<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1997
REGISTRATION NO. 333-38755
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST VIRTUAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3576 77-0357037
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) INDUSTRIAL NUMBER)
CLASSIFICATION CODE
NUMBER)
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3393 OCTAVIUS DRIVE
SUITE 102
SANTA CLARA, CA 95054
(408) 567-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES O. MITCHELL
CHIEF FINANCIAL OFFICER
FIRST VIRTUAL CORPORATION
3393 OCTAVIUS DRIVE
SUITE 102
SANTA CLARA, CA 95054
(408) 567-7200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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LEE F. BENTON, ESQ. NEIL J. WOLFF, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
FIVE PALO ALTO SQUARE PROFESSIONAL CORPORATION
3000 EL CAMINO REAL 650 PAGE MILL ROAD
PALO ALTO, CA 94306-2155 PALO ALTO, CA 94304-1050
(650) 843-5000 (650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [ ]
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 DECEMBER 4, 1997
LOGO
2,400,000 SHARES
COMMON STOCK
Of the 2,400,000 shares of Common Stock offered hereby, 2,200,000 are being
sold by First Virtual Corporation ("First Virtual" or the "Company") and 200,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $12.00 and $14.00 per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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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==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $ $
==================================================================================================
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(1) Before deducting expenses payable by the Company, estimated at $900,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 360,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco, California
on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS HAMBRECHT & QUIST
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANS-ACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
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 STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO,
OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
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.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Summary................................................................................ 4
Risk Factors........................................................................... 6
Use of Proceeds........................................................................ 17
Dividend Policy........................................................................ 17
Capitalization......................................................................... 18
Dilution............................................................................... 19
Selected Consolidated Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 21
Business............................................................................... 27
Management............................................................................. 40
Certain Transactions................................................................... 48
Principal and Selling Stockholders..................................................... 49
Description Of Capital Stock........................................................... 51
Shares Eligible For Future Sale........................................................ 53
Underwriting........................................................................... 55
Legal Matters.......................................................................... 56
Experts................................................................................ 56
Change of Accountants.................................................................. 57
Additional Information................................................................. 57
Index To Consolidated Financial Statements............................................. F-1
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First Virtual and the First Virtual Corporation logo are trademarks of the
Company. This prospectus also includes trade names and trademarks of companies
other than First Virtual.
The Company was incorporated in California in October 1993 and
reincorporated in Delaware in December 1997. The Company's executive offices are
located at 3393 Octavius Drive, Santa Clara, California 95054, and its telephone
number is (408) 567-7200.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and gives effect to: (i) a reincorporation
of the Company in Delaware prior to this offering and (ii) the conversion of all
outstanding shares of the Company's Preferred Stock into Common Stock
automatically upon the completion of this offering. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
First Virtual Corporation provides a high quality, cost-effective video
networking solution that integrates video with voice and data. The Company
combines its expertise in real-time network systems, network quality of service
("QoS") and video technology to extend QoS across existing network
architectures, such as ATM, Ethernet, ISDN, T1/E1 and xDSL. Its easy-to-use
video networking systems are scaleable to multiple locations and more than a
thousand users. First Virtual's broad product line enables it to deliver
end-to-end solutions for a wide range of customer applications, such as distance
learning, telemedicine, video marketing and video manufacturing. The Company
believes that high quality video over networks can enhance the efficiency with
which organizations work and learn.
Improved communications technology is driving today's global economy by
making accurate information readily available to individuals and groups, often
at distant locations. Organizations increasingly connect individuals at remote
locations through videoconferencing and use stored and live video content,
delivered to multiple locations, to give personnel ready access to fully
featured, visual information. To date, existing network architectures have
constrained the delivery of high quality live and stored video. For example,
Ethernet, Token Ring and Frame Relay networks, when used to deliver real-time
video traffic, typically transmit blurred images without life-like motion and
limit the ability of users on these networks to simultaneously access high
quality live video and data applications. Network managers responding to these
limitations have implemented separate, parallel networks designed for video,
typically using a wide-area transmission technology called ISDN. However, the
deployment of ISDN within the customer premise has proven difficult to integrate
with other network architectures, costly to implement, and limited in its
ability to scale to the transfer rates required for high quality video. To
deliver high quality video across networks, organizations have begun to
implement ATM-based networks that support QoS, enabling them to simultaneously
carry multiple video streams, as well as voice and data.
The Company is driven by its customers' needs for the three critical
aspects of high quality video networking: Conferencing, Caching, and Casting.
First Virtual's conferencing products enable true video collaboration between
desktop systems and traditional videoconferencing equipment, from vendors such
as PictureTel Corporation ("PictureTel"); its caching products facilitate the
use of high quality stored video on networks; and its casting products enable
broadcast of high quality live video on networks. At the center of the Company's
product family is its Multimedia Operating Software ("MOS"), which is designed
to guarantee network resources for real-time video, voice and data applications
on any QoS-capable network. In addition, the Company has recently licensed
technology from International Business Machines Corporation ("IBM") to allow
First Virtual to enter the broadcast quality video networking market.
The Company has global OEM relationships with Bay Networks, Inc. ("Bay
Networks") and Northern Telecom, Inc. ("Nortel") and has established
relationships with a number of VARs and systems integrators, including Bell
Atlantic Network Integration, British Telecommunications plc ("BT"), Electronic
Data Systems Corporation ("EDS") and IBM Global Services. The Company has also
built a network of international distributors to enable it to sell, service and
support its products in more than 40 countries worldwide. The Company's
solutions have been deployed by a broad range of educational institutions,
corporations and governmental agencies, such as IBM (headquarters facility in
Armonk, New York); Peregrine Incorporated (headquarters and multiple
manufacturing facilities); Shanghai Infoport (government metropolitan area
network); and Virginia Tech (distance learning facilities).
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company...... 2,200,000 shares
Common Stock offered by the Selling
Stockholders........................... 200,000 shares
Common Stock outstanding after the 14,931,100 shares(1)
offering...............................
Use of proceeds.......................... For repayment of outstanding indebtedness,
research and development activities, working
capital and general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol... FVCX
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SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
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OCTOBER 20, 1993 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------- -------------------
1993 1994 1995 1996 1996 1997
---------------- ------- ------- -------- -------- --------
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues......................... $ -- $ -- $ 3,670 $ 12,093 $ 8,151 $ 11,123
Cost of revenues................. -- -- 2,874 6,547 4,711 6,477
---- ------- ------- -------- -------- --------
Gross profit................... -- -- 796 5,546 3,440 4,646
---- ------- ------- -------- -------- --------
Operating expenses:
Research and development....... 16 1,208 2,582 2,930 2,089 3,749
Selling, general and
administrative.............. 56 1,419 3,603 4,886 3,367 4,978
---- ------- ------- -------- -------- --------
Total operating
expenses(2).......... 72 2,627 6,185 7,816 5,456 8,727
---- ------- ------- -------- -------- --------
Loss from operations............. (72) (2,627) (5,389) (2,270) (2,016) (4,081)
Other income (expense), net...... -- 46 79 27 16 (147)
---- ------- ------- -------- -------- --------
Net loss......................... $ (72) $(2,581) $(5,310) $ (2,243) $ (2,000) $ (4,228)
==== ======= ======= ======== ======== ========
Pro forma net loss per
share(3)....................... $ (0.17) $ (0.15) $ (0.31)
======== ======== ========
Shares used in computing pro
forma net loss per share(3).... 13,132 13,023 13,458
======== ======== ========
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AS OF SEPTEMBER 30, 1997
--------------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,506 $ 1,506 $ 24,741
Working capital...................................... 301 301 25,399
Total assets......................................... 7,389 7,389 30,624
Total debt........................................... 2,591 2,591 128
Convertible preferred stock.......................... 7 -- --
Accumulated deficit.................................. (14,434) (14,434) (14,434)
Total stockholders' equity........................... 899 899 26,597
</TABLE>
- ---------------
(1) Based on 12,731,100 shares outstanding as of September 30, 1997. Excludes
1,857,698, 40,624 and 100,000 shares issuable upon exercise of outstanding
options, warrants and purchase rights at weighted average exercise prices of
$4.90, $8.00 and $8.00 per share, respectively. Excludes an additional
549,577 shares reserved for issuance under the Company's stock option and
purchase plans. See "Management -- Stock Plans" and "Description of Capital
Stock" and Notes 7 and 8 of Notes to Consolidated Financial Statements.
(2) Operating expenses include non-cash employee stock compensation charges of
$339,000 for the year ended December 31, 1996 and $183,000 and $1.0 million
for the nine month periods ended September 30, 1996 and 1997, repectively.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the computation of pro forma net loss per share. Supplemental net loss
per share assuming $2.4 million in outstanding debt had been repaid at
January 1, 1996 or the date of issuance of the debt, if later, and assuming
that an equivalent amount was financed through the sale of equity securities
at the assumed offering price of $13.00 (less underwriting discounts and
commissions), would be $(0.17) for the year ended December 31, 1996 and
$(0.15) and $(0.30) for the nine month periods ended September 30, 1996 and
1997, respectively.
(4) Gives effect to the conversion of all outstanding Preferred Stock into
Common Stock.
(5) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of 2,200,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $13.00 per share. See "Use of
Proceeds."
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by this Prospectus.
