKER FOR C++ (OBJECT REQUEST BROKERS)
LOGO
[DIGITIZED ARTWORK OF VISIBROKER FOR JAVA]
VisiBroker for C++ and VisiBroker for Java share a common architecture. Both
products use IIOP as their internal communications protocol. IIOP is an
emerging Internet standard for distributed object messaging and is designed for
applications distributed across the Internet and Intranets. Each of the
Company's VisiBroker products is multi-threaded, facilitating scalability and
enhancing throughput. Applications developed using the Company's VisiBroker
products can support multiple concurrent threads to service both incoming and
outgoing object requests simultaneously, permitting objects within an
application to process a request without affecting the responsiveness of other
objects within the application. The Company's VisiBroker 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.
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<PAGE>
VisiBroker for C++. VisiBroker for C++ provides a communication framework
that enables the development, deployment and management of complex, distributed
C++ applications. VisiBroker for C++ 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 VisiBroker runtime component which manages the communication
among the distributed objects.
VisiBroker for C++ operates on SunOS, Solaris, Digital UNIX, HP-UX, IBM AIX,
SGI Irix, Windows NT and Windows 95 platforms. VisiBroker for C++ was first
released in September 1994 and the Company is currently shipping version 2.1.
VisiBroker for Java. VisiBroker for Java is the industry's first client and
server Java ORB. VisiBroker for Java enables distributed computing on the
Internet and Intranets. Like VisiBroker for C++, VisiBroker for Java consists
of a development component and a runtime component. The VisiBroker for Java
development component converts IDL interfaces into client-side and server-side
Java code. The VisiBroker for Java runtime is written entirely in Java and can
run in any Java-enabled Web browser. Netscape has entered into an agreement to
incorporate VisiBroker for Java runtime in Navigator 4.0 and Communicator
products. On the Internet, a user can load a client-side VisiBroker for 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 VisiBroker for Java development environment is available on Windows NT,
Windows 95 and Solaris. Distributed applications developed with VisiBroker for
Java can be deployed on any platform supporting the Java environment.
VisiBroker for Java was first released in April 1996.
VisiBroker Naming Service for C++ and Java. The VisiBroker Naming Service
allows for the association of meaningful names with objects, and simplifies the
management of object names within an application. Client applications are no
longer bound to the specific objects they wish to use by having to specify an
interface name. To enable more rapid connections, names are organized in a
hierarchical fashion according to the frequency of object access. The
combination of the VisiBroker ORB and its agent-based architecture, coupled
with the VisiBroker Naming Service, provides a highly available, self-
recovering naming service.
VisiBroker Events Service for C++ and Java. The VisiBroker Events Service, a
full implementation of the Object Management Group's CORBA Events Service
standard, allows applications to be informed of events as they occur. The new
service decouples communication between objects, asynchronously distributing
data to multiple objects. One or more objects, called "suppliers," send data to
an "event channel." The event channel then asynchronously distributes that data
to one or more objects referred to as "consumers." This supplier-consumer
communication model allows an object to communicate an important state change,
such as a file server's disk running out of free space, to any number of other
objects that might be interested in such an event.
The VisiBroker Naming Service and the VisiBroker Events Service were first
released in December 1996 and are currently available for Windows NT, Solaris
and Java environments.
VisiBridge. VisiBridge is currently in beta test and the Company expects it
to be commercially available in the first half of 1997. VisiBridge is a
connectivity tool that enables ActiveX controls implemented in Web pages,
Visual Basic applications or OLE-enabled applications to interoperate with
CORBA objects. This technology provides customers the flexibility to operate in
familiar Microsoft applications and development environments, with the added
benefit of transparently accessing distributed objects based on CORBA
standards. Developers using ActiveX-enabled tools such as Microsoft Excel or
Microsoft Access, or ActiveX-enabled development environments such as
Microsoft's Visual Basic and Visual C++, Borland's Delphi and Powersoft's
PowerBuilder, can build applications that transparently and easily access CORBA
objects over the Internet or Intranets. Additionally, VisiBridge also serves to
bridge the Microsoft DCOM environment to the VisiBroker
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<PAGE>
CORBA/IIOP environment. VisiBridge provides IT organizations that have a strong
commitment to Microsoft's standard for object development a way to access
environments where application functionality exists as CORBA objects.
CUSTOMERS
The Company's customers include the following:
FINANCIAL SERVICES NETWORK MANAGEMENT/SYSTEMS
MANAGEMENT
Global Trade Technologies
Merrill Lynch Bytex-A Division of Storage
Wells Fargo Bank Technology
Cisco
TELECOMMUNICATIONS Compuware
Embarcadero Technologies
Bell Northern Research ENlighten
British Telecom-North America Hewlett-Packard
DSC Communications Network General
MCI Telecommunications Platinum technology
INDEPENDENT SOFTWARE VENDORS AND VALUE ADDED RESELLERS
AimTech Corporation Oracle
Applix Premenos
AT&T Global Information Solutions Research Systems
Borland Software AG
Healtheon Starware
Hitachi UniSQL
Information Builders Vmark
Informix Software Wall Data
Investment Intelligence Systems Corporation
Wang
Microsoft XVT Software
Netscape
In fiscal 1996, one customer, Platinum technology, accounted for
approximately 25% of revenue and in the first nine months of fiscal 1997, two
customers, Platinum technology and Cisco, accounted for approximately 14% and
13%, respectively, of revenue. No other customer accounted for more than 10% of
revenue in either period. 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 sales to VAR and ISV customers will continue to represent
a significant portion of the Company's revenue in future periods. In fiscal
1996, approximately 78% of the Company's revenue was derived from ten
customers. In the first nine months of fiscal 1997, approximately 55% of the
Company's revenue was derived from ten customers.
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 VisiODBC 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.
Netscape. Netscape Communications Corporation, a leading provider of open
software for linking people and information over enterprise networks and the
Internet, has established IIOP and CORBA as the basis for the Netscape Open
Network Environment ("ONE") distributed object model. To provide this
distributed object model, Netscape has licensed the VisiBroker for Java runtime
to be included with every copy of Navigator 4.0 and Communicator and the
VisiBroker for C++ runtime in the Enterprise and FastTrack Server products.
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<PAGE>
Platinum technology. Platinum technology, a leading 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 VisiODBC technology and VisiChannel 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.
SALES AND MARKETING
The Company's sales and marketing 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; Denver, Colorado; Atlanta, Georgia; Chicago, Illinois;
Boston, Massachusetts; Dallas, Texas; 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% and 12% of revenue in fiscal 1996 and the first nine months
of fiscal 1997, respectively. The Company is working with its distributors to
develop end user, ISV, VAR and SI relationships in their respective
territories. As of December 31, 1996, the Company had 22 international
distributors.
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 access and
distributed object 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 December 31, 1996, the Company's sales organization included 40
employees and its marketing organization included 13 employees. An increase in
the sales 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 access and distributed object 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
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<PAGE>
the future, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Risk Factors--Reliance
on VARs and ISVs" and "--International Sales."
PROFESSIONAL SERVICES
The Company believes that a high level of customer service and support is
critical to the Company's success. The Company's professional services
organization provides product training, specialized consulting, and product
support. These services are designed to promote the successful development and
deployment of distributed business applications built with Visigenic's
database access and distributed object products.
Consulting and Training. Visigenic's consulting services include application
design and development, strategy assessments, project mentoring and technology
transfer enabling the customer to choose the level of service that fits their
development needs. Visigenic's consultants are experienced in distributed
objects, database access, and application architecture. The Company
complements its consulting services with a training curriculum that includes
product training, and complementary technologies, such as Java, CORBA, ODBC
and JDBC.
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.
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 access technology with distributed object 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 the 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
access products will include development of VisiODBC SDKs, VisiODBC drivers
compliant with the ODBC 3.0 specification as well as additional features for
its VisiChannel 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 expects to enhance its VisiBroker for C++ and VisiBroker for
Java products and expand its distributed object 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
VisiBroker for C++ product, the OTS interface implementations and OpenTP1,
Hitachi's advanced transaction processing engine.
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<PAGE>
The Company also intends to continue to leverage its technologies to provide
integrated database capabilities for its VisiBroker product line. VisiChannel
for JDBC is the first product that integrates the database access and
CORBA/IIOP technologies. VisiChannel for JDBC is expected to be commercially
available in the first half of 1997. The Company's VisiBroker products will
provide a more complete distributed object solution, addressing both the
distributed object and database access requirements of its customer base.
As of December 31, 1996, there were 61 employees on the Company's research
and development staff. The Company's product development expenditures in fiscal
1995, fiscal 1996 and the first nine months of fiscal 1997 were $3.2 million,
$4.3 million and $6.7 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" and "--
Dependence on Java; Risks Associated with Encryption Technology."
COMPETITION
The Company's products are targeted at the emerging markets for standards-
based database access software and standards-based distributed object 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 access market, the Company competes
principally against Intersolv. The Company's database access products also
indirectly compete against proprietary database access solutions from database
vendors. In the standards-based distributed object market, the Company competes
principally against two private companies, Iona and Expersoft. The Company's
distributed object products also compete against existing or proposed
distributed object 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 access and distributed object software continues to develop
and expand. In particular, relational database vendors including Informix,
Microsoft, Oracle and Sybase may offer standards-based database access 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 products bundled
with their operating systems. For instance, Microsoft introduced DCOM, which
could reduce or 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.
39
<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 products 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 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, results of operations 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, results of operations and financial condition.
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 the base technology for the VisiODBC SDK products from
Microsoft, security technology it plans to use in several of its future
products from RSA and Talarian SmartSockets from Talarian for inclusion into a
version of the VisiChannel product line. Microsoft has the right to terminate
its license with the Company any time after delivery to the Company of the
Microsoft SDK for ODBC 3.0, which occurred in December of 1996. In addition, in
January 1997, Microsoft notified the Company that Microsoft would convert its
license to the Company from an exclusive to a non-exclusive license. The
Company's licenses with RSA and
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<PAGE>
Talarian may only be terminated for material breach. The Company has entered
into a joint technology agreement with JavaSoft, a subsidiary of Sun, that
grants the Company the right to sublicense 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 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, results of operations and financial
condition. See "Risk Factors--Dependence on Company and Third Party Proprietary
Technology."
EMPLOYEES
As of December 31, 1996, the Company employed 161 full time personnel,
including 61 in product development, 25 in professional services, 53 in sales
and marketing and 22 in finance and administration. See "Risk Factors--
Dependence on Key Personnel; Need to Increase Technical and Sales Personnel."
FACILITIES
The Company's principal executive offices and research and development
facilities are located in San Mateo, California and consist of approximately
35,000 square feet under leases that will expire between November 2001 and
January 2002. The Company has sales offices in Atlanta, Boston, Chicago,
Dallas, Denver, 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.
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<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.......... 36 President and Chief Operating Officer
Jens Christensen, 33 Vice President, Chief Technical Officer and Director
Ph.D...................
Kevin C. Eichler........ 37 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Scott Chalmers.......... 52 Vice President, Worldwide Sales
Robert Macdonald........ 40 Vice President, Marketing
Robert Perreault........ 39 Vice President, Professional Services
Gill Cogan (2).......... 44 Director
Cristina M. Morgan...... 44 Director
Michael Moritz.......... 42 Director
J. Sidney Webb (1)...... 77 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 serves as the Chairman of the Board. Mr. Sippl served
as a director of Vantive since December 1990 until his appointment as Chairman
in December 1996. Prior to his relationship with Vantive, Mr. Sippl founded
Informix Software, a database software company ("Informix"), in 1980 and
served as that company's President and Chief Executive Officer until 1989, and
its Chairman of the Board until December 1992.
Mark D. Hanson has served as President and Chief Operating Officer of the
Company since January 1995. Mr. Hanson served as Vice President, 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, a database software
company, and Vice President, International Sales of Gain Technology ("Gain"),
a software company, before the acquisition of Gain by Sybase. From January
1991 to June 1992, Mr. Hanson served as Vice President, Worldwide 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.
Kevin C. Eichler has served as Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since July 1996. From July
1995 to July 1996, Mr. Eichler served as Executive Vice President, Finance,
and Chief Financial Officer for National Insurance Group, a financial services
and related technology
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solution provider. From January 1991 to June 1995, Mr. Eichler served as
Executive Vice President, Finance and Chief Financial Officer for Mortgage
Quality Management, Inc., a national provider of quality control services and
technologies to residential mortgage lenders. From January 1990 to January
1991, Mr. Eichler served as Tax Manager, Corporate Finance for NeXT Software,
Inc., a software company. From May 1988 to January 1990, Mr. Eichler served as
Domestic Tax Manager for Microsoft Corporation, a software company.
Robert J. Macdonald has served as Vice President, Marketing of the Company
since September 1996. Prior to that, Mr. Macdonald was employed for over 10
years at Informix where he held various positions, the most recent being Vice
President, Corporate Marketing.
Scott Chalmers has served as Vice President, Worldwide Sales of the Company
since October 1996. Prior to joining the Company, Mr. Chalmers was employed for
six years at Informix, where he held various positions, the most recent being
Vice President of U.S. Sales. Mr. Chalmers has had 25 years experience in
senior sales and management positions at such companies as Cullinet, AT&T
Information Systems and IBM.
Robert Perreault has served as Vice President, Professional Services of the
Company since September 1996. Mr. Perreault served as Vice-President of
Research and Development from September 1995, when he joined the Company, until
his appointment as Vice-President, Professional Services. 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.
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.
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. Hambrecht & Quist
LLC is a managing underwriter of the offering made hereby.
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.
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.
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 Bylaws 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.
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<PAGE>
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(/1/)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------
ANNUAL
COMPENSATION AWARDS
------------ -----------------
NO. OF SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY (2) OPTIONS
- --------------------------- ------------ -----------------
<S> <C> <C>
Roger J. Sippl ................................. $ 90,001 --
Chairman of the Board and Chief Executive
Officer
Mark D. Hanson.................................. $140,000 62,500
President and Chief Operating Officer
Therese H. Langlais (3)......................... $106,667 27,500
Vice President, Marketing
David T. Shewmake (3)........................... $115,000 10,000
Vice President, Technical Services
Richard L. Gerould (3).......................... $115,000 15,000
Vice President, Corporate Development and
General Counsel
</TABLE>
- --------
(1) In fiscal 1997, the Company hired Jens Christensen as Vice President and
Chief Technical Officer, Kevin C. Eichler as Vice President, Finance,
Chief Financial Officer, Treasurer and Secretary, Scott Chalmers as Vice
President, Worldwide Sales and Robert Macdonald as Vice President,
Marketing. Based on their respective annual salaries, each of the above-
referenced officers would have earned in excess of $100,000 had they been
with the Company for all of fiscal 1997.
(2) Amounts shown are on a full year basis and include cash and noncash
compensation earned and received by executive officers.
(3) In January 1997, Ms. Langlais was transferred to the position of Vice
President of the Company, in October 1996, Mr. Shewmake began reporting to
Mr. Eichler as the Director of Information Technology and in October 1996,
Mr. Gerould began reporting to Mr. Chalmers as Vice President, Business
Development.
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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 $ 560,113 $ 897,810
12,500 1.5 $0.40 07/27/05 280,057 448,905
12,500 1.5 $0.40 10/25/05 280,057 448,905
12,500 1.5 $0.40 03/31/06 280,057 448,905
Therese H.
Langlais.. 7,500 0.9 $0.40 04/18/05 168,034 269,343
10,000 1.2 $0.40 07/27/05 224,045 359,124
10,000 1.2 $0.40 03/15/06 224,045 359,124
David T.
Shewmake.. 2,500 0.3 $0.40 04/18/05 56,011 89,781
7,500 0.9 $0.40 03/15/06 168,034 269,343
Richard L.
Gerould... 5,000 0.6 $0.40 04/18/05 112,023 179,562
10,000 1.2 $0.40 03/15/06 224,045 359,124
</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 option shares
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 ten years, subject to earlier termination in certain situations
related to termination of employment. See "--Stock Plans" for a
description of the material terms of the options.
(2) Based on a total of 820,750 options granted to all employees and
consultants during fiscal 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 calculated based on the assumption that
the fair market value of the Common Stock at the date of grant is the
public offering price of $14.00, and 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% annual rates of stock price
appreciation from the date of grant to the end of the option term 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
actual appreciation in the price of the Common Stock from the date of
grant to the present.
45
<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:
AGGREGATE OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT 3/31/96
OPTIONS AT 3/31/96 (1) (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 nontransferable 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 his
or her benefit or a partnership in which only the optionee and immediate
family members are partners.
Of the 2,500,000 shares of Common Stock reserved for issuance under the
Option Plan as of December 31, 1996, a total of 256,434 shares had been issued
upon the exercise of options, of which 124,906 remain subject to
46
<PAGE>
repurchase, options for the purchase of a total of 1,959,950 shares at a
weighted average exercise price of $6.69 per share were outstanding and
283,616 shares were available for future option grants.
1996 Outside Directors Stock Option Plan. A total of 200,000 shares of
Common Stock have been reserved for issuance under the Company's 1996 Outside
Directors Stock Option Plan (the "Directors Plan"), none of which have been
issued as of the effective date of this offering. 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,
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 equals 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. A total of 450,000 shares of Common
Stock have been reserved for issuance under the Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan"), none of which have been issued as of the
date of this Prospectus. 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 is implemented by sequential six-month offerings, the first of
which commenced on the effective date of the Company's initial public
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
period 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) 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
47
<PAGE>
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. Under the Directors
Plan, directors who are not employees of the Company receive yearly grants of
options to purchase Common Stock. 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
J. 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 Restated Certificate of Incorporation
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 the 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 Restated Certificate of Incorporation 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 has entered 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 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 Bylaws covers at least
negligence and gross negligence on the part of the indemnified party.
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.
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
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) Represents 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 the Company's initial public offering in August
1996, all outstanding shares of Series A Preferred Stock converted 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 and J. Sidney Webb, 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
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) Represents 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) 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.
(7) 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.
Upon the consummation of the Company's initial public offering in August
1996, all outstanding shares of Series B Preferred Stock converted 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 principal amount of $2.0 million. Cisco
purchased 222,222 of these shares, and a note in the principal amount of $1.0
million. Upon the consummation of the Company's initial public offering in
August 1996, all outstanding shares of Series C Preferred Stock converted into
shares of Common Stock on a one-for-one basis, and the amount borrowed by the
Company pursuant to the convertible notes converted into shares of the
Company's Common Stock at a conversion price equal to $7.50 per share.
In connection with the merger of 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
50
<PAGE>
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 RogerLabs, Inc. ("RLI") 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 RLI.
In June 1996, the Company acquired certain technology and other assets being
developed by RLI that the Company expects it may use in a future product or
products. The Company paid Mr. Sippl $40,000 to acquire these assets. RLI's
cost of development of the technology, consisting chiefly of salaries of RLI
employees and fees paid to consultants, exceeded the price paid by the Company.
In connection with the asset sale, five employees of RLI became employees of
Visigenic.
The Company has entered into non-compete agreements with certain employees
who joined the Company in connection with the PostModern merger. The Company
has entered into indemnification agreements with each of its directors and
executive officers. Such indemnification agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law.
Cristina Morgan, a director of the Company, is a Managing Director of
Hambrecht & Quist LLC, an investment banking firm. Hambrecht & Quist LLC is a
managing underwriter of this offering. See "Management--Directors and Executive
Officers," and "Principal and Selling Stockholders."
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 December 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>
EXECUTIVE OFFICERS AND
DIRECTORS
Roger J. Sippl (2)...... 2,468,750 19.4% -- 2,468,750 17.8%
Mark D. Hanson (3)...... 285,000 2.2 -- 285,000 2.0
Jens Christensen (4).... 1,529,720 12.0 65,116 1,399,487 10.5
Therese H. Langlais
(5).................... 118,310 * -- 118,310 *
David T. Shewmake (6)... 45,435 * -- 45,435 *
Richard L. Gerould (7).. 90,125 * -- 90,125 *
Michael Moritz (8)...... 740,500 5.8 -- 629,426 4.6
Cristina M. Morgan (9).. 109,374 * -- 109,374 *
Gill Cogan (10)......... 592,500 4.7 -- 522,500 3.8
J. Sidney Webb (11)..... 70,000 * -- 70,000 *
Eric Young (12)......... 550,000 4.3 -- 350,000 4.0
All executive officers
and directors as a
group
(12 persons) (13)...... 6,846,938 51.5 66,116 6,724,790 46.4
5% STOCKHOLDERS
Elizabeth G. Salmon
(14)................... 2,468,750 19.4 -- 2,468,750 17.8
Neguine Navab (15)...... 1,529,720 12.0 65,117 1,399,487 10.5
Prasad Mokkapati (16)... 769,235 6.0 75,000 694,235 5.1
Funds affiliated with
Sequoia Capital (17)... 740,500 5.8 111,074 629,426 4.6
3000 Sand Hill Road
Menlo Park, California
94025
OTHER SELLING
STOCKHOLDERS
Blumenfield, Neil R. 65,000 * 2,000 63,000 *
(18)...................
Boich, Michael D........ 5,000 * 5,000 -- *
Canaan Capital Partners 550,000 4.3 200,000 350,000 2.5
(19)...................
Cisco Systems........... 357,574 2.8 71,515 286,060 2.1
Challa, Suresh (20)..... 346,507 2.7 30,000 316,507 2.3
The deBenedetti Family 20,750 * 5,000 15,750 *
Trust..................
Demour, Alain (21)...... 127,952 1.0 30,000 89,967 *
Fiust, Cheryl (22)...... 10,000 * 2,333 7,667 *
Forrester, Richard 22,500 * 500 22,000 *
(23)...................
LaForce, Nathan......... 300 * 300 -- *
Lampson, Dale (24)...... 26,249 * 1,000 25,249 *
Mahler, Paul (25)....... 10,000 * 7,000 3,000 *
Missire, Marc A. (26)... 17,500 * 500 17,000 *
Moore, Kelly (27)....... 2,250 * 637 1,613 *
</TABLE>
52
<PAGE>
<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>
Netscape Communications 178,953 1.4 35,791 143,162 1.0
Corporation............
O'Neil, Tim (28)........ 3,000 * 708 2,292 *
Parfitt, Richard (29)... 15,000 * 1,500 13,500 *
Park, Thom (30)......... 25,000 * 2,000 23,000 *
Perreault, Robert (31).. 89,999 * 1,000 87,159 *
Platinum technology, 178,787 1.4 13,409 165,378 1.2
Inc. (32)..............
Quai Limited (33)....... 50,000 * 20,000 30,000 *
Sidebottom, Thomas 20,000 * 2,500 17,500 *
(34)...................
Smith, Sharlo (35)...... 11,250 * 1,000 10,250 *
Weiss, Peck & Greer 592,500 4.7 70,000 522,500 3.8
Venture Partners (36)..
</TABLE>
- --------
* Represents less than 1%.
(1) The amounts reported in this table include shares of Common Stock
issuable upon the automatic conversion of outstanding Preferred Stock,
which conversion will occur upon consummation of this offering. Based on
12,715,390 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 December 31, 1996. Unless otherwise indicated, the address of
each of the named individuals is: c/o Visigenic Software, Inc., 951
Mariner's Island Boulevard, Suite 120, San Mateo, California 94404.
(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.
See footnote 14.
(3) Includes 138,700 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also includes 40,000 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 4,750 shares held by Ms. Langlais, as Co-Trustee of the Halloran
1990 Living Trust dated March 12, 1990. Also includes 32,167 shares
subject to a right of repurchase in favor of the Company which lapses
over time. Also includes 20,000 shares issuable upon exercise of options.
(6) Includes 12,250 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also includes 10,000 shares issuable upon
exercise of options.
(7) Includes 36,209 shares subject to a right of repurchase in favor of the
Company which lapses over time.
(8) Represents 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 3,334 shares subject to a right of repurchase in favor of the
Company which lapses over time. Also 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 except to the extent of her proportional
interest therein.
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(10) Represents all shares held by entities affiliated with Weiss, Peck &
Greer Venture Partners. See footnote 36 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.
(11) Includes 3,334 shares subject to a right of repurchase in favor of the
Company which lapses over time.
(12) Represents 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, footnote 17, footnote 19,
footnote 31 and footnote 36. Includes 2,935 shares held by and 95,000
shares issuable upon exercise of options by Kevin C. Eichler. Includes
165,000 shares issuable upon exercise of options by Robert Macdonald.
Includes 72,500 shares issuable upon exercise of options by Mr.
Perreault. Also includes 150,000 shares issuable upon exercise of options
by Scott Chalmers. Of the 66,116 shares sold by the executive officers
and directors of the Company, Mr. Christensen intends to sell 65,116
shares and Mr. Perreault intends to sell 1,000 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. See
footnote 2 above.
(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 V, 37,025 shares held
by Sequoia Technology Partners V, 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. Of the 740,500 shares
to be sold by these affiliated with Sequoia Capital, 101,078 shares will
be sold by Sequoia Capital V, 5,553 shares will be sold by Sequoia
Technology Partners V, 2,823 shares will be sold by Sequoia XXIII and the
remaining 1,620 shares will be sold by Sequoia XXIV. See footnote 8
above.
(18) Includes 5,000 shares issuable upon exercise of options. Also includes
27,000 shares subject to a right of repurchase in favor of the Company.
(19) Represents 446,500 shares held by Canaan Capital Offshore Limited
Partnership C.V., ("Offshore") 53,500 shares held by Canaan Capital
Limited Partnership ("CCLP") and 50,000 shares held by Quai Limited
("Quai"). Eric Young is a director of the Company and is a general
partner of Offshore and CCLP. Quai is a limited partner of Canaan
Partners. Eric Young holds no voting or dispositive control over shares
held by Quai, and he disclaims beneficial ownership of such shares. Of
the 200,000 shares to be sold by entities affiliated with Canaan Capital
Partners, 21,400 shares will be sold by CCLP and the remaining 178,600
shares will be sold by Offshore. 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 89,967 shares issuable upon exercise of options.
(22) Includes 7,667 shares issuable upon exercise of options.
(23) Includes 2,500 shares issuable upon exercise of options. Also includes
5,334 shares subject to a right of repurchase in favor of the Company
which lapses over time.
(24) Includes 20,000 shares issuable upon exercise of options.
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<PAGE>
(25) Includes 3,000 shares issuable upon exercise of options.
(26) Includes 7,500 shares issuable upon exercise of options. Also includes
2,334 shares subject to a right of repurchase in favor of the Company
which lapses over time.
(27) Includes 1,613 shares issuable upon exercise of options.
(28) Includes 2,292 shares issuable upon exercise of options.
(29) Includes 13,500 shares issuable upon exercise of options.
(30) Includes 23,000 shares issuable upon exercise of options.
(31) Includes 72,500 shares issuable upon exercise of options. Mr. Perreault is
Vice President, Professional Services for the Company.
(32) Represents 134,000 shares held by Platinum Technology, Inc. and 44,697
shares held by Platinum Venture Partners II, L.P.
(33) See footnote 19 above.
(34) Includes 17,500 shares issuable upon exercise of options.
(35) Includes 10,250 shares issuable upon exercise of options.
(36) 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. Of the 70,000 shares being sold by these
affiliated Weiss, Peck & Greer entities, 5,894 shares will be sold by
Weiss, Peck & Greer Venture Associates II (Overseas), Ltd., 26894 shares
will be sold by Weiss, Peck & Greer Venture Associates II, and the
remaining 37,212 shares will be sold by WPG Enterprise Fund. See footnote
10 above.
55
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock, par value $0.001 per
share. 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 Restated Certificate of
Incorporation and Bylaws 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 December 31, 1996, there were approximately 12,715,390 shares of
Common Stock outstanding held of record by approximately 210 stockholders. 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 6,089,850 shares held by holders of Common Stock issued upon
conversion of Preferred Stock and convertible notes, the founder and certain
employees of the Company, 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.
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,
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<PAGE>
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 Restated Certificate of Incorporation requires 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
certain officers of the Company. The Restated Certificate of Incorporation
provides 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, 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 voting power of all outstanding stock, and that
certain amendments of the Company's Restated Certificate of Incorporation, and
all amendments by the stockholders of the Company's Bylaws, require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
shares. 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.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
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 13,895,390 shares of Common Stock, assuming (i) the issuance of
1,180,000 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 December 31, 1996. Of these shares, on the date of
this Prospectus, the 2,000,000 shares sold in the offering and approximately
2,786,355 additional shares already outstanding 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 9,109,035 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 90 days after the date
of this Prospectus and at various times over a period of less than two years,
such shares will become eligible for sale, subject in most cases to the
limitations of Rule 144 and Rule 701. In addition, holders of stock options
could exercise these options and sell certain of the shares issued upon
exercise as described below.
As of December 31, 1996, there were a total of 1,959,950 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 90 day
lock-up agreement described below, and all other options are subject to a 90
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 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 139,000 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 the Company's
initial public offering are now entitled to sell such shares 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 has filed registration statements under the Securities Act 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.
As of December 31, 1996, the holders of approximately 6,089,850 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
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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."
Stockholders of the Company who will beneficially own in the aggregate
7,809,013 shares of Common Stock after the offering 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 90 days after the effective date of the offering without the prior
written consent of Hambrecht & Quist LLC.
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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.......................................................... 2,000,000
=========
</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 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 public offering of the shares, the offering price and other selling
terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the 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 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 Company and its executive officers and directors, the Selling
Stockholders and certain other stockholders of the Company who will own in the
aggregate 7,809,013 shares of Common Stock after this offering, have agreed
that they will not, without the prior written consent of Hambrecht & Quist
LLC, 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 securities convertible into or exchangeable or exercisable for any other
rights to purchase or acquire shares of Common
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Stock owned by them during the 90-day period following the effective date of
the Registration Statement for this offering, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, may grant
additional options under its stock option plans, and may issue shares pursuant
to the Company's Employee Stock Purchase Plan.
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.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits,
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making
in the Company's Common Stock during the cooling off period.
Hambrecht & Quist LLC and Robertson, Stephens & Company LLC served as co-
managing underwriters of the Company's initial public offering in August 1996,
and received customary discounts and commissions in connection therewith.
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 December 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, Palo Alto, California. 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.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov. The Company's Common Stock is quoted for trading on The
Nasdaq National Market and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus 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 the
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office in Washington, D.C. 20549
or the Commission's Web site and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission.
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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
January 27, 1997
F-2
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1995 1996 1996
------- -------- ------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 553 $ 2,399 $ 9,064
Accounts receivable, net of allowance for
doubtful accounts
of $0, $60 and $145......................... 472 760 5,605
Prepaid compensation......................... -- -- 645
Other current assets......................... 175 257 597
------- -------- --------
Total current assets....................... 1,200 3,416 15,911
------- -------- --------
PROPERTY AND EQUIPMENT, net.................... 607 1,349 2,543
OTHER ASSETS, net:
Excess of purchase price over net assets
acquired.................................... -- -- 1,384
Other........................................ 22 55 83
------- -------- --------
$ 1,829 $ 4,820 $ 19,921
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $ 201 $ 811 $ 716
Accrued liabilities-
Payroll and related benefits................ 86 347 1,320
Other....................................... 122 301 916
Deferred revenue............................. 303 1,141 1,673
------- -------- --------
Total current liabilities.................. 712 2,600 4,625
------- -------- --------
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value,
aggregate liquidation preference of $17,414
Authorized--10,000,000 shares at March 31,
1996; 2,000,000 at December 31, 1996.