LIMITED OPERATING HISTORY; CUMULATIVE LOSSES
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company was incorporated in October
1993 and first shipped its video networking products in 1995. The Company's
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets and companies experiencing rapid
growth and expansion. To address these risks, the Company must, among other
things, continue to achieve market acceptance for its products, maintain
technological leadership, respond to evolving markets and competition and
attract, retain and motivate qualified employees. There can be no assurance that
the Company will be successful in addressing these risks. The Company has
incurred substantial net losses in each quarter since its inception. As of
September 30, 1997, the Company had an accumulated deficit of $14.4 million. In
addition, as of September 30, 1997, the Company had gross deferred tax assets of
approximately $5.8 million, consisting primarily of net operating loss
carryforwards and capitalized start-up costs. Based on a number of factors,
including the lack of a history of profits and the fact that the Company
competes in a developing market that is characterized by rapidly changing
technology, management believes that it is more likely than not that the Company
will not be able to realize its deferred tax assets, and thus a full valuation
reserve has been recorded as of September 30, 1997. The Company's ability to
achieve a consistent, profitable level of operations depends on a number of
factors, many of which are beyond the control of the Company. There can be no
assurance that the Company will be able to achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced, and will in the future experience,
fluctuations in revenues, gross margins and operating results. For example, the
Company adopted a strategy in the fourth quarter of 1996 to focus on a limited
number of substantial end-user projects, rather than on sales of a large number
of pilot and demonstration projects. The initial impact of this change in
strategy was a decrease in revenues from $3.9 million in the fourth quarter of
1996 to $2.7 million in the first quarter of 1997. The Company's gross margins
have historically fluctuated from period to period and are expected to continue
to fluctuate in the future. Gross margins are significantly influenced by a
variety of factors, including product mix, percentage of revenues derived from
original equipment manufacturers ("OEMs") versus distributors or resellers,
pricing within the video networking industry and the prices of significant
components used in the Company's products.
Various factors, in addition to those discussed above, contribute to the
fluctuations in revenues, gross margins and operating results, including
development of the market for video networking and for the Company's products,
the Company's success in developing, introducing and shipping new products and
product enhancements, the Company's success in accurately forecasting demand for
new orders (which may have short lead-times before required shipment), new
product introductions and price reductions by its competitors, production
volumes and quality levels, seasonality, changes in material costs, the efforts
of OEMs, distributors, resellers, contract manufacturers and component suppliers
on behalf of the Company, the Company's ability to attract, retain and motivate
qualified personnel, the timing and amount of research and development and
selling, general and administrative expenditures, and general economic
conditions.
6
<PAGE> 8
Further, a significant portion of the Company's expenses are fixed in
advance. The Company expects that operating expenses will increase in the future
to fund expanded operations. To the extent these increased expenses are not
accompanied by an increase in revenues, the Company's business, financial
condition and results of operations could be materially adversely affected. If
revenues or gross margins are below Company expectations in any given period,
the Company's inability to adjust operating expenses in response would adversely
affect operating results. Due to all the foregoing factors, it is likely that in
some future quarter, the Company's results of operations will be below the
expectations of public market analysts and investors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MARKET ACCEPTANCE OF VIDEO NETWORKING
The Company's success depends on the market acceptance of video networking.
Potential end-users must accept video applications as a viable alternative to
face-to-face meetings and conventional classroom based learning. New
applications, such as the use of video in marketing, selling and manufacturing,
are in an early stage of development and have not been widely accepted to date.
Early video networking equipment designed for local area networks ("LANs")
suffered from poor video quality, as has traditional Integrated Services Digital
Network ("ISDN") based video conferencing, adversely affecting widespread
acceptance of video networking applications. The Company must overcome this
negative perception. Potential end-users must be educated in the use and
benefits of video networking. If video networking fails to achieve broad
commercial acceptance or such acceptance is delayed, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Business -- Industry Background."
DEPENDENCE ON DISTRIBUTION RELATIONSHIPS
The Company currently focuses on sales through OEMs, distributors and
resellers ("distribution relationships"). The Company's future performance will
depend in large part on sales of its products through its distribution
relationships, such as Bay Networks, Nortel, and other key partners. During the
nine months ended September 30, 1997, Bay Networks was the Company's most
significant OEM, representing 57% of the Company's revenues. In November 1995,
the Company granted Bay Networks the worldwide non-exclusive right to market and
sell certain of the Company's products. In September 1996, the Company granted
Bay Networks the worldwide non-exclusive right to market and sell all of the
Company's current and future products under both the Company's and Bay Networks'
names. In May 1997, the Company granted similar rights to Nortel to market the
Company's products under the Company's name. The Company expects, based on its
past experience, that new distribution relationships such as the Nortel
relationship generally will not result in significant sales in the short term,
but only after a period during which the Company trains the partners' sales
forces and helps identify sales opportunities. Agreements with Bay Networks,
Nortel and other distribution partners generally provide for discounts based on
the Company's list prices, and do not require minimum purchases. These
agreements do not restrict development or distribution of competitive products.
Therefore, some of the entities which distribute the Company's products may
compete with the Company. The Company cannot assure that an OEM, distributor or
reseller will dedicate sufficient resources or give sufficient priority to
selling the Company's products. While the Company plans to seek additional
distribution relationships, these relationships could compete with and adversely
affect sales by the Company's existing OEMs, distributors or resellers. The
Company depends on its distribution relationships for most customer support, and
expends significant resources to train its OEMs, distributors and resellers to
support their customers. These entities can generally terminate the distribution
relationship upon 30 days notice for a material breach. The loss of a
distribution relationship or a decline in the efforts of a material distributor
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Marketing, Sales and Customer
Support."
7
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LIMITED NUMBER OF LARGE PROJECTS; LENGTHY SALES AND IMPLEMENTATION CYCLE
The Company depends on a limited number of large end-user projects for a
majority of its revenues, which has resulted in, and may in the future result
in, significant fluctuations in quarterly revenues. For example, a sale to IBM's
corporate headquarters represented nine percent of the Company's revenues in the
second quarter of 1997. The Company expects that revenues from the sale of
products to large end-users will continue to account for a significant
percentage of its revenues in any particular quarter for the foreseeable future.
Additionally, a significant portion of the Company's sales of video networking
products has historically been to government-related agencies, such as military
and educational institutions, or third parties using the Company's products on
behalf of government agencies. Such government-related customers are often
subject to budgetary pressures and may from time to time reduce their
expenditures and/or cancel orders. The loss of any major customer, or any
reduction or delay in orders by such customer, or the failure of the Company or
its distribution partners to market its products successfully to new customers
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Customers and
Applications."
Sales of the Company's products require an extended sales effort. The
Company must first train the entities with which it has distribution
relationships to market the Company's products. These entities then must
identify appropriate video networking opportunities and compete for prospective
customers' scarce management attention and resources. Since the Company's
products are often used as part of a larger project and must be installed
without adversely affecting the performance of the customer's existing network,
end-users often require time to decide whether to undertake the project. Due to
operating procedures in many large organizations, particularly government
agencies, an extended time period may elapse after key decision makers have
selected the Company's products and before a contract to purchase the Company's
products can be signed. As a result, the period from an initial sales call to an
end-user agreement typically ranges from six to twelve months, and can be
longer. Therefore, the timing of revenues may be unpredictable. This could have
a material adverse effect on the Company's business, financial condition and
results of operations.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The markets for the Company's products are characterized by rapid
technological change and evolving industry standards. The Company's success will
depend, in part, on its ability to maintain its technological leadership, to
enhance and expand its existing product offerings and to develop and introduce
in a timely manner new products which achieve market acceptance. The development
of new, technologically advanced products is a complex and uncertain process
requiring high levels of innovation, as well as the accurate anticipation of
technological and market trends. The Company has experienced delays in the
introduction of new products in the past and may in the future experience such
delays.
As technology changes, the Company's success will also depend in part upon
its ability and the ability of its strategic partners to comply with evolving
industry standards. Transmission Control Protocol/Internet Protocol ("TCP/IP")
industry standards, such as H.323, Resource Reservation Protocol ("RSVP") and
Real-Time Protocol ("RTP"), are evolving. These standards potentially afford an
alternative to the Company's current video networking solutions. Industry
standards for Asynchronous Transfer Mode ("ATM"), such as H.321, LAN Emulation
("LANE"), Multi-Protocol Over ATM ("MPOA") and Private Network-Network Interface
("PNNI") are also still evolving. As standards evolve, the Company must modify
its products, or develop and support new versions of its products. The failure
of the Company's products to comply, or delays in achieving compliance, with
various evolving industry standards could delay introduction of the Company's
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's ability to compete
successfully is also dependent upon the continued compatibility and
interoperability of its products with products and architectures offered by
various vendors. The Company's business, financial condition and results of
operations would be materially adversely affected if it were to incur
significant delays or be unsuccessful in developing new products or
enhancements, if any such products or enhancements did not gain market
acceptance or if the
8
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Company is unable to effectively address the compatibility and interoperability
issues raised by technological changes in a timely manner, or if a delay in the
creation of industry standards resulted in customers deciding not to deploy, or
to delay deployment of, the Company's products. In addition, there can be no
assurance that products or technologies developed by others will not render the
Company's products noncompetitive or obsolete.
From time to time, the Company may announce new products, capabilities or
technologies that have the potential to replace or shorten the life cycle of the
Company's existing product offerings. The announcement of product enhancements
or new product offerings could cause customers to defer purchasing the Company's
products. For example, the Company is currently developing its V-Ether and
V-Gate323 products for Ethernet/IP-based networks, which may delay or defer
implementation of the Company's existing ATM-based products. The failure of the
Company to introduce new products or product enhancements effectively and on a
timely basis, customer delays in purchasing products in anticipation of new
product introductions and any inability of the Company to respond effectively to
technological changes, or to comply with the various existing and evolving
industry standards, or product announcements by competitors, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- First Virtual's Products and Technology"
and "-- Research and Development."
DEPENDENCE ON ATM BACKBONE TECHNOLOGY
Although ATM is becoming widely adopted for high-speed wide-area
networking, video networking over ATM networks is still an emerging market. The
Company currently derives a significant amount of its revenues from its video
networking products that function over ATM backbones, and sales of these video
networking products are expected to continue to account for a significant amount
of the Company's revenues for the foreseeable future. The Company's business
strategy is based on the assumption that ATM backbone technology will be a
widely accepted networking backbone solution. Accordingly, the Company's
business, financial condition and results of operations are dependent on
continued growth and market acceptance of ATM technology as a networking
backbone. The market acceptance of ATM technology may be adversely influenced by
the availability, performance and price of competing technologies such as Fast
Ethernet and Gigabit Ethernet. There can be no assurance that there will be
continued growth and market acceptance of ATM technology or the Company's video
networking products. In the event that ATM backbone networks fail to achieve
broad commercial acceptance, the Company's business, financial condition and
results of operations could be materially adversely affected.
DEPENDENCE ON SUPPLIERS
Several of the critical components used in the Company's products,
including certain custom and programmable semiconductors, such as the Pisces
ASIC, the SESAR ASIC and an ATM adapter, are currently available only from
Lucent Technologies Inc. ("Lucent"), Integrated Telecom Technology, Inc. ("IgT")
and Integrated Device Technologies, Inc. ("IDT"), respectively. The Company does
not have long-term agreements with these suppliers, and they are not obligated
to provide components to the Company for any specific period, in any specific
quantity or at any specific price, except as may be provided in a particular
purchase order. Qualifying additional suppliers is a time consuming and
expensive process, and there is a greater likelihood of problems arising during
a transition period to a new supplier. There can be no assurance that these
existing suppliers will continue to meet the Company's requirements for these
components. Any interruption in the supply of these components, or the inability
of the Company to procure these components from alternate sources at acceptable
prices and within a reasonable period of time, or any excessive rework costs
associated with defective components or process errors, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company uses a product sales forecast based on anticipated product
orders to determine its components requirements. As a result of the relatively
short lead-time on certain orders, however, this forecast may not be accurate.
Certain components used in the Company's products require an order lead time of
up to 16 weeks. Other components that currently are readily available may become
difficult to obtain in the future. Failure of the Company to predict accurately
its required quantities of
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these components could result in either shortages or excess inventory of such
components, as well as cause the Company to delay shipments of its products in
response to orders, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has from
time to time experienced shortages of certain other key components. These
component shortages have resulted in delays in the shipment of the Company's
products, and the component shortages have also resulted in higher component
costs. When these components are in short supply, the Company must compete for
them with companies that have greater purchasing power and often have longer
established relationships with their vendors. There can be no assurance that the
Company will not experience shortages in component supplies in the future, which
would have a material adverse affect on the Company's business, financial
condition and results of operations.
COMPETITION; INDUSTRY CONSOLIDATION
The video networking industry is becoming increasingly competitive. As an
end-to-end high quality ATM-based video networking solution, First Virtual's
products face actual and potential competition in different market segments. The
Company's most direct competitors also currently offer video networking over
ATM, including FORE Systems, Inc. ("FORE") and Newbridge Networks Corporation
("Newbridge"). The Company's video networking products also compete with systems
based on other technologies, such as the ISDN-based video networking products
offered by Madge Networks, N.V. ("Madge"). The Company's network infrastructure
products, when sold by its distribution partners such as Bay Networks, are used
to compete with ATM-based infrastructure products sold by companies such as
Cisco Systems, Inc. ("Cisco") and 3Com Corporation ("3Com"). In the
videoconferencing area, the Company's technology licensing agreement with IBM is
intended to result in products which would compete with products sold by
companies such as Newbridge in the high-end H.310 videoconferencing market. In
video storage, the Company's V-Cache products face competition from companies
which offer high-performance servers that can store video, such as Silicon
Graphics, Inc. ("SGI"), Starlight Networks Inc. ("Starlight"), Sun Microsystems,
Inc. ("Sun") and The Network Connection ("TNC"). In the video broadcast area,
the Company's products may compete in the future with system and software
products of companies which provide "streamed" video over IP/Ethernet networks,
such as Optivision, Inc. ("Optivision") and Precept Software, Inc. ("Precept
Software"). The Company faces potential competition from large companies which
have products in related areas, such as Intel Corporation ("Intel") and
Microsoft Corporation ("Microsoft"). The Company could encounter new competition
if companies which distribute First Virtual's products, or whose
videoconferencing equipment is used together with the Company's products,
develop or acquire video networking technologies or products. There can be no
assurance that the Company will be able to compete successfully in this
environment.
Many of the Company's actual and potential competitors have greater name
recognition; a larger installed base of networking products and strong
relationships with end users; more extensive engineering, manufacturing,
marketing and distribution capabilities; and greater financial, technological
and personnel resources than the Company. The networking industry is undergoing
a period of consolidation in which companies, including some of the Company's
competitors, are participating in business combinations, resulting in
competitors with larger market shares, customer bases, sales forces, product
offerings and technology and marketing expertise.
The Company's principal method of competition is product performance. To
compete effectively, First Virtual must continue to offer an end-to-end
solution, provide high-performance products which comply with applicable
standards and are easy to use, and expand its product distribution channels
domestically and internationally. There can be no assurance that the Company
will be able to compete effectively on these bases.
In addition, the Company expects price competition to escalate in the video
networking industry. Although the Company has rarely lowered product prices in
the past, anticipated competition may force the Company in the future to lower
product prices on a regular basis and add new products and features without
increasing prices. There can be no assurance that the Company will be able to
compete successfully in such a price competitive environment. If such pricing
pressures are not
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mitigated by cost reduction or changes in product mix, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Business -- Competition."
COMPLIANCE WITH INDUSTRY STANDARDS AND REGULATIONS
The Company's products must meet a significant number of video, voice and
data communications regulations and standards, some of which are evolving as new
technologies are deployed. In the United States, the Company's products must
comply with various regulations defined by the Federal Communications Commission
and Underwriters Laboratories. Internationally, the Company's products must
comply with standards established by telecommunications authorities in various
countries, as well as with recommendations of the International
Telecommunications Union. The Company's products are currently in compliance
with applicable regulatory requirements. However, there can be no assurance that
such regulatory requirements will not in the future impose additional or
different regulations or standards on sales of the Company's products. In
addition, telecommunications service providers require that equipment connected
to their networks comply with their own standards, which may vary from industry
standards. A delay in obtaining, or the failure to obtain, certification of its
products domestically or in countries outside of the United States, or a delay
in or failure to comply with applicable regulatory requirements, could delay or
preclude the Company's marketing and sales efforts, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
TCP/IP industry standards, such as H.323, RSVP and RTP, are evolving. These
standards potentially afford an alternative to the Company's current video
networking solution. Industry standards for ATM, such as H.321, LANE, MPOA and
PNNI, are also still evolving. As these standards evolve, the Company must
modify its products, or develop and support new versions of its products. The
failure of the Company's products to comply, or delays in achieving compliance,
with the various existing and evolving industry standards could delay
introduction of the Company's products, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Government regulatory policies are likely to continue to have a major
impact on the pricing of services over existing and new public ATM network
infrastructures and, therefore, are expected to affect demand for applications
such as video networking. Tariff rates, whether determined autonomously by
telecommunications service providers or in response to regulatory directives,
may affect the cost effectiveness of deploying public ATM network services.
Tariff policies are under continuous review and are subject to change. User
uncertainty regarding future policies could decrease demand for
telecommunications products, including the Company's products, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON INTELLECTUAL PROPERTY
The Company's success and ability to compete in the video networking
industry depends, in part, upon its ability to protect its proprietary
technology and to operate without infringing the proprietary rights of others.
The Company does not rely on patent protection for, and does not hold, any
patents relating to its products. The Company's adherence to industry-wide
technical standards and specifications may limit the Company's opportunities to
provide proprietary product features. The Company currently licenses certain
technology from third parties and plans to continue to do so in the future. The
commercial success of the Company will also depend, in part, on the Company not
breaching its current and future licenses of third-party technology used in
certain of the Company's products.
The Company currently relies upon a combination of trade secret, copyright
and trademark laws and contractual restrictions to establish and protect
proprietary rights in its products. The Company also enters into confidentiality
and invention assignment agreements with its employees and enters into
non-disclosure agreements with its suppliers, distributors and customers to
limit access to and disclosure of its proprietary information. There can be no
assurance that these statutory and contractual arrangements will be sufficient
to deter misappropriation of the Company's proprietary technologies or that
independent third-parties will not develop similar or superior technologies. The
development of alternative technologies by third parties could adversely affect
the competitiveness of
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the Company's products. In addition, the laws of some countries do not provide
the same degree of protection of the Company's proprietary information as do the
laws of the United States.