Outstanding--Series A, 803,000 shares in
1995, 1996;
Series B, 1,496,625 shares in 1995 and
2,871,625
shares in 1996............................ 3 4 --
Common stock, $.001 par value,
Authorized--20,000,000 shares at March 31,
1996;
50,000,000 at December 31, 1996
Outstanding--2,782,877 shares in 1995,
2,835,905 shares
in 1996 and 12,715,390 shares at December
31, 1996.................................. 3 3 12
Additional paid-in capital................... 8,194 13,675 45,017
Accumulated deficit.......................... (7,083) (11,462) (29,733)
------- -------- --------
Total stockholders' equity................. 1,117 2,220 15,296
------- -------- --------
$ 1,829 $ 4,820 $ 19,921
======= ======== ========
</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>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software products............ $ -- $ 892 $ 4,479 $ 2,417 $ 9,895
Service and other............ -- 223 1,096 888 1,639
------- ------- ------- -------- ---------
Total revenue.............. -- 1,115 5,575 3,305 11,534
------- ------- ------- -------- ---------
COST OF REVENUE:
Software products............ -- 36 284 212 399
Service and other............ -- 259 727 526 1,430
------- ------- ------- -------- ---------
Total cost of revenue...... -- 295 1,011 738 1,829
------- ------- ------- -------- ---------
GROSS PROFIT................... -- 820 4,564 2,567 9,705
------- ------- ------- -------- ---------
OPERATING EXPENSES:
Product development.......... 1,393 3,160 4,348 3,130 6,650
Sales and marketing.......... 503 1,511 3,215 2,138 6,977
General and administrative... 600 872 1,465 1,042 1,814
Purchased in process product
development................. -- -- -- -- 12,364
Amortization of excess of
purchase price over net as-
sets acquired............... -- -- -- -- 361
------- ------- ------- -------- ---------
Total operating expenses... 2,496 5,543 9,028 6,310 28,166
------- ------- ------- -------- ---------
Loss from operations....... (2,496) (4,723) (4,464) (3,743) (18,461)
INTEREST AND OTHER INCOME,
net........................... 42 94 85 77 190
------- ------- ------- -------- ---------
NET LOSS....................... $(2,454) $(4,629) $(4,379) $ (3,666) $ (18,271)
======= ======= ======= ======== =========
PRO FORMA NET LOSS PER SHARE... $ (.40) $ (.33) $ (1.51)
======= ======== =========
PRO FORMA WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT
SHARES........................ 11,064 11,008 12,141
======= ======== =========
</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
Issuance of Series C
convertible preferred
stock (unaudited)..... 444,444 -- -- -- 4,000 -- 4,000
Issuance of common
stock in connection
with the acquisition
of PostModern
Computing Technologies
Inc. (unaudited)...... -- -- 3,099,821 3 10,382 -- 10,385
Exercise of stock
options (unaudited)... -- -- 202,366 -- 91 -- 91
Issuance of common
stock in public
offering, net of
issuance costs of
$1,908 (unaudited).... -- -- 2,015,000 2 13,202 -- 13,204
Conversion of preferred
stock in public
offering (unaudited)
...................... (4,119,069) (4) 4,119,069 4 -- -- --
Conversion of
convertible notes
(unaudited)........... -- -- 270,871 -- 2,031 -- 2,031
Issuance of common
stock in connection
with the acquisition
of CustomWare,
Inc. (unaudited)...... -- -- 125,000 -- 1,500 -- 1,500
Issuance of common
stock (unaudited)..... -- -- 47,358 -- 136 -- 136
Net loss (unaudited)... -- -- -- -- -- (18,271) (18,271)
---------- ----- ---------- ---- ------- -------- --------
BALANCE, DECEMBER 31,
1996 (unaudited)....... -- $ -- 12,715,390 $ 12 $45,017 $(29,733) $ 15,296
========== ===== ========== ==== ======= ======== ========
</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>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................... $(2,454) $(4,629) $(4,379) $ (3,679) $ (18,271)
Adjustments to reconcile net
loss to net cash used in
operating activities--
Depreciation and
amortization............... 67 158 310 212 795
Purchased in process product
development................ -- -- -- -- 12,364
Provision for allowance for
doubtful accounts.......... -- -- 60 45 85
Changes in net assets and
liabilities, net of
acquisition of PostModern
and CustomWare--
Increase in accounts
receivable................ -- (472) (348) (1,317) (4,584)
Increase in prepaid
expenses and other current
assets.................... (35) (139) (82) (56) (887)
Increase in accounts
payable................... 148 53 610 417 (186)
Increase in accrued
liabilities............... 66 142 440 170 1,075
Increase in deferred
revenue................... -- 303 838 655 349
------- ------- ------- -------- ---------
Net cash used in operating
activities............... (2,208) (4,584) (2,551) (3,553) (9,260)
------- ------- ------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for purchase of
PostModern and CustomWare,
net of cash acquired........ -- -- -- -- (1,919)
Purchases of property and
equipment................... (457) (373) (1,052) (778) (1,553)
Organization costs and other
assets...................... (20) (5) (33) (18) (34)
------- ------- ------- -------- ---------
Net cash used in investing
activities............... (477) (378) (1,085) (796) (3,506)
------- ------- ------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
convertible notes........... -- -- -- -- 2,000
Net proceeds from issuance of
preferred stock............. 5,345 2,465 5,460 5,469 4,000
Net proceeds from issuance of
common stock................ 241 149 22 -- 13,431
------- ------- ------- -------- ---------
Net cash provided by
financing activities..... 5,586 2,614 5,482 5,469 19,431
------- ------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.......... 2,901 (2,348) 1,846 1,120 6,665
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........... -- 2,901 553 553 2,399
------- ------- ------- -------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 2,901 $ 553 $ 2,399 $ 1,673 $ 9,064
======= ======= ======= ======== =========
</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
(INFORMATION RELATING TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
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 including, but not limited to, dependence on key personnel;
limited operating history and a history of losses; and the need to develop new
software products and product enhancements.
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,
-------------- DECEMBER 31,
1995 1996 1996
----- ------- ------------
<S> <C> <C> <C>
Computer equipment............................ $ 453 $ 1,126 $ 2,215
Furniture and fixtures........................ 125 320 552
Purchased software............................ 239 401 654
Leasehold improvements........................ 12 34 80
----- ------- -------
829 1,881 3,501
Less--Accumulated depreciation and
amortization................................. (222) (532) (958)
----- ------- -------
Property and equipment, net................. $ 607 $ 1,349 $ 2,543
===== ======= =======
</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 percentage of the VAR's or ISV's 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 and Related Parties
A relatively small number of customers have accounted for a significant
percentage of the Company's total revenue. The following four customers
accounted for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
------------- NINE MONTHS ENDED
1995 1996 DECEMBER 31, 1996
----- ----- -----------------
<S> <C> <C> <C>
Customer A................................. 55% * *
Customer B................................. 20% * *
Customer C................................. * 25% 14%
Customer D................................. * * 13%
</TABLE>
- --------
*less than 10%
Customers C and D are related parties as they were purchasers of Series C
convertible preferred stock in May 1996 and were also holders of the
convertible notes payable to stockholders (see Note 5). Accounts receivable
from these related parties as of December 31, 1996 totalled approximately $1.8
million.
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 and for the nine months ended
December 31, 1996 export sales were 12% of total revenues.
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
F-9
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
Company's initial public offering 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 occurred upon consummation of the Company's
initial public offering.
Unaudited Interim Financial Data
The unaudited interim financial statements as of December 31, 1996 and for
the nine months ended December 31, 1995 and 1996 have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The data
disclosed in the notes to the consolidated financial statements for these
periods are unaudited. The results of operations for the nine months ended
December 31, 1996 are not necessarily indicative of the results to be expected
for any future period.
3. LINE OF CREDIT:
The Company has a $3.0 million revolving line of credit agreement (the
"Agreement") with a bank, which expires on July 15, 1997. 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 which require, among others, that the Company maintain a minimum
monthly tangible net worth, and a minimum monthly ratio of debt to equity. In
addition, the Agreement prohibits the Company from paying dividends without
prior bank consent. As of March 31 and December 31, 1996, the Company was in
compliance with the financial covenants. There were no borrowings outstanding
under the Agreement as of March 31, 1996 or December 31, 1996.
4. COMMITMENTS:
The Company leases its facilities under operating lease agreements expiring
through January 2002. 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, including leases executed through December
31, 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
EAR ENDINGY
MARCH 31,
- -----------
<S> <C>
1997................................................................... $1,007
1998................................................................... 915
1999................................................................... 890
2000................................................................... 890
2001................................................................... 890
Thereafter............................................................. 720
------
$5,312
======
</TABLE>
5. CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTES:
In June 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.
F-10
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. In conjunction with the initial public
offering of the Company's common stock on August 8, 1996, all outstanding
shares of convertible preferred stock automatically converted into common
stock upon closing of the offering. The Company amended its certificate of
incorporation in August 1996 authorizing the issuance of up to 2,000,000
shares of preferred stock. No preferred shares have been issued as of December
31, 1996.
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. Between May 28 and June 7, 1996, the Company issued $2.0
million principal amount of convertible notes to the same three investors,
bearing interest at the rate of 8.25% per annum. Upon the closing of the
Company's initial public offering on August 8, 1996, the principal amount of
each note and all accrued interest automatically converted into shares of the
Company's common stock at $7.50 per share, the offering price per share to the
public, and the Series C preferred stock automatically converted 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 acquisition of PostModern.
6. COMMON STOCK:
In June 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 August 1996, the Company completed the initial public offering of its
common stock. The Company sold 2,015,000 shares for net proceeds of $13.2
million. Concurrent with the closing of the initial public offering, 4,119,069
shares of convertible preferred stock were converted into an equivalent number
of shares of common stock and $2,000,000 of convertible notes plus accrued
interest of $31,526 converted into 270,871 shares of common stock. (see Note
5)
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 $.08 to $.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.
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 common 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.
F-11
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995 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 PRICE PER
AVAILABLE SHARES SHARE
---------- --------- ----------
<S> <C> <C> <C>
Authorized............................... 2,000,000 -- --
Granted.................................. (820,750) 820,750 $ .40
Exercised................................ -- (54,068) $ .40
Canceled................................. 12,932 (12,932) $ .40
---------- --------- ----------
Balance at March 31, 1996................. 1,192,182 753,750 $ .40
Authorized............................... 500,000 -- --
Granted.................................. (1,456,750) 1,456,750 $.40-16.75
Exercised................................ -- (202,366) $ 4.00
Canceled................................. 48,184 (48,184) $.40-16.75
---------- --------- ----------
Balance at December 31, 1996.............. 283,616 1,959,950 $.40-16.75
========== ========= ==========
</TABLE>
At December 31, 1996, options outstanding for the purchase of 186,358 shares
were vested under the 1995 Plan at an exercise price of $.40 - 9.50 per share.
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. 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. No shares have been
issued under the Purchase Plan as of December 31, 1996.
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. 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
earlier of 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. No
options have been issued under the Directors Plan as of December 31, 1996.
F-12
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Executive Performance Incentive Plan
The Company's Executive Performance Incentive Plan (the "Incentive Plan")
was adopted by the Company's Board of Directors in October 1996. A total of
100,000 shares of common stock has been reserved for issuance under the
Incentive Plan. Under the Incentive Plan, the Compensation Committee of the
Board of Directors may award performance units to designated executives, that
will vest and become payable if one or more pre-established performance goals
are attained during a specified performance period and the participant remains
an employee. As of December 31, 1996, 3,615 shares had been issued under the
Incentive Plan.
Common Stock Reserved for Future Issuance
As of December 31, 1996, the Company has reserved the following shares of
common stock for future issuance:
<TABLE>
<S> <C>
1995 Stock Option Plan and options assumed from PostModern......... 2,605,351
1996 Stock Plans................................................... 746,385
---------
3,351,736
=========
</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.
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.
F-13
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. FISCAL 1997 ACQUISITIONS:
Acquisition of PostModern Computing Technologies Inc.
In May 1996, the Company completed the acquisition of PostModern, a developer
of distributed object connectivity software. 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 common stock, and paid a total of $2.3 million in exchange for all of
PostModern's outstanding shares. The Company also incurred acquisition-related
costs of approximately $450,000, 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 was accounted for as a purchase in the
quarter ended June 30, 1996.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $12.0
million of the acquired intangible assets consisted 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 was charged to expense by Visigenic in
its quarter ended 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.
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 options at an exercise price of $0.24
to $0.60 per share under similar vesting terms.
See unaudited Pro Forma Condensed Combined Financial Statements included
elsewhere in this Prospectus.
Acquisition of CustomWare, Inc.
In December 1996, the Company completed the acquisition of CustomWare, Inc.,
a training and consulting organization that specializes in distributed object
technology. In the acquisition, which was structured as a merger, the Company
issued 125,000 shares of its common stock to the shareholders of CustomWare,
resulting in a total purchase price of approximately $1.5 million. The
acquisition of CustomWare was accounted for as a purchase in the quarter ended
December 31, 1996.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $350,000
of the acquired intangible assets consisted of in process product development.
Because there can be no assurance that the Company will be able to successfully
complete the development of the CustomWare products or that the acquired
technology has any alternative future use, the acquired in process product
development was charged to expense by Visigenic in its quarter ended
December 31, 1996.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $700,000, which is being amortized on a
straight-line basis over a period of one year. Management believes that the
unamortized balance is recoverable through future operating results.
Comparative pro forma information reflecting the acquisition of CustomWare
has not been presented because the operations of CustomWare are not material to
the Company's consolidated financial statements.
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
distributed object connectivity software.
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>
- --------
*less than 10%
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>
VISIGENIC 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 developer of
distributed object software. The acquisition of PostModern has been accounted
for as a purchase.
The accompanying pro forma condensed combined statement of operations for
the fiscal year ended March 31, 1996 and the nine months ended December 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
each Company's respective fiscal year ended March 31, 1996 and nine months
ended December 31, 1996. The historical financial statements of PostModern for
the nine months ended December 31, 1996 only include two months of operations
as it was merged into Visigenic effective May 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 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 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(a) 5,888
Sales and marketing............ 3,215 240 183(a) 3,638
General and administrative..... 1,465 212 -- 1,677
Amortization of excess of
purchase price over net assets
acquired...................... -- -- 522(a) 522
------- ------ -------
Total operating expenses..... 9,028 675 11,725
------- ------ -------
Operating income (loss)...... (4,464) 64 -- (6,422)
INTEREST AND OTHER INCOME, net... 85 -- -- 85
------- ------ -------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................ (4,379) 64 -- (6,337)
PROVISION FOR INCOME TAXES....... -- 5 5(b) --
------- ------ -------
NET INCOME (LOSS)................ $(4,379) $ 59 $(6,337)
======= ====== =======
NET LOSS PER SHARE............... $ (.40) $ (.57)
======= =======
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.... 11,064 11,064(c)
======= =======
</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>
NINE MONTHS ENDED DECEMBER, 1996
-------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
VISIGENIC POSTMODERN ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Software products.............. $ 9,895 $ 24 $ -- $ 9,919
Service and other.............. 1,639 108 -- 1,747
-------- ----- --------
Total revenue................ 11,534 132 11,666
-------- ----- --------
COST OF REVENUE:
Software products.............. 399 11 -- 410
Service and other.............. 1,430 65 -- 1,495
-------- ----- --------
Total cost of revenue........ 1,829 76 1,905
-------- ----- --------
GROSS PROFIT..................... 9,705 56 9,761
-------- ----- --------
OPERATING EXPENSES:
Product development............ 6,650 64 -- 6,714
Sales and marketing............ 6,977 68 -- 7,045
General and administrative..... 1,814 74 -- 1,888
Purchased in process product
development................... 12,364 -- -- 12,364
Amortization of excess of
purchase price over net assets
acquired...................... 361 -- 86(a) 447
-------- ----- --------
Total operating expenses..... 28,166 206 28,458
-------- ----- --------
Operating income (loss)...... (18,461) (150) -- (18,697)
INTEREST AND OTHER INCOME, net... 190 -- -- 190
-------- ----- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................ (18,271) (150) -- (18,507)
PROVISION FOR INCOME TAXES....... -- -- -- --
-------- ----- --------
NET INCOME (LOSS)................ $(18,271) $(150) $(18,507)
======== ===== ========
NET LOSS PER SHARE............... $ (1.51) $ (1.52)
======== ========
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.... 12,141 12,141 (c)
======== ========
</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 statements of operations as described below:
(a) Reflects the amortization of the excess of the purchase price over net
assets acquired of approximately $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 subject
to one-year vesting.
(b) Reflects the elimination of the PostModern tax provision for fiscal
1996 due to the pro forma 1996 net loss.
(c) Pro forma weighted average common and common equivalent shares do not
include common stock equivalents as inclusion of these shares would be
anti-dilutive. The stand alone Visigenic and the 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 approximately
$2.3 million in exchange for all of the outstanding shares of common stock of
PostModern. The Company also incurred acquisition related costs of
approximately $450,000 resulting in a total purchase price of approximately
$13.1 million. 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 indicated that approximately $12.0
million of the acquired intangible assets consisted 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 was charged to expense by Visigenic in
its quarter ended June 30, 1996 and is reflected in the accompanying pro forma
statement of operations for the nine months ended December 31, 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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.......................................................... 14
Price Range of Common Stock.............................................. 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
Management............................................................... 42
Certain Transactions..................................................... 49
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Available Information.................................................... 62
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO OF VISIGENIC SOFTWARE, INC. APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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, the NASD filing fee and the Nasdaq
National Market fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Registration fee...................................................... $ 9,543
NASD filing fee....................................................... 3,620
Nasdaq National Market fee............................................ 17,500
Blue sky qualification fees and expenses.............................. 10,000
Printing and engraving expenses....................................... 150,000
Legal fees and expenses............................................... 150,000
Accounting fees and expenses.......................................... 75,000
Transfer agent and registrar fees..................................... 5,000
Fee for Custodian for Selling Stockholders............................ 65,000
Miscellaneous......................................................... 39,337
--------
Total............................................................. $500,000
========
</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 Restated Certificate of
Incorporation, and Bylaws provide that the Company shall indemnify its
directors, officers, employees and agents to the full extent permitted by the
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition,
the Company has entered 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 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. The Underwriting Agreement entered into by the
Company and the underwriters in connection with the Company's initial public
offering in August 1996 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 361,785 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 3 stockholders at $9.00 per share, for an aggregate of
$3,999,996.
(j) In May and June 1996, the Company issued convertible notes to 3
stockholders in the aggregate principal amount of $2.0 million.
(k) Between February 12, 1993 and November 26, 1996, the Company sold an
aggregate of 995,395 shares of its Common Stock to 65 stockholders for an
aggregate of $623,167 and issued options to purchase an aggregate of
2,066,000 shares of Common Stock with an exercise price equal to the fair
market value on the date of grant as determined by the Board of Directors
to 158 optionholders.
(l) In December 1996, the Company entered into an Agreement and Plan of
Reorganization with CustomWare, Inc. ("CustomWare") pursuant to which the
Company issued 125,000 shares of Common Stock to the sole shareholder of
CustomWare.
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 Items 15(i), 15(j)
through 15(l) 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(k) 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.(1)
2.2 Agreement and Plan of Reorganization between the Company and
CustomWare, Inc., dated December 3, 1996.(2)
3.1 Restated Certificate of Incorporation.(1)
3.2 Bylaws.(1)
4.1 Specimen Common Stock Certificate of the Company.(1)
4.2 Registration Rights Agreement between the Company and certain
investors dated March 31, 1993.(1)
4.3 Supplemental Registration Rights Agreement between the Company and
certain investors dated May 10, 1996.(1)
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1 Form of Indemnification Agreement for directors and officers.(1)
10.2 1995 Stock Option Plan and forms of agreements thereunder.(1)
10.3 1996 Employee Stock Purchase Plan.(1)
10.4 1996 Outside Directors Stock Option Plan.(1)
10.5 Non-Compete and Non-Solicitation Agreement between the Company and
Jens Christensen dated April 28, 1996.(1)
10.6 Non-Compete and Non-Solicitation Agreement between the Company and
Neguine Navab dated April 28, 1996.(1)
10.7 Non-Compete and Non-Solicitation Agreement between the Company and
Prasad Mokkapatti dated April 28, 1996.(1)
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.(1)
10.9 Form of Convertible Promissory Note.(1)
10.10 Source Code License Agreement, as amended, between the Company and
Microsoft Corporation ("Microsoft") dated June 20, 1995.(1)
10.11 Source Code License Agreement between the Company and Microsoft
Corporation dated February 10, 1995.(1)
10.12 Lease Agreement, as amended, between the Company and San Mateo
Office Limited, dated March 7, 1993.
10.13 Lease Agreement, as amended, between the Company and Spieker-
Singleton #68 Limited Partnership dated September 11, 1996.
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).
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
--------
(1) Incorporated by reference herein to the Company's Registration
Statement on Form S-1 (File No. 333-06285).
(2) Incorporated by reference herein to Exhibit 2.1 to the Company's Form
8-K filed with the Securities and Exchange Commission on December 17,
1996.
II-3
<PAGE>
(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.
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 27TH DAY OF JANUARY 1997.
VISIGENIC SOFTWARE, INC.
/s/ Mark D. Hanson
By: _________________________________
MARK D. HANSON
PRESIDENT AND CHIEF OPERATING
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 D. HANSON, AND
EACH OF THEM ACTING INDIVIDUALLY, AS HIS ATTORNEY-IN-FACT, EACH WILL 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 January 27, 1997
- ------------------------------------- Officer and
ROGER J. SIPPL Director (Principal
Executive Officer)
/s/ Kevin C. Eichler Vice President-- January 27, 1997
- ------------------------------------- Finance (Principal
KEVIN C. EICHLER Financial and
Accounting Officer)
/s/ Gill Cogan Director January 27, 1997
- -------------------------------------
GILL COGAN
/s/ Cristina Morgan Director January 27, 1997
- -------------------------------------
CRISTINA MORGAN
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Michael Moritz Director January 27,
- ------------------------------------- 1997
MICHAEL MORITZ
/s/ J. Sidney Webb Director January 27,
- ------------------------------------- 1997
J. SIDNEY WEBB
/s/ Eric Young Director January 27,
- ------------------------------------- 1997
ERIC YOUNG
/s/ Jens Christensen Director January 27,
- ------------------------------------- 1997
JENS CHRISTENSEN
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC 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
January 28, 1997
II-7
<PAGE>
EXHIBIT INDEX
<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.(1)
2.2 Agreement and Plan of Reorganization between the Company and
CustomWare, Inc., dated December 3, 1996.(2)
3.1 Restated Certificate of Incorporation.(1)
3.2 Bylaws.(1)
4.1 Specimen Common Stock Certificate of the Company.(1)
4.2 Registration Rights Agreement between the Company and certain
investors dated March 31, 1993.(1)
4.3 Supplemental Registration Rights Agreement between the Company and
certain investors dated May 10, 1996.(1)
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1 Form of Indemnification Agreement for directors and officers.(1)
10.2 1995 Stock Option Plan and forms of agreements thereunder.(1)
10.3 1996 Employee Stock Purchase Plan.(1)
10.4 1996 Outside Directors Stock Option Plan.(1)
10.5 Non-Compete and Non-Solicitation Agreement between the Company and
Jens Christensen dated April 28, 1996.(1)
10.6 Non-Compete and Non-Solicitation Agreement between the Company and
Neguine Navab dated April 28, 1996.(1)
10.7 Non-Compete and Non-Solicitation Agreement between the Company and
Prasad Mokkapatti dated April 28, 1996.(1)
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.(1)
10.9 Form of Convertible Promissory Note.(1)
10.10 Source Code License Agreement, as amended, between the Company and
Microsoft Corporation ("Microsoft") dated June 20, 1995.(1)
10.11 Source Code License Agreement between the Company and Microsoft
Corporation dated February 10, 1995.(1)
10.12 Lease Agreement, as amended, between the Company and San Mateo
Office Limited, dated March 7, 1993.
10.13 Lease Agreement, as amended, between the Company and Spieker-
Singleton #68 Limited Partnership dated September 11, 1996.
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).
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
--------
(1) Incorporated by reference herein to the Company's Registration
Statement on Form S-1 File No. 333-06285.
(2) Incorporated by reference herein to Exhibit 2.1 to the Company's Form
8-K filed with the Securities and Exchange Commission on December 17,
1996.
<PAGE>
Exhibit 1.1
VISIGENIC SOFTWARE, INC.
2,000,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
February __, 1997
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 1,180,000 shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the Common Stock), and
the stockholders of the Company named in Schedule II hereto (herein collectively
called the Selling Securityholders) propose to sell an aggregate of 820,000
shares of Common Stock of the Company to the Underwriters (as hereinafter
defined) (said 2,000,000 shares of Common Stock being herein called the
Underwritten Stock). The Company proposes to grant to the Underwriters an
option to purchase up to 300,000 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 registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such
- -----------------
/1/ Plus an option to purchase from the Company up to an additional 300,000
shares of Common Stock of the Company.
<PAGE>
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 of the Company and the Selling
Securityholders
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries 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 (and its subsidiaries taken as a whole.) The Company does not own
or control, directly or indirectly, any corporation, association or other
entity other than Visigenic Software Limited, a United Kingdom corporation
and Visigenic Software S.A.R.L., a French corporation. None of the
Company's subsidiaries is a "significant subsidiary" as defined under
Regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended (herein called the Exchange Act).
(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 subsidiaries taken as a
whole, 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 subsidiaries 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
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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 binding
on the Company.
(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 with respect to the Registration Statement 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 or
any of its subsidiaries 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.
(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
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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 each 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 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. 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
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<PAGE>
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 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.
(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,
to the Company's knowledge, threatened to which the Company or its
subsidiaries 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. The Company has duly filed a Nasdaq National Market
Notification Form for Listing of Additional Shares and a Form 10-C with
respect to the sale and issuance of the Stock in accordance with the rules
and regulations of the National Association of Securities Dealers, Inc.
(herein called the NASD).
(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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<PAGE>
(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.
(xxvii) The Company has duly filed on a timely basis with the
Commission all reports, registration statements and other documents
required by the Securities Act, the Exchange Act, or the rules and
regulations of the Commission promulgated pursuant to the Securities Act or
Exchange Act. All of such reports, registration statements and other
documents, when they were filed with the Commission, conformed in all
material respects to the requirements of the Securities Act, the Exchange
Act or the rules and regulations of the Commission promulgated pursuant to
the Securities Act or Exchange Act, as appropriate. None of such reports,
registration statements or other documents contained an 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.
(xxviii) In connection with the sale by the Company of shares of
its Common Stock pursuant to the Underwriting Agreement dated August 7,
1996 among the Company, the selling stockholders named therein and the
underwriters named therein, the Company applied the net proceeds received
by it from the sale of such shares substantially as described in the
registration statement on Form S-1 (No. 333-06285).
(xxix) The Company is familiar with the Investment Company Act
of 1940, as amended (the 1940 Act), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
continue to conduct, its affairs in such a manner as to insure that it will
not become an "investment company" within the meaning of the 1940 Act and
such rules and regulations.
(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 The First National Bank of Boston, 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.
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(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 prior to
_______________, 1997 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
executive officer of the Company (including such Selling Securityholder who
is an affiliate of a director or executive 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 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 executive
officer of the Company (including such Selling Securityholder who is an
affiliate of a director or executive 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 material 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
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<PAGE>
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 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
1,180,000 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
8
<PAGE>
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 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 grants an option to the several Underwriters to purchase, severally and
not jointly, up to the maximum number of shares of the Option Stock from the
Company 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, facsimile 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 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 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 Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto,
California 94301, at 7:00 a.m., San Francisco
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<PAGE>
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 Gray Cary Ware & Freidenrich,
400 Hamilton Avenue, Palo Alto, California 94301, 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 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 two business days before the Closing Date, in the case of
Underwritten Stock, and at least two business days 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 within a
reasonable time 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.
- -----------------
/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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<PAGE>
(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 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 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 reasonably 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.
(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 agrees to pay all costs and expenses incident to the
performance each of its and each Selling Securityholder's obligations under this
Agreement, including all costs and expenses incident to
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<PAGE>
(i) the preparation, printing and filing with the Commission and the NASD 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 agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees 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 hereby agrees 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 90 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 and stock purchase plans of the Company (herein called
the Plans), all as described in "Management--Stock Plans" in the Preliminary
Prospectus, and (C) options to purchase Common Stock granted under the Plans.
(m) The Selling Securityholders agree that, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, 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 90 days following the
commencement of the public offering of the Stock by the Underwriters.
(n) The Company agrees to use its best efforts to cause all directors,
officers, stockholders and optionees of the Company to agree that, without the
prior written consent of Hambrecht & Quist LLC, such person or entity will not,
for a period of ninety (90) 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 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. In addition, the Company
further agrees to enforce any market standoff or lock-up agreements it has
entered into with its directors, officers, stockholders and optionees and will
not release any such persons from such agreements for ninety (90) days following
the commencement of the public offering of the Stock by the Underwriters without
the prior written consent of Hambrecht & Quist LLC.
(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
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<PAGE>
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) The Company agrees 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 Exchange Act, or the common law or otherwise, and the
Company agrees 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,
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 by a third party, 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 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
in this paragraph (a) and the representations and warranties of the Company
contained in paragraph (a) of 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) Subject to the provisions of paragraph (g) of this Section 7, each
Selling Securityholder, severally and not jointly, agrees 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 Exchange Act or the common law
or otherwise, and such Selling Securityholder agrees 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, 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 by a third party, in each
case arising out of or based upon 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, but only with respect to information relating to such Selling
Securityholder furnished in writing by or on behalf of such Selling
Securityholder expressly for use in the Registration Statement or the Prospectus
or in any Preliminary Prospectus or
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<PAGE>
any amendment or supplement thereto; provided, however, that the indemnity
--------
agreement contained in this paragraph (b) 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 any of 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 Selling Securityholders contained in this paragraph (b) and the
representations and warranties of the Selling Securityholders contained in
paragraph (b) of 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.
(c) 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 (c) and the representation of each
Underwriter contained in paragraph (b) of Section 4 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.
(d) Each party indemnified under the provision of paragraphs (a), (b)
and (c) 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
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<PAGE>
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 (d) 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.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a), (b) or (c) 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), (b) or (c) 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, the Selling Securityholders and the Underwriters 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 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 (e) 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
(e). 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 (e) 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 (e). Notwithstanding the provisions of
this paragraph (e), 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 (e) 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
15
<PAGE>
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 (d) of this Section 7).
(f) 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. No 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 unless
such settlement, compromise or consent has been reasonably approved by the
indemnified parties or includes an unconditional release of the indemnified
parties from all liability arising out of such claim, action, suit or
proceeding.
(g) 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 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 or 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 of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities, (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 or (vii) 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
market levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed. 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 agrees
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
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<PAGE>
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,
an additional opinion from such counsel, addressed to the Underwriters and dated
such later date, confirming that the statements expressed as of the Closing Date
in such opinion 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 subsidiaries
have 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 subsidiaries have 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 subsidiaries is a party or of
which property of the Company or its subsidiaries 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 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 on behalf of the Company 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
17
<PAGE>
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
of the Company's directors, officers, Selling Securityholders, stockholders
holding substantially all of the outstanding shares of Common Stock and
optionees whose options will vest, in whole or in part, prior to June 30, 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 90 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 other than as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, 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. Furthermore, the Company
agrees that it will not, without the prior written consent of Hambrecht & Quist
LLC, release any of its stockholders from, or grant any waiver of or consent to
the entering into of any transactions contrary to, any provisions of any
agreement between the Company and such stockholder which provisions are similar
to the restrictions set forth in this paragraph (j).
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.
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 agrees 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
18
<PAGE>
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 agrees 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), (i)
the Company agrees 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, and (ii)
the Selling Securityholders hereby 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 (b) 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
improper; 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, sent by facsimile transmission 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, sent by facsimile
transmission or delivered to the Company or the Selling Shareholders at the
Company's office, 951 Mariner's Island Blvd., Suite 120, San Mateo, CA 94404,
Attn.: Roger J. Sippl. All notices given by telegraph or facsimile transmission
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), (m) and (n) of Section 6 hereof shall be
of no further force or effect.
19
<PAGE>
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.
20
<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:__________________________________
Mark D. Hanson, President
SELLING SECURITYHOLDERS:
______________________________________
Mark D. Hanson, 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.
21
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
- ------------ ---------
<S> <C>
Hambrecht & Quist LLC...................
Robertson, Stephens & Company LLC.......
Total................................... 2,000,000
</TABLE>
22
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Number of
Shares of
Underwritten
Name of Selling Securityholder Stock to be Sold
- ------------------------------ ----------------
<S> <C>
Total......................... 820,000
</TABLE>
23
<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 or business 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 2,000,000
shares of Preferred Stock, of which there are no shares outstanding, and
50,000,000 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 The First National Bank of
Boston, as Custodian, and the Power of Attorney referred to in such Custody
Agreement have been duly
24
<PAGE>
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 material 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 with
respect to the Registration Statement or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement;
(xi) to the best of such counsel's knowledge, 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.
(xiii) to the best of such counsel's knowledge, all options granted
by the Company to optionees of the Company and evidenced by option agreements
(except those granted under the Company's 1993 Stock Option Plan) contain a
market standoff provision pursuant to which shares subject to such options may
not be sold during the ninety (90) day period following the effective date of
the Registration Statement.
In rendering the foregoing opinion, such counsel may rely as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deem proper
and to the extent specified in such opinion, upon an opinion or opinions (in
form and substance reasonably satisfactory to counsel for the Underwriters) of
other counsel familiar with applicable laws, in which case their opinion is to
state that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion.
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.
25
<PAGE>
OUR FILE NO.
1220386-900000
JANUARY 27, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Visigenic Software, Inc. Registration Statement on Form S-1
-----------------------------------------------------------
Ladies and Gentlemen:
As counsel to Visigenic Software, Inc. (the "Company"), we are rendering
this opinion in connection with a proposed sale of those certain shares of the
Company's newly-issued Common Stock and those certain additional shares of the
Company's Common Stock held by certain stockholders as set forth in the
Registration Statement on Form S-1 to which this opinion is being filed as
Exhibit 5.1 (the "Shares"). We have examined all instruments, documents and
records which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares identified
in the above-referenced Registration Statement will be, upon effectiveness of
the Registration Statement and receipt by the Company of payment thereof,
validly authorized, legally issued, fully paid, and nonassessable.
<PAGE>
GRAY CARY WARE & FREIDENRICH
Securities and Exchange Commission
January 27, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE>
EXHIBIT 10.12
TERMINATION OF LEASE AGREEMENT
This agreement is made on June 6, 1996, between Landmark Investments, Limited,
("Landlord), and Post Modern Computing ("Tenant", who agree as follows:
1. Existing Lease. Landlord and Tenant entered into a written Lease
--------------
Agreement dated January 18, 1996 in which Landlord leased to Tenant, and Tenant
leased from Landlord, premises located in the City of Mountain View, California,
commonly known as 1975 Landings Drive.
2. Termination. The parties agree to terminate the Lease Agreement so
-----------
that Landlord may lease said premises to SmartPatents, Inc., and Tenant may be
released and discharged from further performance of the Lease Agreement's
provisions all under the terms contained herein.
3. Effective Date. The effective date of the Lease Agreement's
--------------
termination shall be July 31, 1996.
4. Conditions To Termination. This termination is conditioned on all of
-------------------------
the following:
i) Landlord has received a signed Lease Agreement from SmartPatents,
Inc., for 1975 Landings Drive, Mountain View, California on or before June 24,
1996, and
ii) That Landlord has received a check on or before June 24, 1996 in
the amount of $11,565.85 from SmartPatents, Inc., for the remaining unamortized
commissions, and
iii) Tenant vacates the Premises no later than 5:00 pm, Saturday July
30, 1996 and leaves same in a clean and undamaged
5. Release of Liability. Conditioned on all provisions of this
--------------------
modification being satisfied in a timely manner, Landlord and Tenant shall be
fully and unconditionally released and discharged from their respective
obligations arising from or connected with the provisions of the Lease Agreement
dated January 18, 1996.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
Thrust IV, Inc., General Partner
By: ---------------------------- Date: -----------------
TENANT: VISIGENIC SOFTWARE INC. SUCCESSOR
<PAGE>
TO POST MODERN COMPUTING
By: --------------------------- Date: --------------
--------------------------- Tax ID# ------------
(Print Name) (Title)
<PAGE>
SUBLEASE AGREEMENT
------------------
This Sublease Agreement (the "Sublease"), dated as of January 1, 1996, is
entered into by and between Visigenic Software, Inc., a Delaware Corporation,
("Sublessor") and AT Systems, a California Corporation (the "Sublessee").