The Company is also subject to the risk of litigation alleging infringement
of third party intellectual property rights from both its licensed and
proprietary technology. A number of companies have developed technologies or
received patents on technologies that may be related to or be competitive with
the Company's technologies. The Company has not conducted a patent search
relating to the technology used in its products. In addition, since patent
applications in the United States are not publicly disclosed until the patent
issues, applications may have been filed which, if issued as patents, would
relate to the Company's products. Many of these companies have significantly
greater resources than the Company. Given the rapid development of technology in
the video networking industry, there can be no assurance that the Company's
existing or future products will not infringe upon the existing or future
proprietary rights of others. Further, the Company's lack of patents may inhibit
the Company's ability to negotiate or obtain licenses from or oppose patents of
third parties, if necessary. The Company could incur substantial costs in
defending itself and its customers against any such claims, regardless of the
merits of such claims. The Company may be required by contract or by statutory
implied warranties to indemnify its distribution partners and end-users against
third-party infringement claims. Parties making such claims may be able to
obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a successful
claim of infringement, the Company, its customers and end-users may be required
to obtain one or more licenses from third parties. There can be no assurance
that the Company or its customers could obtain necessary licenses from third
parties at a reasonable cost, or at all. The defense of any lawsuit could result
in time-consuming and expensive litigation, damages, license fees, royalty
payments and restrictions on the Company's ability to sell its products, any of
which could have a material adverse effect on the Company's business, financial
condition, and results of operations. See "Business -- Intellectual Property."
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company currently outsources the manufacturing of its products. The
Company relies on three vendors, Tanon Manufacturing, Inc. ("Tanon"), Empac
International Corporation ("Empac") and Sanmina Corporation ("Sanmina"), to
turnkey manufacture certain of its products. If one or more of these
manufacturers experiences quality or other problems, product shipments by the
Company may be delayed. The Company has experienced such delays in the past and
may in the future experience delays. If the Company is required to find
replacements for its manufacturers, such change in manufacturers could result in
short-term cost increases and delays in delivery, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company maintains a safety stock of critical components and
reserve inventory, which would not be sufficient to meet increases in demand
occurring simultaneously with delayed deliveries from manufacturers. There can
be no assurance that the Company will be able to negotiate acceptable
arrangements with its existing or any future manufacturers, or, if negotiated,
that such arrangements will be on terms favorable to the Company. See
"Business -- Manufacturing."
MANAGEMENT OF GROWTH; DEPENDENCE ON THIRD PARTY OUTSOURCING
The Company's growth, both in sales and in the number of its employees, has
placed, and is expected to continue to place, a significant strain on its
managerial, financial and personnel resources. The Company presently has fewer
than 60 full-time employees. The Company's ability to compete effectively and to
manage future growth, if any, will require the Company to continue to improve
its financial and management controls, reporting systems and procedures on a
timely basis, to expand, train and manage its employees, and to respond rapidly
to customer needs, including providing support for the Company's products. There
can be no assurance that the Company will be able to compete effectively and
manage future growth.
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The Company currently outsources certain human resources and financial
responsibilities. The Company's accounting and data processing functions are
performed by KPMG Peat Marwick LLP ("KPMG"). While the Company has experienced
turnover with respect to the persons providing the services on behalf of KPMG,
such turnover has not had a material impact on the Company's operations. There
can be no assurance that such turnover will not have a material impact in the
future, or that such relationship will not be terminated by KPMG. As part of the
responsibilities of becoming a public company, the Company may need to transfer
certain finance functions back to the Company or transition from KPMG to another
service provider, both of which may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company may in the future acquire additional businesses, products or
technologies. There can be no assurance that the Company will be able to manage
its expansion or integrate the operations of any businesses, products or
technologies it may in the future acquire. The failure to do so could materially
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN PERSONNEL
The Company's success to date has been significantly dependent on the
contributions of a number of its key personnel, including Ralph Ungermann,
President and Chief Executive Officer, Allwyn Sequeira, Vice President,
Engineering and Chief Technical Officer and James O. Mitchell, Vice President,
Operations and Chief Financial Officer. The loss of the services of Messrs.
Ungermann, Sequeira or Mitchell could have a material adverse effect on the
Company. The Company's success also depends, to a significant extent, upon other
key employees, consultants and advisors. The loss of the services of one or more
of these key employees or consultants and advisors could have a material adverse
effect on the Company. None of the Company's employees, including its senior
management, is bound by an employment or non-competition agreement, and the
Company does not maintain "key person" life insurance on any employee.
The Company believes that its future success will also depend upon its
ability to attract and retain additional highly-skilled technical, managerial,
manufacturing, sales and marketing personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be able to anticipate
accurately, or to obtain, the personnel that it may require in the future. The
failure to obtain personnel, when necessary, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management."
RISK OF PRODUCT DEFECTS
Products as complex as those offered by the Company frequently contain
undetected errors or defects, especially when first introduced or when new
versions or enhancements are released. Despite product testing by the Company
and its customers, the Company has in the past shipped product releases with
some defects, and has discovered other errors in its products after their
commercial shipment. Certain providers of the hardware and software used in the
Company's products in the past have changed their specifications, adversely
affecting the performance of the Company's products. For example, in the third
quarter of 1997, a semiconductor device supplier changed the design of its chip
without notifying the Company, halting production of certain of the Company's
products until the board incorporating this chip could be redesigned and
adversely affecting the Company's revenues for the quarter. There can be no
assurance that, despite testing by the Company and by current and potential
customers, defects and errors will not be found in new products or in new
versions or enhancements of existing products after commencement of commercial
shipments, or that the Company will not have to devote significant financial
resources and personnel to correct the defects. In addition, although the
Company currently carries product liability insurance in the aggregate amount of
$2 million, there can be no assurance that such insurance would be adequate in
the event of a product liability claim brought against the Company as a result
of any such defects or that the Company will be able to maintain such insurance.
A product liability claim brought against the Company could have a material
adverse effect upon the Company's business, financial condition and results of
operations. In addition, the Company's products incorporate and are used with
third party products. Defects, including those of third parties, discovered in
the future could result in adverse
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customer reaction, negative publicity regarding the Company and its products,
delays in implementation of the Company's products, or delays in or failure to
achieve market acceptance of the Company's products, any of which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
RISK OF INTERNATIONAL SALES AND CURRENCY FLUCTUATIONS
Sales outside of North America accounted for approximately 36% of the
Company's revenues for the year ended December 31, 1996 and approximately 22% of
the Company's revenues for the nine months ended September 30, 1997. There can
be no assurance that revenues from international sales will continue to
constitute a significant portion of the Company's business. A decline in
international sales could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, while the
Company's current products are designed to meet relevant regulatory requirements
in markets outside of the United States in which they are sold, any inability to
obtain any such required regulatory approvals on a timely basis could have a
material adverse effect on the Company. Conducting business outside of the
United States is subject to certain risks, including seasonality, longer payment
cycles, changes in regulatory requirements and tariffs, reduced protection of
intellectual property rights, difficulties in distribution, the burden of
complying with a variety of foreign laws and political or economic constraints
on international trade or instability. There can be no assurance that any of
these factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
All of the Company's sales are denominated in United States dollars.
Therefore, an increase in the value of the dollar relative to local currency
could increase the price in local currencies of the Company's products in
markets outside of the United States and make the Company's products relatively
more expensive than competitive products denominated in local currencies, which
could materially adversely affect the Company's business, financial condition
and results of operations.
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active market will develop
or be maintained. The initial public offering price will be negotiated between
the Company and the representatives of the Underwriters and may not be
indicative of future market prices. See "Underwriting" for information related
to the method of determining the initial public offering price. The market price
of the shares of the Company's Common Stock, like that of the common stock of
many other high technology companies, is likely to be highly volatile. Factors
such as the Company's operating results, developments in the Company's
relationships with strategic partners, developments affecting the Company's
strategic partners, regulatory action or regulatory approval with respect to the
Company, its competitors or their products, announcements of new products by the
Company or its competitors, developments related to proprietary rights by the
Company or its competitors, changes in the recommendation of securities analysts
with respect to the Company's Common Stock, and market conditions for high
technology stocks in general may cause the market price of the Company's Common
Stock to fluctuate, perhaps substantially. The Company expects that operating
results will fluctuate from quarter to quarter and that such fluctuations may be
substantial. In addition, in recent years the stock market in general, and the
shares of high technology companies in particular, have experienced extreme
price fluctuations. Fluctuations in operating results, as well as these broad
market and industry fluctuations, may have a material adverse effect on the
market price of the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
After this offering, the Company's named executive officers, directors and
principal stockholders will beneficially own approximately 7,526,306, or 49.8%,
of the outstanding shares of Common Stock (48.7% if the underwriters'
overallotment option is exercised in full). As a result, such persons may have
the ability to effectively control the Company and direct its affairs and
business, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of the
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Company, and making certain transactions more difficult or impossible absent the
support of such stockholders, including proxy contests, mergers involving the
Company, tender offers, open-market purchase programs or other purchases of
Common Stock that could give stockholders of the Company the opportunity to
realize a premium over the then prevailing market price for shares of Common
Stock. See "Principal and Selling Stockholders."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
This offering will provide substantial benefits to current stockholders of
the Company. Consummation of this offering is expected to create a public market
for the Common Stock held by the Company's current stockholders, including
directors and executive officers of the Company. Current stockholders paid
approximately $14.5 million for an aggregate of approximately 12,731,100 shares
of Common Stock, of which the Company's directors, executive officers and their
respective affiliates beneficially own approximately 7,578,306, or 58.7%, of the
outstanding Common Stock prior to this offering. This offering will result in a
combined gross unrealized gain (not including any realized gain by any such
persons as Selling Stockholders) to such stockholders in the aggregate amount of
approximately $151.0 million, assuming an initial public offering price of
$13.00 per share. See "-- Absence of Prior Public Market; Volatility of Stock
Price," and "Dilution."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. Any such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could affect adversely the voting power of holders of Common Stock and
the likelihood that such holders will receive payments upon liquidation.