WITNESSETH
----------
WHEREAS, by Lease dated March 7, 1993 as amended December 20, 1995 (the
"Base Lease"), Sublessor leases from San Mateo Offices Limited, a California
Limited Partnership, (the "Landlord") certain premises at 951 Mariner's Island
Blvd. (the "Base Lease Premises") (to the extent that the Base Lease Premises
are part of a larger structure, shall be referred to herein as the "Building");
and
WHEREAS, Sublessor is willing to Sublease to Sublessee and Sublessee is
willing to Sublease from Sublessor, a portion of the Base Lease Premises (as may
be applicable), as more fully described herein, on the terms and conditions set
forth herein.
NOW, THEREFORE, Sublessor and Sublessee agree as follows:
1. Premises. Sublessor hereby Subleases to Sublessee and Sublessee hereby
--------
Subleases and takes from Sublessor approximately 3,928 rentable square feet of
space in the Base Lease Premises, such Base Lease Premises being known as suite
430, with such subleased space located substantially as shown on Exhibit "A"
attached hereto and made a part hereof(the "Demised Premises").
2. Term. The term of this Sublease shall commerce on February 1, 1996, and
----
shall expire on January 31, 1997, unless terminated sooner pursuant to the
provisions hereof.
3. Base Lease Incorporated.
-----------------------
A. Except as set forth herein, this subletting shall be on the same
terms and conditions as are contained in the Base Lease, as set forth on Exhibit
"B" attached hereto. Further, Sublessee acknowledges and agrees that this
Sublease shall be in all respects subject and subordinate to the Base Lease.
Nothing contained in this Sublease shall be deemed to confer upon Sublessee any
rights which are in conflict with the Base Lease. Sublessee shall not do or
permit to be done any act or thing which would contravene the terms of the Base
Lease, and the Base Lease shall govern in the event of a conflict with this
Sublease. In the event that the Base Lease is cancelled or terminated for any
reason, the term of this Sublease shall automatically terminate simultaneously
therewith.
B. Sublessor represents that the Base Lease is in full force and
effect, without default to the knowledge of Sublessor on the part of either
party thereto. Sublessor shall perform all obligations of the tenant under the
Master Lease not made the responsibility of Sublessee by this Sublease.
Sublessor shall use its best efforts to
1
<PAGE>
enforce the obligations of Landlord under the Base Lease for the benefit of
Sublessee, including the obligation to provide utilities and services to the
Demised Premises.
4. Use. During the term hereof, Sublessee shall use and occupy the
---
Demised Premises for general office use and related services, and for no other
purpose.
5. Rent.
----
A. Rent. As rental for the Demised Premises, Sublessee shall pay
----
Landlord a base rental of Eight Thousand Six Hundred Forty Two Dollars
($8,642.00) per month from commencement through January 31, 1997, without
set-off or deduction, due and payable in advance on the first day of each month
during the term hereof. In the event this Sublease commences or terminates on
other than the last day of any particular month, all rentals hereunder shall be
prorated.
B. Additional Rent: Increased in Operating Costs and Taxes.
-------------------------------------------------------
(1) Definitions. For purposes of this Sublease the following
-----------
terms shall be defined as follows:
(a) "Base Operating Costs and Taxes" means the Gross
Operating Costs and Taxes incurred for the calendar year 1995 (excluding,
therefrom, however, any gross operating costs of a nature that would not be
ordinarily and regularly incurred in each and every calendar year);
(b) "Operating Costs" means the total Gross Operating
Costs for any calendar year divided by the number of rentable square feet of
office space in the Building. Operating Costs for any year during which average
occupancy of the Building is less than one hundred percent (100%) shall be
calculated based upon the Gross Operating Costs that would have been incurred if
the Building were so occupied during the entire calendar year. Sublessee's
Share of Operating Costs shall not be reduced as a result of Sublessee's
performing for itself any of the services that Landlord provides for the
Property or the tenants of the Property.
(c) "Taxes" means the total Gross Taxes for any calendar
year divided by the number of rentable square feet in the building. Taxes for
any year during which average occupancy of the Building is less than one hundred
percent (100%) shall be calculated based upon the Gross Taxes that would have
been incurred if the Building were so occupied during the entire calendar year.
(d) "Sublessee's Share" means an amount equal to the
number of rentable square feet of office space in the Premises multiplied
by any increases in Operating Costs and Taxes over Base Operating Costs and
Taxes.
2
<PAGE>
(2) Additional Rent. If Operating Costs and Taxes for any calendar year
---------------
during the term of this Sublease exceed Base Operating Costs and Taxes,
Sublessee shall pay Landlord as "Additional Rent", Sublessee's Share of such
increase in Operating Costs and Taxes (whether such increase, in the case of
Taxes, is caused by changes in valuation, rate or other factors or
circumstances).
C. Security Deposit. Upon full execution of this Sublease, Sublessee will
-----------------
pay to Sublessor the sum of Eight Thousand Six Hundred Forty-Two ($8,642.00), as
security for the full and faithful performance of every provision of this
Sublease to be performed by Sublessee.
If Sublessee defaults with respect to any provisions of this Sublease,
including but not limited to the provisions relating to the payment of rent,
repair or damage to the premises caused by Sublessee and/or cleaning the
Premises upon termination of this Sublease, Sublessor may use, apply or retain
all or any part of this security deposit for the payment of any rent, or any
other sum in default, the repair of such damage to the premises, to the cost of
such cleaning or for the payment of any other amount which Sublessor may spend
or become obligated to spend by reason of Sublessee's default or to compensate
Sublessor for any other loss or damage which Sublessor may suffer by reason of
Sublessee's default to the full extent permitted by law.
If any portion of said deposit is so used or applied, Sublessee shall
within ten (10) days after written demand therefor, deposit cash with Sublessor
in the amount sufficient to restore the security deposit to its original amount
and Sublessee's failure to do so shall be a material breach of this Sublease.
Sublessor shall not be required to keep this security deposit separate from its
general funds, and Sublessee shall not be entitled to interest on such deposit.
The security deposit, or so much thereof as has not been properly applied
to cure any default by Sublessee hereunder, shall be returned to Sublessee at
the expiration of the Sublease.
6. Suite Improvements. Sublessor will deliver and Sublessee accepts the
-------------------
premises in it's existing condition.
3
<PAGE>
7. Right of Entry. Sublessor shall have the right to enter the
--------------
Demised Premises for any reasonable purpose during business (hours) and upon
reasonable notice (except in the event of an emergency), including to gain
access to and egress from those portions of the Base Lease Premises or the
Building not leased to Sublessee hereunder and to perform such functions as may
be necessary or convenient for the maintenance and operation thereof and
including to show the space to other prospective Sublessees. Prior to the
exercising its right of entry, Sublessor shall provide reasonable advance
notice to Sublessee of such intended entry, and shall comply while in the
Demised Premises with all reasonable safety and security measures instituted by
Sublessee.
8. Compliance with Law. Sublessee shall comply with all applicable
-------------------
statutes, ordinances, rules, regulations, orders and directives of any
governmental authority applicable to the Demised Premises or to Sublessee's use
or occupancy thereof and shall perform, at its own expenses, all obligations
imposed thereby.
9. Release and Indemnity.
---------------------
A. Release. Sublessee hereby agrees that Sublessor shall not be
-------
liable for any loss or any damage to any property (including the property of
Sublessee, its officers, directors, employees, agents, customers,
concessionaires, vendors, contractors or invitees) or the death or injury of any
persons (including Sublessee, its officers; directors, employees, agents,
customers, concessionaires, vendors, contractors or invitees) occasioned by
theft, fire, acts of God, public enemy, injunction, governmental body or
authority, by other Sublessees of the Base Lease Premises or the Building or any
other matter beyond the control of Sublessor, or for any injury or damage or
inconvenience which may arise through repair or alteration of any part of the
Demised Premises or the Base Lease Premises or the Building, or failure to make
repairs, or for any cause whatsoever, except the negligence or willful
misconduct of Sublessor, or its officers, directors, employees, or agents or a
breach of the obligations of Sublessor hereunder.
B. Indemnity. Sublessee hereby releases and will defend indemnify
---------
and hold harmless Sublessor and the Landlord, their respective officers,
directors, employees, agents, concessionaires, vendors and contractors (the
"Indemnified Parties") from and against any and all liability, claims,
penalties, fines, causes of action, suits, liens, losses, loss of use, damages,
costs and expenses of any kind (including legal fees and litigation costs) which
may be suffered by, accrued against, charged to or recoverable from the
Indemnified Parties by reason of (i) any occurrence in, upon, or at the Demised
Premises, including, occurrences caused, in whole or in part, by the negligence
or misconduct of Sublessee, its officers, directors, employees, agents,
customers, concessionaires, vendors, contractors or invitees; or (ii) any
occupancy, use, or misuse of the Demised Premises, or the areas, surrounding the
Demised Premises, or the service areas, parking areas, pedestrian areas,
pedestrian walks or driveways in or around the Demised Premises, by Sublessee,
its officers, directors, employees, agents, customers, concessionaires, vendors,
contractors or invitees; or (iii) any occurrence elsewhere in the Base Lease
Premises or the Building occasioned in whole or in part by the act or omission
of Sublessee; or (iv) any occurrence occasioned by the violation of any law,
regulation or ordinance by Sublessee or its employees,
4
<PAGE>
officers, directors, employees, agents, customers, concessionaires,
vendors, contractors or invitees. The foregoing indemnification shall not apply
to any such claim or liability resulting solely from the negligence or willful
misconduct of Sublessor, or its respective officers, directors, employees or
agents.
10. Insurance
---------
A. Coverage. During the term of this Sublease, Sublessee, at its
--------
own cost and expense, shall maintain with insurers reasonably acceptable to
Sublessor, the following coverage: (i) Comprehensive General Liability Insurance
coverages in an amount not less than $1,000,000 for bodily injury and property
damage combined single limit per occurrence, and (ii) all risk property
insurance covering loss of or damage to property of the Sublessee in an amount
at least equal to the replacement value of such property. Sublessee shall also
maintain Workers' Compensation coverage as may be required by law and Employer's
Liability coverage with a combined single limit of not less than $1,000,000 to
cover employees.
B. Form and Certificates. The liability policies shall: (i)
---------------------
name Sublessor and the Landlord as additional insureds to the extent of
Sublessee's indemnity obligation hereunder; (ii) specifically insure the
liability assumed by Sublessee hereunder; (iii) be primary without right of
contribution from any insurance carried by Sublessor or the Landlord hereunder;
and (iv) provide for thirty (30) days written notice to Sublessor and the
Landlord prior to cancellation or material change. Certificates evidencing the
above coverages and special endorsements shall be provided to Sublessor and the
Landlord on or before the date Sublessee takes possession of the Demised
Premises.
C. Waiver of Subrogation. Sublessee, Sublessor and Landlord on
---------------------
behalf of themselves and their respective insurers, each hereby waives any claim
or right of recovery from each other, their officers, directors, employees,
agents, concessionaires and contractors, for loss of or damage to its property
or the property of others under its control, to the extent that such loss or
damage is covered by valid insurance policies or is of the type which would be
covered by "all risk" extended casualty coverage. Each party shall provide
notice of this waiver of subrogation to its insurers.
11. Defaults. The occurrence of any of the following shall constitute a
--------
default by Sublessee under this Sublease:
(i) Sublessee fails to pay any sum as required hereunder and
such failure continues for ten (10) days following receipt of notice;
(ii) Sublessee (i) fails to pay its bills to Sublessor or
Landlord when due without just cause; or (ii) takes any steps leading to its
cessation as a going concern or ceases or suspends operations for reasons other
than a strike; or (iii) becomes insolvent or makes transfers in fraud of
creditors or makes an assignment for the benefit of creditors; or (iv) files a
petition for protection under any state or federal bankruptcy act or a trustee
or receiver is appointed for all or substantially all of Sublessee's assets.
5
<PAGE>
12. Remedies Upon Default. Upon the occurrence of an event of default
----------------------
hereunder, Sublessor may take any one or more of the following actions:
(i) Maintain this Sublease in full force and effect and recover any and
all rent and other monetary charges as they become due, without terminating
Sublessee's right to possession, regardless of whether Sublessee shall have
abandoned the Demised Premises. If Sublessor elects not to terminate this
Sublease, Sublessor shall have the right to attempt to relet the Premises on
behalf of Sublessee upon such conditions and for such a term and to do all acts
necessary to maintain or preserve the Demised Premises as Sublessor deems
reasonable and necessary, including the removal of all persons and property from
the Demised premises, without being deemed to have elected to terminate this
Sublease. Any property so removed may be disposed of or stored in a public
warehouse or elsewhere, at Sublessor's election, at the cost of and for the
account of Sublessee. Notwithstanding that Sublessor's fails to elect to
terminate this Sublease initially, Sublessor at any time thereafter may elect to
terminate this Sublease as a result of such previous and then existing default
of Sublessee;
(ii) Terminate this Sublease by written notice to Sublessee, in which
event this Sublease shall be ended as to Sublessee and all persons holding under
Sublessee, and all of Sublessee's rights shall be forfeited and lapsed, as
fully as if this Sublease had expired by lapse of time. In such event, Sublessee
shall be required to vacate the Demised Premises immediately and surrender same
to Sublessor. If Sublessee fails to surrender the Demised Premises immediately
to Sublessor, Sublessor, without prejudice to any other remedy, may enter upon
and take possession of the Demised Premises and expel or remove Sublessee and
any part thereof, without being liable for prosecution or any other claim of
damages. In the event of termination in accordance with this provision, the
rental or any other sums payable by Sublessee pursuant to this Sublease that
have accrued hereunder but are unpaid shall be immediately due and payable by
Sublessee to Sublessor. In addition, Sublessee agrees to pay to Sublessor upon
demand the amount of all loss and damages which Sublessor may suffer by reason
of such termination, whether through inability to relet the premises on
satisfactory terms or otherwise, including reasonable court costs and attorney's
fees, in recovering possession of the Demised Premises or enforcing Sublessor
rights under this Sublease; (ii) all costs and charges for care of the Demised
Premises while vacant; (iii) all costs of restoring the Demised Premises to a
good condition; and (iv) all reasonable costs associated with Sublessor's
efforts to relet the Demised premises. In the event Sublessor relets the
Demised Premises for any portion of the remaining term of this Sublease,
Sublessee's rental payment obligation hereunder shall then be limited to the
difference between the rental payment Sublessor receives under such relet, if
any, and the rental amount Sublessee would have paid to Sublessor had this
Sublease not been terminated. The failure of Sublessor to relet the Demised
Premises or any part or parts thereof shall not release or effect Sublessee's
liability for damages hereunder;
6
<PAGE>
(iii) Cure the default on the behalf of the Sublessee, in which event
the Sublessee shall, upon demand by Sublessor, pay all sums expended by
Sublessor in accomplishing such cure;
(iv) Exercise any right available to Sublessor in law or in equity.
13. Cumulative rights. Sublessor's rights and remedies hereunder shall
-----------------
be cumulative and shall not be exclusive of one another, and Sublessor shall
have the right to pursue any one or more of them. Sublessor's acceptance of any
rent or other payments due hereunder or Sublessor's failure to take any action
on account of a default if such default persists or is repeated, shall not be
deemed a waiver of any default. Sublessor's consent to any act by Sublessee
requiring Sublessor's consent or approval shall not be deemed to waive or render
unnecessary Sublessor's consent or approval to any subsequent or similar acts by
Sublessee.
14. Surrender of Premises/Holding Over. At the expiration or earlier
----------------------------------
termination of this Sublease, Sublessee shall surrender the Demised Premises to
Sublessor in good condition, broom clean, reasonable wear and tear excepted. In
the event that Sublessee remains in possession after the expiration of or
termination of this Sublease without a written agreement, or without Sublessee
being engaged in active negotiations with Sublessor in good faith to renew or
extend the term, the tenancy shall be deemed to be a month-to-month tenancy at a
monthly equal to one and one-half (1-1/2) times the sum of the Base Rent and
Additional Rent(s) payable during the last month of the Term. In the event
Sublessee is actively negotiating with Sublessor to renew or extend the term,
the month-to-month tenancy shall be at a rent equal to Sublessee's prorata share
of the Base Rent and Additional Rent(s) then payable by Sublessor to Landlord;
such tenancy shall be subject to all terms and conditions of this Sublease.
15. Assignment and Sublease. Sublessee shall not assign this Sublease or
-----------------------
any right hereunder or sublet the Demised Premises during the term of this
Sublease, without the prior written consent of Sublessor. In the event of an
assignment or sublease, Sublessor shall be entitled to receive fifty percent
(50%) of the excess of the rent and other sums payable by the Subtenant over the
amount of Rent payable hereunder for the Subleased Space. Sublessor's
acceptance of rent from any person other than Sublessee shall not be deemed to
be a waiver of this provision. Consent to one assignment or subletting shall
not be deemed to be consent to any subsequent assignment or subletting.
16. Accord and Satisfaction. No payment or receipt by Sublessor of a
-----------------------
lesser amount than the rent or other charges herein stipulated shall be deemed
to be other than on account of the rent or such charges. Further, no
endorsement or statement on any check or any letter accompanying any check shall
be deemed to be an accord and satisfaction. Sublessor may accept such check or
payment without prejudice to Sublessor's right to recover the balance of such
rent or other charges or pursue any other remedy provided in this Sublease.
17. Entire Agreement. This Sublease constitutes the complete agreement of
----------------
the parties with respect to the subject matter hereof and supersedes all
previous agreements, representations and understandings concerning the same,
whether written
7
<PAGE>
or oral. The provisions of the Sublease may be modified, amended or waived only
by a written instrument, executed by Sublessor and Sublessee.
18. Approval by Landlord. This Sublease is conditional upon written
---------------------
consent being obtained from the Landlord. In the event the Landlord does not
give its consent, either the undersigned parties may, at its option, rescind
its signature and this Sublease shall thereafter be of no force or effect.
19. Brokers. Sublessee warrants and represents to Sublessor and
-------
Landlord that in the negotiating or making of this Lease neither Sublessee nor
anyone acting on its behalf has dealt with any real estate broker or finder who
might be entitled to a fee or commission for this Lease. Sublessee agrees to
indemnify and hold Sublessor and Landlord harmless from any claim or claims,
including costs, expenses and attorney's fee incurred by Sublessor asserted by
any broker or finder for a fee or commission based upon any dealings with or
statements made by Sublessee or its Representatives.
20. Notices. Any notice required or sent hereunder shall be in
--------
writing and shall be sent as follows:
When to Sublessor: When to Sublessee:
Visigenic Software, Inc. A T Systems
951 Mariner's Island Blvd., Suite 460 951 Mariner's Island Blvd., Suite 430
San Mateo, CA 94404 San Mateo, CA 94404
Overnight Delivery Address: Overnight Delivery Address:
- --------------------------- ---------------------------
Same as above. Same as above.
Either party from time to time, may change its address by written notice to the
other party. Notices hereunder shall be deemed effective when delivered by hand
delivery or overnight courier, or three days after deposit in the United States
mail, first class, postage prepaid.
21. Binding Effect. Subject to prohibitions against assignment, this
--------------
Sublease shall be binding upon the parties, their personal representatives,
successors and assigns.
<PAGE>
22. Approvals. Whenever in this Sublease, the written approval of either
----------
Sublessor or Sublessee is required, the parties hereto agree that such approval
shall not be unreasonably withheld.
WITNESS the signatures of the parties as of the date first written above.
Sublessee: Sublessor:
- ---------- ----------
A T Systems, a California Corporation, Visigenic Software, Inc.
By: By:
----------------------------------- --------------------------
Name: Name:
--------------------------------- ------------------------
Title: Title:
-------------------------------- -----------------------
Title:
--------------
Agreed to by Landlord this ______ the Day of__________, 1996
By:
------------------------------------
Name:
---------------------------------
Title:
--------------------------------
9
<PAGE>
BLDG 1
4TH FLOOR PLAN
SAN MATEO BAY CENTER
SPIEKER PARTNERS
(415)570-5990
10
<PAGE>
San Mateo
Bay Center
Mariners Island
San Mateo, California
LEASE
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation.
<PAGE>
BASIC LEASE INFORMATION
OFFICE LEASE
Lease Date: March 7, 1993
Landlord: SAN MATEO OFFICE LIMITED
A California Limited Partnership
Address of Landlord 951 Mariner's Island Boulevard, Suite #200
San Mateo, CA 94404
Tenant: VERY VISUAL
A Delaware Corporation
Address of Tenant: 951 Mariner's Island Boulevard, Suite #460
San Mateo, CA 94404
Contact: Mr. Roger Sippl Telephone:
Chief Executive Officer
Premises: Approximately 2,177 sq. ft. of rentable area on the third floor and
6,871 sq. ft. of rentable area on the fourth floor of San Mateo
Bay Center, 951 Mariner's Island Boulevard, San Mateo.
Scheduled Term Commencement Date: April 1, 1993 - Suite #370
Scheduled Length of Term: 24 Months
Scheduled Term Expiration Date: March 31, 1995
Security Deposit: $3,701 ($1.70 x 2,177 sqft)
To be increased to $11,681 upon occupancy of Suite #460
Tenant's Proportionate Share: Suite #370 1.84%
Suite #460 5.81%
Permitted Use: General Office
Occupancy Density: 4/1,000 sqft
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above set forth and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD: TENANT:
SAN MATEO OFFICE LIMITED VERY VISUAL SOFTWARE INC.
A California Limited Partnership A Delaware Corporation
By ----------------------------- By ---------------------------
Dennis E Singleton Roger Sippl
Its General Partner Its Chief Executive Officer
Date: Date:
- -------------------------------- ------------------------------
-1-
<PAGE>
LEASE
TABLE OF CONTENTS
Page
----
1. Premises................................................................. 3
2. Occupancy................................................................ 3
3. Terms And Possession..................................................... 3
4. Rent..................................................................... 3
5. Restrictions On Use...................................................... 3
6. Compliance With Laws..................................................... 3
7. Alterations.............................................................. 3
8. Repairs.................................................................. 3
9. Liens.................................................................... 4
10. Assignments And Subletting............................................... 4
11. Insurance And Indemnification............................................ 4
12. Waiver Of Subrogation.................................................... 5
13. Service And Utilities.................................................... 5
14. Estoppel Certificate..................................................... 5
15. Security Deposit......................................................... 6
16. Substitution............................................................. 6
17. Holding Over............................................................. 6
18. Subordination............................................................ 6
19. Rules And Regulations.................................................... 6
20. Re-Entry By Landlord..................................................... 6
21. Default By Tenant........................................................ 6
22. Damage By Fire, Etc...................................................... 7
23. Eminent Domain........................................................... 8
24. Sale By Landlord And Tenant's Remedies................................... 8
25. Right Of Landlord To Perform............................................. 8
26. Surrender Of Premises.................................................... 8
27. Waiver................................................................... 8
28. Notices.................................................................. 8
29. Rental Adjustments....................................................... 9
30. Taxes Payable By Tenant................................................. 10
31. Successors And Assigns.................................................. 10
32. Attorneys' Fees......................................................... 10
33. Light And Air........................................................... 10
34. Public Transportation Information....................................... 10
35. Miscellaneous........................................................... 10
36. Lease Effective Date.................................................... 10
Signatures................................................................... 10
EXHIBIT "A"............................................... Rules and Regulations
EXHIBIT "B" & B-1........................................... Outline of Premises
EXHIBIT "C" & C-1......................................... Improvement Agreement
EXHIBIT "D".......................................... Form of Tenant Certificate
2
<PAGE>
LEASE
THIS LEASE is made as of this 7th day of March, 1993,
--- -----
between SAN MATEO OFFICE LIMITED, A CALIF. LIMITED
------------------------------------------
PARTNERSHIP (called "Landlord") and VERY VISUAL SOFTWARE
--------------------------------------------------------
INC., A DELAWARE CORPORATION (hereinafter called
----------------------------
"Tenant").
PREMISES 1. Landlord leases to Tenant and Tenant leases from
Landlord those premises (hereinafter called "Premises")
outlined in red on Exhibit B attached hereto and made a
part hereof, specified in the Basic Lease Information
attached hereto (the "Building").
OCCUPANCY 2. Tenant shall use the Premises for the Permitted
Use and for no other use or purpose without the prior
written consent of Landlord. No increase in occupant
density of the Leased Premises shall be made which shall
add to the burden of such use of the Building as
determined by Landlord without the prior written consent
of Landlord.
TERM AND 3. (a) The parties project that the term shall
POSSESSION commence on the Scheduled Term Commencement Date and,
except as otherwise provided herein or in any exhibit or
addendum hereto, shall continue in full force until the
Term Expiration Date. If the Premises are not delivered by
Landlord by the Scheduled Term Commencement Date for any
reason, Landlord shall not be liable to Tenant for any
loss or damage resulting from such delay. The Term
Commencement Date shall be the first day of the calendar
month next following the earlier of (i) the day when the
Premises are substantially complete, or (ii) the date
on which Tenant takes possession of, or commences the
operation of its business in some or all of the Premises.
See Addendum #11, attached hereto and made a part hereof.
RENT 4. Tenant shall pay to Landlord throughout the Term
Rent as specified in *See Addendum #1 attached hereto and
made a part hereof, payable in equal monthly installments
in advance on the first day of each calendar month during
every year of the Term in lawful money of the United
States, without deduction or offset whatsoever, to
Landlord at the address specified in the Basic Lease
Information or to such other firm or to such other place
as Landlord may from time to time designate in writing by
notice given as herein provided. Rent for the first month
of the Term shall be paid by Tenant upon execution of this
Lease. If the obligation for payment of Rent commences on
other than the first day of a month as provided in
paragraph 3(a), then Rent provided for such partial month
shall be prorated and the prorated installment shall be
paid on the first day of the calendar month next
succeeding the Term Commencement Date. If the Term
terminates on other than the last day of a calendar
month, then the Rent provided for such partial month shall
be prorated and the prorated installment shall be paid on
the first day of the calendar month next preceding the
date of termination.
RESTRICTIONS 5. Tenant shall not do or permit anything to be done
ON USE in or about the Premises which will in anyway obstruct
or interfere with the rights of other tenants or occupants
of the Building or injure or annoy them, nor use or allow
the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause
or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission
of any waste in, on or about the Premises.
COMPLIANCE 6. Tenant shall not use the Premises or permit anything
WITH LAWS to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or governmental
rule or regulation now in force or which may hereafter be
enacted or promulgated. Tenant shall not do or permit
anything to be done on or about the Premises or bring or
keep anything therein which will in any way increase the
rate of any insurance upon the Building or any of its
contents or cause a cancellation of said insurance or
otherwise affect said insurance in any manner, and Tenant
shall at its sole cost and expense promptly comply with
all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may
hereafter be in force and with the requirements of any
board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by
alterations or improvements made by or for Tenant or
Tenant's acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any actions
against Tenant, whether Landlord be a party thereto or
not, that Tenant has so violated any such law, statute,
ordinance, rule, regulation or requirement, shall be
conclusive of such violation as between Landlord and
Tenant.
ALTERATIONS 7. Tenant shall not make or suffer to be made any
alterations, additions or improvements in, on or to the
Premises or any part thereof without the prior written
consent of Landlord; and any such alterations, additions
or improvements in, on or to said Premises, except for
Tenant's movable furniture and equipment, shall
immediately become Landlord's property and, at the end of
the Term, shall remain on the Premises without
compensation to Tenant. In the event Landlord consents to
the making of any such alteration, addition or improvement
by Tenant, the same shall be made by Tenant, at Tenant's
sole cost and expense, in accordance with plans and
specifications approved by Landlord, and any contractor
or person selected by Tenant to make the same must first
be approved in writing by Landlord.
Notwithstanding the foregoing, at Landlord's option, all
or any portion of the alteration, addition or improvement,
work shall be performed by Landlord for Tenant's account
and Tenant shall pay Landlord's estimate of the cost
thereof (including a reasonable charge for Landlord's
overhead and profit) prior to commencement of the work
Overhead and profit allowances shall total fifteen percent
(15%). Upon the expiration or sooner termination of the
Term, Tenant shall upon demand by Landlord, at Tenant's
sole cost and expense, with all due diligence remove all
those alterations, additions or improvements made by or
for the account of Tenant, designated by Landlord to be
removed, and Tenant shall with all due diligence, at its
sole cost and expense, repair and restore the Premises to
their original condition. At Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay
to Landlord the cost of removing any such alterations,
additions or improvements and restoring the Premises to
their original condition such cost to include a reasonable
charge for Landlord's overhead and profit as provided
above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord
under this Lease.
REPAIRS 8. By taking posession of the Premises, Tenant accepts
the Premises as being in the condition in which Landlord
is obligated to deliver them and otherwise in good order
condition and repair. At all
-1-
<PAGE>
times during the Term Tenant shall, at Tenant's sole cost
and expense, keep the Premises and every part thereof in
good order, condition and repair, excepting damage thereto
by fire, earthquake, act of God or the elements. Tenant
waives all right it may have under Section 1942 of the
Civil Code of the State of California and any similar law,
statute or ordinance now or hereafter in effect (to the
full extent that such waiver may lawfully be given)
authorizing or purporting to authorize Tenant to make
repairs to or for the account of Landlord. Tenant shall
upon the expiration or sooner termination of the Term
hereof, unless Landlord demands otherwise pursuant to
LIENS paragraph 7 hereof, surrender to Landlord the Premises and
all repairs, changes, alterations. additions and
improvements thereto in the same condition as when
received or when first installed, damage by fire,
earthquake, act of God, ordinary wear and tear or the
elements excepted. Landlord has no obligation to alter,
remodel, improve, repair, decorate or paint the Premises
or any part thereof, except as specified in the Office
Lease Improvement Agreement and no representations
respecting the condition of the Premises or the Building
have been made by Landlord to Tenant, except as
specifically set forth herein or in Exhibit C and C-1.
9. Tenant shall keep the Premises free from liens arising
out of or related to work performed, materials or supplies
furnished or obligations incurred by Tenant or in
connection with work made, suffered or done by Tenant in
Premises or Building. In the event that Tenant shall not,
within ten (10) days following the imposition of any such
lien, cause the same to be released of record by payment
ASSIGNMENT AND or posting of a proper bond, Landlord shall have, in
SUBLETTING addition to all remedies provided herein and by law, the
right but no obligation, to cause the same to be released
by such means as it shall deem proper, including payment
of the claim giving rise to such lien. Landlord shall have
the right at all times to post and keep posted on the
Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Building and any other
party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not
less than ten (10) business days prior written notice of
the commencement of any work in the Building or Premises
which could lawfully give rise to a claim for mechanics'
or materialmen's lien.
10. Tenant shall not sell, assign, encumber or otherwise
transfer this Lease or any interest therein (by operation
of law or otherwise), sublet the Premises or any part
thereof or suffer any other person to occupy or use the
Premises or any portion thereof, nor shall Tenant permit
any lien to be placed on Tenant's interest under this
Lease by operation of law except in accordance with the
provisions of this paragraph 10. For purposes hereof,
sales, transfers or assignments of or of (ii) the general
partnership interests sufficient to control management
decisions if Tenant is a partnership or of (iii) the
majority or controlling underlying beneficial interest, if
Tenant is any other form of business entity, shall
constitute an assignment subject to the terms of this
paragraph 10.
(a) In the event that Tenant should desire to sublet the
Premises or any part thereof, Tenant shall provide
Landlord with written notice of such desire at least
thirty (30) in advance of the date on which Tenant desires
to make such sublease. Landlord shall then have a period
of thirty (30) days following receipt of such notice
within which to notify Tenant in writng that Landlord
elects either (i) to terminate this lease as to the space
so affected as of the date so specified by Tenant, in
which event Tenant shall be relieved of all further
obligations hereunder as to such space from and after that
date, or (ii) to permit Tenant to sublet such space,
subject, however, to the prior written approval of the
proposed sublessee by Landlord which said consent shall
not be unreasonably withheld. If Landlord should fail to
notify Tenant in writing of its election within said
thirty (30) day period, Landlord shall be deemed to have
waived option (i) above, but written approval of the
proposed sublessee shall not constitute a termination of
this Lease. In exercising its right of consent to a
sublessee it shall be reasonable for Landlord to withhold
consent to any sublessee who (aa) does not agree to assume
the obligations of the Lease with respect to the space to
be so sublet, (bb) does not agree to utilize the space so
sublet for the Permitted Use, (cc) is of unsound financial
condition as determined by Landlord, or (dd) will, in
Landlord's opinion increase the occupant density in the
Leased Premises. If Tenant proposes to sublease less than
all of the Premises, election by Landlord of termination
of this Lease with respect to the remainder of the space,
the Rent and Tenant's Proportionate Share of Operating
Expenses and taxes shall be adjusted on a pro rata basis
to reflect the reduction in Net Rentable Area of the
Premises as retained by Tenant. This Lease as so amended
shall continue thereafter in full force and effect and
reference herein to the Premises shall mean that portion
thereof as to which the Lease has not been terminated.
(b) Tenant shall not enter into any other transaction
subject to this paragraph 10 without Landlord's prior
written consent which said consent shall not be
unreasonably withheld. It shall be reasonable for Landlord
to withhold consent to any proposed transaction described
in this paragraph 10 on any of the grounds specified in
paragraph 10(a) with respect to sublessees or any other
reasonable grounds.
(c) Any rent or other consideration realized by Tenant
under any such sublease or assignment to which Landlord
has consented hereunder, in excess of the Rent payable
hereunder, after amortization of the reasonable cost of
the improvements over the remainder of the Term for which
Tenant has paid and reasonable subletting and assignments
costs, shall be divided and paid fifty percent (50%) to
Tenant.
(d) Any subletting hereunder by Tenant shall not result in
Tenant being released or discharged from any liability
under this lease. Any purported assignment, subletting or
other transaction to which paragraph 10 applies, which
occurs contrary to the provisions hereof, shall be void.
Landlord's consent to any assignment, subletting or other
transaction to which this paragraph 10 applies shall not
release Tenant from any of Tenant's obligations hereunder
or constitute a consent with respect to any subsequent
transaction to which this paragraph applies.
INSURANCE AND 11. (a) Landlord shall not be liable to Tenant and Tenant
INDEMNIFICATION hereby waives all claims against Landlord for any injury
or damage to any person or property in or about the
Premises by or from any cause whatsoever, (other than
Landlord's gross negligence or willful misconduct) and,
without limiting the generality of the foregoing, whether
caused by water leakage of any character from the roof,
walls, basement or other portion of the Premises or the
Building, or caused by gas, fire, oil or electricity in,
on or about the Premises or the Building.
(b) Tenant shall hold Landlord harmless from and defend
Landlord against any and all claims or liability for any
injury or damage to any person or property whatsoever:
(i) occurring in, on or about the
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<PAGE>
Premises or any part thereof, or (ii) occurring in, on or
about any facilities (including, without prejudice to the
generality of the term "facilities", elevators, stairways,
lobbies, health clubs, passageways or hallways), the use of
which Tenant may have in conjunction with other tenants of the
Building, when such injury or damage shall be caused in part
or in whole by the act, neglect, fault of or omission of any
duty with respect to the same by Tenant, its agents, servants,
employees or invitees. Tenant shall further indemnify and save
harmless Landlord against and from any and all claims by or on
behalf of any person, firm or corporation arising from the
conduct or management of any work or thing whatsoever done by
Tenant in or about or from transactions of Tenant concerning
the Premises, and will further indemnify and save Landlord
harmless against and from any and all claims arising from any
breach or default on the part of Tenant in the performance of
any covenant or agreement on the part of Tenant to be
performed pursuant to the terms of this Lease or arising from
any act or negligence of Tenant, or any of its agents,
contractors, servants, employees or licensees, and from and
against all costs, counsel fees, expenses and liabilities
incurred in connection with any such claim or action or
proceeding brought thereon. In case any action or proceeding
is brought against Landlord by reason of any claims or
liability within the limits of the foregoing indemnity, Tenant
shall defend such action or proceeding at Tenant's sole
expense by counsel reasonably satisfactory to Landlord.
(c) Landlord shall hold tenant harmless from and defend Tenant
against any and all claims or liability for any injury or
damage to any person or property occurring in or about any
facilities (including without prejudice to the generality of
the term "facilities", elevators, stairways, passageways or
hallways) the use of which Tenant may have in conjunction with
other tenants of the building, when such injury or damage
shall be caused in whole or in part by the act, neglect, fault
of or omission of any duty with respect to the same by
Landlord, its agents, servants, employees or invitees.
Landlord shall further indemnify and save harmless Tenant
against and from any and all claims by or on behalf of any
person, firm or corporation arising from the conduct or
management of any work or thing whatsoever done by Landlord in
or about, or from transactions of Landlord concerning, the
Premises where such work is not being done for the account of
Tenant; and Landlord will further indemnify and save Tenant
harmless against and from any and all claims arising from any
breach or default on the part of Landlord in the performance
of any covenant or agreement on the part of Landlord to be
performed pursuant to the terms of this Lease or arising from
any act or negligence of Landlord, or any of its agents
contractors, servants, employees or licensees, and from and
against all costs, counsel fees, expenses and liabilities
incurred in connection with any such claim or action or
proceeding brought thereon,. In case any action or proceeding
is brought against Tenant by reason of any claims or liability
within the limits of the foregoing indemnity, Landlord shall
defend such action or proceeding at Landlord's sole expense by
counsel reasonable satisfactory to Tenant.
(d) The provisions of paragraph 11(b) and 11(c) shall survive
the expiration or termination of this Lease with respect to
any claims or liability occurring prior to such expiration or
termination.
(e) Tenant shall purchase at its own expense and keep in force
during the Term of this Lease a policy or policies of workers'
compensation and comprehensive liability insurance, including
personal injury and property damage, in the amount of Five
Hundred Thousand Dollars ($500,000.00) for property damage and
Two Million Dollars ($2,000,000.00) per occurrence for
personal injuries or deaths of persons occurring in or about
the Premises. The foregoing limits shall be increased in
proportion to increases during the Term in the United States
Department of Labor, Bureau of Labor Statistics, Cost of
Living Index, All Urban Consumers (1967=100) for the region in
which the Leased Premises are located. Said policies shall:
(i) name Landlord and any party holding an interest to which
this Lease may be subordinated under paragraph 18 hereof, as
additional insureds and insure Landlord's contingent
liability under this Lease; (ii) be issued by an insurance
company acceptable to Landlord and licensed to do business in
the State of California; and (iii) provide that said insurance
shall not be cancelled unless ten (10) days prior written
notice shall have been given to Landlord. Said policy or
policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the term of this Lease
and upon each renewal of said insurance.
WAIVER OF
SUBROGATION 12. To the extent permitted by law and without affecting the
coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover
against the other (i) damages for injury to or death of
persons, (ii) damages to property, (iii) damage to the
Premises or any part thereof, (iv) damage to the Building or
any part thereof, or (v) claims arising by reason of the
foregoing, but only to the extent that any of the foregoing
damages and/or claims referred to above are covered (and only
to the extent of such coverage) by insurance actually carried
by either Landlord or Tenant. This provision is intended to
waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation
on any insurance carrier. The coverage obtained by each party
pursuant to this Lease shall include, but without limitation,
a waiver of subrogation by the carrier which conforms to the
provisions of this paragraph.
SERVICES AND
UTILITIES 13. (a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and
restrooms, the windows in the Building, the mechanical,
plumbing and electrical equipment serving the Building, and
the structure itself, in reasonably good order and condition
except for damage occasioned by the act of Tenant, which
damage shall be repaired by Landlord at Tenant's expense.
(b) Provided Tenant shall not be in default hereunder, and
subject to the provisions elsewhere herein contained and to
the rules and regulations of the Building, Landlord shall
furnish to the Premises during ordinary business hours of
generally recognized business days, to be determined by
Landlord (but exclusive, in any event, of Saturdays, Sundays
and legal holidays), water and electricity suitable for the
Permitted Uses of the Premises, heat and air conditioning
required in Landlord's judgment for the comfortable use and
occupation of the Premises for the Permitted Uses, janitorial
services during the times and in the manner that such services
are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and
elevator service which shall mean service either by
nonattended automatic elevators or elevators with attendants
or both, at the option of Landlord. Landlord shall have no
obligation to provide additional or after-hours heating or air
conditioning, but if Landlord elects to provide such services
at Tenant's request, Tenant shall pay to Landlord a reasonable
charge for such services as determined by Landlord. Tenant
agrees to keep and cause to be kept closed all window covering
when necessary because of the sun's position, and Tenant also
agrees at all times to cooperate fully with Landlord and to
abide by all the regulations and requirements which Landlord
may prescribe for the proper functioning and protection of
heating,
- 3 -
<PAGE>
ventilating and air conditioning systems. Wherever heat-
generating machines, excess lighting or equipment are used
in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord
reserves the right to install supplementary air
conditioning units in the Premises, and the cost thereof
including the cost of installation and the cost of
operation and maintenance thereof, shall be paid by Tenant
to Landlord upon demand by Landlord. See Addendum #6
attached hereto and made a part hereof.
(c) Tenant shall not without the written consent of
Landlord use any apparatus or device in the Premises,
including without limitation, electronics data processing
machines, punch card machines, and machines using excess
lighting or using current in excess of that which is
determined by Landlord as reasonable and normal for the
Permitted Use or which will in any way increase the amount
of electricity or water usually furnished or supplied for
the Permitted Uses of the Premises; nor connect with
electric current except through existing electrical
outlets in the Premises or water pipes, any apparatus or
device for the purposes of using electrical current or
water. If Tenant shall require water or electric current
or any other resource in excess of that usually furnished
or supplied for the Permitted Use of the Premises, Tenant
shall first procure the consent of Landlord which Landlord
may refuse, to the use thereof, and Landlord may cause a
special meter to be installed in the Premises so as to
measure the amount of water, electrical current or other
resource consumed for any such other use. Tenant shall pay
directly to Landlord as an addition to and separate from
payment of Basic Operating Cost the cost of all such
energy, utility service and meters (and of installation,
maintenance and repair thereof). Landlord may add to the
metered charge a recovery of additional expense incurred
in keeping account of the water, electric current or other
resource so consumed. Landlord shall not be liable for any
damages directly or indirectly resulting from, nor shall
the Rent herein reserved be abated by reason of (i) the
installation, use or interruption of use of any equipment
in connection with the furnishing of any of the foregoing
utilities and services, (ii) failure to furnish or delay
in furnishing any such utilities or services when such
failure or delay is caused by acts of God or the elements,
labor disturbances of any character, any other accident or
other conditions beyond the reasonable control of
Landlord, or by the making of repairs or improvements to
the Premises or to the Building, or (iii) the limitation,
curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other
service or utility whatsoever serving the Premises or the
Building. Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner with the efforts of
national, state or local governmental agencies or utility
suppliers in reducing energy or other resource
consumption. The obligation to make services available
hereunder shall be subject to the limitations of any such
voluntary, reasonable program.
(d) Any sums payable under this paragraph 13 shall
constitute Additional Rent hereunder.
ESTOPPEL 14. Within ten (10) days following any written request
CERTIFICATE which Landlord may make from time to time, Tenant shall
execute and deliver to Landlord a certificate
substantially in the form attached hereto as Exhibit D and
made a part hereof, indicating thereon any exceptions
thereto which may exist at that time. Failure by Tenant to
execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant
that the statements included in Exhibit D are true and
correct without exception. Landlord and tenant intend that
any statements included in Exhibit D are true and correct
without exception. Landlord and Tenant intend that any
statement delivered pursuant to this paragraph may be
relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest
therein. Landlord shall have the right to substitute for
the attached exhibit D a certificate in form required by
Landlord's mortgagee or provider of financing.
SECURITY
DEPOSIT 15. Concurrently with execution hereof, Tenant has paid to
Landlord the Security Deposit in the amount stated on the
Basic Lease Information sheet as security for the full and
faithful performance of Tenant's obligations under this
Lease. Upon expiration of the Term or earlier termination
hereof, the Security Deposit shall be returned to Tenant,
reduced by such amounts as may be required by Landlord to
remedy defaults on the part of Tenant in the payment of
Rent, to repair damages to the Premises caused by Tenant
and to clean the Premises. Landlord shall hold the
Security Deposit for the foregoing purposes in accordance
with the provisions of all applicable law.
SUBSTITUTION
16. At any time after execution of this Lease, Landlord may
substitute for the Premises other premises in the Building
(the "New Premises") upon not less than ninety (90) days
prior written notice, in which event the new Premises
shall be deemed to be the Premises for all purposes
hereunder, provided, however, that:
(a) The Net Rentable Area in the Premises is less than
five thousand (5,000) square feet;
(b) The New Premises shall be similar in area and in
appropriateness for Tenant's purposes;
(c) Any such substitution is effected for the purpose of
accommodating a tenant who will occupy all or a
substantial portion of the Net Rentable Area of the floor
on which the Premises are located; and
(d) If Tenant is occupying the Premises at the time of
such substitution, Landlord shall pay the expense of
moving Tenant, its property and equipment to the New
Premises and shall, at its sole cost, improve the New
Premises with improvements substantially similar to those
Landlord has committed to provide or has provided in the
HOLDING OVER Premises.
17. If Tenant shall retain possession of the Premises or
any part thereof without Landlord's consent following the
expiration of the Term or sooner termination of this Lease
for any reason, then Tenant shall pay to Landlord for each
day of such retention double the amount of the daily
rental for the last period prior to the date of such
expiration or termination. Tenant shall also indemnify and
hold Landlord harmless from any loss or liability
resulting from delay by Tenant in surrendering the
Premises, including, without limitation, any claims made
by any succeeding tenant founded on such delay.
Alternatively, if Landlord gives notice to Tenant of
Landlord's election thereof, such holding over shall
constitute renewal of this Lease for a period from month
to month whichever shall be specified in such notice.
Acceptance of Rent by Landlord following expiration or
termination shall not constitute a renewal of this Lease,
and nothing contained in this paragraph shall waive
Landlord's right of reentry or any other right. Unless
Landlord exercises the option hereby given to it, Tenant
shall be only a Tenant at sufferance, whether or not
Landlord accepts any Rent from Tenant while Tenant is
SUBORDINATION holding over without Landlord's written consent.
18. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a
subordination, this Lease shall be subject and subordinate
at all times to: (a) all ground leases or underlying
leases which may now exist or hereafter be executed
affecting the Building or the land upon which the Building
is situated or both, and (b) the lien of any mortgage or
deed of trust which
<PAGE>
may now exist or hereafter be executed in any amount for which
said Building, land, ground leases or underlying leases, or
Landlord's interest or estate in any of said items, is
specified as security. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated
any such ground leases or underlying leases or any such liens
to this Lease. In the event that any ground lease or underlying
lease terminates for any reason or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor
in interest to Landlord at the option of such successor in
interest. Tenant shall execute and deliver, upon demand by
Landlord and in the form requested by Landlord, any additional
documents evidencing the priority or subordination of this
Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust.
Tenant hereby irrevocably appoints Landlord as attorney-in-
fact of Tenant to execute, deliver and record any such
documents in the name and on behalf of Tenant. At the request
of Landlord, Tenant shall provide to Landlord its current
financial statement or other information disclosing financial
worth which Landlord shall use solely for purposes of this
Lease and in connection with the ownership, management and
disposition of the property subject hereto.
RULES AND 19. Tenant shall faithfully observe and comply with the rules
REGULATIONS and regulations printed on or annexed to this Lease and all
reasonable modifications thereof and additions thereto from
time to time put into effect by Landlord. Landlord shall not be
responsible to Tenant for the non-compliance by any other
tenant or occupant of the Building with any of the rules and
regulations.
RE-ENTRY BY 20. Landlord reserves and shall with reasonable advance notice
LANDLORD except in emergencies have the right to reenter the premises to
inspect the same, to supply janitor service and any other
service to be provided by Landlord to Tenant hereunder, to show
the Premises to prospective purchasers, mortgagees or tenants,
to post notices of nonresponsibility and to alter, improve or
repair the Premises and any portion of the Building, without
abatement of Rent, and may for that purpose erect, use and
maintain scaffolding, pipes, conduits and other necessary
structures in and through the Premises where reasonably
required by the character of the work to be performed: provided
that entrance to the Premises shall not be blocked thereby, and
further provided that the business of Tenant shall not be
interfered with unreasonably. Tenant waives any claim for
damages for any injury or inconveniences to or interference
with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned
thereby, Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the
premises, excluding Tenant's vaults and safes or special
security areas (designated in advance), and Landlord shall have
the right to use any and all means which Landlord may deem
necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord
by any of said means, or otherwise, shall not be construed to
be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction, actual or constructive, of Tenant
from the Premises or any portions thereof. Landlord shall also
have the right at any time, without the same constituting an
actual or constructive eviction and without incurring any
liability to Tenant thereof, to change the arrangement and/or
location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of
the Building and to change the name, number or designation by
which the Building is commonly known.
DEFAULT BY
TENANT 21.(a) Events of Default: The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment of the Premises for a continuous
period in excess of five (5) business days. Tenant waives
any right to notice Tenant may have under Section 1951.3
of the Civil Code of the State of California, the terms of
this subsection (a) being deemed such notice to Tenant as
required by said Section 1951.3:
(2) Nonpayment of Rent. Failure to pay any installment of Rent
due and payable hereunder (or failure to pay any other
amount required to be paid hereunder, all such obligations
to be construed as the equivalent of obligations for
payment of Rent) upon the date when said payment is due,
such failure continuing without cure by payment of the
delinquent Rent and late charges for a period of five (5)
business days after written notice and demand; provided,
however, that except as expressly otherwise provided
herein, Landlord shall not be required to provide such
notice more than twice during the Term, the third such
non-payment constituting default for all purposes hereof
without requirement of notice. For purposes of
subparagraph 21(e), such failure shall constitute a
default without requirement of notice.
(3) Other Obligations. Failure to perform any obligations,
agreement or covenant under this Lease other than those
matters specified in subparagraphs (1) and (2) of this
subparagraph (a), such failure continuing for fifteen (15)
business days after written notice of such failure (or
such longer period as Landlord determines to be necessary
to remedy such default, provided that Tenant shall
continuously and diligently pursue such remedy at all time
until such default is cured);
(4) General Assignment. A general assignment by Tenant for the
Benefit of creditors:
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary
petition by Tenant's creditors, which involuntary petition
remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease
and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder
outstanding as of the date of the affirmance of this Lease
and provide to Landlord such adequate assurances as may be
necessary to ensure Landlord of the continued performance
of Tenant's obligations under this Lease;
(6) Receivership. The employment of a receiver to take
possession of substantially all of the Tenant's assets or
the Premises, if such receivership remains indissolved for
a period of ten (10) business days after creation thereof;
<PAGE>
(7) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the
Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of ten (10) business
days after the levy thereof;
(8) Insolvency. The admission by Tenant in writing of its
inability to pay its debts as they become due, the filing by
Tenant of a petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or
regulation, the filing by Tenant of an answer admitting or
failing timely to contest a material allegation of a petition
filed against Tenant in any such proceeding or, if within
thirty (30) days after the commencement of any proceeding
against Tenant seeking any reorganization or arrangement,
composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or
regulation, such proceeding shall not have been dismissed.
(b) Remedies Upon Default.
(1) Rent. All failures to pay any monetary obligation to be paid
by Tenant under this lease shall be construed as obligations
for payment of rent.
(2) Termination. In the event of the occurrence of any event of
default, Landlord shall have the right, with or without
notice or demand, immediately to terminate this lease, and at
any time thereafter recover possession of the Premises or any
part thereof and expel and remove therefrom Tenant and any
other person occupying the same, by any lawful means, and
again repossess and enjoy the Premises without prejudice to
any of the remedies that Landlord may have under this lease.
or at law or equity by reason of Tenant's default or of such
termination.
(3) Continuation After Default. Even though Tenant has breached
this Lease and/or abandoned the Premises, this Lease shall
continue in effect for so long as Landlord does not terminate
Tenant's right to possession under paragraph 21 (b)(2)
hereof, and Landlord may enforce all its right and remedies
under this lease, including (but without limitation) the
right to recover Rent as it becomes due; and Landlord,
without terminating this Lease, may exercise all of the
rights and remedies of a landlord under Section 1951.4 of the
Civil Code of the State of California or any successor code
section. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of receiver upon
application of Landlord to protect Landlord's interests under
this Lease shall not constitute an election to terminate
Tenant's right to possession.
(c) Damages Upon Termination. Should Landlord terminate this
Lease pursuant to the provisions of paragraph 21 (b)(2)
hereof, Landlord shall have all the rights and remedies of a
landlord provided by Section 1951.2 of the Civil Code of the
State of California, or successor code section. Upon such
termination, in addition to any other rights and remedies to
which Landlord may be entitled under applicable law, Landlord
shall be entitled to recover from Tenant: (i) the worth at
the time of award of the unpaid Rent and other amounts which
had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid Rent
which would have been earned after termination until the time
of award exceeds the amount of such Rent loss that the Tenant
proves could have been reasonably avoided; (iii) the worth
at the time of award of the amount by which the unpaid Rent
for the balance of the Term after the time of award exceeds
the amount of such Rent loss that the Tenant proves could be
reasonably avoided; and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this
Lease or which, in the ordinary course of things, would be
likely to result therefrom. The "worth at the time of award"
of the amounts referred to in (i) and (ii) shall be computed
with interest at the lesser of eighteen percent (18%) per
annum or the maximum rate allowed by law. The "worth at the
time of award" of the amount referred to in (iii) shall be
computed by reference to competent appraisal evidence or the
formula prescribed by using the lowest discount rate
permitted under applicable law.
(d) Computation Of Rent For Purposes Of Default.
For purposes of computing unpaid Rent which would have
accrued and become payable under this Lease pursuant to the
provisions of paragraph 21(c) unpaid Rent shall consist of the
sum of
(1) the total Basic Rent for the balance of the Term then
remaining (with the amount of Basic Rent to be determined by
reference to fair rental value being the subject of proof by
competent evidence), plus
(2) a computation of the excess of Gross Rent (the term "Gross
Rent" meaning the sum of (i) rental adjustments payable
pursuant to paragraph 29 and (ii) Basic Rent) over Basic Rent
for the balance of the Term then remaining ("Excess Gross
Rental"), the assumed excess Gross Rental for the calendar
year of the default and each future calendar year in the Term
to be equal to the Excess Gross Rental for the calendar year
prior to the year in which default occurs compounded at a per
annum rate equal to the mean average rate of inflation for
the preceding five (5) calendar years as determined by the
United States Department of Labor, Bureau of Labor Statistics
Consumer Price Index (All Urban Consumers) for the
Metropolitan Area or Region of which San Francisco,
California is a part.
(e) Late Charge. In addition to its other remedies, Landlord
shall have the right without notice or demand to add to the
amount of any payment required to be made by Tenant hereunder,
and which is not paid on or before the date the same is due, an
amount equal to five percent (5%) of the delinquency for each
month or portion thereof that the delinquency remains outstanding
to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the
parties agreeing that Landlord's damage by virtue of such
delinquencies would be difficult to compute and the amount stated
herein represents a reasonable estimate thereof.
(f) Remedies Cumulative. All right, privileges and elections or
remedies of the parties are cumulative and not alternative to the
extent permitted by law and except as otherwise provided herein.
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<PAGE>
DAMAGED BY 22. If the Premises or the Building are damaged by fire or
FIRE, ETC. other casualty, Landlord shall forthwith repair the
same, provided such repairs can be made within one
See Addendum hundred eighty (180) days from the date of such damage
#7 attached under the laws and regulations of the federal, state and
hereto and made local governmental authorities having jurisdiction
a part hereof. thereof. In such event, this Lease shall remain in full
force and effect except that Tenant shall be entitled to
a proportionate reduction of Rent while such repairs to
be made hereunder by Landlord are being made. Said
proportionate reduction shall be based upon the extent
to which the making of such repairs to be made hereunder
by Landlord shall interfere with the business carried on
by Tenant in the Premises. Within twenty (20) days from
the date of such damage, Landlord shall notify Tenant
whether or not such repairs can be made within one
hundred eighty (180) days from the date of such damage
and Landlord's determination thereof shall be binding on
Tenant. If such repairs cannot be made within one
hundred eighty (180) days from the date of such damage,
Landlord shall have the option within thirty (30) days
of the date of such damage either to: (a) notify Tenant
of Landlord's intention to repair such damage and
diligently prosecute such repairs, in which event this
Lease shall continue in full force and effect and the
Rent shall be reduced as provided herein; or (b) notify
Tenant of Landlord's election to terminate this Lease as
of a date specified in such notice, which date shall be
not less than thirty (30) nor more than sixty (60) days
after notice is given. In the event such notice to
terminate is given by Landlord this Lease shall
terminate on the date specified in such notice. In case
of termination by either event, the Rent shall be
reduced by a proportionate amount based upon the extent
to which said damage interfered with the business
carried on by Tenant in the Premises, and Tenant shall
pay such reduced Rent Up to the date of termination.
Landlord agrees to refund to Tenant any Rent previously
paid for any period of time subsequent to such date of
termination. The repairs be made hereunder by Landlord
shall not include, and Landlord shall not be required to
repair, any damage by fire or other cause to the
property of Tenant or any repairs or replacements of any
paneling, decorations, railings, floor coverings or any
alterations, additions fixtures or improvements
installed on the premises by or at the expense of
Tenant. The provisions of Section 1942, subdivision 2,
and Section 1933, subdivision 4, of the Civil Code of
California are superseded by the foregoing.
<PAGE>
EMINENT
DOMAIN 23. If any part of the Premises shall be taken or
appropriated under the power of eminent domain or conveyed in
lieu thereof, either party shall have the right to terminate
this Lease at its option. If any part of the Building shall
be taken or appropriated under power of eminent domain or
conveyed in lieu thereof, Landlord may terminate this Lease
at its option. In either of such events, Landlord shall
receive (and Tenant shall assign to Landlord upon demand from
Landlord) any income, rent, award or any interest therein
which may be paid in connection with the exercise of such
power of eminent domain, and Tenant shall have no claim
against Landlord for any part of the sums paid by virtue of
such proceedings, whether or not attributable to the value of
the unexpired Term. If a part of the Premises shall be so
taken or appropriated or conveyed and neither party hereto
shall elect to terminate this Lease and the Premises have
been damaged as a consequence of such partial taking or
appropriation or conveyance, Landlord shall restore the
Premises continuing under this Lease at Landlord's cost and
expense; provided, however, that Landlord shall not be
required to repair or restore any injury or damage to the
property of Tenant or to make any repairs or restoration of
any alterations, additions, fixtures or improvements
installed on the Premises by or at the expense of Tenant.
Thereafter, the Rent for the remainder of the Term shall be
proportionately reduced, such reduction to be based upon the
extent to which the partial taking or appropriation or
conveyance shall interfere with the business carried on by
Tenant in the Premises. Notwithstanding anything to the
contrary contained in this paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or
appropriated under power of eminent domain during the Term,
this Lease shall be and remain unaffected by such taking or
appropriation and Tenant shall continue to pay in full all
Rent payable hereunder by Tenant during the Term; in the
event of any such temporary appropriation or taking, Tenant
shall be entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the
Premises during the Term, and Landlord shall be entitled to
receive that portion of any award which represents the cost
of restoration of the Premises and the use and occupancy of
the Premises after the end of the Term. SALE BY LANDLORD AND
24. In the event of a sale or conveyance by Landlord of the
TENANT'S Building, the same shall operate to release Landlord
from any REMEDIES future liability upon any of the convenants
or conditions, express or implied, herein contained in favor
of Tenant, and in such event Tenant agrees to look solely to
the responsibility of the successor in interest of Landlord
in and to this Lease. This Lease shall not be affected by any
such sale and Tenant agrees to attorn to the purchaser or
assignee. Tenant shall look solely to Landlord's interest in
the Building for recovery of any judgment from Landlord.
Landlord, or if Landlord is a partnership, its partners
whether general or limited, or if Landlord is a corporation,
its directors, officers or shareholders, shall never be
personally liable for any such judgment.
RIGHT OF
LANDLORD TO 25. All convenants and agreements to be performed by
PERFORM Tenant under any of the terms of this Lease shall be
performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay
any sum of money, other than Rent, required to be paid by it
hereunder or shall fail to perform any other act on its part
to be performed hereunder, and such failure shall continue
for ten (10) days after notice thereof by Landlord, Landlord
may, but shall not be obligated to do so, and without waiving
or releasing Tenant from any obligations of the Tenant, make
any such payment or perform any such act on the Tenant's part
to be made or performed. All sums so paid by Landlord and all
necessary incidental costs together with interest thereon at
the rate of eighteen percent (18%) per annum or the maximum
rate permitted by law, whichever is less per annum from the
date of such payment by the Landlord shall be payable as
Additional Rent to Landlord on demand, and Tenant covenants
to pay such sums, and Landlord shall have, in addition to any
other right or remedy of Landlord, the same right and
remedies in the event of the nonpayment thereof by Tenant as
SURRENDER OF in the case of default by Tenant in the payment of the Rent.
PREMISES
26. (a) Tenant shall, at least ninety (90) days before the last
day of the Term, give to Landlord a written notice of
intention to surrender the Premises on that date, but nothing
contained herein shall be construed as an extension of the
Term or as consent of Landlord to any holding over by Tenant.
(b) At the end of the term or any renewal thereof or other
sooner termination of this Lease, Tenant shall peaceably
deliver up to Landlord possession of the Premises, together
with all improvements, fixtures or ordinary wear additions
thereto by whomsoever made, in the same condition as
received, or first installed, damage by fire, earthquake, act
of God, ordinary wear and tear or the elements alone
excepted. Tenant may, upon the termination of this Lease,
remove all movable furniture and equipment belonging to
Tenant, at Tenant's sole cost, title to which shall be in
Tenant until such termination, repairing any damage caused by
such removal. Property not so removed shall be deemed
abandoned by the Tenant, and title to the same shall
thereupon pass to Landlord.
(c) The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, shall not work a merger and
shall, at the option of Landlord, terminate all or any
WAIVER existing subleases or subtenancies or may, at the option of
Landlord, operate as an assignment to it of any or all such
subleases or subtenancies.
27. If either Landlord or Tenant waives the performance of
any term, covenant or condition contained in this Lease, such
waiver shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition
contained herein. The acceptance of Rent by Landlord shall
not constitute a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, convenants or conditions of this Lease for
any length of time shall not be deemed to waive or to
decrease the right of Landlord to insist thereafter upon
strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this lease may only be
made by a written document signed by Landlord.
<PAGE>
NOTICES
28. All notices and demands which may or are required to be given by
either party to the other hereunder shall be in writing. All
notices and demand by Landlord to Tenant shall be sent by United
States certified or registered mail, postage prepaid, addressed to
Tenant at the Premises, or to such other place as Tenant may from
time to time designate in a notice to Landlord. All notices and
demands by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to
Landlord at the address specified in the Basic Lease Information,
or to such other firm or to such other place as Landlord may from
time to time designate in a notice to Tenant.
RENTAL 29. In addition to Basic Rent provided to be paid hereunder, Tenant
ADJUSTMENT shall pay as Rent Tenant's Proportionate Share of Basic Operating
Cost in the manner set forth below.
See (a) Definition: For purposes hereof, the terms used in this
Addendum #1 paragraph 29 shall have the following meanings:
attached (b) "Basic Operating Cost" shall mean all expenses and costs of
hereto every kind and nature which Landlord shall pay or become obligated
and made a to pay because of or in connection with the ownership and operation
part hereof of the Building and supporting facilities of the Building, and such
additional facilities now and in subsequent years as may be
determined by Landlord to be necessary to the Building, including,
but not limited to the following:
(i) Wages, salaries and related expenses and benefits of all on-
site and off-site employees engaged directly in the operation,
management, maintenance, engineering and security of the Building,
and the costs of an office in the Building: provided, however, that
Basic Operating Cost shall not include leasing commissions paid to
any real estate broker, salesperson of agent.
(ii) Supplies, materials and rental of equipment used in the
operation, management and maintenance of the Building.
(iii) Utilities, including water and power, heating, lighting, air
conditioning and ventilating of the Building.
(iv) All maintenance, janitorial and service agreements for the
Building and the equipment therein, including, without limitation,
alarm services, window cleaning and elevator maintenance.
(v) A management cost recovery determined by Landlord equal to
three percent (3%) of Gross Rent derived from the Building.
(vi) Legal expenses and the cost of audits by certified public
accountant; provided, however, that legal expenses chargeable as
Basic Operating Cost shall not include the cost of negotiating
leases, collecting rents, evicting tenants nor shall it include
costs incurred in legal proceedings with or against any tenant or
to enforce the provisions of any lease.
(vii) All insurance premiums and costs, including but not limited
to, the premiums and cost of fire, casualty and liability coverage
and rental abatement and earthquake insurance (if Landlord elects
to provide such coverage) applicable to the Building and
Landlord's personal property used in connection therewith.
(viii) Repair, replacements and general maintenance (excluding
repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alterations attributable solely
to tenants of the Building other than Tenant).
(ix) All maintenance costs relating to public and service areas of
the Building, including (but without limitation) sidewalks,
landscaping, service areas, mechanical rooms and building
exteriors.
(x) All taxes, service payments in lieu of taxes, annual or
periodic license or use fees, fees, real estate taxes, impositions
or charges imposed upon or levied in connection with use of the
Building to raise funds for public transit, housing or other
environmental, sociological or fiscal effects of the Building or
land use, assessments whether general or special, ordinary and
extraordinary, unforseen as well as foreseen, of any kind which are
assessed, levied, charged, confirmed or imposed by any public
authority upon the Building, the land upon which it is located,
Building operations or Rent payable under this Lease (or any
portion or component thereof), excepting only inheritance of estate
taxes imposed upon or assessed against the interest of any person
in the Building or any part thereof of interest therein, and taxes
computed upon the basis of the net income of the owners of the
Building or any part thereof or interest therein.
(xi) Amortization (together with reasonable financing charges) of
capital improvement made to the Building subsequent to the Term
Commencement Date which will improve the operating efficiency of
the Building or which may be required to comply with the laws,
ordinances, rules or regulations promulgated, adopted or enforced
after completion of the initial construction of the Building and
improvements of the Premises pursuant to Exhibit C and C-!.
Notwithstanding anything to the contrary herein contained, Basic
Operating Cost shall not include (aa) the initial construction cost
of the Building; (bb) depreciation on the initial construction of
the Building; (cc) the cost of providing Tenant improvements to
tenant or any other tenant: (dd) debt service (including, but
without limitation, interest, principal and any impound payments)
required to be made on any mortgage or deed of trust recorded with
respect to the Building and/or the real property on which the
Building is located other than debt service and financing charges
imposed pursuant to paragraph 29(a)(1)(xi) above; and (ee) the cost
of special services, goods or materials provided to any tenant. In
the event that the building is not fully occupied during any fiscal
year of the Term as determined by Landlord, an adjustment shall be
made in computing the Basic Operating Cost for such year so that
Basic Operating Cost shall be computed as though the Building had
been one hundred percent (100%) occupied; provided, however, that
in no event shall Landlord be entitled to collect in excess of one
hundred percent (100%) of the total Basic Operating Cost from all
of the tenants in the Building including Tenant. All costs and
expenses shall be determined in accordance with generally accepted
accounting principles which shall be consistently applied (with
accruals appropriate to Landlord's business). Basic Operating Cost
shall not include specific costs incurred for the account of,
separately billed to and paid by specific tenants.
-9-
<PAGE>
(2) "Estimated Basic Operating Cost" for any particular
year shall mean Landlord's estimate of the Basic
Operating Cost for such calendar year made prior to
commencement of such calendar year as hereinafter
provided. Landlord shall have the right from time to time
to revise its fiscal year and interim accounting periods
so long as the periods as so revised are reconciled with
prior periods in accordance with generally accepted
accounting principles applied in a consistent manner.
(3) "Basic Operating Cost Adjustment" shall mean the
difference between Basic Operating Cost and Estimated
Basic Operating Cost for any calendar year determined as
hereinafter provided.
(B) Payment Of Estimated Operating Cost.