Additionally, the issuance of Preferred Stock 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 and may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may affect adversely the market
price of and the voting and other rights of the holders of the Common Stock. In
addition, the Company is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law, which prohibits 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 could have the effect of
delaying or preventing a change of control of the Company. The Company's
Certificate of Incorporation also provides for staggered terms for the members
of the Board of Directors. These provisions, and other provisions of the
Certificate of Incorporation, the Company's Bylaws and Delaware corporate law,
may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by (i) restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and (ii) 180-day lock-up agreements
pursuant to which all directors, officers and other stockholders of the Company
have agreed not to sell or otherwise dispose of any of their shares without the
prior written consent of BancAmerica Robertson Stephens or, in certain
instances, the Company. The Company has agreed with BancAmerica Robertson
Stephens not to release any stockholder from any lock-up agreement between the
stockholder and the Company without the prior written consent of BancAmerica
Robertson Stephens. Approximately 11,443,033 shares and an additional 536,623
shares issuable upon exercise of outstanding
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vested options will be eligible for sale 180 days after the date of this
Prospectus upon expiration of the lock-up agreements and in compliance with
certain limitations set forth in the Securities Act. An additional approximately
282,602 of the outstanding shares will become eligible for sale at various times
after 180 days after the date of this Prospectus, over a period of less than one
year, pursuant to Rule 144 and Rule 701 under the Securities Act. The remaining
approximately 805,465 shares outstanding will be subject to rights of repurchase
in favor of the Company that expire at various dates through July 25, 2001
pursuant to vesting requirements. After this offering, the holders of
approximately 10,435,500 shares of Common Stock will be entitled to certain
demand and piggyback registration rights with respect to registration of such
shares under the Securities Act. If such holders, by exercising their demand or
piggyback registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
to include in a Company initiated registration shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise needed capital. See
"Shares Eligible For Future Sale" and "Description of Capital
Stock -- Registration Rights."
NO SPECIFIC PLAN FOR SIGNIFICANT PORTION OF PROCEEDS
The Company currently has no specific plans for a significant portion of
the net proceeds of the offering. As a consequence, the Company's management
will have the discretion to allocate this portion of the net proceeds of this
offering to uses that the stockholders may not deem desirable, and there can be
no assurance that these proceeds can or will be invested to yield a significant
return. Substantially all of the proceeds of the offering will be invested in
short-term, interest-bearing, investment grade securities for an indefinite
period of time. See "Use of Proceeds."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources
combined with the net proceeds of this offering, together with funds from the
Company's existing line of credit, will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. Thereafter, the Company may need to raise additional funds.
The Company may need to raise additional funds sooner in order to fund more
rapid expansion, to develop new or enhanced services, to respond to competitive
pressures or to acquire complementary businesses or technologies. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the stockholders of the Company will be reduced, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's Common
Stock. There can be no assurance that additional financing will be available
when needed on terms favorable to the Company or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to develop or enhance its services, take advantage of future
opportunities or respond to competitive pressures, which could have a material
adverse effect on the Company's business, financial condition or operating
results. See "Dilution" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price will be substantially higher than the
book value per share of Common Stock. Assuming an initial public offering price
of $13.00 per share, investors purchasing shares of Common Stock in this
offering will incur immediate, substantial dilution of $11.22 per share in the
net tangible book value of Common Stock. Additional dilution will occur upon the
exercise of outstanding options and warrants. See "Dilution." The Company has
never declared or paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. The Company's loan and security agreement
and capital equipment lease prohibit the payment of dividends without the
consent of the respective lenders. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $25.7 million ($30.1 million if the
underwriters' over-allotment option is exercised in full) at an assumed initial
public offering price of $13.00 per share after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company intends to use approximately $3.4 million of the net proceeds
of the offering for the repayment of outstanding indebtedness. The balance of
the net proceeds of the offering are expected to be used for research and
development activities, working capital and general corporate purposes. These
corporate purposes may include the purchase of technology assets and licenses.
The Company has no present understandings, commitments or arrangements with
respect to the purchase of any technology assets or licenses, and the amount and
timing of these expenditures will depend on numerous factors, including the
progress of the Company's research programs and its ability to attract
additional strategic partners. Pending application of the net proceeds of the
offering as described above, the Company intends to invest such proceeds in
short-term, investment-grade, interest-bearing financial instruments.
The Company anticipates that its existing resources, together with the net
proceeds of this offering, and projected interest income, will enable the
Company to maintain its current and planned operations through at least the next
12 months. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. The Company's loan and
security agreement and capital equipment lease prohibit the payment of dividends
without the respective lenders' consent.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth as of September 30, 1997, (i) actual
capitalization of the Company as of September 30, 1997, (ii) the pro forma
capitalization of the Company giving effect to the conversion of all outstanding
shares of Preferred Stock into Common Stock and (iii) the pro forma
capitalization as adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the 2,200,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per share,
after deduction of underwriting discounts and estimated offering expenses
payable by the Company. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term debt and line of credit......... $ 1,879 $ 1,879 $ 16
======== ========
Long-term debt, less current portion......................... $ 712 $ 712 $ 112
-------- --------
Stockholders' equity(2):
Convertible Preferred Stock, $.001 par value; 10,000,000
shares authorized, actual; 5,000,000 authorized pro
forma and as adjusted; 7,937,182 shares issued and
outstanding, actual; no shares issued and outstanding,
pro forma and as adjusted............................... 7 -- --
Common Stock, $.001 par value; 30,000,000 shares
authorized, actual; 35,000,000 pro forma and as
adjusted; 4,793,918 shares issued and outstanding,
actual; 12,731,100 shares issued and outstanding, pro
forma; 14,931,100 shares issued and outstanding, as
adjusted................................................ 5 12 14
Additional paid-in capital.............................. 16,165 16,165 41,861
Notes receivable from stockholders...................... (844) (844) (844)
Accumulated deficit.......................................... (14,434) (14,434) (14,434)
-------- --------
Total stockholders' equity......................... 899 899 26,597
-------- --------
Total capitalization............................... $ 1,611 $ 1,611 $ 26,709
======== ========
</TABLE>
- ---------------
(1) Gives effect to the conversion of all outstanding Preferred Stock into
Common Stock.
(2) Excludes 1,857,698, 40,624 and 100,000 shares issuable upon exercise of
outstanding options, warrants and purchase rights at weighted average
exercise prices of $4.90, $8.00 and $8.00 per share, respectively. Excludes
an additional 549,577 shares reserved for issuance under the Company's stock
option and purchase plans. See "Management -- Stock Plans" and "Description
of Capital Stock" and Notes 7 and 8 of Notes to Consolidated Financial
Statements.
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was approximately $899,000, or $0.07 per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the net tangible
book value (tangible assets less total liabilities) of the Company by the number
of shares of Common Stock outstanding at that date, including shares of Common
Stock from the conversion of the Preferred Stock immediately prior to the
consummation of the offering. Without taking into account any other changes in
the net tangible book value after September 30, 1997, other than to give effect
to the receipt by the Company of the estimated net proceeds from the sale of
2,200,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $13.00 per share (after deduction of
underwriting discounts and estimated offering expenses payable by the Company),
the pro forma net tangible book value of the Company as of September 30, 1997,
would have been $26.6 million, or $1.78 per share, respectively. This represents
an immediate increase in the pro forma net tangible book value of $1.71 per
share to existing stockholders and an immediate dilution of $11.22 per share to
new public investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $13.00
Pro forma net tangible book value per share before offering....... $0.07
Increase per share attributable to new public investors(1)........ 1.71
-----
Pro forma net tangible book value per share after offering.......... 1.78
------
Dilution per share to new public investors.......................... $11.22
======
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1997, the difference between existing stockholders and purchasers of shares in
the offering (at an assumed initial public offering price of $13.00 per share
and before deducting underwriting discounts and estimated offering expenses
payable by the Company) with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid or payable and the
average price per share paid or payable:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)......... 12,731,100 85.3% $14,518,000 33.7% $ 1.14
New public investors(2).......... 2,200,000 14.7 28,600,000 66.3 $ 13.00
---------- ----- ----------- -----
Total.................. 14,931,100 100.0% $43,118,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Excludes 1,857,698, 40,624 and 100,000 shares issuable upon exercise of
outstanding options, warrants and purchase rights at weighted average
exercise prices of $4.90, $8.00 and $8.00 per share, respectively. Excludes
an additional 549,577 shares reserved for issuance under the Company's stock
option and purchase plans. To the extent that options, warrants or purchase
rights are exercised and shares of Common Stock are issued, there will be
further dilution to new investors. See "Management -- Stock Plans" and
"Description of Capital Stock" and Notes 7 and 8 of Notes to Consolidated
Financial Statements.
(2) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to 12,531,100 shares, or approximately
83.9% of the total shares of Common Stock outstanding after this offering,
and will increase the number of shares held by new investors to 2,400,000,
or approximately 16.1%, of the total shares of Common Stock outstanding
after the offering. See "Principal and Selling Stockholders."