During December of each calendar year during the
Term, or as soon thereafter as practicable, Landlord
shall give Tenant written notice of the Estimated Basic
Operating Cost for the ensuing calendar year. The
Estimated Basic Operating Cost for the calendar year in
which the Scheduled Term Commencement Date falls is set
forth in the Basic Lease information sheet. Tenant shall
pay Tenant's Proportionate Share of the Estimated Basic
Operating Costs with Installments of Basic Rent required
to be paid pursuant to paragraph 3 above for the calendar
year to which the estimate applies in monthly
installments on the first day of each calendar month
during such year, in advance. Such payment shall be
construed to be Rent for all purposes hereof. If at any
time during the course of a calendar year, Landlord
determines that Basic Operating Cost will apparently vary
from the then Estimated Basic Operating Cost by more than
five percent (5%), Landlord may, by written notice to
Tenant, revise the Estimated Basic Operating Cost for the
balance of such calendar year and Tenant shall pay Tenant
Proportionate Share of the Estimated Basic Operating Cost
as so revised for the balance of the then current
calendar year on the first day of each calendar month
thereafter, such revised installment amounts to be Rent
for all purposes hereof.
(C) Computation Of Basic Operating Cost Adjustment.
Within one hundred twenty (120) days after the
end of each fiscal year as determined by Landlord or as
soon thereafter as practicable, Landlord shall deliver to
Tenant a statement of Basic Operating Cost for the fiscal
year just ended, accompanied by a computation of Basic
Operating Cost Adjustment. If such statement shows that
Tenant's payment based upon Estimated Basic Operating
Cost is less than Tenant's Proportionate Share of Basic
Operating Cost, then Tenant shall pay the difference
within twenty (20) days after receipt of such statement,
such payment to constitute additional rent hereunder. If
such statement shows that Tenant's payments of Estimated
Basic Operating Cost exceed Tenant's Proportionate Share
of Basic Operating Costs, then (provide that Tenant is
not in default under this Lease), Tenant shall receive a
credit for the amount of such payment against Tenant's
obligation for payment of Tenant's Proportionate Share of
Estimated Basic Operating Cost next becoming due
hereunder. If this Lease has been terminated or the Term
hereof has expired prior to the date of such statement,
then the Basic Operating Cost Adjustment shall be paid by
the appropriate party within twenty (20) days after the
date of delivery of the statement.
(D) Net Lease. This shall be a net lease and Base Rent
shall be paid to Landlord absolutely net of all costs and
expenses. The provisions for payment of Basic Operating
Cost by means of periodic payments of Tenant's
Proportionate Share of Estimated Basic Operating Cost and
the Basic Operating Cost Adjustment are intended to pass
on to Tenant and reimburse Landlord for all cost and
expenses of the nature described in paragraph 29(a)(1)
above incurred in connection with ownership and operation
of the Building and such additional facilities now and in
subsequent years as may be determined by Landlord to be
necessary to the Building.
(e) Tenant Audit. Tenant shall have the right, at
Tenant's expense and upon not less than forty-eight (48)
hours prior written notice to Landlord to review at
reasonable times Landlord's books and records for any
calendar year a portion of which falls within the Term
for purposes of verifying Landlord's calculation of Basic
Operating cost and Basic Operating Cost Adjustment. In
the event that Tenant shall dispute the amount set forth
in any statement provided by Landlord under paragraph
2g(c) above, Tenant shall have the right not later than
twenty (20) days following the receipt of such statement,
and upon condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's
books and records with respect to such calendar year to
be audited by certified public accountants selected by
Tenant subject to Landlord's reasonable right of
approval. The Basic Operating Cost Adjustment shall be
appropriately adjusted on the basis of such audit. If
such audit discloses a liability for a refund or credit
by Landlord to Tenant in excess of ten Percent (10%) of
Tenant's Proportionate Share of the Basic Operating cost
Adjustment previously reported, the cost of such audit
shall be borne by Landlord. Otherwise the cost of such
audit shall be paid by Tenant. If Tenant shall not
request an audit in accordance with the provisions of
this paragraph 29(e) within twenty (20) days of receipt
of Landlord's statement provided pursuant to paragraph
29(d), such statement shall be final and binding for all
purposes hereof.
TAXES 30. (a) Tenant shall pay before delinquency any and all taxes
PAYABLE BY levied or assessed and which become payable by Landlord
TENANT (or Tenant) during the Term of this Lease, whether or not
now customary or within the contemplation of the parties
hereto, which are based upon, measured by or otherwise
calculated with respect to: (a) the value of Tenant's
equipment, furniture, fixtures or other personal property
located in the Premises; (b) the value of any leasehold
improvements, alterations, or additions made in or to the
Premises, regardless of whether title to such
improvements, alterations or additions shall be in Tenant
or Landlord; or (c) this transaction or any document to
which Tenant is a party creating or transferring an
interest or an estate in the Premises. (b) In the event
that it shall not be lawful for Tenant so to reimburse
Landlord, the Rent shall be revised to net Landlord the
same net rent after imposition of any such tax upon
Landlord as would have been payable to Landlord prior to
the imposition of any such tax. All taxes payable by
Tenant under this Paragraph 30 shall be additional
rental.
--10--
<PAGE>
SUCCESSORS 31. Subject to the provisions of paragraph 10 hereof, the
AND ASSIGNS terms, covenants and conditions contained herein shall be
binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto.
ATTORNEYS' 32. In the event that any action or proceeding is brought to
FEES enforce any term, covenant or condition of this lease on the
part of Landlord or Tenant, the prevailing party in such
litigation shall be entitled to reasonable attorneys' fees to
be fixed by the court in such action or proceeding.
LIGHT AND AIR 33. No diminution of light, air or view by any structure
which may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of Rent, result in any
liability of Landlord to Tenant, or in any other way affect
this Lease or Tenant's obligations hereunder.
PUBLIC TRANS- 34. Tenant shall establish and maintain during the Term
PORTATION hereof a program to encourage maximum use of public
INFORMATION transportation by personnel of Tenant employed on the Premises,
including without limitation the distribution to such employees
of written materials explaining the convenience and
availability of public transportation facilities adjacent to
the Building, staggering working hours of employees, and
encouraging use of such facilities, all at Tenant's sole
reasonable cost and expense.
MISCELLANEOUS 35.(a) The term "Premises" shall be deemed to include
(except where such meaning would be clearly repugnant to the
context) the office space demised and improvements now or at
any time hereinafter comprising or built in the space hereby
demised.
(b) The paragraph headings herein are for convenience of
reference and shall in no way define, increase, limit or
describe the scope or intent of any provision of this lease.
(c) The term "Landlord" in these presents shall include the
Landlord, its successors and assigns. In any case where this
Lease is signed by more than one person, the obligation
hereinunder shall be joint and several.
(d) The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or corporations,
and their and each of their respective successors, executors,
administrators and permitted assigns, according to the context
hereof.
(e) Time is of the essence of this Lease and all of its
provisions.
(f) This Lease shall in all respects be governed by the laws of
the State of California.
(g) This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous
negotiations.
(h) There have been no representations made by the Landlord or
understandings made between the parties other than those set
forth in the Lease and its exhibits.
(i) This Lease may not be modified except by a written
instrument by the parties hereto.
(j) If for any reason whatsoever any of the provisions hereof
shall be enforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
LEASE EFFECTIVE (k) See Addenda #1-11 attached hereto and made a part hereof.
DATE
36. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation or option
for lease, and it is not effective as a lease or otherwise
until execution and delivery by both Landlord and Tenant.
IN WITNESS WHEREOF. the parties hereto have executed
this Lease the day and year first above written.
"LANDLORD"
SAN MATEO OFFICE LIMITED
A California Limited Partnership
Date By
--------------------- --------------------------
Dennis E. Singleton
Its General Partner
"TENANT"
VERY VISUAL SOFTWARE
A DELAWARE CORPORATION
Date By
--------------------- --------------------------
Roger Sippl
Its Chief Executive Office
<PAGE>
Rules and Regulations
Exhibit A.
1. Sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by Tenants or
used by them for any purposes other than for ingress to and
egress from their respective premises. The halls, passages,exits
entrances, elevators and stairways are not for the use of the
general public and Landlord shall in all cases retain the right
to control and prevent access thereto by all persons whose
presence, in the judgement of Landlord, shall be prejudicial to
the safety, character, reputation and interests of the Building
and its Tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom any Tenant
normally deals in the ordinary course of such Tenant's business
unless such persons are engaged in illegal activities. No Tenant,
and no employees or invitees of any Tenant, shall go upon the
roof of the Building, except as authorized by Landlord.
2. No sign, placard, picture, name, advertisement or notice, visible
from the exterior of leased premises shall be inscribed, painted,
affixed, installed or otherwise displayed by any Tenant either on
its premises or any part of the Building without the prior written
consent of Landlord, and Landlord shall have the right to remove
any such sign, placard, picture, name, advertisement or notice
without notice to and at the expense of the Tenant.
If Landlord shall have given such consent to any Tenant at any
time, whether before or after the execution of the lease, such
consent shall in no way operate as a waiver or release of any of
the provisions hereof or of such lease, and shall be deemed to
relate only to the particular sign, placard, picture, name,
advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the
specific written consent of Landlord with respect to any other
such sign, placard, picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be
printed, painted, affixed or inscribed at the expense of the
Tenant by a person approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of Tenants
only and Landlord reserves the right to exclude any other names
therefrom.
4. No curtains draperies, blinds, shutters, screens or other
coverings awnings, hangings or decorations shall be attached to,
hung or placed in, or used in connection with, any window or door
on any premises without prior written consent of Landlord. In any
event with the prior written consent of Landlord, all such items
shall be installed inboard of Landlords window covering and shall
in no way be visible from exterior of the Building. No articles
shall be placed or kept on the window sills so as to be visible
from the exterior of the Building. No articles shall be placed
against glass partition s or doors which might appear unsightly
from outside Tenants Premises.
5. Landlord reserves the right to exclude from the Building between
the hours of 6 pm and 6 am and at all hours on Saturdays, Sundays,
and holidays all persons who are not Tenants or their accompanied
guests in the Building. Each Tenant shall be responsible for all
persons for whom it allows to enter the building and shall be
liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for error with
regard to the admission to or exclusion from the Building of
any person.
During the continuances of any invasion, mob. riot, public
excitement or other circumstance rendering such action advisable
in Landlord's opinion, Landlord reserves the right to prevent
access to the Building by closing the doors, or otherwise, for the
safety of Tenants and protection of the Building and property in
the Building.
6. No Tenant shall employ any person or persons other than the
janitor of Landlord for the purpose of cleaning premises unless
otherwise agreed to by Landlord in writing. Except with the
written consent of Landlord no person or persons other than those
approved by Landlord shall be permitted to enter the Building for
the purpose of cleaning the same. No Tenant shall cause any
unnecessary labor by reason of such Tenant's carelessness or
indifference in the preservation of good order and cleanliness of
the premises. Landlord shall in no way be responsible to any
tenant for loss of property on the premises, however occurring, or
for any damage done to the effects of any Tenant by the janitor or
any other employee or any other person.
7. No Tenant shall obtain for use upon its premises ice, drinking
water, food, beverage, towel or other similar services except
through facilities provided by Landlord (and maintained by Tenant)
and under regulations fixed by Landlord, or accept barbering or
bootblacking services in its premises except from persons
authorized by Landlord.
8. Each Tenant shall see that all doors of its premises are closed
and securely locked and must observe strict care and caution that
all water faucets or water apparatus are entirely shut off before
the Tenant or its employees leave such premises, and that all
utilities shall likewise be carefully shut off, so as to prevent
waste or damage, and for any default or carelessness the Tenant
shall make good all injuries sustained by other Tenants or
occupants of the Building or Landlord. On multiple-tenancy floors,
all Tenants shall keep the door or doors to the Building corridors
closed at all times except for ingress or egress.
9. As more specifically provided in the Tenant's Lease of the
Prenuses, Tenant shall not waste electricity, water or air-
conditioning and agrees to cooperate fully with Landlord to assure
the most effective operation of the Building's heating and air-
conditioning, and shall refrain from attempting to adjust any
controls other than room thermostats installed for Tenant's use.
10. No Tenant shall after any lock or access device or install a new
additional lock or access device or any bolt on any door of its
premises without the prior written consent of Landlord. If
Landlord shall give its consent, the Tenant shall in each case
furnish Landlord with a key for any such lock.
11. No Tenant shall make or have made additional copies of any keys or
access devices provided by Landlord. Each Tenant, upon the
termination of the Tenancy, shall deliver to Landlord all the keys
or
EXHIBIT "A" Page 1
<PAGE>
access devices for the Building, offices, rooms and
toilet rooms which shall have been furnished the
Tenant or which the Tenant shall have had made. In the
event of the loss of any keys or access devices so
furnished by Landlord, Tenant shall pay Landlord
therefor.
12. The toilet rooms, toilets, urinal, wash bowls and other
apparatus shall not be used for any purpose other than
that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or
damage resulting from the violation of this rule shall
be borne by the Tenant who, or whose employees or
invitees, shall have caused it.
13. No Tenant shall use or keep in its premises of the
Building any kerosene, gasoline or inflammable or
combustible fluid or material other than limited
quantities necessary for the operation or maintenance of
office or office equipment. no Tenant shall use any
method or heating or air-conditioning other than that
supplied by Landlord.
14. No Tenant shall use, keep or permit to be used or kept
in its premises any foul or noxious gas or substance or
permit or suffer such premises to be occupies or used
in a manner offensive or objectionable to landlord or
other occupants of the Building by reason of noise,
odors and/or vibrations or interfere in any way with
other Tenants of those having business therein, nor
shall any animals or birds be brought or kept in or
about any premises of the Building.
15. No cooking shall be done or permitted by any Tenant on
it premises (except that use by the Tenant of
Underwriters' laboratory approved equipment for the
preparation of coffee, tea, hot chocolate and similar
beverages for Tenants and their employees shall be
permitted, provided that such equipment and use is in
accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations), nor
shall premises be used for lodging. microwave accepted.
16. Except with the prior written consent of Landlord, no
Tenant shall sell, or permit the sale, at retail, of
newspapers, magazines, periodicals, theatre tickets or
any other goods or merchandise in or on any premises,
nor shall Tenant carry on, or permit or allow any
employee or other person to carry on , the Business of
stenography, typewriting or any similar business in or
from any premises for the service or accommodation of
occupants of any other portion of the Building, nor
shall the premises of any Tenant be used for the storage
of merchandise or for manufacturing of any kind, or the
business of a public barber shop, beauty parlor, nor
shall the premises of any Tenant be used for any
improper, immoral or objectionable purpose, or any
business or activity other than that specifically
provided for in such Tennant's lease.
17. If Tenant requires telegraphic, telephonic, burglar
alarm or similar services, it shall first obtain and
comply with, Landlord's instructions in their
installation.
18. Landlord will direct electricians as to where and how
telephone, telegraph and electrical wires are to be
introduced or installed. No boring ar cutting for wires
will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones,
call boxes and other office equipment affixed to all
premises shall be subject to the written approval of
Landlord.
19. No Tenant shall install any radio or television antenna,
loudspeaker or any other device on the exterior walls or
the roof of the Building. Tenant shall not interfere
with radio or television broadcasting or reception from
or in the Building or elsewhere.
20. No Tenant shall lay linoleum, tile, carpet or an other
floor covering so that the same shall be affixed to the
floor of its premises in any manner except as approved
in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the
removal of any floor covering shall be borne by the
Tenant by whom, or by whose contractors, employees or
invitees, the damage shall have been caused.
21. No furniture, freight, equipment, materials, supplies,
packages, merchandise or other property will be received
in the Building or carried up or down the elevators
except between such hours and in such elevators as shall
be designated by Landlord.
Landlord shall have the right to prescribe the
weight, size and position of all safes, furniture or
other heavy equipment brought into the Building. Safes
or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as
determined by Landlord to be necessary to properly
distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe,
equipment or properly from any cause, and all damage
done to the Building by moving or maintaining any such
safe, equipment or other property shall be repaired at
the expense of Tenant.
Business machines and mechanical equipment
belonging to Tenant which cause noise or vibration that
may be transmitted to the structure of the Building or
to an space therein to such a degree as to be
objectionable to Landlord or to an tenants in the
building shall be placed and maintained by Tenant, at
Tennant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The
persons employed to move such equipment in or out of the
Building must be acceptable to Landlord.
22. No Tenant shall place a load upon any floor of the
premises which exceeds the load per square foot which
such floor was designed to carry and which is allowed by
law. No Tenant shall mark, or drive nails, screw or
drill into, the partitions, woodwork or plaster or in
any way deface such premises or any part thereof.
23. No Tenant shall install, maintain or operate upon the
Premises any vending machine without the written consent
of Landlord.
24. There shall not be used in any space, or in the public
areas of the Building, either by any Tenant or others,
any hand trucks except those equipped with rubber tires
and side guards or such other material-handling
equipment as Landlord may approve. No other vehicles of
any kind shall be brought by any Tenant into or kept in
or about the premises.
EXHIBIT "A"
18. Landlord will direct
<PAGE>
25. Each Tenant shall store all its trash and garbage
within the interior of its premises. No material shall
be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and
disposing of trash and garbage in the city without
violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall
be made only through entryways and elevators provided
for such purposes and at such times as Landlord shall
designate.
26. Canvassing, soliciting, distribution of handbills or any
other written material, and peddling in the Building are
prohibited and each Tenant shall cooperate to prevent
the same. No Tenant shall make room-to-room solicitation
of business from other tenants in the building.
27. Landlord shall have the right, exercisable without
liability to any Tenant, to change the name and address
of the Building.
28. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment is
intoxicated or under the influence of liquor or drugs or
who is in violation of any of the rules and regulations
of the Building.
29. Without the prior written consent of Landlord, Tenant
shall not use the name of the Building in connection
with or in promoting or advertising the business of
Tenant except as Tenant's address.
30. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by
Landlord or any governmental agency.
31. Tenant assumes any and all responsibility for protecting
its Premises from theft, robbery and pilferage, which
includes keeping doors locked and other means of entry
to the Premises closed.
32. The requirements of Tenants will be attended to only
upon application at the office of the Building by an
authorized individual. Employees of Landlord shall not
perform any work or do anything outside of their regular
duties unless under special instructions from Landlord,
and no employees will admit any person Tenant or
otherwise) to any office without specific instructions
from Landlord.
33. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular Tenant or
Tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in
favor of any other Tenant or Tenants, nor prevent
Landlord from thereafter enforcing any such Rules and
Regulations against any or all Tenants of the Building.
34. Landlord reserves the right to make such other and
reasonable rules and regulations as in its judgement may
from time to time be needed for safety and security, for
care and cleanliness of the Building and for the
preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations hereinabove
stated and any additional rules and regulations which
are adopted.
35. Landlord reserves the right to designate the use of the
parking spaces on the premises.
36. Tenant shall use carpet protector under all desk chairs.
37. Tenant agrees to keep balcony doors closed at all times,
except during ingress and egress.
38. Tenant Or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking
spaces with one car. Vehicles in violation of the above
shall be subject to tow-away, at vehicle owner's
expense.
39. Vehicles parked on premises overnight without prior
written consent of the Landlord shall be deemed
abandoned and shall be subject to tow-away at vehicle
owner's expense.
40. Tenant shall be responsible for the observance of all of
the foregoing Rules and Regulations by Tenant's
employees, agents, clients, customers, invitees and
guests.
41. The Rules and Regulations are in addition to, and shall
not be construed to in any way modify, alter or amend,
in whole or in part the terms, covenants, agreements and
conditions of any Lease of Premises in the Building. The
word "Building" as used herein means the building of
which the premises are part.
EXHIBIT "A" Page 3
<PAGE>
BLDG. 1
4TH FLOOR PLAN
SAN MATEO BAY CENTER
SPIEKER PARTNERS
(415) 570-5990
EXHIBIT B-1
<PAGE>
Suite 370 2,177 Sq. Ft.
San Mateo BayCenter
951 Mariner's Island Boulevard
San Mateo, CA
Tenant to accept the premises in "as is" condition
EXHIBIT C - Interior Improvements
<PAGE>
FOURTH FLOOR
SOUTH BLDG.
SUITE 460
6871 RSF
SAN MATEO BAY CENTER
901/951 MARINER'S ISLAND BLVD.
SAN MATEO, CALIFORNIA
SPIEKER PARTNERS
Tenant to accept the premises in "as is" condition except Landlord shall, at
Landlord's sole cost and expense, provide the following interior improvements:
1. Repaint all walls, color to be selected by tenant.
2. Landlord shall replace the existing carpet with building standard carpet,
color to be selected by tenant.
3. 3 - 3' sidelights (location to be selected by tenant).
4. 3'x5' window on wall separating Reception/Training Rooms.
5. Mini-blinds to be installed on new 3'x5' window.
<PAGE>
Form of Tenant Certificate
- --------------
EXHIBIT D
- --------------
------------------------------
------------------------------
------------------------------
------------------------------
RE:
Gentlemen:
The undersigned, as Tenant under that certain lease (the "Lease") dated
________________ 19__, made with __________________________ as Landlord
(the "Landlord"), does hereby certify:
1. That the copy of the Lease attached hereto as Exhibit A is a true and
complete copy of the Lease, and there are no amendments, modifications
or extensions of or to the Lease and the Lease is now in full force
and effect.
2. That its leased premises at the above location have been completed in
accordance with the terms of the Lease, that it has accepted
possession of said premises, and that it now occupies the same.
3. That it began paying rent on __________________, 19__, and that, save
only as may be required by the terms of the Lease, no rental has been
paid in advance, nor has the undersigned deposited any sums with the
Landlord as security.
4. That there exist no defenses or offsets to enforcement of the Lease by
the Landlord and, so far as is known to the undersigned, the Landlord
is not, as of the date hereof, in default in the performance of the
Lease, nor has the Landlord committed any breach thereof, nor has any
event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default or breach by the Landlord.
The undersigned acknowledges that you are relying on the above
representation of the undersigned in (advancing funds to purchase the
existing first mortgage Joan covering the building in which the
leased premises are located)(in purchasing the building in which the
leased premises are located) and does hereby warrant and affirm to and
for your benefit, and that of your successors and assigns, that each
of the foregoing representations is true, correct and complete as of
the date hereof.
Dated:
-------------------------------------------------
By
Its:
----------------------------------------------------
<PAGE>
EXHIBIT "D"
<PAGE>
ADDENDA TO LEASE
951 Mariner's Island Boulevard
San Mateo, California
LEASE DATE: March 7, 1993
LANDLORD: SAN MATEO OFFICE LIMITED
a California Limited Partnership
TENANT: VERY VISUAL SOFTWARE, INC.
A California Company
ADDENDUM #1 RENT
Rent for the Premises shall be as follows:
Months 1-2.5 (4/1/93 - 6/14/93)
Suite #370 (2,177 sqft)
Base Rent $ 2,373
Estimated Basic
Operating Costs 1,328
-----
(Calendar Year 1993)
$ 3,701 per month
Months 2.5-3 (6/15/93 - 6/30/93)
Suite #460 (6,871 sqft)
Base Rent $ 7,489
Estimated Basic
Operating Costs 4,191
-----
(Calendar Year 1993)
$ 11,680 per month
Months 3-24 (7/1/93 - 3/31/95)
Suite #460 (6,871 sqft)
Base Rent $ 7,489
Estimated Basic
Operating Costs 4,191
-----
(Calendar Year 1993)
$ 11,680 per month
ADDENDUM #2 TENANT IMPROVEMENTS
Landlord shall deliver Suite #370 in "AS IS" condition as built per attached
Exhibit C. Landlord shall provide to Suite #460 Tenant Improvements as
described in Exhibit C-1.
ADDENDUM #3 OPTION TO RE-RELEASE
Providing Tenant is not, and has not been, in default of any terms and
conditions of this Lease, Tenant shall have one three (3) year option to release
the Premises in as is condition at the then current market rate for San Mateo
BayCenter. In no event will the monthly rental be less than the rental for the
last month of the previous term.
Tenant shall give landlord written notice of its intent to exercise its option
at least one hundred twenty (120) days prior to the expiration of the current
lease term. Within fifteen (15) days after Landlord receives notice of such
intent, Landlord will provide Tenant with the current market rental, as
determined by Landlord as well as terms and conditions for the extended term.
Tenant shall have thirty (30) days from notification by Landlord of option rent
and terms and conditions to accept Landlord's current market rent, terms and
conditions and thereby exercises its option to re-lease. If Tenant does not
accept Landlord's rental figure and terms and conditions within the thirty (30)
day period, this option shall be null and void and Landlord shall have no
further obligation to Tenant and Landlord may enter into a lease for the
Premises with a third party.
<PAGE>
ADDENDA TO LEASE
VERY VISUAL SOFTWARE, INC.
Page -2-
Notwithstanding anything to the contrary set forth in this Lease, the Option to
Re-Lease shall apply only to the Primary tenant and not to any assignee or
subtenant of Very Visual Software, Inc.
ADDENDUM #4 PRIOR RIGHT OF REFUSAL
- ----------------------------------
Provided Tenant is not, and has not been, in default of any terms and conditions
of this Lease, tenant shall have a Prior Right of Refusal during the term of the
lease, to lease up to an additional 4,800 square feet of contiguous space on the
fourth floor of the building. Landlord shall, before leasing the same to any
party other than Tenant, first offers to lease the same to Tenant. Such offer
shall specify the rental rate, lease term, amount of tenant improvement
allowance, and other terms on which Tenant is entitled to lease the space, which
terms shall be at the sole discretion of Landlord. Tenant shall exercise its
rights to lease the space, if at all, within ten (10) business days after the
receipt from Landlord of the Offer Terms, by written notice, thereof to
Landlord. If Tenant exercises its Prior Right to Lease in the manner described,
Tenant shall immediately deliver to Landlord payment for the first month's rent
for the adjacent space. If Tenant does not so exercise such right to lease
within said ten (10) day period, Landlord shall be entitled thereafter to lease
said Option Space to any third party Landlord desires, provided that if Landlord
has not received a letter of intent or entered into Lease negotiations on the
Option Space with any third party within ninety (90) days after expiration of
said ten (10) day period, Landlord shall once again offer to lease said space to
Tenant pursuant to the provisions of this paragraph. Should Landlord enter into
Lease negotiation with a third party, Landlord agrees that the effective rental
rate offered to the third party is within 85% of that offered to said Tenant
(VVSI) at the rent set forth in the original Offer Terms.
ADDENDUM #5 COMPLIANCE WITH LAWS
- --------------------------------
Landlord warrants, to the best of its knowledge, that the Building does conform
or that Landlord will cause it to conform to applicable requirements of law or
duly constituted authority or of any Board of Fire Underwriters, rating bureau
of similar organization, or the requirements of the carriers of Landlord's
insurance on or relating to the Building. The Tenant shall comply with all
applicable statutes, ordinances, rules and regulations of federal, state, and
municipal governments and all applicable rules and regulations of the Board of
Fire Underwriters as such statutes, ordinances, rules and regulations pertain to
Tenant's use of the demised Premises.
ADDENDUM #6 SERVICES AND UTILITIES
- ----------------------------------
Tenant shall be charged a fee of $30.00 per hour for after-hours HVAC use.
Normal building hours are Monday through Friday from 8:00 a.m. to 6:00 p.m.
Landlord reserves the right to adjust the hourly charge to reflect any increase
or decrease set by the local utility company.
ADDENDUM #7 DAMAGE BY FIRE. ETC.
- --------------------------------
Notwithstanding the provisions of Paragraph 22, Tenant shall have the right to
terminate this Lease if such repairs cannot be made within one hundred eighty
(180) days from the date of such damage if such damage occurs within the last
six (6) months of the lease term.
ADDENDUM #8 PARKING
- -------------------
Tenant shall have the non-exclusive use of no more than 4 on-site parking spaces
per every 1,000 square feet of leased office space.
<PAGE>
ADDENDA TO LEASE
VERY VISUAL SOFTWARE, INC.
Page -3-
ADDENDUM #9 SIGNAGE
- -------------------
Tenant shall be entitled to building standard signage located at the following
locations: entrance to the suite, elevator floor directory and main lobby
directory.
ADDENDUM #10 BASIC OPERATING COSTS
- ----------------------------------
Notwithstanding the provisions of Paragraph 29 of the Lease Agreement, Tenant's
Proportionate Share of Basic Operating Costs which are within Landlord's Control
shall not increase by more than ten percent (10%) over the previous year's cost.
Basic Operating costs which are not within Landlord's control include, but are
not limited to, utilities, taxes and insurance.
ADDENDUM #11 TERM AND POSSESSION
- --------------------------------
Notwithstanding the provisions of Paragraph 3(a) of the Lease Agreement,
Landlord will use its best efforts to deliver to Tenant 6,871 rentable square
feet located on the 4th floor of 951 Mariner's Island Boulevard known as Suite
#460 on or before June 15, 1993. Should Landlord be unable to deliver said
space, 6,871 rentable square feet, on or before July 15, 1993, Landlord agrees
to offer to Tenant one day free base rent and operating expenses for each day
Tenant must occupy 2,177 square feet of rentable space on the third floor
thereafter. If Landlord is unable to deliver said space, 6,871 rentable square
feet, on or before September 30, 1993, Tenant shall have the right to terminate
this Lease.
LANDLORD:
SPIEKER-SINGLETON #68, LTD. PARTNERSHIP
A California Limited Partnership
By:
---------------------------------
Dennis E. Singleton
Its: General Partner
Date:
---------------------------------
TENANT:
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
By:
---------------------------------
Roger Sippl
Its: Chief Executive Officer
By:
---------------------------------
<PAGE>
LEASE AMENDMENT
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: May 25, 1993
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited
Partnership
TENANT: VERY VISUAL SOFTWARE, INC.
A California Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. RENTAL
Rent for the Premises shall be as follows:
Months 1 - 2.5 (4/1/93 - 6/17/93)
Suite #370 *2,177 sqft)
Base Rent $ 2,373
Operating Costs 1,328
-------
(1993 estimate)
$ 3,701 per month
Months 2.5 - 3 (6/18/93 - 6/30-93)
Suite #460 (6,871 sqft)
Base Rent $ 7,489
Operating Costs 4,191
-------
(1993 estimate)
$11,680 per month
Months 3 - 24 (7/1/93 - 3/31/95)
Suite #460 (6,871 sqft)
Base Rent $ 7,489
Operating Costs 4,191
-------
(1993 estimate)
$11,680 per month
2. All other terms and conditions of the original Lease Agreement shall
apply to this Lease Amendment.
Agreed to this 25th day of May, 1993.
---- ----
<PAGE>
VERY VISUAL SOFTWARE, INC.
Lease Amendment 5/25/93
Page -2-
LANDLORD:
SAN MATEO OFFICE LIMITED
A California Limited Partnership
By: ----------------------------------
Dennis E. Singleton
Its: General Partner
Date: ----------------------------------
TENANT:
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
By: ----------------------------------
Roger Sippl
Its: Chief Executive Officer
Date: ---------------------------------
<PAGE>
LEASE AMENDMENT #2
------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: October 6, 1994
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. TERM
----
11/01/94 - 04/30/96
2. Premises
--------
Approximately 981 square feet of leasable space on the fourth floor of San
Mateo BayCenter, Phase I shall be incorporated into the original Lease
Agreement. Total square footage shall increase from 6,871 to 7,852 square
feet leasable.
3. Rental
------
<TABLE>
<S> <C> <C>
11/01/94 - 03/31/95
Base Rent $ 8,559.00
Op. Exp.(est.'94) $ 4,790.00
----------
Total Rent $13,349.00
04/01/95 - 04/30/97
Base Rent $ 8,951.00
Op. Exp. (est '94) $ 4,790.00
----------
Total Rent $13,741.00
</TABLE>
4. Proportionate Share
-------------------
Tenants proportionate share shall increase from 5.81% to 6.64%.
5. Security Deposit
----------------
Security Deposit shall increase from $11,681.00 to $13,349.00.
All other terms and conditions of the original Lease Agreement shall apply to
this Lease Amendment #2 Agreed to this________________day of__________________,
1994.
LANDLORD:
SAN MATEO OFFICE LIMITED
A California Limited Partnership
By: ---------------------------------
Peter H. Schnugg
Its: Agent for Owner
Date: ---------------------------------
TENANT:
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
By: ---------------------------------
Glenn Myers
Its: Vice President of Finance
Date: ---------------------------------
<PAGE>
LEASE AMENDMENT #3
------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: November 3, 1994
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
<TABLE>
<CAPTION>
1. Rental
------
<S> <C> <C>
11/01/94 - 03/31/95
Base Rent $ 8,559.00
Op. Exp. (est. '94) $ 4,790.00
----------
Total Rent $13,349.00
04/01/95 - 04/30/96 Base Rent $ 8,951.00
Op. Exp. (est. '94) $ 4,790.00
----------
Total Rent $13,741.00
</TABLE>
All other terms and conditions of the original Lease Agreement shall apply to
this Lease Amendment #3 Agreed to this ______ day of ________________, 1994.
LANDLORD:
SAN MATEO OFFICE LIMITED
A California Limited Partnership
By: _____________________________
Peter H. Schnugg
Its: Agent for Owner
Date: _____________________________
TENANT:
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
By: _____________________________
Glenn Myers
Its: Vice President of Finance
Date: _____________________________
<PAGE>
LEASE AMENDMENT 24
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: February 15, 1995
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. Term
----
03/01/95 - 04/30/96
2. Premises
--------
Approximately 1,677 square feet of leasable space on the third floor of San
Mateo BayCenter, Phase I shall be incorporated into the original Lease
Agreement. Total square footage shall increase from 7,852 to 9,529 square
feet leasable.
3. Rental
03/01/95 - 03/31/95
Base Rent $10,773.00
Op. Exp. (est. '95) $6,004.00
----------
Total Rent $16,777.00
04/01/95 - 04/30/96 Base Rent $11,165.00
Op. Exp. (est '95) $6,004.00
----------
Total Rent $17,169.00
4. Proportionate Share
-------------------
Tenants proportionate share shall increase from 6.64% to 8.05%.
5. Security Deposit
----------------
Security Deposit shall increase from $13,349 to $17,168.00.