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data presented below, for each of
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 and the selected consolidated balance sheet data as of
December 31, 1995 and 1996 and September 30, 1997 are derived from, and are
qualified by reference to, the consolidated financial statements of the Company
included elsewhere in this Prospectus. The selected consolidated balance sheet
data as of December 31, 1994 are derived from the audited consolidated financial
statements of the Company not included herein. The consolidated statement of
operations data for the period from October 20, 1993 (inception) to December 31,
1993 and the selected balance sheet data as of December 31, 1993 are derived
from unaudited consolidated financial statements of the Company not included
herein. The consolidated statement of operations data for the nine months ended
September 30, 1996 are derived from unaudited consolidated financial statements
included elsewhere in this Prospectus. The unaudited consolidated financial
statements include all adjustments that the Company considers necessary for a
fair presentation of the financial position and results of operations for these
periods. The consolidated statement of operations data for the nine months ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1997. The data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
OCTOBER 20, 1993 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30
DECEMBER 31, ------------------------- ----------------
1993 1994 1995 1996 1996 1997
---------------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................. $ -- $ -- $ 3,670 $12,093 $ 8,151 $11,123
Cost of revenues......................... -- -- 2,874 6,547 4,711 6,477
---- ------- ------- ------- ------- -------
Gross profit........................... -- -- 796 5,546 3,440 4,646
---- ------- ------- ------- ------- -------
Operating expenses:
Research and development............... 16 1,208 2,582 2,930 2,089 3,749
Selling, general and administrative.... 56 1,419 3,603 4,886 3,367 4,978
---- ------- ------- ------- ------- -------
Total operating expenses(1).... 72 2,627 6,185 7,816 5,456 8,727
---- ------- ------- ------- ------- -------
Loss from operations..................... (72) (2,627) (5,389) (2,270) (2,016) (4,081)
Other income (expense), net.............. -- 46 79 27 16 (147)
---- ------- ------- ------- ------- -------
Net loss................................. $(72) $(2,581) $(5,310) $(2,243) $(2,000) $(4,228)
==== ======= ======= ======= ======= =======
Pro forma net loss per share(2).......... $ (0.17) $ (0.15) $ (0.31)
======= ======= =======
Shares used in computing pro forma net
loss per share(2)...................... 13,132 13,023 13,458
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- SEPT. 30,
1993 1994 1995 1996 1997
---- ------- ------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $405 $ 2,699 $ 2,787 $ 676 $ 1,506
Working capital........................... 417 2,410 1,452 1,046 301
Total assets.............................. 492 2,998 4,516 5,432 7,389
Total debt................................ -- -- 392 1,312 2,591
Accumulated deficit....................... (72) (2,653) (7,963) (10,206) (14,434)
Total stockholders' equity................ 465 2,619 2,017 2,074 899
</TABLE>
- ---------------
(1) Operating expenses include non-cash employee stock compensation charges of
$339,000 for the year ended December 31, 1996 and $183,000 and $1.0 million
for the nine month periods ended September 30, 1996 and 1997, respectively.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the computation of pro forma net loss per share. Supplemental net loss
per share assuming $2.4 million in outstanding debt had been repaid at
January 1, 1996 or the date of issuance of the debt, if later, and assuming
that an equivalent amount was financed through the sale of equity securities
at the assumed offering price of $13.00 (less underwriting discounts and
commissions), would be $(0.17) for the year ended December 31, 1996 and
$(0.15) and $(0.30) for the nine month periods ended September 30, 1996 and
1997, respectively.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
First Virtual provides a high quality, cost-effective video networking
solution that integrates video with voice and data, while leveraging existing
network infrastructures. The Company was incorporated in California in October
1993 and reincorporated in Delaware in December 1997. The Company first shipped
its video networking products in 1995.
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company has incurred net losses
since inception and, as of September 30, 1997, had an accumulated deficit of
$14.4 million. The Company has in the past, and may from time to time in the
future, experience quarterly fluctuations in revenues and operating results. The
Company adopted a strategy in the fourth quarter of 1996 to focus on a limited
number of substantial end-user projects, rather than on the implementation of a
large number of evaluation and demonstration projects. The initial impact of
this change of strategy was a decrease in revenues from $3.9 million in the
fourth quarter of 1996 to $2.7 million in the first quarter of 1997. The
Company's focus on a limited number of large end-user projects has resulted in,
and may in the future result in, significant fluctuations in quarterly revenues.
Furthermore, a significant portion of the Company's expenses are fixed in
advance. If revenues are below Company expectations in any given period, the
Company's inability to adjust operating expenses in response to such decreased
revenues would affect operating results.
Gross margins are significantly influenced by a variety of factors,
including product mix, percentage of revenues derived from OEMs versus
distributors or resellers, pricing within the video networking industry and the
prices of significant components used in the Company's products. The Company
generally recognizes higher margins from video products and value added switch
modules and lower margins from base model V-Switches and adapter cards. The
Company's gross margins have fluctuated from period to period and are expected
to continue to do so in the future.
The Company sells its products worldwide through OEM partners, distributors
and resellers. The Company established strategic relationships with Bay Networks
in November 1995 and Nortel in May 1997. In November 1995, the Company granted
Bay Networks the worldwide non-exclusive right to market and sell certain of the
Company's products. In September 1996, the Company granted Bay Networks the
worldwide non-exclusive right to market and sell all of the Company's current
and future products, under both the Company's and Bay Networks' names. In May
1997, the Company granted similar rights to Nortel to market the Company's
products under the Company's name. Sales through Bay Networks represented 29%
and 57% of the Company revenues in 1996 and for the nine months ended September
30, 1997, respectively. Sales by Nortel have not been significant to date. The
Company also plans to enter into additional distribution agreements. See "Risk
Factors -- Dependence on Distribution Relationships."
The Company recognizes revenues upon shipment of products to customers,
provided that no significant obligations remain and collectability is probable.
The OEM partners generally have no rights of return and have historically
carried limited amounts of inventories of the Company's products. Agreements
with certain distribution partners contain price protection provisions and
certain return rights. Accordingly, the Company records a provision for
estimated future returns and
21
<PAGE> 23
price protection upon revenue recognition. To date, returns and charges for
price protection have not been material.
Direct sales from shipments to customers outside of North America accounted
for approximately 36.0% and 22.0% of the Company's revenues in 1996 and for the
nine months ended September 30, 1997, respectively. The Company expects that
direct sales from shipments to customers outside of North America will continue
to represent a significant portion of its future revenues. In addition, the
Company believes that a small portion of its sales through Bay Networks and
other distribution partners is sold to international end-users. Revenues from
the Company's international operations are subject to various risks. To date,
the Company has not engaged in any foreign currency hedging activity. See "Risk
Factors -- Risk of International Sales and Currency Fluctuations."
The Company outsources certain functions to independent service providers.
The Company's products are manufactured primarily by Tanon and accounting and
data processing functions are performed by KPMG.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statement of operations as a percentage of total revenues for the
period indicated. The table does not include data for the year ended December
31, 1994 because no revenue was recognized. The data set forth below should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ -----------------
1995 1996 1996 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................. 78.3 54.1 57.8 58.2
----- ---- ---- ----
Gross margin............................... 21.7 45.9 42.2 41.8
----- ---- ---- ----
Operating expenses:
Research and development................... 70.4 24.2 25.6 33.7
Selling, general and administrative........ 98.2 40.4 41.3 44.8
----- ---- ---- ----
Total operating expenses........... 168.6 64.6 66.9 78.5
----- ---- ---- ----
Loss from operations......................... (146.9) (18.7) (24.7) (36.7)
Other income (expense), net.................. 2.2 0.2 0.2 (1.3)
----- ---- ---- ----
Net loss..................................... (144.7)% (18.5)% (24.5)% (38.0)%
===== ==== ==== ====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Revenues. Revenues increased 36.5%, from $8.2 million in the nine months
ended September 30, 1996 to $11.1 million in the nine months ended September 30,
1997. The increase in revenues resulted from wider acceptance of the Company's
products as a result of marketing efforts of the Company and its strategic
partners. Sales through Bay Networks increased 156.0%, from $2.5 million in the
nine months ended September 30, 1996 to $6.4 million in the nine months ended
September 30, 1997.
Gross Profit. Gross profit consists of revenues less the cost of revenues,
which consists primarily of costs associated with the manufacture of the
Company's products by Tanon and other manufacturers and related costs of
freight, inventory obsolescence, royalty and warranty. These manufacturers
procure the majority of materials, except for certain key components which the
Company purchases from third party vendors.
22
<PAGE> 24
Gross profit increased 35.1%, from $3.4 million in the nine months ended
September 30, 1996 to $4.6 million in the nine months ended September 30, 1997.
Gross margin (gross profit as a percentage of revenues) remained relatively
constant, decreasing from 42.2% to 41.8% for those periods.
Research and Development. Research and development expenses consist
primarily of personnel costs, cost of contracts and outside consultants,
supplies and material expenses, equipment depreciation and overhead costs.
Research and development expenses increased 79.5%, from $2.1 million in the nine
months ended September 30, 1996 to $3.7 million in the nine months ended
September 30, 1997. The increase was the result of hiring additional engineers
and consultants for product development and non-cash compensation charges
relating to the Company's employee stock plans, which increased from $91,000 in
the nine months ended September 30, 1996 to $457,000 in the nine months ended
September 30, 1997. The Company believes that research and development expenses
will continue to increase for the foreseeable future. However, such expenses
will fluctuate depending on various factors, including the status of development
projects.
Selling, General and Administrative. Selling, general and administrative
expenses include personnel and related overhead costs for sales, marketing,
finance, human resources and general management. Such expenses also include
costs of outside contractors, advertising, trade shows and other marketing and
promotional expenses. Selling, general and administrative expenses increased
47.8%, from $3.4 million in the nine months ended September 30, 1996 to $5.0
million in the nine months ended September 30, 1997. As a percentage of total
revenues, selling, general and administrative expenses increased from 41.3% to
44.8% for the same periods. The increase was the result of expanding the
Company's sales and marketing infrastructure, in addition to higher marketing
and selling costs and to non-cash compensation charges relating to the Company's
employee stock plans, which increased from $92,000 in the nine months ended
September 30, 1996 to $552,000 in the nine months ended September 30, 1997. The
Company anticipates that selling, general and administrative expenses will
continue to increase in absolute dollars in the foreseeable future as the
Company expands its selling and marketing efforts and incurs the administrative
costs associated with being a publicly-held company.