All other terms and conditions of the original Lease Agreement shall apply to
this Lease Amendment #4 Agreed to this day of , 1995.
---- -------------
LANDLORD:
SAN MATEO OFFICE LIMITED
A California Limited Partnership
By: --------------------------------------
Peter H. Schnugg as Attorney-In-Fact
for Dennis E. Singleton, General Partner
Date:
--------------------------------------
TENANT:
VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
By:
--------------------------------------
Glenn Myers
Its: Vice President of Finance
<PAGE>
Date:
----------------------------
<PAGE>
BLDG. 1
3RD FLOOR PLAN
SAN MAETO BAY CENTER
SPIEKER PARTNERS
(415) 570-5990
<PAGE>
REVISED LEASE AMENDMENT #5
--------------------------
<TABLE>
<S> <C>
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: June 28, 1995
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
</TABLE>
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. Term
----
08/01/95 - 07/31/2000
2. Premises
--------
Effective August 1, 1995 approximately 3,305 square feet of rentable
space on the fourth floor (Suite 400) of San Mateo BayCenter, Phase I,
shall be incorporated into the original Lease Agreement. Total square
footage shall increase from 9,529 to 12,834 rentable. Effective May 1,
1996 approximately 1,495 square feet of rentable space on the fourth
floor (Suite 420) of San Mateo BayCenter, Phase I, shall be incorporated
into the original Lease Agreement. Total square footage shall increase
from 12,834 to 14,329.
3. Rental
------
<TABLE>
<S> <C> <C>
08/01/95 - 04/30/96
(12,834 rsf) Base Rent $14.888.00
Op. Exp. (est. '95) $ 8,085.00
-----------
Total Rent $22,973.00
05/01/96 - 11/30/97
(14,329 rsf) Base Rent $19,631.00
Op. Exp. (est. '95) $ 9,027.00
----------
Total Rent $28,658.00
12/01/97 - 07/31/99
(14,329 rsf) Base Rent $20,777.00
Op. Exp. (est. '95) $ 9,027.00
----------
Total Rent $29,804.00
08/01/99 - 07/31/2000
(14,329 rsf) Base Rent $21,207.00
Op. Exp. (est. '95) $ 9,027.00
----------
Total Rent $30,234.00
</TABLE>
4. Proportionate Share
-------------------
Tenant's proportionate share shall increase from 8.05% to 10.85%. Effective May
1, 1996, Tenant's proportionate share shall increase from 10.85% to 12.11%.
5. Security Deposit
----------------
Security Deposit shall increase from $17,168.00 to $28,658.00.
<PAGE>
6.
<PAGE>
LEASE AMENDMENT #10
-------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: June 11, 1996
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. PREMISES
--------
The Premises of the Lease as defined per the Basic Lease Information and as
previously amended, shall be amended such that effective July 1, 1996,
approximately 2,674 square feet of rentable space on the first floor of San
Mateo BayCenter, known as Suite #120 within the Phase I building, shall be
incorporated into the Original Lease Agreement. Total square footage shall
increase from 22,476 to 25,150 rentable square feet. Effective August 1, 2000,
approximately 16,506 square feet of rentable space on the third and fourth
floors known as Suites 360, 370, 400, 420, & 460 within the Phase I building,
shall be reduced from the Original Lease Agreement. Total square footage shall
decrease from 25,150 to 8,644 rentable square feet. Effective February 1, 2001,
approximately 5,970 square feet of rentable space on the second and third floors
known as Suites 230 & 430 within the Phase 1 building, shall be reduced from the
Original Lease Agreement. Total square footage shall decrease from 8,644 to
2,674 rentable square feet.
2. TERM
----
The term of the Lease shall be extended so that the Scheduled Term
Expiration Date, as defined per the Basic Lease Information within the Original
Lease Agreement, shall be June 30, 2001.
3. RENTAL TOTAL
------ AMOUNT
DUE:
Additional Existing
07/01/96 - 04/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf.
- -------------------------------------------------------------------------------
Base Rent $ 4,706.00 $31,540.00 $36,246.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
--------- ---------- ----------
Total Rent $ 6,417.00 $45,925.00 $52,342.00
Additional Existing
05/01/97 - 06/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf.
- --------------------------------------------------------------------------------
Base Rent $ 4,706.00 $31,663.00 $36,369.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
---------- ---------- ----------
Total Rent $ 6,417.00 $46,048.00 $52,465.00
Additional Existing
07/01/97 - 11/30/97 2,674 rsf. 22,476 rsf. 25,150 rsf.
- -------------------------------------------------------------------------------
Base Rent $ 4,893.00 $31,663.00 $36,556.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
---------- ---------- ----------
Total Rent $ 6,604.00 $46,048.00 $52,652.00
Additional Existing
12/01/97 - 06/30/98 2,674 rsf. 22,476 rsf. 25,150 rsf.
- -------------------------------------------------------------------------------
Base Rent $ 4,893.00 $33,223.00 $38,116.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
---------- ---------- ----------
Total Rent $ 6,604.00 $47,608.00 $54,212.00
<PAGE>
Visigenic Software
Lease Amendment #10
6/11/96
Page 2
RENTAL (Continued)
<TABLE>
<S> <C> <C> <C>
Additional Existing
07/01/98-04/30/99 2,674 rsf. 22,476 rsf. 25,150 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,081.00 $33,223.00 $38,304.00
Op. Exp. (est '96) $ 1.71 1.00 $14,385.00 $16,096.00
Total Rent $ 6,792.00 $47,608.00 $54,400.00
Additional Existing
05/01/99 - 06/30/99 2,674 rsf. 22,476 rsf. 25,150 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,081.00 $33,407.00 $38,488.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
Total Rent $ 6,792.00 $47,792.00 $54,584.00
Additional Existing
07/01/99 - 07/31/99 2,674 rsf. 22,476 rsf. 25,150 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,295.00 $33,407.00 $38,702.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
Total Rent $ 7,006.00 $47,792.00 $54,798.00
Additional Existing
08/01/99 - 06/30/00 2,674 rsf. 22,476 rsf. 25,150 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,295.00 $34,448.00 $39,743.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
Total Rent $ 7,006.00 $48,833.00 $55,839.00
Additional Existing
07/01/00 - 07/31/00 2,674 rsf. 22,476 rsf. 25,150 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,508.00 $34,448.00 $39,956.00
Op. Exp. (est '96) $ 1,711.00 $14,385.00 $16,096.00
Total Rent $ 7,219.00 $48,833.00 $56,052.00
Additional Existing
08/01/00 - 01/31/01 2,674 rsf. 5,970 rsf. 8,644 rsf.
----------------------------------------------------------------------------------------------------------
Base Rent $ 5,508.00 $ 9,714.00 $15,222.00
Op. Exp. (est '96) $ 1,711.00 $ 3,821.00 $ 5,532.00
Total Rent $ 7,219.00 $13,535.00 $20,754.00
Additional
02/01/01 - 06/30/01 2,674 rsf.
Base Rent $ 5,508.00
Op. Exp. (est '96) $ 1,711.00
Total Rent $ 7,219.00
</TABLE>
4. PROPORTIONATE SHARE
-------------------
Tenant's Proportionate Share, as defined per the Basic Lease Information
within the Original Lease Agreement and as amended shall increase effective
July 1, 1996 from 18.99% to 21.25%. Effective August 1, 2000 Tenant's
Proportionate Share shall decrease from 21.25% to 7.31%. Effective February
1, 2001 Tenant's Proportionate Share shall decrease from 7.31% to 2.26%.
5. SECURITY DEPOSIT
----------------
Security Deposit shall increase $6,500.00. Total Security Deposit to be
$52,500.00.
6. TENANT IMPROVEMENTS
-------------------
Landlord, at Landlords sole cost and expense shall provide the following
tenant improvements to Suite #120:
. Purchase and Install building standard carpet throughout Suite #120.
Color to be selected by Tenant.
<PAGE>
Visigenic Software
Lease Amendment #10
6/11/96
Page 3
TENANT IMPROVEMENTS (Continued)
-------------------------------
* Paint entire Suite with building standard material. Color to be selected
by Tenant.
* Demo existing work area and storage room as highlighted in yellow on the
attached exhibit A-1.
* Purchase and Install mini-blinds on existing glass door as highlighted
in blue on the attached Exhibit A-1.
In addition, Landlord agrees to contribute an additional tenant
improvement allowance of one thousand five hundred dollars ($1,500.00) to
be applied towards the interior improvements as highlighted in yellow on
the attached exhibit A-2. Landlord will act as General Contractor to
perform all work as required provided, however, that Landlord not
withstanding anything to the contrary contained in the Original Lease
Agreement, shall not charge Tenant any construction supervisory fee or
similar such fee in connection with said improvements.
7. RIGHT TO TERMINATE
------------------
It is hereby agreed and understood that the Right to Terminate as provided
for in Lease Amendment #5, dated June 28, 1995 shall not apply to the
additional 2,674 rentable square feet as provided for in this Lease
Amendment #10 nor the 2,042 rentable square feet as provided for in this
Lease Amendment #9, dated March 25, 1996 nor the 3,928 rentable square feet
as provided for in Lease Amendment #7, dated December 20, 1995. Should
Tenant exercise its Right to Terminate as outlined in Lease Amendment #5,
dated June 28, 1995 and as amended to include 2,177 remitable square feet
in Lease Amendment #6, dated July 25, 1995, it shall only apply to 16,506
rentable square feet known as Suites 360, 370, 400, 420 & 460 located at
951 Mariner's Island Blvd., San Mateo, CA 94404.
All other terms amid conditions of the original Lease Agreement amid Lease
Amendments 1 - 9 shall apply to this Lease Amendment #10. Agreed to this
---
day of June, 1996.
---------
LANDLORD:
SAN MATEO OFFICE LIMITED
a California Limited Partnership
By: Spieker-Singleton 1168 Limited Partnership
a California Limited Partnership,
its General Partner
By:
-------------------------------------
Peter H. Schnugg, as Attorney-In-Fact
for Dennis E. Singleton,
General Partner
Date:
------------------------------------
TENANT:
VISIGENIC SOFTWARE, INC.
A Delaware Corporation
By:
------------------------------------
Its: Vice President of Finance
-----------------------------------
Date:
-----------------------------------
<PAGE>
[ART APPEARS HERE]
"Exhibit A-2"
<PAGE>
[ART APPEARS HERE]
<PAGE>
LEASE AMENDMENT #11
-------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: June 26, 1996
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. PREMISES
--------
The Premises of Lease as defined per the Basic Lease Information and
as previously amended, shall be amended such that effective July 15, 1996,
approximately 3,786 square feet of rentable space on the first floor of San
Mateo BayCenter, known as Suite # 150 within the Phase I building, shall be
incorporated into the Original Lease Agreement. Total square footage shall
increase from 25,150 to 28,936 rentable square feet. Effective August 1,
2000, approximately 16,506 square feet of rentable space on the third and
fourth floors known as Suites 360, 370, 400, 420, & 460 within the Phase 1
building, shall be reduced from the Original Lease Agreement. Total square
footage shall decrease from 28,936 to 12,430 rentable square feet.
Effective February 1, 2001, approximately 5,970 square feet of rentable
space on the second and third floors known as Suites 230 & 430 within the
Phase I building, shall be reduced from the Original Lease Agreement. Total
square footage shall decrease from 12,430 to 6,460 rentable square feet.
Effective July 1, 2001, approximately 2,974 square feet of rentable space
on the first floor known as Suites 120 within the Phase I building, shall
be reduced from the Original Lease Agreement. Total square footage shall
decrease from 6,460 to 3,786 rentable square feet.
2. TERM
----
The term of the Lease shall be extended so that the Scheduled Term
Expiration Date, as defined per the Basic Lease Information within the
Original Lease Agreement, shall be January 31, 2002.
3. RENTAL
------
<TABLE>
<CAPTION>
TOTAL
AMOUNT
DUE:
<S> <C> <C> <C>
Additional Existing
07/01/96 - 07/31/96 3,786 rsf. 25,150 rsf. 28,936 rsf.
---------------------------------------------------------------
Base Rent $ 2,818.00 $36,246.00 $39,064.00
Op. Exp. (est '96) $ 1,373.00 $16.096.00 $17,469.00
---------- ---------- ----------
Total Rent $ 4,191.00 $52,342.00 $56,533.00
Additional Existing
08/01/96 - 01/31/97 3.786 rsf. 25.150 rsf. 28,.936 RSF.
----------------------- ---------- ----------- ------------
Base Rent $ 5,149.00 $36,246.00 $41,395.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 7,572.00 $52,342.00 $59,914.00
Additional Existing
02/01/97 - 04/30/97 3.786 rsf. 25.150 rsf. 28,936 RSF.
----------------------- ---------- ----------- ------------
Base Rent $ 6,663.00 $36,246.00 $42,909.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
Total Rent $ 9,086.00 $52,342.00 $61,428.00
Additional Existing
05/01/97 - 06/30/97 3.786 rsf. 25.150 rsf. 28,936 RSF.
----------------------- ---------- ----------- ------------
Base Rent $ 6,663.00 $36,369.00 $43,032.00
Op. Exp. (est '96) $ 2.423,00 $16,096.00 $18,519.00
Total Rent $ 9,086.00 $52,465.00 $61,551.00
</TABLE>
<PAGE>
Visigenic Software
Lease Amendment #11
6/26/96
Page 2
<TABLE>
<CAPTION>
RENTAL (Continued)
------------------
Additional Existing
07/01/97-11/30/97 3,786 rsf. 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
<S> <C> <C> <C>
Base Rent $ 6,663.00 $36,556.00 $43,219.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,086.00 $52,652.00 $61,738.00
----------
Additional Existing
12/01/97 - 06/30/98 3,786 rsf. 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
Base Rent $ 6,966.00 $38,116.00 $45,082.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,389.00 $54,212.00 $63,601.00
Additional Existing
07/01/98-04/30/99 3,786 rsf. 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
Base Rent $ 6,966.00 $38,304.00 $45,270.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,389.00 $54,400.00 $63,789.00
Additional Existing
05/01/99-06/30/99 3,786 rsf. 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
Base Rent $ 6,966.00 $38,488.00 $45,454.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,389.00 $54,584.00 $63,973.00
Additional Existing
07/01/99-07/31/99 3,786 rsf. 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
Base Rent $ 7,307.00 $38,702.00 $46,009.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,730.00 $54,798.00 $64,528.00
Additional Existing
08/01/99-06/30/00 3,786 rsf. 25,150 rsf. 28,936 RSF.
--------------------------------------------------------------
Base Rent $ 7,307.00 $39,743.00 $47,050.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,730.00 $55,839.00 $65,569.00
Additional Existing
07/01/00 - 07/31/00 3,786 rsf 25,150 rsf. 28,936 RSF.
---------------------------------------------------------------
Base Rent $ 7,307.00 $39,956.00 $47,263.00
Op. Exp. (est '96) $ 2,423.00 $16,096.00 $18,519.00
---------- ---------- ----------
Total Rent $ 9,730.00 $56,052.00 $65,782.00
Additional Existing
08/01/00 - 01/31/01 3,786 rsf. 8,644 rsf. 12.430 RSF.
---------------------------------------------------------------
Base Rent $ 7,648.00 $15,222.00 $22,870.00
Op. Exp. (est '96) $ 2,423.00 $ 5,532.00 $ 7.955,00
---------- ---------- ----------
Total Rent $10,071.00 $20,754.00 $30,825.00
Additional Existing
02/01/01 - 06/30/01 3,786 rsf. 2,674 rsf 6,460 RSF.
--------------------------------------------------------------
Base Rent $ 7,648.00 $ 5,508.00 $13,156.00
Op. Exp. (est '96) $ 2,423.00 $ 1,711.00 $ 4,134.00
---------- ---------- ----------
Total Rent $10,071.00 $ 7,219.00 $17,290.00
Additional
07/01/01 - 01/31/02 3,786 rsf.
--------------------------------------------------------------
Base Rent $ 7,988.00
Op. Exp. (est '96) $ 2,423.00
----------
Total Rent $10,411.00
</TABLE>
<PAGE>
Visigenic Software
Lease Amendment 1111
6/26/96
Page 3
4. PROPORTIONATE SHARE
-------------------
Tenant's Proportionate Share, as defined per the Basic Lease Information
within the Original Lease Agreement and as amended shall increase effective
July 15, 1996 from 21.25% to 24.45%. Effective August 1, 2000 Tenant's
Proportionate Share shall decrease from 24.45% to 10.50%. Effective
February 1, 2001 Tenant's Proportionate Share shall decrease from 10.5% to
5.46%. Effective July 1, 2001 Tenant's Proportionate Share shall decrease
from 5.46% to 3.21%.
5. SECURITY DEPOSIT
----------------
Security Deposit shall increase $4,500.00. Total Security Deposit to be
$57,000.00.
6. TENANT IMPROVEMENTS
-------------------
Landlord to deliver Suite #150 as drawn per the attached Exhibit A which
includes the construction of a private office as shown iii yellow on the
attached Exhibit A. In addition, Landlord shall paint the entire Suite with
building standard material. Color to be selected by Tenant.
7. RIGHT TO TERMINATE
------------------
It is hereby agreed and understood that the Right to Terminate as provided
for in Lease Amendment #5, dated June 28, 1995 shall not apply to the
additional 3,786 rentable square feet as provided for in this Lease
Amendment #11 nor 2,674 rentable square feet as provided for in Lease
Amendment #10 nor the 2,042 rentable square feet as provided for in Lease
Amendment #9, dated March 25, I 996 nor the 3,928 rentable square feet as
provided for in Lease Amendment #7, dated December 20, 1995. Should Tenant
exercise its Right to Terminate as outlined in Lease Amendment #5, dated
June 28, 1995 and as amended to include 2,177 rentable square feet in Lease
Amendment #6, dated July 25, 1995, it shall only apply to 16,506 rentable
square feet known as Suites 360, 370, 400, 420 & 460 located at 951
Mariner's Island Blvd., San Mateo, CA 94404.
All other terms and conditions of the original Lease Agreement and Lease
Amendments 1 - 10 shall
apply to this Lease Amendment #11. Agreed to this 27th day of______June, 1996.
LANDLORD:
SAN MATEO OFFICE LIMITED
a California Limited Partnership
By: Spieker-Singleton #68 Limited Partnership
a California Limited Partnership,
its General Partner
By PETER H. SCHNUGG
--------------------------------------
Peter H. Schnugg, as Attorney-In-Fact
for Dennis E. Singleton,
General Partner
Date: 7/11/96
---------------
TENANT:
VISIGENIC SOFTWARE INC.
A Delaware Corporation
By GLENN MYERS
----------------------------------------
Glenn Myers
Its: Vice President of Finance
---------------------------------
Date: 6/27/96
--------------
<PAGE>
[PLAN APPEARS HERE]
EXHIBIT "A"
<PAGE>
LEASE AMENDMENT #12
-------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: July 22, 1996
LANDLORD: SAN MATEO OFFICE LIMITED
A California Limited Partnership
TENANT: VISIGENIC SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. PREMISES
--------
The Premises of the Lease as defined per the Basic Lease Information and as
previously amended, shall be amended such that effective August 1, 1996
approximately 1,472 square feet of rentable space on the third floor of San
Mateo BayCenter, known as Suite #330 within the Phase I building, shall be
incorporated into the Original Lease Agreement. Total square footage shall
increase from 28,936 to 30,408 rentable square feet. Effective August 1,
2000, approximately 16,506 square feet of rentable space on the third and
fourth floors known as Suites 360, 370, 400, 420, & 460 within the Phase I
building, shall be reduced from the Original Lease Agreement. Total square
footage shall decrease from 30,408 to 13,902 rentable square feet.
Effective February 1, 2001, approximately 5,970 square feet of rentable
space on the second and third floors known as Suites 230 & 430 within the
Phase I building, shall be reduced from the Original Lease Agreement. Total
square footage shall decrease from 13,902 to 7,932 rentable square feet.
Effective July 1, 2001, approximately 2,674 square feet of rentable space
on the first floor known as Suite 120 within the Phase I building, shall be
reduced from the Original Lease Agreement. Total square footage shall
decrease from 7,932 to 5,258 rentable square feet. Effective August 1, 2001
approximately 1,472 rentable space on the third floor known as Suite 330
within the Phase I building shall be reduced from the Original Lease
Agreement. Total square footage shall decrease from 5,258 to 3,486 rentable
square feet.
2. RENTAL
------
<TABLE>
<CAPTION>
TOTAL
AMOUNT
DUE:
Additional Existing
<S> <C> <C> <C>
08/01/96 - 01/31/97 1,472 rsf. 28,936 rsf. 30,408 RSF
----------------------------------------------------------------
Base Rent $2,591.00 $41,395.00 $43,986.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,533.00 $59,914.00 $63,447.00
Additional Existing
02/01/97 - 04/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------
Base Rent $2,591.00 $42,909.00 $45,500.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,533.00 $61,428.00 $64,961.00
Additional Existing
05/01/97 - 06/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------
Base Rent $2,591.00 $43,032.00 $45,623.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,533.00 $61,551.00 $65,084.00
Additional Existing
07/01/97 - 11/30/97 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------
Base Rent $2,591.00 $43,219.00 $45,810.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,533.00 $61,738.00 $65,271.00
</TABLE>
<PAGE>
Visigenic Software
Lease Amendment #11
7/22/96
Page 2
<TABLE>
<CAPTION>
RENTAL (Continued)
------------------
Additional Existing
12/01/97 - 06/30/98 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
<S> <C> <C> <C>
Base Rent $2,723.00 $45,082.00 $47,805.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,665.00 $63,601.00 $67,266.00
Additional Existing
07/01/98-04/30/99 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
Base Rent $2,723.00 $45,270.00 $47,993.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,665.00 $63,789.00 $67,454.00
Additional Existing
05/01/99-06/30/99 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
Base Rent $2,723.00 $45,454.00 $48,177.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,665.00 $63,973.00 $67,638.00
Additional Existing
07/01/99-07/31/99 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
Base Rent $2,841.00 $46,009.00 $48,850.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,783.00 $64,528.00 $68,311.00
Additional Existing
08/01/99-06/30/00 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
Base Rent $2,841.00 $47,050.00 $49,891.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,783.00 $65,569.00 $69,352.00
Additional Existing
07/01/00 - 07/31/00 1,472 rsf. 28,936 rsf. 30,408 RSF.
----------------------------------------------------------------------
Base Rent $2,841.00 $47,263.00 $50,104.00
Op. Exp. (est. '96) $ 942.00 $18,519.00 $19,461.00
--------- ---------- ----------
Total Rent $3,783.00 $65,782.00 $69,565.00
Additional Existing
08/01/00 - 01/31/01 1,472 rsf. 12.430 rsf. 13,902 RSF.
----------------------------------------------------------------------
Base Rent $2,973.00 $22,870.00 $25,843.00
Op. Exp. (est. '96) $ 942.00 $ 7,955.00 $ 8,897.00
--------- ---------- ----------
Total Rent $3,915.00 $30,825.00 $34,740.00
Additional Existing
02/01/01 - 06/30/01 1,472 rsf. 6.460 rsf 7,932 RSF.
---------------------------------------------------------------------
Base Rent $2,973.00 $13,156.00 $16,129.00
Op. Exp. (est. '96) $ 942.00 $ 4,134.00 $ 5,076.00
--------- ---------- ----------
$3,915.00 $17,290.00 $21,205.00
Additional Existing
07/01/01 - 07/31/01 1,472 rsf. 3,786 rsf 5,258 RSF.
---------------------------------------------------------------------
Base Rent $2,973.00 $ 7,988.00 $10,961.00
Op. Exp. (est. '96) $ 942.00 $ 2,423.00 $ 3,365.00
--------- ---------- ----------
$3,915.00 $10,411.00 $14,326.00
Existing
08/01/01 - 01/31/02 3.786 rsf. 3,786 RSF
---------------------------------------------------------------------------
Base Rent $ 7,988.00 $ 7,988.00
Op. Exp. (est. '96) $ 2,423.00 $ 2,423.00
---------- ----------
Total Rent $10,411.00 $10,411.00
</TABLE>
<PAGE>
Visigenic Software
Lease Amendment #11
7/22/96
Page 3
3. PROPORTIONATE SHARE
-------------------
Tenant's Proportionate Share, as defined per the Basic Lease Information
within the Original Lease Agreement and as amended shall increase effective
August 1, 1996 from 24.45% to 25.70%. Effective August 1, 2000 Tenant's
Proportionate Share shall decrease from 25.70% to 11.75%. Effective
February 1, 2001 Tenant's Proportionate Share shall decrease from 11.75% to
6.70%. Effective July 1, 2001 Tenant's Proportionate Share shall decrease
from 6.70% to 4.44%. Effective August 1, 2001 Tenant's Proportionate Share
shall decrease from 4.44% to 3.21%.
4. SECURITY DEPOSIT
----------------
Security Deposit shall increase $7,000.00. Total Security Deposit to be
$64,000.00.
5. TENANT IMPROVEMENTS
-------------------
Landlord to deliver Suite #330 as drawn per the attached Exhibit A however,
Landlord agrees to remove existing wallcovering, prep walls as needed and
repaint entire suite. In addition, Landlord to purchase and install new
building standard carpet throughout suite, other than the storage area in
which the existing V.C.T. floorcovering shall remain. Color of carpet, base
and paint to be selected by Tenant.
6. RIGHT TO TERMINATE
------------------
It is hereby agreed and understood that the Right to Terminate as provided
for in Lease Amendment #5, dated June 28, 1995 shall not apply to the
additional 1,472 rentable square feet as provided for in this Lease
Amendment #12 nor the 3,786 rentable square feet as provided for in Lease
Amendment #11 nor the 2,674 rentable square feet as provided for in Lease
Amendment #10 nor the 2,042 rentable square feet as provided for in Lease
Amendment #9, dated March 25, 1996 nor the 3,928 rentable square feet as
provided for in Lease Amendment #7, dated December 20, 1995. Should Tenant
exercise its Right to Terminate as outlined in Lease Amendment #5, dated
June 28, 1995 and as amended to include 2,177 rentable square feet in Lease
Amendment #6, dated July 25, 1995, it shall only apply to 16,506 rentable
square feet known as Suites 360, 370, 400, 420 & 460 located at 951
Mariner's Island Blvd., San Mateo, CA 94404.
All other terms and conditions of the original Lease Agreement and Lease
Amendments 1 - 11 shall apply to this Lease Amendment #12. Agreed to this 24th
day of July, 1996.
LANDLORD:
SAN MATEO OFFICE LIMITED
a California Limited Partnership
By: Spieker-Singleton #68 Limited Partnership
a California Limited Partnership,
its General Partner
By /s/ Peter H. Schnugg
-------------------------------
Peter H. Schnugg, as Attorney-In-Fact
for Dennis E. Singleton,
General Partner
Date: 7/29/96
------------------
TENANT:
VISIGENIC SOFTWARE INC.
A Delaware Corporation
By: /s/ Glenn Myers
--------------------------------
Glenn Myers
Its: Vice President
------------------------------
Date: 7/24/96
--------------------
<PAGE>
[PLAN APPEARS HERE]
Suite 330 1,472 Sq. Ft.
San Mateo BayCenter
951 Mariner's Island Boulevard
San Mateo, CA
EXHIBIT "A"
<PAGE>
LEASE AMENDMENT #13
-------------------
ORIGINAL LEASE DATE: March 7, 1993
LEASE AMENDMENT DATE: September 4, 1996
LANDLORD: SAN MATEO OFFICE LIMITED
A California limited partnership
TENANT: VERY VISUAL SOFTWARE, INC.
A Delaware Corporation
Landlord and Tenant, by executing this Lease Amendment as provided do hereby
amend the Original Lease referred to above as follows:
1. Tenant
------
Tenant Name shall be revised, effective December 1, 1993, to the following:
VISIGENIC SOFTWARE, INC.
A DELAWARE CORPORATION
All other terms and conditions of the original Lease Agreement and Lease
Amendments #1 - #12 shall apply to this Lease Amendment #13. Agreed to this 16TH
day of SEPTEMBER , 1996.
-----------
LANDLORD:
SAN MATEO OFFICE LIMITED
a California Limited Partnership
By: Spieker-Singleton #68 Limited Partnership
a California Limited Partnership,
its General Partner
By /s/ Peter H. Schnugg
----------------------------
Peter H. Schnugg, as Attorney-In-Fact
for Dennis E. Singleton,
General Partner
Date: 9/21/96
----------------
TENANT:
VISIGENIC SOFTWARE INC.
A Delaware Corporation
By: /s/ Kevin C. Eichler
--------------------------
Kevin C. Eichler
Its: CFO
-------------------------
Date: 9/11/96
----------------
<PAGE>
SAN MATEO
BAY CENTER
MARINERS ISLAND
SAN MATEO, CALIFORNIA
[PHOTO]
LEASE
VISIGENIC SOFTWARE, INC.
a Delaware Corporation
SPIEKER PROPERTIES
<PAGE>
BASIC LEASE INFORMATION
OFFICE LEASE
Lease Date: August 30, 1996
Landlord: SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP a California
limited partnership
Address of Landlord: 951 Mariner's Island Boulevard
Suite #200
San Mateo, California 94404
Tenant: VISIGENIC SOFTWARE, INC.
a Delaware Corporation
Address of Tenant: 901 Mariner's Island Boulevard
Suite #325
San Mateo, California 94404
Contact: Mr. Glenn Myers Telephone: (415) 286-1900
Premises: Approximately 4,370 rentable square feet on the third of San
Mateo BayCenter, Suite #325, 901 Mariner's Island Boulevard, San
Mateo, California, 94404, as shown in the attached "Exhibit B".
Scheduled Term Commencement Date: December 1, 1996
Scheduled Length of Term: 5 years
Scheduled Term Expiration Date: November 30, 2001
Rent: See Addendum #1, Rent, attached hereto and
made a part hereof.
Security Deposit: $10,750.00
Tenant's Proportionate Share: 3.7%
Permitted Use: General Office
Occupancy Density: 4/1000 sqft
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above set forth and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD: TENANT:
SPIEKER-SINGLETON #68 LTD PARTNERSHIP VISIGENIC SOFTWARE. INC.
- ------------------------------------- ------------------------------
a California limited partnership a Delaware Corporation
By /s/ Peter H. Schnugg By /s/ KEVIN C. EICHLER
----------------------------------- ----------------------------
Peter H. Schnugg KEVIN C. EICHLER
Its Agent for Owner Its CFO
--------------------------------- ---------------------------
Date: 9/16/96 Date: 9/11/96
------------------------ ------------------------
<PAGE>
LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Basic Lease Information
<S> <C>
1. Premises 1
2. Occupancy 1
3. Term and Possession 1
4. Rent 1
5. Restrictions On Use 2
6. Compliance With Laws 2
7. Alterations 2
8. Repairs 3
9. Liens 3
10. Assignment and Subletting 3
11. Insurance and Indemnification 4
12. Waiver of Subrogation 5
13. Services and Utilities 5
14. Estoppel Certificate 6
15. Security Deposit 6
16. Substitution 7
17. Holding Over 7
18. Subordination 7
19. Rules and Regulations 7
20. Re-entry by Landlord 8
21. Default by Tenant 8
22. Damage by Fire, Etc. 10
23. Eminent Domain 11
24. Sale by Landlord and Tenant's Remedies 11
25. Right of Landlord To Perform 11
26. Surrender of Premises 11
27. Waiver 12
28. Notices 12
29. Rental Adjustments 12
30. Taxes Payable by Tenant 15
31. Successors and Assigns 15
32. Attorneys' Fees 15
33. Light and Air 15
34. Public Transportation Information 15
35. Miscellaneous 15
36. Lease Effective Date 16
Signatures 16
Addendum #1-8 17
</TABLE>
Exhibit A Rules and Regulations
Exhibit B Outline of Premises, Suite #325
Exhibit C Current Build-Out, Suite #325
Exhibit D Form of Tenant Certificate
<PAGE>
___________________________________________________________________________LEASE
THIS LEASE is made as of this 30th day of August, 1 96, between Spieker-
---- ------ -------
Singleton #68 Limited Partnership, a California limited partnership (hereinafter
- -------------------------------------------------------------------
called "Landlord") and Visigenic Software Inc.. a Delaware Corporation
-----------------------------------------------
(hereinafter "Tenant").
PREMISES
1. Landlord leases to Tenant and Tenant leases from Landlord those premises
(hereinafter called "Premises") outlined in red on Exhibit B attached
hereto and made a part hereof, specified in the Basic Lease Information
attached hereto (the "Building"). The Premises may be all or part of the
building (the "Building") or of the project (the "Project") which may
consist of more than one building.
OCCUPANCY
2. Tenant shall use the Premises for the Permitted Use and for no other use or
purpose without the prior written consent of Landlord. No increase in
occupant density of the Leased Premises shall be made which shall add to
the burden of such use of the Building as determined by Landlord without
the prior written consent of Landlord.
TERM AND POSSESSION
3. (A) The parties project that the term shall commence on the Scheduled Term
Commencement Date and, except as otherwise provided herein or in any
exhibit or addendum hereto, shall continue in full force until the
Term Expiration Date. If the Premises are not delivered by Landlord by
the Scheduled Term Commencement Date for any reason, Landlord shall
not be liable to Tenant for any loss or damage resulting from such
delay. The Term Commencement Date shall be the first day of the
calendar month next following the earlier of (i) the day when the
Premises are delivered to Tenant by Landlord, or (ii) the date on
which Tenant takes possession of; or commences the operation of its
business in some or all of the Premises. Should the Term Commencement
Date be a date other than the Scheduled Term Commencement Date, either
Landlord or Tenant, at the request of the other shall execute a
declaration specifying the Term Commencement Date and the rent
commencement date which shall be binding upon the parties as to the
matters therein stated. Tenant's obligation to pay Rent and its other
obligations for payment under this Lease shall commence upon the
earlier of (i) the day when the Premises are substantially complete,
or (ii) the date on which Tenant takes possession of; or commences the
operation of its business in some or all of the Premises.
RENT
4. Tenant shall pay to Landlord throughout the Term Rent as specified in
Addendum #1 attached hereto and made a part hereof; payable in equal
monthly installments in advance on the first day of each calendar month
during every year of the Term in lawful money of the United States, without
deduction or offset whatsoever, to Landlord at the address specified in the
Basic Lease Information or to such other firm or to such other place as
Landlord may from time to time
Page-1-
<PAGE>
designate in writing by notice given as herein provided. Rent for the first
month of the Term shall be paid by Tenant upon execution of this Lease. If
the obligation for payment of Rent commences on other than the first day of
a month as provided in paragraph 3(a), then Rent provided for such partial
month shall be prorated and the prorated installment shall be paid on the
first day of the calendar month next succeeding the Term Commencement Date.
If the Term terminates on other than the last day of a calendar month, then
the Rent provided for such partial month shall be prorated and the prorated
installment shall be paid on the first day of the calendar month next
preceding the date of termination.
RESTRICTIONS ON USE
5. Tenant shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them, nor use or
allow the Premises to be used for any improper, immoral, unlawful or
objectionable purposes, nor shall Tenant cause or maintain or permit any
nuisance in, on or about the Premises. Tenant shall not commit or suffer
the commission of any waste in, on or about the Premises.
COMPLIANCE WITH LAWS
6. Tenant shall not use the Premises or permit anything to be done in or about
the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall not do or permit anything
to be done on or about the Premises or bring or keep anything therein which
will in any way increase the rate of any insurance upon the Building or any
of its contents or cause a cancellation of said insurance or otherwise
affect said insurance in any manner, and Tenant shall at its sole cost and
expense promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by alterations or
improvements made by or for Tenant or Tenant's acts. The judgment of any
court of competent jurisdiction or the admission of Tenant in any actions
against Tenant, whether Landlord be a party thereto or not, that Tenant has
so violated any such law, statute, ordinance, rule, regulation or
requirement, shall be conclusive of such violation as between Landlord and
Tenant. See Addendum #3 attached hereto and made a part hereof.
ALTERATIONS
7. Tenant shall not make or suffer to be made any alterations, additions or
improvements in, on or to the Premises or any part thereof without the
prior written consent of Landlord; and any such alterations, additions or
improvements in, on or to said Premises, except for Tenant's movable
furniture and equipment, shall immediately become Landlord's property and,
at the end of the Term, shall remain on the Premises without compensation
to Tenant. In the event Landlord consents to the making of any such
alteration, addition or improvement by Tenant, the same shall be made by
Tenant, at Tenant's sole cost and expense, in accordance with plans and
specifications approved by Landlord, and any contractor or person selected
by Tenant to make the same must first be approved in writing by Landlord.
Notwithstanding the foregoing, at Landlord's option, all or any portion of
the alteration, addition or improvement work shall be performed by Landlord
for Tenant's account and Tenant shall pay Landlord's estimate of the cost
thereof (including a reasonable charge for Landlord's overhead and profit)
prior to commencement of the work. Overhead and profit allowances shall
total fifteen percent (15%). Upon the expiration or sooner termination of
the Term, Tenant shall upon demand by Landlord, at Tenant's sole cost and
expense, with all due diligence remove all those alterations, additions or
improvements made by or for the account of Tenant, designated by Landlord
to be removed, and Tenant shall with all due diligence, at its sole cost
and expense, repair and restore the Premises to their original condition.
At Landlord's election and notwithstanding the foregoing, however, Tenant
shall pay to Landlord the cost of removing any such alterations, additions
or improvements, and restoring the Premises to their original condition
such cost to include a reasonable charge for Landlord's overhead and profit
as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
Page-2-
<PAGE>
REPAIRS
8. By taking possession of the Premises, Tenant accepts the Premises as being
in the condition in which Landlord is obligated to deliver them and
otherwise in good order, condition and repair. At all times during the Term
Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good order, condition and repair, excepting damage
thereto by fire, earthquake, act of God or other elements. Tenant waives
all right it may have under Section 1942 of the Civil Code of the State of
California and any similar law, statues or ordinance now or hereafter in
effect (to the full extent that such waiver may lawfully be given)
authorizing or purporting to authorize Tenant to make repairs to or for the
account of Landlord. Tenant shall upon the expiration or sooner termination
of the Term hereof; unless Landlord demands otherwise pursuant to paragraph
7 hereof; surrender to Landlord the Premises and all repairs, changes,
alterations, additions and improvements thereto in the same condition as
when received or when first installed, damage by fire, earthquake, act of
God, ORDINARY WEAR AND TEAR or the elements excepted. Landlord has no
obligation to alter, remodel, improve; repair, decorate or paint the
Premises or any part thereof; except as specified in the Office Lease
Improvement Agreement and no representations respecting the condition of
the Premises or the Building have been made by Landlord to Tenant, except
as specifically set forth therein or in EXHIBIT C.
LIENS
9. Tenant shall keep the Premises free from liens arising out of or related to
work performed, materials or supplies furnished or obligations incurred by
Tenant or in connection with work made, suffered or done by Tenant in
Premises or Building. In the event that Tenant shall not, within ten (10)
days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a proper bond, Landlord shall
have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise to such
lien. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord
shall deem proper, for the protection of Landlord, the Premises, the
Building and any other party having an interest therein, from mechanics'
and materialmen's liens, and Tenant shall give Landlord not less than ten
(10) business days prior written notice of the commencement of any work in
the Building or Premises which could lawfully give rise to a claim for
mechanics' or materialmen's liens.
ASSIGNMENT AND SUBLETTING
10. Tenant shall not sell, assign, encumber or otherwise transfer this Lease or
any interest therein (by operation of law or otherwise), sublet the
Premises or any part thereof or suffer any other person to occupy or use
the Premises or any portion thereof; nor shall Tenant permit any lien to be
placed on Tenant's interest under this Lease by operation of law except in
accordance with the provisions of this paragraph 10. For purposes hereof;
sales, transfers or assignments of (ii) the general partnership interests
sufficient to control management decisions if Tenant is a partnership or of
(iii) the majority or controlling underlying beneficial interest, if Tenant
is any other form of business entity, shall constitute an assignment
subject to the terms of this paragraph 10.
(A) In the event that Tenant should desire to sublet the Premises or any
part thereof; Tenant shall provide Landlord with written notice of
such desire at least thirty (30) days in advance of the date on which
Tenant desires to make such sublease. Landlord shall then have a
period of thirty (30) days following receipt of such notice within
which to notify Tenant in writing that Landlord elects either (i) to
terminate this Lease as to the space so affected as of the date so
specified by Tenant, in which event Tenant shall be relieved of all
further obligations hereunder as to such space from and after that
date, or (ii) to permit Tenant to sublet such space, subject, however,
to the prior written approval of the proposed Sublessee by Landlord
which said consent shall not be unreasonably withheld. If Landlord
should fail to notify Tenant in writing of its election within said
thirty (30) day period, Landlord shall be deemed to have waived option
(i) above, but written approval of the proposed Sublessee shall still
be required. Refusal by Landlord to approve a proposed Sublessee shall
not constitute a termination of this Lease. In exercising its right of
consent to a Sublessee it shall be reasonable for Landlord to withhold
consent to any Sublessee who (aa) does not agree to assume the
obligations of the Lease with respect to the space to be so sublet,
(bb) does not agree to utilize the space so sublet for the Permitted
Use, (cc) is of unsound financial condition as determined by Landlord,
or (dd) will, in Landlord's opinion increase the occupant density in
the Leased Premises. If Tenant proposes to sublease less than all of
the Premises, election by Landlord of termination of this Lease with
respect to space to be so sublet shall leave this Lease in full force
and effect with respect to the remainder of the space, the Rent and
Tenant's Proportionate Share of Operating Expenses and taxes shall be
adjusted on a pro rata basis to reflect the reduction in Net Rentable
Area of the Premises as retained by
Page-3-
<PAGE>
Tenant. This Lease as so amended shall continue thereafter in full
force and effect and references herein to the Premises shall mean that
portion thereof as to which the Lease has not been terminated.
(B) Tenant shall not enter into any other transaction subject to this
paragraph 10 without Landlord's prior written consent which said
consent shall not be unreasonably withheld. It shall be reasonable
for Landlord to withhold consent to any proposed transaction
described in this paragraph 10 on any of the grounds specified in
paragraph 10(a) with respect to sublessees or any other reasonable
grounds.
(C) Any rent or other consideration realized by Tenant under any such
sublease or assignment to which Landlord has consented hereunder, in
excess of the Rent payable hereunder, after amortization or the
reasonable cost of the improvements over the remainder of the Term for
which Tenant has paid and reasonable subletting and assignment costs,
shall be divided and paid fifty percent (50%) to Landlord and ten
fifty percent (50%) to Tenant.
(D) Any subletting hereunder by Tenant shall not result in Tenant being
released or discharged from any liability under this lease. Any
purported assignment, subletting or other transaction to which
paragraph 10 applies, which occurs contrary to the provisions hereof;
shall be void. Landlord's consent to any assignment, subletting or
other transaction to which this paragraph 10 applies shall not release
Tenant from any of Tenant's obligations hereunder or constitute a
consent with respect to any subsequent transaction to which this
paragraph applies.
INSURANCE AND INDEMNIFICATION
11. (A) Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord for any injury or damage to any person or
property in or about the Premises by or from any cause whatsoever
(other than Landlord's gross negligence or willful misconduct) and,
without limiting the generality of the foregoing, whether caused by
water leakage of any character from the roof; walls, basement or other
portion of the Premises or the Building, or caused by gas, fire, oil
or electricity in, 6n or about the Premises or the Building.
(B) Tenant shall hold Landlord harmless from and defend Landlord against
any and all claims or liability for any injury or damage to any person
or property whatsoever; (i) occurring in, on or about the Premises or
any part thereof; or (ii) occurring in, on or about any facilities
(including, without prejudice to the generality of the term
"facilities", elevators, stairways, lobbies, health clubs, passageways
or hallways), the use of which Tenant may have in conjunction with
other tenants of the Building, when such injury or damage shall be
caused in part or in whole by the act, neglect, fault of or omission
of any duty with respect to the same by Tenant, its agents, servants,
employees or invitees. Tenant shall further indemnify and save
Landlord harmless against and from any and all claims by or on behalf
of any person, firm or corporation arising from the conduct or
management of any work or thing whatsoever done by Tenant in or about
or from transactions of Tenant concerning the Premises, and will
further indemnify and save Landlord harmless against and from any and
all claims arising from any breach or default on the part of Tenant in
the performance of any covenant or agreement on the part of Tenant to
be performed pursuant to the terms of this Lease or arising from any
act or negligence of Tenant, or any of its agents, contractors,
servants, employees or licensees, and from and against all costs,
counsel fees, expenses and liabilities incurred in connection with any
such claim or action or proceeding brought thereon. In case any action
or proceeding is brought against Landlord by reason of any claims or
liability within the limits of the foregoing indemnity, Tenant shall
defend such action or proceeding at Tenant's sole expense by counsel
reasonably satisfactory to Landlord.
(C) Landlord shall hold Tenant harmless from and defend Tenant against any
and all claims or liability for any injury or damage to any person or
property occurring in or about any facilities (including, without
prejudice to the generality of the term "facilities", elevators,
stairways, passageways or hallways), the use of which Tenant may have
in conjunction with other tenants of the building, when such injury or
damage shall be caused in whole or in part by the act, neglect, fault
of or omission of any duty with respect to the same by Landlord, its
agents, servants, employees or invitees. Landlord shall further
indemnify and save Tenant harmless against and from any and all claims
by or on behalf of any person, firm or corporation arising from the
conduct or management of any work or thing whatsoever done by Landlord
in or about, or from transactions of Landlord concerning, the Premises
where such work is not being done for the account of Tenant; and
Landlord will further indemnify and save Tenant harmless against and
from any and all claims arising from any breach or default on the part
of Landlord in the performance of any covenant or agreement on the
part of Landlord to be performed pursuant to the
Page-4-
<PAGE>
terms of this Lease or arising from any act or negligence of Landlord,
or any of its agents, contractors, servants, employees or licensees,
and from and against all costs, counsel fees, expenses and liabilities
incurred in connection with any such claims or action or proceeding
brought thereon. In case any action or proceeding is brought against
Tenant by reason of any claims or liability within the limits of the
foregoing indemnity, Landlord shall defend such action or proceeding
at Landlord's sole expense by counsel reasonably satisfactory to
Tenant.
(D) The provisions of paragraph 11(b) and 11(c) shall survive the
expiration or termination of this Lease with respect to any claims or
liability occurring prior to such expiration or termination.
(E) Tenant shall purchase at its own expense and keep in force during the
Term of this Lease a policy or policies of workers' compensation and
comprehensive liability insurance, including personal injury and
property damage, in the amount of Five Hundred Thousand Dollars
($500,000.00) for property damage and Two Million Dollars
($2,000,000.00) per occurrence for personal injuries or deaths of
persons occurring in or about the Premises. The foregoing limits shall
be increased in proportion to increases during the Term in the United
States Department of Labor, Bureau of Labor Statistics, Cost of Living
Index, All Urban consumers (1967=100) for the region in which the
Leased Premises are located. Said policies shall: (i) name Landlord
and any party holding an interest to which this Lease may be
subordinated under paragraph 19 hereof, as additional insureds, and
insure Landlord's contingent liability under this Lease; (ii) be
issued by an insurance company acceptable to Landlord and licensed to
do business in the State of California; and (iii) provide that said
insurance shall not be canceled unless ten (10) days prior written
notice shall have been given to Landlord. Said policy or policies or
certificates thereof shall be delivered to Landlord by Tenant upon
commencement of the term of this Lease and upon each renewal of said
insurance.
WAIVER OF SUBROGATION
12. To the extent permitted by law and without affecting the coverage provided
by insurance required to be maintained hereunder, Landlord and Tenant each
waive any right to recover against the other (i) damages for injury to or
death of persons, (ii) damages to property, (iii) damage to the Premises or
any part thereof; (iv) damage to the Building or any part thereof; or (v)
claims arising by reason of the foregoing, but only to the extent that any
of the foregoing damages and/or claims referred to above are covered (and
only to the extent of such coverage) by insurance actually carried by
either Landlord or Tenant. This provision is intended to waive fully, and
for the benefit of each party, any rights and/or claims which might give
rise to a right of subrogation on any insurance carrier. The coverage
obtained by each party pursuant to this Lease shall include, but without
limitation, a waiver of subrogation by the carrier which conforms to the
provisions of this paragraph.
SERVICES AND UTILITIES
13. (A) Landlord shall maintain the public and common areas of the Building,
including lobbies, stairs, elevators, corridors and restrooms, the
windows in the Building, the mechanical, plumbing and electrical
equipment serving the Building, and the structure itself; in
reasonably good order and condition except for damage occasioned by
the act of Tenant, which damage shall be repaired by Landlord at
Tenant's expense.
(B) Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations
of the Building, Landlord shall furnish to the Premises during
ordinary business hours of generally recognized business days to be
determined by Landlord (but exclusive, in any event, of Saturdays,
Sundays and legal holidays), water and electricity suitable for the
Permitted Uses of the Premises, heat and air conditioning required in
Landlord's judgment for the comfortable use and occupation of the
Premises for the Permitted Uses, janitorial services during the times
and in the manner that such services are, in Landlord's judgment,
customarily furnished in comparable buildings in the immediate market
area, and elevator service which shall mean service either by
nonattended automatic elevators or elevators with attendants, or both,
at the option of Landlord. Landlord shall have no obligation to
provide additional or after-hours heating or air-conditioning, but if
Landlord elects to provide such services at Tenant's request, Tenant
shall pay to Landlord a reasonable charge for such services as
determined by Landlord. Tenant agrees to keep and cause to be kept
closed all window coverings when necessary because of the sun's
position, and Tenant agrees at all times to cooperate fully with
Landlord and to abide by all the regulations and requirements which
Landlord may prescribe for the proper functioning and protection of
heating, ventilating and air-conditioning systems. Wherever heat-
generating machines, excess lighting or equipment are used in the
Premises which affect
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the temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air-conditioning
units in the Premises, and the cost thereof; including the cost of
installation and the cost of operating and maintenance thereof; shall
be paid by Tenant to Landlord upon demand by Landlord. SEE ADDENDUM #4
ATTACHED HERETO AND MADE A PART HEREOF.
(C) Tenant shall not without written consent of Landlord use any apparatus
or device in the Premises, including without limitation, electronic
data processing machines, punch card machines and machines using
excess lighting or using current in excess of that which is determined
by Landlord as reasonable and normal for the Permitted Use or which
will in any way increase the amount of electricity or water usually
furnished or supplied for the Permitted Uses of the Premises; not
connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus or device for
the purposes of using electrical current or water. If Tenant shall
require water or electrical current or any other resource in excess of
that usually furnished or supplied for the Permitted Uses of the
Premises, Tenant shall first procure the consent of Landlord which
Landlord may refuse, to the use thereof, and Landlord may cause a
special meter to be installed in the Premises so as to measure the
amount of water, electrical current or other resource consumed for any
such other use. Tenant shall pay directly to Landlord as an addition
to and separate from payment of Basic Operating Costs the cost of all
such energy, utility service and meters (and of installation,
maintenance and repair thereof). Landlord may add to the metered
charge a recovery of additional expense incurred in keeping account of
the water, electrical current or other resource so consumed. Landlord
shall not be liable for any damages directly or indirectly resulting
from, nor shall the Rent herein reserved be abated by reason of (i)
the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing utilities and
services, (ii) failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of
God or the elements, labor disturbances of any character, any other
accidents or other conditions beyond the reasonable control of
Landlord, or by making of repairs or improvements to the Premises or
to the Building, or (iii) the limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises
or the Building. Landlord shall be entitled to cooperate voluntarily
and in a reasonable manner with the efforts of national, state or
local government agencies or utility suppliers in reducing energy or
other resource consumption. The obligation to make services available
hereunder shall be subject to the limitations of any such voluntary,
reasonable program.
(D) Any sums payable under this paragraph 13 shall constitute Additional
Rent hereunder.
ESTOPPEL CERTIFICATE
14. Within ten (10) days following any written request which Landlord may make
from time to time, Tenant shall execute and deliver to Landlord a
certificate substantially in the form attached hereto as Exhibit D and made
a part hereof; indicating thereon any exceptions thereto which may exist at
that time. Failure by Tenant to execute and deliver such certificate shall
constitute an acceptance of the Premises and acknowledgment by Tenant that
the statements included in Exhibit D are true and correct without
exception. Landlord and Tenant intend that any statement delivered pursuant
to this paragraph may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein.
Landlord shall have the right to substitute for the attached Exhibit D a
certificate in form required by Landlord's mortgagee or provider of
financing.
SECURITY DEPOSIT
15. Concurrently with execution hereof; Tenant has paid to Landlord the
Security Deposit in the amount stated on the Basic Lease Information Sheet
as security for the full and faithful performance of Tenant's obligations
under this Lease. Upon expiration of the Term or earlier termination
hereof; the Security Deposit shall be returned to Tenant, reduced by such
amounts as may be required by Landlord to remedy defaults on the part of
Tenant in the payment of Rent, to repair damages to the Premises caused by
Tenant and to clean the Premises. Landlord shall hold the Security Deposit
for the foregoing purposes in accordance with the provisions of all
applicable law.
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SUBSTITUTION
16. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Building (the "New Premises") upon not less
than ninety (90) days prior written notice, in which event the new Premises
shall be deemed to be the Premises for all purposes hereunder; provided,
however, that:
(A) The Net Rentable Area in the Premises is less than five thousand
(5,000) square feet;
(B) The New Premises shall be similar in area and in appropriateness for
Tenant's purposes;
(C) Any such substitution is effected for the purpose of accommodating a
tenant who will occupy all or a substantial portion of the Net
Rentable Area of the floor on which the Premises are located; and
(D) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of moving Tenant, its property and
equipment to the New Premises and shall, at its sole cost, improve the
New Premises with improvements substantially similar to those Landlord
has committed to provide or has provided in the Premises.
HOLDING OVER
17. If Tenant shall retain possession of the Premises or any part thereof
without Landlord's consent following the expiration of the Term or sooner
termination of this Lease for any reason, then Tenant shall pay to Landlord
for each day of such retention double the amount of the daily rental for
the last period prior to the date of such expiration or termination. Tenant
shall also indemnify and hold Landlord harmless from any loss or liability
resulting from delay by Tenant in surrendering the Premises, including,
without limitation, any claims made by any succeeding Tenant founded on
such delay. Alternatively, if Landlord gives notice to Tenant of Landlord's
election thereof; such holding over shall constitute renewal of this Lease
for a period from month to month, whichever shall be specified in such
notice. Acceptance of Rent by Landlord following expiration or termination
shall not constitute a renewal of this Lease, and nothing contained in this
paragraph shall waive Landlord's right to reentry or any other right.
Unless Landlord exercises the option hereby given to it, Tenant shall be
only a Tenant at sufferance, whether or not Landlord accepts any Rent from
Tenant while Tenant is holding over without Landlord's written consent.
SUBORDINATION
18. Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to: (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the Building or the
land upon which the Building is situated or both, and (b) the lien of any
mortgage or deed of trust which may now exist or hereafter be executed in
any amount for which said Building, land, ground leases or underlying
leases, or Landlord's interest or estate in any of said items, is specified
as security. Notwithstanding the foregoing, Landlord shall have the right
to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. In the event that any
ground leases or underlying lease terminates for any reason or any mortgage
or deed of trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord at
the option of such successor in interest. Tenant shall execute and deliver,
upon demand by Landlord and in the form requested by Landlord, any
additional documents evidencing the priority or subordination of this Lease
with respect to any such ground leases or underlying leases or the lien of
any such mortgage or deed of trust. Tenant hereby irrevocably appoints
Landlord as attorney-in-fact for Tenant to execute, deliver and record any
such documents in the name and on behalf of Tenant. At the request of
Landlord, Tenant shall provide to Landlord its current financial statement
or other information disclosing financial worth which Landlord shall use
solely for purposes of this Lease and in connection with the ownership,
management and disposition of the property subject hereto.
RULES AND REGULATIONS
19. Tenant shall faithfully observe and comply with the rules and regulations
printed on or annexed to this Lease and all reasonable modifications
thereof and additions thereto from time to time put into effect by
Landlord. Landlord shall not be responsible to Tenant for the non-
compliance by any other Tenant or occupant of the Building with any of the
rules and regulations.
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RE-ENTRY BY LANDLORD
20. Landlord reserves and shall WITH REASONABLE ADVANCE NOTICE EXCEPT IN
EMERGENCIES have the right to re-enter the Premises to inspect the same, to
provide any services to be provided by Landlord to Tenant hereunder, to
show the Premises to prospective purchasers, mortgagees or tenants, to post
notices of nonresponsibility and to alter, improve or repair the Premises
and any portion of the Building, without abatement of Rent, and may for
that purpose erect, use and maintain scaffolding, pipes, conduits and other
necessary structures in and through the Premises where reasonably required
by the character of the work to be performed; provided that entrance to the
Premises shall not be blocked thereby, and further provided that the
business of Tenant shall not be interfered with unreasonably. Tenant waives
any claim for damages for any injury or inconveniences to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults and safes or special
security areas (designated in advance), and Landlord shall have the right
to use any and all means which Landlord may deem necessary or proper to
open said doors in an emergency, in order to obtain entry to any portion of
the Premises, and any entry to the Premises or portions thereof obtained by
Landlord by any of said means, or otherwise, shall not be construed to be a
forcible or unlawful entry into, or a detainer of; the Premises, or any
eviction, actual or constructive, of Tenant from the premises or any
portions thereof. Landlord shall also have the right at any time, without
the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefore, to change the arrangement
and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Building
and to change the name, number or designation by which the Building is
commonly known.
DEFAULT BY TENANT
21. (A) EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an event of
default on the part of
Tenant:
(1) ABANDONMENT. Abandonment of the Premises for a continuous period
in excess of five (5) business days. Tenant waives any right to
notice Tenant may have under Section 1951.3 of the Civil Code of
the State of California, the terms of this subsection (a) being
deemed such notice to Tenant as required by said Section 1951.3;
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent due
and payable hereunder (or failure to pay any other amount
required to be paid hereunder, all such obligations to be
construed as the equivalent of obligations for payment of Rent)
upon the date when said payment is due, such failure continuing
without cure by payment of the delinquent Rent and late charge
for a period of five (5) business days after written notice and
demand; provided, however, that except as expressly otherwise
provided herein, Landlord shall not be required to provide such
notice more than twice during the Term, the third such non
payment constituting default for all purposes hereof without
requirement of notice. For purposes of subparagraph 21(e), such
failure shall constitute a default without requirement of notice.
The due dates for payment of installments of rent provided for
herein shall be absolute and the existence of a cure period or
notice period shall not be deemed to extend said date for
purposes of determining Tenant's compliance with its obligations
hereunder.
(3) OTHER OBLIGATIONS. Failure to perform any obligations, agreement
or covenant under this Lease other than those matters specified
in subparagraphs (1) and (2) of this subparagraph (a), such
failure continuing for fifteen (15) business days after written
notice of such failure (or such longer period as Landlord
determines to be necessary to remedy such default, provided that
Tenant shall continuously and diligently pursue such remedy at
all times until such default is cured);
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the
benefit of creditors;
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a
period of thirty (30) days. In the event that under applicable
law the trustee in bankruptcy or Tenant has the right to affirm
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this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time period as
may be permitted by the bankruptcy court having jurisdiction,
cure all defaults of Tenant hereunder outstanding as of the day
of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease:
(6) RECEIVERSHIP. The employment of a receiver to take of
substantially all of Tenant's assets or the Premises, if such
receivership remains undissolved for a period often (10) business
days after creation thereof;
(7) ATTACHMENT. The attachment, execution or other judicial seizure
of all or substantially all of Tenant's assets or the Premises,
if such attachment or other seizure remains undismissed or
undischarged for a period of ten (10) business days after the
levy thereof;
(8) INSOLVENCY. The admission by Tenant in writing of its inability
to pay its debts as they become due, the filing by Tenant of a
petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, the filing by
Tenant of an answer admitting or failing timely to contest a
material allegation of a petition filed against Tenant in any
such proceeding or, if within thirty (30) days after the
commencement of any proceeding against Tenant seeking any
reorganization or arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have
been dismissed.
(B) REMEDIES UPON DEFAULT.
(1) RENT. All failures to pay any monetary obligation to be paid by
under this Lease shall be construed as obligations for payment of
Rent.
(2) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right, with or without notice or
demand, immediately to terminate this Lease, and at any time
thereafter recover possession of the Premises or any part thereof
and expel and remove therefrom Tenant and any other person
occupying the same, by any lawful means, and again repossess and
enjoy the Premises without prejudice to any of the remedies that
Landlord may have under this Lease, or at law or equity by reason
of Tenant's default or of such termination.
(3) CONTINUATION AFTER DEFAULT. Even though Tenant has breached this
Lease and/or abandoned the Premises, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's right
to possession under paragraph 21 (b)(2) hereof; and Landlord may
enforce all its right and remedies under this Lease, including
(but without limitation) the right to recover Rent as it becomes
due; and Landlord, without terminating this Lease, may exercise
all of the rights and remedies of a Landlord under Section 1951.4
of the Civil Code of the State of California or any successor
code section. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of receiver upon
application of Landlord to protect Landlord's interests under
this Lease shall not constitute an election to terminate Tenant's
right to possession.
(C) DAMAGES UPON TERMINATION. Should Landlord terminate this Lease
pursuant to the provisions of paragraph 21 (b)(2) hereof;
Landlord shall have all the rights and remedies of a landlord
provided by Section 1951.2 of the Civil Code of the State of
California, or successor code section. Upon such termination, in
addition to any other rights and remedies to which Landlord may
be entitled under applicable law, Landlord shall be entitled to
recover from Tenant: (i) the worth at the time of award of the
unpaid Rent and other amounts which had been earned at the time
of termination; (ii) the worth at the time of award of the amount
by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such
Rent loss that the Tenant proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of such Rent loss that the Tenant
proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things,
would be likely to result therefrom. The "worth at the time of
award" of the amounts referred to in (i) and (ii) shall be
computed with interest at the lesser of eighteen percent (18%)
per annum or the maximum rate
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allowed by law. The "worth at the time of award" of the amount
referred to in (iii) shall be computed by reference to competent
appraisal evidence or the formula prescribed by and using the
lowest discount rate permitted under applicable law.
(D) COMPUTATION OF RENT FOR PURPOSES OF DEFAULT.
For purposes of computing unpaid Rent which would have accrued and
become payable under this Lease pursuant to the provisions of
paragraph 21(c), unpaid Rent shall consist of the sum of:
(1) the total Basic Rent for the balance of the Term then remaining
(with the amount of Basic Rent to be determined by reference to
fair rental value being the subject of proof by competent
evidence), plus
(2) a computation of the excess of Gross Rent (the term "Gross
Rent" meaning the sum of (i) rental adjustments payable pursuant
to paragraph 29 and (ii) Basic Rent) over Basic Rent for the
balance of the Term then remaining ("Excess Gross Rental"), the
assumed excess Gross Rental for the calendar year of the default
and each future calendar year in the Term to be equal to the
Excess Gross Rental for the calendar year prior to the year in
which default occurs compounded at a per annum rate equal to the
mean average rate of inflation for the preceding five (5)
calendar years as determined by the United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index (All Urban
Consumers) for the Metropolitan Area or Region of which San
Francisco, California is a part.
(E) LATE CHARGE. In addition to its other remedies, Landlord shall have
the right without notice or demand to add to the amount of any payment
required to be made by Tenant hereunder, and which is not paid on or
before the date the sum is due, an amount equal to five percent (5%)
of the delinquency for each month or portion thereof that the
delinquency remains outstanding to compensate Landlord for the loss of
the use of the amount not paid and the administrative costs caused by
the delinquency, the parties agreeing that Landlord's damage by virtue
of such delinquencies would be difficult to compute and the amount
stated herein represents a reasonable estimate thereof.
(F) REMEDIES CUMULATIVE. All rights, privileges and elections or remedies
of the parties are cumulative and not alternative to the extent
permitted by law and except as otherwise provided herein.
DAMAGE BY FIRE, ETC.
22. If the Premises or the Building are damaged by fire or other casualty,
Landlord shall forthwith repair the same, provided such repairs can be made
within one hundred eighty (180) days from the date of such damage under the
laws and regulations of the federal, state and local governmental
authorities having jurisdiction thereof. In such event, this Lease shall
remain in full force and effect except that Tenant shall be entitled to a
proportionate reduction of Rent while such repairs to be made hereunder by
Landlord are being made. Said proportionate reduction shall be based upon
the extent to which the making of such repairs to be made hereunder by
Landlord shall interfere with the business carried on by Tenant in the
Premises. Within twenty (20)f days from the date of such damage, Landlord
shall notify Tenant whether or not such repairs can be made within one
hundred eighty (180) days from the date of such damage and Landlord's
determination thereof shall be binding on Tenant. If such repairs cannot be
made within one hundred eighty (180) days from the date of such damage,
Landlord shall have the option within thirty (30) days of the date of such
damage either to: (a) Notify Tenant of Landlord's intention to repair such
damage and diligently prosecute such repairs, in which event this Lease
shall continue in full force and effect and the Rent shall be reduced as
provided herein, or (b) notify Tenant of Landlord's election to terminate
this Lease as of a date specified in such notice, which date shall be not
less than thirty (30) nor more than sixty (60) days after notice is given.
In the event such notice to terminate is given by Landlord, this Lease
shall terminate on the date specified in such notice. In case of
termination by either event, the Rent shall be reduced by a proportionate
amount based upon the extent to which said damage interfered with the
business carried on by Tenant in the Premises, and Tenant shall pay such
reduced Rent up to the date of termination. Landlord agrees to refund to
Tenant any Rent previously paid for any period of time subsequent to such
date of termination. The repairs to be made hereunder by Landlord shall not
include, and Landlord shall not be required to repair, any damage by fire
or other cause to the property of Tenant or any repairs or replacements of
any paneling, decorations, railings, floor coverings or any alterations,
additions, fixtures or improvements installed on the premises by or at the
expense of Tenant. The provisions of Section 1942, subdivision 2, and
Section 1933, subdivision 4, of the Civil Code of California are superseded
by the foregoing. SEE ADDENDUM #5 ATTACHED HERETO AND MADE A PART HEREOF.
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EMINENT DOMAIN
23. If any part of the Premises shall be taken or appropriated under the power
of eminent domain or conveyed in lieu thereof; either party shall have the
right to terminate this Lease at its option. If any part of the Building
shall be taken or appropriated under power of eminent domain or conveyed in
lieu thereof; Landlord may terminate this Lease at its option. In either of
such events, Landlord shall receive subject to the rights of Landlord's
first mortgage (and Tenant shall assign to Landlord upon demand from
Landlord) any income, rent, award or any interest therein which may be paid
in connection with the exercise of such power of eminent domain, and Tenant
shall have no claim against Landlord for any part of the sums paid by
virtue of such proceedings, whether or not attributable to the value of the
unexpired Term. If a part of the Premises shall be so taken or appropriated
or conveyed and neither party hereto shall elect to terminate this Lease
and the Premises have been damaged as a consequence of such partial taking
or appropriation or conveyance, Landlord shall restore the Premises
continuing under this Lease at Landlord's cost and expense; provided,
however, that Landlord shall not be required to repair or restore any
injury or damage to the property of Tenant or to make any repairs or
restoration of any alterations, additions, fixtures or improvements
installed on the Premises by or at the expense of Tenant. hereafter the
Rent for the remainder of the Term shall be proportionately reduced, such
reduction to be based upon the extent to which the partial taking or
appropriation or conveyance shall interfere with the business carried on by
Tenant in the Premises. Notwithstanding anything o the contrary contained
in this paragraph, if the temporary use or occupancy of any part of the
Premises shall be taken or appropriated under power of eminent domain
during the Term, this Lease shall be and remain unaffected by such taking
or appropriation and Tenant shall continue to pay, in full, all Rent
payable hereunder by Tenant during the Term; in the event of any such
temporary appropriation or taking, Tenant shall be entitled to receive that
portion of any award which represents compensation for the use of or
occupancy of the Premises during the Term, and Landlord shall be entitled
to receive that portion of any award which represents the cost of
restoration of the Premises and the use and occupancy of the Premises after
the end of the Term.