Income Taxes. As of September 30, 1997, the Company had net operating loss
carryforwards for federal tax purposes of approximately $11.7 million. These
carryforwards, if not utilized to offset future taxable income, will expire at
various dates beginning in 2008. Under the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, the amount of and benefit from
the net operating losses that can be carried forward may be impaired or limited
in certain circumstances. See Note 5 of Notes to Consolidated Financial
Statements. As of September 30, 1997, the Company had gross deferred tax assets
of approximately $5.8 million. The Company has incurred losses since inception.
The Company believes that, based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that it will not be able to realize its deferred tax assets, and thus a full
valuation reserve has been recorded as of September 30, 1997.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Revenues. The Company had no revenues from inception through the year ended
December 31, 1994. The Company's revenues increased from $3.7 million in 1995 to
$12.1 million in 1996. The increase primarily resulted from development of the
market for, and increased acceptance of, the Company's products.
Gross Profit. Gross profit increased from $796,000 in 1995 to $5.5 million
in 1996. Gross margin increased from 21.7% in 1995 to 45.9% in 1996. The
increase in gross profit and gross margin resulted from cost reductions
associated with higher volume of product shipments. Additionally, gross profit
and gross margin in 1995 were adversely affected by higher costs associated with
initial production runs of the Company's products.
Research and Development. Research and development expenses increased from
$1.2 million in 1994 to $2.6 million in 1995 and $2.9 million in 1996. The
increases in research and development
23
<PAGE> 25
expense during each of the three years were primarily a result of increased
headcount and associated expenses incurred to develop, expand and enhance the
Company's products. Research and development expenses for 1996 also include
non-cash compensation charges relating to the Company's employee stock plans of
$174,000.
Selling, General and Administrative. Selling, general and administrative
expenses increased from $1.4 million in 1994 to $3.6 million in 1995 and $4.9
million in 1996. The increases in selling, general and administrative expenses
during each of the three years were primarily due to an increase in headcount,
and in marketing, advertising, travel and related overhead costs incurred by the
Company to manage and support its efforts to develop the market for its products
and support its growth. Selling, general and administrative expenses for 1996
also include non-cash compensation charges relating to the Company's employee
stock plans of $165,000.
Income Taxes. No provision for income taxes has been recorded, as the
Company has incurred losses since inception.
QUARTERLY RESULTS
The following table sets forth selected unaudited consolidated statement of
operations data, in dollars and as a percentage of revenues, for each of the
seven quarters in the period ended September 30, 1997. The data set forth has
been derived from unaudited consolidated financial statements of the Company and
has been prepared on the same basis as the audited consolidated financial
statements contained in this Prospectus, and in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information for the periods presented.
Such statement of operations data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The Company's results of operations have fluctuated, and are likely
to continue to fluctuate, significantly from quarter to quarter. Results of
operations in any period should not be considered indicative of the results to
be expected in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 1,569 $2,483 $ 4,099 $3,942 $ 2,730 $ 3,413 $ 4,980
Cost of revenues....................... 907 1,386 2,418 1,836 1,577 1,898 3,002
------- ------- ------- ------- ------- ------- -------
Gross profit......................... 662 1,097 1,681 2,106 1,153 1,515 1,978
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 619 712 758 841 953 1,252 1,544
Selling, general and
administrative..................... 1,070 1,201 1,096 1,519 1,350 1,598 2,030
------- ------- ------- ------- ------- ------- -------
Total operating expenses(1)... 1,689 1,913 1,854 2,360 2,303 2,850 3,574
------- ------- ------- ------- ------- ------- -------
Loss from operations................... (1,027) (816) (173) (254) (1,150) (1,335) (1,596)
Other income (expense), net ........... 5 11 0 11 (16) (35) (96)
------- ------- ------- ------- ------- ------- -------
Net loss............................... $(1,022) $ (805) $ (173) $ (243) $(1,166) $(1,370) $(1,692)
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Operating expenses include non-cash employee stock compensation charges of
$25,000, $56,000, $102,000, $156,000, $139,000, $112,000, and $758,000
during the quarters ended March 31, 1996, June 30, 1996, September 30, 1996,
December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997,
respectively.
24
<PAGE> 26
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 57.8 55.8 59.0 46.6 57.8 55.6 60.3
----- ----- ----- ----- ----- ----- -----
Gross margin......................... 42.2 44.2 41.0 53.4 42.2 44.4 39.7
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and development............. 39.5 28.7 18.5 21.3 34.9 36.7 31.0
Selling, general and
administrative..................... 68.2 48.4 26.7 38.5 49.5 46.8 40.8
----- ----- ----- ----- ----- ----- -----
Total operating expenses...... 107.7 77.1 45.2 59.8 84.4 83.5 71.8
----- ----- ----- ----- ----- ----- -----
Loss from operations................... (65.5) (32.9) (4.2) (6.4) (42.2) (39.1) (32.1)
Other income (expense), net............ 0.3 0.4 -- 0.3 (0.6) (1.0) (1.9)
----- ----- ----- ----- ----- ----- -----
Net loss............................... (65.2)% (32.5)% (4.2)% (6.1)% (42.8)% (40.1)% (34.0)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Revenues increased during each of the quarters in 1996 due to increased
shipments of the Company's products. The Company's quarterly revenues are
affected by the size and timing of orders received by customers. During the
fourth quarter of 1996, the Company adopted a strategy of focusing on a limited
number of substantial end-user projects, rather than on sales of a large number
of demonstration projects. The initial impact of the change of strategy was a
decrease in revenues from $3.9 million in the quarter ended December 31, 1996 to
$2.7 million in the quarter ended March 31, 1997. Revenues increased during the
second and third quarters of 1997, due primarily to higher revenues from large
end-user projects sold through Bay Networks in the OEM channel. Gross margins
ranged from 39.7% to 53.4% during the periods presented, due primarily to
product mix and mix of sales through OEM versus distributors. In particular,
during the quarter ended December 31, 1996, the gross margin increased as a
result of sales to end-users of high margin products. During the quarter ended
September 30, 1997, gross margins were adversely impacted by a higher
concentration of OEM sales and the timing of shipments of certain lower margin
products. Operating expenses generally increased during the periods presented
due to costs associated with increased headcount and marketing and selling
expenses incurred by the Company.
The Company has in the past experienced, and believes that it may from time
to time experience, fluctuations in revenues and operating results from quarter
to quarter due to a combination of factors, many of which are outside of the
Company's control. See "Risk Factors -- Fluctuations in Operating Results."
STOCK BASED COMPENSATION
With respect to certain stock options and restricted stock grants made
during 1996 and the nine months ended September 30, 1997, the Company is
recognizing compensation charges of $2.1 million. The Company recognized
$339,000 and $1.0 million of the compensation charges in 1996 and the nine
months ended September 30, 1997, respectively, and will recognize the remainder
over the related vesting period. The future compensation charges are subject to
reduction for any employee who terminates employment prior to the expiration of
such employee's vesting period. See Note 8 of Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception through September 30, 1997, the Company has financed its
operations primarily through private placements of equity securities, raising an
aggregate of approximately $13.8 million, net of issuance costs. As of September
30, 1997, the Company had cash and cash equivalents of $1.5 million and working
capital of $301,000.
The Company has used cash in its operating activities primarily to fund
losses of $14.4 million incurred through September 30, 1997, and to finance its
working capital needs.
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<PAGE> 27
The Company has not made significant outlays for capital expenditures since
inception because of its strategy to outsource manufacturing and certain other
functions. From inception through September 30, 1997, the Company's capital
expenditures aggregated $1.3 million and have consisted primarily of purchases
of computers, related equipment, furniture and fixtures. The Company currently
anticipates that capital expenditures in the remainder of 1997 will be less than
$500,000.
The Company has a working capital line of credit with a bank which provides
for borrowings of up to $3.0 million. Borrowings under the line of credit bear
interest at the bank's prime rate (8.5% at September 30, 1997) plus 0.5%, are
secured by certain assets of the Company and are limited to certain percentages
of the Company's receivable and inventory balances. As of September 30, 1997,
borrowings under this line aggregated $1.3 million and an additional
approximately $800,000 was available to the Company. The Company currently
expects to repay approximately $2.4 million of the outstanding debt as of
September 30, 1997, including the $1.3 million of borrowings under this line,
from the proceeds of this offering. The line expires in April 1998, and requires
the Company to comply with certain financial ratios and covenants and limits the
Company's ability to pay dividends. As of September 30, 1997, the Company was
not in compliance with certain financial covenants contained in the line of
credit agreement. The bank waived the Company's noncompliance with these
covenants as of September 30, 1997.
The Company believes that the net proceeds from this offering, together
with existing sources of liquidity, will provide adequate cash to fund its
operations for at least the next twelve months. Thereafter, if cash generated by
operations is insufficient to satisfy the Company's liquidity requirements, the
Company may be required to sell additional equity or debt securities or increase
its lines of credit. The sale of additional equity or convertible debt
securities may result in additional dilution to the Company's stockholders.
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<PAGE> 28
BUSINESS
OVERVIEW
First Virtual Corporation provides a high quality, cost-effective video
networking solution that integrates video with voice and data. The Company
combines its expertise in real-time network systems, network quality of service
("QoS") and video technology to extend QoS across existing network
architectures, such as ATM, Ethernet, ISDN, T1/E1 and xDSL. Its easy-to-use
video networking systems are scaleable to multiple locations and more than a
thousand users. First Virtual's broad product line enables it to deliver
end-to-end solutions for a wide range of customer applications, such as distance
learning, telemedicine, video marketing and video manufacturing. The Company
believes that high quality video over networks can enhance the efficiency with
which organizations work and learn.