SALE BY LANDLORD AND TENANT'S REMEDIES
24. In the event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the
responsibility of the successor in interest of Landlord in and to this
Lease. This Lease shall not be affected by any such sale and Tenant agrees
to attorn to the purchaser or assignee. Tenant shall look solely to
Landlord's interest in the Building for recovery of any judgment from
Landlord. Landlord, or if Landlord is a partnership, its partners whether
general or limited, or if Landlord is a corporation, its directors,
officers or shareholders, shall never be personally liable for any such
judgment.
RIGHT OF LANDLORD TO PERFORM
25. All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any
sum of money, other than Rent, required to be paid by it hereunder or shall
fail to perform any other act on its part to be performed hereunder, and
such failure shall continue for ten (10) days after notice thereof by
Landlord, Landlord may, but shall not be obligated to do so, and without
waiving or releasing Tenant from any obligations of the Tenant, make any
such payment or perform any such act on the Tenant's part to be made or
performed. All sums so paid by Landlord and all necessary incidental costs
together with interest thereon at the rate of eighteen percent (18%) per
annum or the maximum rate permitted by law, whichever is less per annum
from the date of such payment by the Landlord shall be payable as
Additional Rent to Landlord on demand, and Tenant covenants to pay such
sums, and Landlord shall have, in addition to any other right or remedy of
Landlord, the same right and remedies in the event of the nonpayment
thereof by Tenant as in the case of default by Tenant in the payment of the
Rent.
SURRENDER OF PREMISES
26. (A) Tenant shall, at least ninety (90) days before the last day of the
Term, give to Landlord a written notice of intention to surrender the
Premises on that day, but nothing contained herein shall be construed
as an extension of the Term or as consent of Landlord to any holding
over by Tenant.
(B) At the end of the term or any renewal thereof or other sooner
termination of this Lease, Tenant shall peaceably deliver up to
Landlord possession of the Premises, together with
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all improvements, fixtures or additions thereto by whomsoever made, in
the same condition as received, or first installed, damage by fire,
earthquake, act of God, ordinary wear and tear or the elements alone
excepted. Tenant may, upon the termination of this Lease, remove all
movable furniture and equipment belonging to Tenant, at Tenant's sole
cost, title to which shall be in Tenant until such termination,
repairing any damage caused by such removal. Property not so removed
shall be deemed abandoned by the Tenant, and title to the same shall
thereupon pass to Landlord.
(C) The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies
or may, at the option of Landlord, operate as an assignment to it of
any or all such subleases or subtenancies.
WAIVER
27. If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be
a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, regardless of Landlord's knowledge of such
preceding breach at the time Landlord accepted such Rent. Failure by
Landlord to enforce any of the terms, covenants or conditions of this Lease
for any length of time shall not be deemed to waive or to decrease the
right of Landlord to insist thereafter upon strict performance by Tenant.
Waiver by Landlord of any term, covenant or condition contained in this
Lease may only be made by a written document signed by Landlord.
NOTICES
28. All notices and demands which may or are required to be given by either
party to the other hereunder shall be in writing. All notices and demands
by Landlord to Tenant shall be sent by United States certified or
registered mail, or r Federal Express or similar overnight carrier, postage
or freight prepaid, addressed to Tenant at the Premises, or to such other
place as Tenant may from time to time designate in a notice to Landlord.
All notices and demands by Tenant to Landlord shall be sent by United
States certified or registered mail, or Federal Express or similar
overnight carrier, postage or freight prepaid, addressed to Landlord at the
address specified in the Basic Lease Information, or to such other firm or
to such other place as Landlord may from time to time designate in a notice
to Tenant.
RENTAL ADJUSTMENT
29. In addition to Base Rent provided to be paid hereunder, Tenant shall pay as
Rent Tenant's Proportionate Share of Basic Operating Cost in the manner set
forth below. See Addendum #8 attached hereto and made a part hereof.
(a) DEFINITION: For purposes hereof; the terms used in this Paragraph 29
shall have the following meanings:
(1) "Basic Operating Cost" shall mean all expenses and costs of
every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the
ownership and operation of the Building and supporting
facilities of the Building, and such additional facilities
now and in subsequent years as may be determined by Landlord
to be necessary to the Building, including, but not limited
to the following:
(i) Wages, salaries and related expenses and benefits of all on-
site and off-site employees engaged directly in the
operation, management, maintenance, engineering and security
of the Building, and the costs of an office in the Building;
provided, however, that Basic Operating Cost shall not
include leasing commissions paid to any real estate broker,
salesperson or agent.
(ii) Supplies, materials and rental of equipment used in the
operation, management and maintenance of the Building.
(iii) Utilities, including water and power, heating, lighting, air
conditioning and ventilating of the Building.
(iv) All maintenance, janitorial and service agreements for the
Building and the equipment therein, including, without
limitation, alarm services, window cleaning and elevator
maintenance.
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<PAGE>
(v) A management cost recovery determined by Landlord equal to
three percent (3%) of Gross Rent derived from the Building.
(vi) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses
chargeable as Basic Operating Cost shall not include the
cost of negotiating leases, collecting rents, evicting
tenants nor shall it include costs incurred in legal
proceedings with or against any tenant or to enforce the
provisions of any lease.
(vii) All insurance premiums and costs, including but not limited
to, the premiums and cost of fire, casualty and liability
coverage and rental abatement and earthquake insurance (if
Landlord elects to provide such coverage) applicable to the
Building and Landlord's personal property used in connection
therewith.
(viii) Repairs, replacements and general maintenance (excluding
repairs and general maintenance paid by proceeds of
insurance or by Tenant or other third parties, and
alterations attributable solely to tenants of the Building
other than Tenant).
(ix) All maintenance costs relating to public and service areas
of the Building, including (but without limitation)
sidewalks, landscaping, service areas, mechanical rooms and
Building exteriors.
(x) All taxes, service payments in lieu of taxes, annual or
periodic license or use fees, fees, real estate taxes,
impositions or charges imposed upon or levied in connection
with use of the Building to raise funds for public transit,
housing or other environmental, sociological or fiscal
effects of the Building or land use, assessments whether
general or special, ordinary and extraordinary, unforeseen
as well as foreseen, of any kind which are assessed, levied,
charged, confirmed or imposed by any public authority upon
the Building, the land upon which it is located, Building
operations or Rent payable under this Lease (or any portion
or component thereof), excepting only inheritance or estate
taxes imposed upon or assessed against the interest of any
person in the Building or any part thereof or interest
therein, and taxes computed upon the basis of the net income
of the owners of the Building or any part thereof or
interest therein.
(xi) Amortization (together with reasonable financing charges) of
capital improvement made to the Building subsequent to the
Term Commencement Date which will improve the operating
efficiency of the Building or which may be required to
comply with laws, ordinances, rules or regulations
promulgated, adopted or enforced after completion of the
initial construction of the Building and improvements of the
Premises pursuant to Exhibit C attached hereto and made a
part hereof.
Notwithstanding anything to the contrary herein contained, Basic
Operating Cost shall not include (aa) the initial construction cost of
the Building; (bb) depreciation on the initial construction of the
Building; (cc) the cost of providing Tenant Improvements to Tenant or
any other tenant; (dd) debt service (including, but without
limitation, interest, principal and any impound payment) required to
be made on any mortgage or deed of trust recorded with respect to the
Building and/or the real property on which the Building is located
other than debt service and financing charges imposed pursuant to
paragraph 29(a)(1)(xi) above; and (ee) the cost of special services,
goods or materials provided to any tenant. In the event that the
Building is not fully occupied during any fiscal year of the Term as
determined by Landlord, an adjustment shall be made in computing the
Basic Operating Cost for such year so that Basic Operating Cost shall
be computed as though the Building had been one hundred percent (100%)
occupied; provided, however, that in no event shall Landlord be
entitled to collect in excess of one hundred percent (100%) of the
total Basic Operating Cost from all of the tenants in the Building
including Tenant. All costs and expenses shall be determined in
accordance with generally accepted accounting principles which shall
be consistently applied (with accruals appropriate to Landlord's
business). Basic Operating Cost shall not include specific costs
incurred for the account of; separately billed to and paid by specific
tenants.
(2) "Estimated Basic Operating Cost" for any particular year
shall mean Landlord's estimate of the Basic Operating Cost
for such fiscal year made prior to commencement of such
fiscal year as hereinafter provided. Landlord shall have the
right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so
revised are reconciled with prior periods in accordance with
generally accepted accounting principles applied in a
consistent manner.
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<PAGE>
(3) "Basic Operating Cost Adjustment" shall mean the difference
between Basic Operating Cost and Estimated Basic Operating
Cost for any fiscal year determined as hereinafter provided.
(B) PAYMENT OF ESTIMATED BASIC OPERATING COST.
During the last month of each fiscal year during the Term, or as soon
thereafter as practicable, Landlord shall give Tenant written notice
of the Estimated Basic Operating Cost for the ensuing fiscal year. The
Estimated Basic Operating Cost for the fiscal year in which the
Scheduled Term Commencement Date falls is set forth in the Basic Lease
Information sheet. Tenant shall pay Tenant's Proportionate Share of
the Estimated Basic Operating Costs with installments of Basic Rent
required to be paid pursuant to paragraph 3 above for the fiscal year
to which the estimate applies in monthly installments on the first day
of each calendar month during such year, in advance. Such payment
shall be construed to be Rent for all purposes hereof. If at any time
during the course of a fiscal year, Landlord determines that Basic
Operating Cost will apparently vary from the then Estimated Basic
Operating Cost by more than five percent (5%), Landlord may, by
written notice to Tenant, revise the Estimated Basic Operating Cost
for the balance of such fiscal year and Tenant shall pay Tenant's
Proportionate Share of the Estimated Basic Operating Cost as so
revised for the balance of the then current fiscal year on the first
day of each calendar month thereafter, such revised installment
amounts to be Rent for all purposes hereof.
(C) COMPUTATION OF BASIC OPERATING COST ADJUSTMENT.
Within one hundred twenty (120) days after the end of each fiscal year
as determined by Landlord or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of Basic Operating Cost
for the fiscal year just ended, accompanied by a computation of Basic
Operating Cost Adjustment. If such statement shows that Tenant's
payment based upon Estimated Basic Operating Cost is less than
Tenant's Proportionate Share of Basic Operating Cost, then Tenant
shall pay the difference within twenty (20) days after receipt of such
statement, such payment to constitute additional Rent hereunder. If
such statement shows that Tenant's payments of Estimated Basic
Operating Cost exceed Tenant's Proportionate Share of Basic Operating
Costs, then (provided that Tenant is not in default under this Lease),
Tenant shall receive a credit for the amount of such payment against
Tenant's obligation for payment of Tenant's Proportionate Share of
Estimated Basic Operating Cost next becoming due hereunder. If this
Lease has been terminated or the Term hereof has expired prior to the
date of such statement, then the Basic Operating Cost Adjustment shall
be paid by the appropriate party within twenty (20) days after the
date of delivery of the statement.
(D) NET LEASE.
This shall be a net lease and Base Rent shall be paid to Landlord
absolutely net of all costs and expenses. The provisions for payment
of Basic Operating Cost by means of periodic payments of Tenant's
Proportionate Share of Estimated Basic Operating Cost and the Basic
Operating Cost Adjustment are intended to pass on to Tenant and
reimburse Landlord for all cost and expenses of the nature described
in paragraph 29(a)(l) above incurred in connection with ownership and
operation of the Building and such additional facilities now and in
subsequent years as may be determined by Landlord to be necessary to
the Building.
(E) TENANT AUDIT.
Tenant shall have the right, at Tenant's expense and upon not less
than forty-eight (48) hours prior written notice to Landlord to review
at reasonable times Landlord's books and records for any fiscal year a
portion of which falls within the Term for purposes of verifying
Landlord's calculations of Basic Operating Cost and Basic Operating
Cost Adjustments. In the event that Tenant shall dispute the amount
set forth in any statement provided by Landlord under paragraph 29(c)
above, Tenant shall have the right not later than twenty (20) days
following the receipt of such statement, and upon condition that
Tenant shall first deposit with Landlord the full amount in dispute,
to cause Landlord's books and records with respect to such fiscal year
to be audited by certified public accountants selected by Tenant
subject to Landlord's reasonable right of approval. The Basic
Operating Cost Adjustment shall be appropriately adjusted on the basis
of such audit. If such audit discloses a liability for a refund or
credit by Landlord to Tenant in excess of ten percent (10%) of
Tenant's Proportionate Share of the Basic Operating Cost Adjustment
previously reported, the cost of such audit shall be borne by
Landlord. Otherwise the cost of such audit shall be paid by Tenant. If
Tenant shall not request an audit in accordance with the provisions of
this paragraph 29(e) within twenty (20) days of receipt of Landlord's
statement provided pursuant to paragraph 30(d), such statement shall
be final and binding for all purposes hereof.
Page-14-
<PAGE>
TAXES PAYABLE BY TENANT
30. (A) Tenant shall pay before delinquency any and all taxes levied or
assessed and which become payable by Landlord (or Tenant) during the
Term of this Lease, whether or not now customary or within the
contemplation of the parties hereto, which are based upon, measured by
or otherwise calculated with respect to: (a) the value of Tenant's
equipment, furniture, fixtures or other personal property located in
the Premises; (b) the value of any leasehold improvements,
alterations, or additions made in or to the Premises, regardless of
whether title to such improvements, alterations or additions shall be
in Tenant or Landlord; or (c) this transaction or any document to
which Tenant is a party creating or transferring an interest or an
estate in the Premises.
(B) In the event that it shall not be lawful for Tenant so to reimburse
Landlord, the Rent shall be revised to net Landlord the same net rent
after imposition of any such tax upon Landlord as would have been
payable to Landlord prior to the imposition of any such tax. All taxes
payable to Tenant under this paragraph 30 shall be additional rental.
SUCCESSORS AND ASSIGNS
31. Subject to the provisions of paragraph 10 hereof; the terms, covenants and
conditions contained herein shall be binding upon and inure to the benefit
of the heirs, successors, executors, administrators and assigns of the
parties hereto.
ATTORNEYS' FEES
32. In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to reasonable
attorneys' fees to be fixed by the court in such action or proceeding.
LIGHT AND AIR
33. No diminution of light, air or view by any structure which may hereafter be
erected (whether or not by Landlord) shall entitle Tenant to any reduction
of Rent, result in any liability of Landlord to Tenant, or in any other way
affect this Lease or Tenant's obligations hereunder.
PUBLIC TRANSPORTATION INFORMATION
34. Tenant shall establish and maintain during the Term hereof a program to
encourage maximum use of public transportation by personnel of Tenant
employed on the Premises, including without limitation the distribution to
such employees of written materials explaining the convenience and
availability of public transportation facilities adjacent or proximate to
the Building, staggering working hours of employees, and encouraging use of
such facilities, all at Tenant's sole reasonable cost and expense.
MISCELLANEOUS
35. (A) The term "Premises" shall be deemed to include (except where such
meaning would be clearly repugnant to the context) the office space
demised and improvements now or at any time hereinafter comprising or
built in the space hereby demised.
(B) The paragraph headings herein are for convenience of reference and
shall in no way define, increase, limit or describe the scope or
intent of any provision of this Lease.
(C) The term "Landlord" in these presents shall include the Landlord, its
successors and assigns. In any case where this Lease is signed by more
than one person, the obligations hereunder shall be joint and several.
(d) The term "Tenant" or any pronoun used in place thereof shall indicate
and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their and each of their
respective successors, executors, administrators and permitted
assigns, according to the context hereof.
(E) Time is of the essence of this Lease and all of its provisions.
(F) This Lease shall in all respects be governed by the laws of the State
of California.
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<PAGE>
(G) This Lease, together with its exhibits, contains all the agreements of
the parties hereto and supersedes any previous negotiations.
(H) There have been no representations made by the Landlord or
understandings made between the parties other than those set forth in
this Lease and its exhibits.
(I) This Lease may not be modified except by a written instrument by the
parties hereto.
(J) If for any reason whatsoever any of the provisions hereof shall be
unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
(k) See Addenda #1 - #8 attached hereto and made a part hereof.
LEASE EFFECTIVE DATE
36. Submission of this instrument for examination or signature by Tenant does
not constitute a reservation or option for lease, and it is not effective
as a lease or otherwise until execution and delivery by both Landlord and
Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
"LANDLORD"
SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP
-----------------------------------------
a California limited partnership
By /s/ Peter H. Schnugg
---------------------------
Peter H. Schnugg
Its Agent for Owner
--------------------------
Date:
9/16/96
------------------------------
"TENANT"
VISIGENIC SOFTWARE INC.
-----------------------------------------
a Delaware Corporation
By /s/ Kevin C. Eichler
----------------------------
Kevin C. Eichler
Its CFO
---------------------------
Date:
9/11/96
------------------------------
Page-16-
<PAGE>
LEASE DATE: AUGUST 30, 1996
LANDLORD: SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP
A CALIFORNIA LIMITED PARTNERSHIP
TENANT: VISIGENIC SOFTWARE, INC.
A DELAWARE CORPORATION
ADDENDUM #1 RENT
- ----------------
Rent for the Premises shall be as follows:
Months 1 - 12
Base Rent $ 8,085.00
Basic Operating Costs
(1996 Estimate) 2,622.00
---------
$10,707.00
Months 13-24
Base Rent $ 8,390.00
Basic Operating Costs
(1996 Estimate) 2,622.00
---------
$11,012.00
Months 25-36
Base Rent $ 8,740.00
Basic Operating Costs
(l996 Estimate) 2,622.00
---------
$11,362.00
Months 37-48
Base Rent $ 9,090.00
Basic Operating Costs
(l996 Estimate) 2,622.00
---------
$11,712.00
Months 49-60
Base Rent $ 9,439.00
Basic Operating Costs
(1996 Estimate) 2,622.00
---------
$12,061.00
ADDENDUM #2 TENANT IMPROVEMENTS
- -------------------------------
Landlord shall furnish and install, at its expense, the following improvements
to Suite #325 as built per the attached Exhibit C:
-Re-paint entire Suite with building standard paint, tenant to choose
color.
-Install new building standard carpet throughout entire Suite, tenant to
choose color.
-Install new building standard VCT in kitchen and storage rooms, tenant to
choose color.
In addition to the above, Landlord will provide an $8,740 Tenant Improvement
allowance to be used towards building standard improvements within the Suite.
Such improvements shall be mutually agreed upon between Landlord and Tenant, and
performed by Landlord's contractor. Any costs incurred above this $8,740
allowance will be paid by Tenant prior to occupancy of the Suite.
Page-17-
<PAGE>
ADDENDUM #3 COMPLIANCE WITH LAWS
- --------------------------------
Landlord warrants, to the best of its knowledge, that the Building does conform
or that Landlord will cause it to conform to applicable requirements of law or
duly constituted authority or of any Board of Fire Underwriters, rating bureau
of similar organization, or the requirements of the carriers of Landlord's
insurance on or relating to the Building. The Tenant shall comply with all
applicable statutes, ordinances, rules and regulations of federal, state and
municipal governments and all applicable rules and regulations of the Board of
Fire Underwriters as such statutes, ordinances, rules and regulations pertain to
Tenant's use of the demised Premises.
ADDENDUM #4 SERVICES AND UTILITIES
- ----------------------------------
Tenant shall be charged a fee of $30.00 per hour for after-hours HVAC use.
Normal building hours are Monday through Friday from 8:00 a.m. to 6:00 p.m.
Landlord reserves the right to adjust the hourly charge to reflect any increase
or decrease set by the local utility company.
ADDENDUM #5 DAMAGE BY FIRE, ETC.
- --------------------------------
Notwithstanding the provisions of Paragraph 22, Tenant shall have the right to
terminate this Lease if such repairs cannot be made within one hundred eighty
(180) days from the date of such damage if such damage occurs within the last
six (6) months of the lease term.
ADDENDUM #6 PARKING
- -------------------
Tenant shall have the non-exclusive use of no more that four (4) on-site parking
spaces per every 1,000 square feet of leased office space.
ADDENDUM #7 SIGNAGE
- -------------------
Tenant shall be entitled to building standard signage located at the following
locations: entrance to the suite, elevator floor directory and main lobby
directory.
ADDENDUM #8 BASIC OPERATING COSTS
- ---------------------------------
Notwithstanding the provisions of Paragraph 29 of the Lease Agreement, Tenant's
Proportionate Share of basic Operating Costs which are within Landlord's control
shall not increase by more than ten percent 10%) over the previous year's cost.
Basic Operating costs which are not within Landlord's control include, but are
not limited to, utilities, taxes and insurance.
"LANDLORD"
SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP
-----------------------------------------
a California limited partnership
By /s/ Peter H. Schnugg
------------------------
Peter H. Schnugg
Its Agent for Owner
-----------------------
Date 9/16/96
-----------------------
"TENANT"
VISIGENIC SOFTWARE, INC.
-------------------------------------
a Delaware Corporation
By /s/ Kevin C. Eichler
----------------------------------
Kevin C. Eichler
Its CFO
----------------------
Date 9/11/96
----------------------
Page-18-
<PAGE>
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and
stairways shall not be obstructed by Tenants or used by them for any
purpose other than for ingress to and egress from their respective
premises. The halls, passages, exits, entrances, elevators and stairways
are not for the use of the general public and Landlord shall in all cases
retain the right to control and prevent access thereto by all persons whose
presence, in the judgment of Landlord, shall be prejudicial to the safety,
character, reputation and interests of the Building and its Tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any Tenant normally deals in the ordinary
course of such Tenant's business unless such persons are engaged in illegal
activities. No Tenant, and no employee or invitees of any Tenant, shall go
upon the roof of the Building, except as authorized by Landlord.
2. No signs, placard, picture, name, advertisement or notice, visible from the
exterior of leased premises shall be inscribed, painted, affixed, installed
or otherwise displayed by any Tenant either on its premises or any part of
the Building without prior written consent of Landlord, and Landlord shall
have the right to remove any such sign, placard, picture, name,
advertisement, or notice without notice to and at the expense of the
Tenant.
If Landlord shall have given such consent to any Tenant at any time,
whether before or after the execution of the lease, such consent shall in
no way operate as a waiver or release of any of the provisions hereof or of
such lease, and shall be deemed to relate only to the particular sign,
placard, picture, name, advertisement or notice so consented by Landlord
and shall not be construed as dispensing with the necessity of obtaining
the specific written consent of Landlord with respect to any other such
particular sign, placard, picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of the Tenant by a person
approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of Tenants only and
Landlord reserves the right to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on any premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. No articles shall be placed or kept on the window
sills so as to be visible from the exterior of the Building. No articles
shall be placed against glass partitions or doors which might appear
unsightly from outside Tenant's Premises.
5. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 8 am and at all hours on Saturdays, Sundays and holidays all
persons who are not Tenants or their accompanied guests in the Building.
Each Tenant shall be responsible for all persons for whom it allows to
enter the building and shall be liable to Landlord for all acts of such
persons.
Landlord shall in no case be liable for damages for error with regard
to the omission to or exclusion from the Building of any person.
During the continuance of any invasion, mob, riot, public excitement
or other circumstances rendering such action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building by
closing the doors, or otherwise, for the safety of Tenants and protection
of the Building and property in the Building.
6. No Tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning premises unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord no person
or persons other than those approved by Landlord shall be permitted to
enter the Building for the purpose of cleaning the same. No Tenant shall
cause any unnecessary labor by reason of such Tenant's carelessness or
indifference in the preservation of good order and cleanliness of the
premises. Landlord shall in no way be responsible to any Tenant for any
loss of property on the premises, however occurring, or for any damage done
to the effects of any Tenant by the janitor or any other employee or any
other person.
7. No Tenant shall obtain for use upon its premises ice, drinking water, food
beverage, towel or other similar services except through facilities
provided by Landlord (and maintained by Tenant) and under regulation fixed
by Landlord, or accept barbering or bootblacking services in its premises
except from persons authorized by Landlord.
EXHIBIT "A"
Page-1-
<PAGE>
8. Each Tenant shall see that all doors of its premises are closed and
securely locked and must observe strict care and caution that all water
apparatus are entirely shut off before the Tenant or its employees leave
such premises, and that all utilities shall likewise be carefully shut off;
so as to prevent waste or damage, and for any default or carelessness the
Tenant shall make good all injuries sustained by other Tenants or occupants
of the Building or Landlord. On multiple-tenancy floors, all Tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress or egress.
9. As more specifically provided in the Tenant's Lease of the Premises, Tenant
shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning, and shall refrain from attempting
to adjust any controls other than room thermostats installed for Tenant's
use.
10. No Tenant shall alter any lock or access device or install a new additional
lock or access device or any bolt on any door of its premises without the
prior written consent of Landlord. If Landlord shall give its consent, the
Tenant shall in each case furnish Landlord with a key for any such lock.
11. No Tenant shall make or have made additional copies of any keys or access
devices provided by Landlord. Each Tenant, upon the termination of the
Tenancy, shall deliver to Landlord all the keys or access devices for the
Building, offices, rooms and toilet rooms which shall have been furnished
the Tenant or which the Tenant shall have had made. In the event of the
loss of any keys or access devices so furnished by Landlord, Tenant shall
pay Landlord therefor.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein,
and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, shall have caused it.
13. No Tenant shall use or keep in its premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material other than limited
quantities necessary for the operation or maintenance of office or office
equipment. No Tenant shall use any method of heating or air-conditioning
other than that supplied by Landlord.
14. No Tenant shall use, keep or permit to be used in its premises any foul or
noxious gas or substance or permit or suffer such premises to be occupied
or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other Tenants or those having business therein,
nor shall any animals or birds be brought or kept in or about any premises
of the Building.
15. No cooking shall be done or permitted by any Tenant on its premises (except
that used by the Tenant of Underwriters' Laboratory approved equipment for
the preparation of coffee, tea, hot chocolate and similar beverages for
Tenants and their employees shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state and
city laws, codes, ordinances, rules and regulations), nor shall premises be
used for lodging.
16. Except with the prior written consent of Landlord, no tenant shall sell, or
permit the sale, at retail, of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise in or on any premises, nor shall
Tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, typewriting or any similar business in or
from any premises for the service or accommodation of occupants of any
other portion of the Building, nor shall the premises of any Tenant be used
for the storage of merchandise or for manufacturing of any kind, or the
business of a public barber shop, beauty parlor, nor shall the premises of
any Tenant be used for any improper, immoral or objectionable purpose, or
any business activity other than that specifically provided for in such
Tenant's lease.
17. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
18. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to all premises shall be subject to the written
approval of Landlord.
19. No Tenant shall install any radio or television antenna, loudspeaker or any
other device on the exterior walls or the roof of the Building. Tenant
shall not interfere with radio or television broadcasting or reception from
or in the Building or elsewhere.
EXHIBIT "A"
Page-2-
<PAGE>
20. No Tenant shall lay linoleum, tile, carpet or any other floor covering so
that the same shall be affixed to the floor of its premises in any manner
except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the removal of any floor
covering shall e borne by the Tenant by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
21. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Landlord shall have the right to prescribe the weight, size and
position of all safes, furniture or other heavy equipment brought into the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as determined by Landlord
to be necessary to properly distribute the weigh thereof. Landlord will not
be responsible for loss of or damage to any such safe, equipment or
property from any cause, and all damage done to the Building by moving or
maintaining any such safe, equipment or other property shall be repaired a
the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building shall be placed and maintained
by Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move
such equipment in or out of the Building must be acceptable to Landlord.
22. No Tenant shall place a load upon any floor of the premises which exceeds
the load per square foot which such floor was designed to carry and which
is allowed by law. No Tenant shall mark, or drive nails, screw or drill
into, the partitions, woodwork or plaster or in any way deface such
premises or any part thereof.
23. No Tenant shall install, maintain or operate upon the Premises any vending
machine without the written consent of Landlord.
24. There shall not be used in any space, or in the public areas of the
Building, either by any Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material-handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any Tenant into or kept in or about the premises.
25. Each Tenant shall store all its trash and garbage within the interior of
its premises. No material shall be placed in the trash boxes or receptacles
if such material is of such a nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the city without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entryways and elevators provided for such purposes and at such
times as Landlord shall designate.
26. Canvassing, soliciting, distribution of handbills or any other written
material, and peddling in the Building are prohibited and each Tenant shall
cooperate to prevent the same. No Tenant shall make room-to-room
solicitation of business from other tenants in the building.
27. Landlord shall have the right, excercisable without notice and without
liability to any Tenant, to change the name and address of the Building.
28. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the rules and regulations
of the Building.
29. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promotion or advertising the
business of Tenant except as Tenant's address.
30. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
31. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
32. The requirements of Tenants will be attended to only upon application at
the office of the Building by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employees
will admit any person (Tenant or otherwise) to any office without specific
instructions from Landlord.
EXHIBIT "A"
Page-3-
<PAGE>
33. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other Tenant or Tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all Tenants of the Building.
34. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the
preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
35. Landlord reserves the right to designate the use of the parking spaces on
the premises.
36. Tenant shall use carpet protector under all desk chairs.
37. Tenant agrees to keep balcony doors closed at all times, except during
ingress and egress.
38. Tenant or Tenant's guests shall park between designated parking lines only,
and shall not occupy two parking spaces with one car. Vehicles in violation
of the above shall be subject to tow-away, at vehicle owner's expense.
39. Vehicles parked on the premises overnight without prior written consent of
the Landlord shall be deemed abandoned and shall be subject to tow-away at
vehicle owner's expense.
40. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
41. The Rules and Regulations are in addition to, and shall not be construed to
in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any Lease of Premises in the
Building. The word "Building" as used herein means the building of which
the premises are part.
EXHIBIT "A"
Page-4-
<PAGE>
[3RD FLOOR PLAN SAN MATEO BAY CENTER]
Suite #325
Outline of Premises
Exhibit "B"
<PAGE>
[PLAN APPEARS HERE]
Suite #325
Existing Build-Out
Exhibit "C"
<PAGE>
FORM OF TENANT CERTIFICATE
_______________________________________
_______________________________________
_______________________________________
_______________________________________
RE:
Gentlemen:
The undersigned, as Tenant under that certain lease (the "Lease") dated
_____________________________ l9 ___, made with ____________________________as
Landlord (the "Landlord"), does hereby certify:
1. That the copy of the Lease attached hereto as Exhibit A is a true and
complete copy of the Lease, and that there are no amendments, modifications
or extensions of or to the Lease and the Lease is now in full force and
effect.
2. That its leased premises at the above location have been completed in
accordance with the terms of the Lease, that it has accepted possession of
said premises, and that it now occupies the same.
3. That it began paying rent on ____________________________________ 19___,
and that, save only as may be required by the terms of the Lease, no rental
has been paid in advance, nor has the undersigned deposited any sums with
the Landlord as security.
4. That there exists no defenses or offsets to enforcement of the Lease by the
Landlord and, so far as is known to the undersigned, the Landlord is not,
as of the date hereof, in default in the performance of the Lease, nor has
the Landlord committed any breach thereof, nor has any event occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default or breach by the Landlord.
The undersigned acknowledges that you are relying on the above
representation of the undersigned in (advancing funds to purchase the
existing first mortgage loan covering the building in which the leased
premises are located) (in purchasing the building in which the leased
premises are located) and does hereby warrant and affirm to and for your
benefit, and that of your successors and assigns, that each of the
foregoing representations is true, correct and complete as of the date
hereof.
Dated: _______________________________________
By __________________________________________
Its _______________________________________
Exhibit "D"
Page -1-
<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>
NINE MONTHS ENDED
DECEMBER 30,
YEAR ENDED -------------------
MARCH 31, 1996 1995 1996
-------------- -------- ---------
<S> <C> <C> <C>
PRIMARY
Net loss.................................. $(4,379) $ (3,666) $ (18,271)
======= ======== =========
Weighted average common shares
outstanding.............................. 2,779 2,780 6,085
Weighted average common equivalent shares:
Weighted average preferred stock
outstanding............................ 2,875 2,818 3,050
Adjustments to reflect requirements of the
Securities and
Exchange Commission's Staff Accounting
Bulletin No. 83:
Common stock issuances.................. 3,376 3,376 1,876
Preferred stock issuances............... 1,069 1,069 594
Common stock option grants.............. 965 965 536
------- -------- ---------
Pro forma total weighted average common
shares and equivalents................... 11,064 11,008 12,141
======= ======== =========
Pro forma net loss per share.............. $ (0.40) $ (0.33) $ (1.51)
======= ======== =========
FULLY DILUTED
Net loss.................................. $(4,379) $ (3,666) $ (18,271)
======= ======== =========
Weighted average common shares
outstanding.............................. 2,779 2,780 6,085
Weighted average common equivalent shares:
Weighted average preferred stock
outstanding............................ 2,875 2,818 3,050
Adjustments to reflect requirements of the
Securities and
Exchange Commission's Staff Accounting
Bulletin No. 83:
Common stock issuances.................. 3,376 3,376 1,876
Preferred stock issuances............... 1,069 1,069 594
Common stock option grants.............. 965 965 536
------- -------- ---------
Pro forma total weighted average common
shares and equivalents................... 11,064 11,008 12,141
======= ======== =========
Pro forma net loss per share.............. $ (0.40) $ (0.33) $ (1.51)
======= ======== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM VISIGENIC SOFTWARE,
INC. CONSOLIDATED BALANCE SHEET, AT DECEMBER 31, 1996 AND VISIGENIC SOFTWARE,
INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,064
<SECURITIES> 0
<RECEIVABLES> 5,750
<ALLOWANCES> 145
<INVENTORY> 39
<CURRENT-ASSETS> 15,911
<PP&E> 3,501
<DEPRECIATION> 958
<TOTAL-ASSETS> 19,921
<CURRENT-LIABILITIES> 4,625
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 15,284
<TOTAL-LIABILITY-AND-EQUITY> 19,921
<SALES> 11,534
<TOTAL-REVENUES> 11,534
<CGS> 1,829
<TOTAL-COSTS> 28,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190
<INCOME-PRETAX> (18,271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,271)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.51)
</TABLE>