The Company is driven by its customers' needs for the three critical
aspects of high quality video networking: Conferencing, Caching, and Casting.
First Virtual's conferencing products enable true video collaboration between
desktop systems and traditional videoconferencing equipment from vendors such as
PictureTel; its caching products facilitate the use of high quality stored video
on networks; and its casting products enable broadcast of high quality live
video on networks. At the center of the Company's product family is its MOS
software, which is designed to guarantee network resources for real-time video,
voice and data applications on any QoS-capable network. In addition, First
Virtual has recently licensed technology from IBM to allow the Company to enter
the broadcast quality video networking market.
The Company has global OEM relationships with Bay Networks and Nortel and
has established relationships with a number of VARs and systems integrators,
including Bell Atlantic Network Integration, BT, EDS and IBM Global Services.
The Company has also built a network of international distributors to enable it
to sell, service and support its products in more than 40 countries worldwide.
The Company's solutions have been deployed by a broad range of educational
institutions, corporations and governmental agencies, such as IBM (headquarters
facility in Armonk, New York); Peregrine Systems Inc. (headquarters and multiple
manufacturing facilities); Shanghai Infoport (government metropolitan area
network); and Virginia Tech (distance learning facilities).
INDUSTRY BACKGROUND
Improved communications technology is driving today's global economy by
making accurate information readily available to individuals and groups, often
at distant locations. Enterprises must deploy their skilled personnel
effectively to compete in a marketplace that demands rapid product development,
close collaboration on marketing and sales, and extensive training. While voice
mail, e-mail and file sharing have become essential business and educational
tools, many situations both within and outside an organization still require
face-to-face communication. In today's global economy, business travel requires
progressively more time and has become pervasive for staff at many levels,
particularly for multinational corporations. Educational institutions,
corporations and government agencies are seeking to eliminate the high cost and
time requirements of travel, through the increased use of video. These
organizations increasingly connect individuals through videoconferencing and use
stored and live video content delivered to multiple locations, to give personnel
ready access to fully featured, visual information.
High quality video networking has the ability to provide the benefits of
enhanced communication in a broad range of environments. Universities and local
school districts can leverage video networking to deliver stored instructional
content to students at their desks. Hospitals using high quality video
networking can deploy telemedicine to enable a team of doctors in different
locations to diagnose and treat patients remotely. Sales professionals with
access to high quality video networking systems can deliver potent video-enabled
presentations to prospective customers in many cities in a single day.
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<PAGE> 29
Manufacturing companies can achieve efficiencies by offering workers on the
factory floor just-in-time video training focused on a single part or assembly
process.
While the utility of video has generally been recognized, "video
networking" has not yet become widespread, despite the investment in local and
wide area networking equipment, primarily due to quality and ease-of-use
constraints. To date, existing network architectures have constrained the
delivery of high quality live and stored video. For example, Ethernet, Token
Ring and Frame Relay networks were designed to transport data which can be
delivered after a time lag, such as printing and e-mail. When used to deliver
real-time video traffic, these networks typically transmit blurred images
without life-like motion. In addition, video traffic on these networks can
significantly disrupt the transport of traditional data traffic. Technologies
such as Ethernet cannot distinguish between real-time streams of video and
bursts of data packets, thus limiting the ability of users on these networks to
simultaneously access high quality live video while accessing data applications.
Network managers responding to these architectural limitations implemented
high quality video delivery over a separate, parallel network designed for
video, typically using a wide-area transmission technology called ISDN. ISDN
enabled the evolution of traditional videoconferencing, using equipment such as
room-systems by PictureTel and multipoint conferencing units ("MCUs") by
VideoServer, Inc. ("VideoServer"). However, the deployment of ISDN within the
customer premise has proven inflexible because it is difficult to integrate with
other network architectures. ISDN is also costly to implement, as it often
requires new wiring and a multiplexing device for each video-enabled
workstation. In addition, ISDN has been difficult to use for broadcast-quality
video because it does not scale to the required transfer rates.
To deliver multiple types of high quality video across their networks,
corporations, government and educational institutions have begun to implement
networks that support QoS. A network based on an architecture that supports QoS
can simultaneously carry multiple video streams, as well as voice and data. The
only commercially available technology that enables comprehensive QoS is ATM,
which was developed to allow a single network to concurrently transmit
information with widely varying QoS requirements. An ATM-based network can
dynamically allocate the network resources required by video, voice and data
traffic to ensure that they do not interfere with one another. However, early
ATM-based networking equipment could not extend QoS characteristics to other
network architectures, such as Ethernet and ISDN.
To achieve broad market acceptance, a video networking solution based on
QoS must offer high-quality videoconferencing and access to live and stored
video while seamlessly integrating voice and data traffic. A cost-effective
solution must also be scaleable, offer ease of use, and leverage an
organization's existing investment in videoconferencing equipment and in
Ethernet, ISDN and other network infrastructures.
FIRST VIRTUAL'S SOLUTION
First Virtual provides a high quality, cost-effective video networking
solution that integrates video with voice and data, while leveraging existing
network infrastructures. The Company combines its expertise in real-time network
systems, network quality of service and video technology to extend QoS across
existing network architectures, including ATM, Ethernet, ISDN, T1/E1 and xDSL.
Its easy-to-use video networking systems are scaleable to multiple locations and
more than a thousand users. First Virtual's broad product line enables it to
deliver end-to-end solutions for a wide range of customer applications, such as
distance learning, telemedicine, video marketing and video manufacturing. A
critical element of First Virtual's product family is its MOS software, designed
to guarantee network resources for real-time video applications on any QoS
capable network in the presence of voice and bursts of data packets. The Company
is driven by its customers' needs for the three critical aspects of high quality
video networking: Conferencing, Caching, and Casting.
Conferencing -- the ability to meet face-to-face and in real-time over the
network. First Virtual's video networking products provide scaleable,
cost-effective, high quality video collaboration by
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allowing the efficient connection of desktop systems and traditional
videoconferencing equipment, from vendors such as PictureTel, Zydacron,
Inc. ("Zydacron") and VTEL Corporation ("VTEL"), over an ATM network.
Caching -- the ability to use high quality stored video over the network,
also called video on demand. Caching is the cornerstone of all distance
learning applications. First Virtual's caching products allow concurrent
access to high quality stored video on ATM and Ethernet networks.
Casting -- the ability to broadcast high quality live video over the
network. First Virtual's casting products enable applications such as
real-time broadcast delivery of lectures to students at multiple desktops
across ATM and Ethernet networks.
FIRST VIRTUAL'S STRATEGY
First Virtual's strategy is to enhance its leadership position in high
quality, cost-effective, video networking solutions for educational, corporate
and government environments. The Company believes that high quality video over
networks can enhance the efficiency with which organizations work and learn. The
key elements of the Company's strategy are:
Extend leadership position in video networking. First Virtual intends to
extend its leadership position as a provider of end-to-end systems for the
delivery of high quality video over networks that support QoS. By concentrating
on its core competencies in real-time network systems, QoS and video technology,
the Company believes it has the speed and flexibility to remain at the forefront
of high quality video networking and continue to gain market share as the market
expands.
Extend technology base. First Virtual leverages current LAN and WAN
infrastructures to provide a solution that is easy to deploy, easy to use and
cost-effective. The Company's MOS software and system products allow the large
installed base of videoconferencing equipment from manufacturers such as
PictureTel to operate on a wide range of transmission standards such as ISDN,
T1/E1 and ATM. First Virtual's products empower network managers to extend QoS
across multiprotocol networks without changes to interface cards or wiring. The
Company is broadening its product line to support Ethernet/IP networks and
MPEG-II systems for broadcast quality applications.
Leverage and broaden strategic relationships. To penetrate the market
quickly, First Virtual combines its core competencies in rapid product
development and deployment with the resources of industry leaders to market,
implement and support complex video applications on a global basis. The Company
has established successful relationships with networking vendors, including Bay
Networks, IBM and Nortel, and videoconferencing vendors, such as PictureTel,
VideoServer, VTEL, and Zydacron. The Company has an active program to establish
additional OEM, co-developer, reseller and co-marketing relationships with
technology leaders worldwide.
Maintain focus on large installations. First Virtual has been successful at
focusing its selling efforts on large installations for applications such as
learning in the higher education, K-12 and corporate marketplaces. These
applications represent an attractive market segment due to their growth rates,
well-developed network infrastructures and desire to leverage existing personnel
resources. The Company's marketing strategy is also oriented towards other
vertical markets which share these characteristics, such as telemedicine, video
marketing and just-in-time training. The Company expects to deliver video
networking solutions efficiently within each vertical market by replicating
successful installations for similar end-users.
Expand global distribution presence. First Virtual enjoys the benefit of
the global distribution reach of its strategic partners, such as Bay Networks
and Nortel. The Company also has regional representatives which market and sell
its products in Europe and Asia, including companies such as BT, France Telecom,
Nippon Telegraph and Telephone Corporation ("NTT"), Telia AB in Sweden and
Telenor Online AS in Norway. The Company intends to continue to use a broad
variety of global distribution channels to introduce and maintain the presence
of its products in markets worldwide through a combination of OEMs, VARs and
systems integrators.
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FIRST VIRTUAL'S PRODUCTS AND TECHNOLOGY
First Virtual offers an extensive line of products for the implementation
of the three core aspects of video networking: Conferencing, Caching and
Casting. The Company's conferencing products enable real-time video
collaboration between desktop systems and traditional videoconferencing
equipment; its caching products facilitate the use of high quality stored video
on networks; and its casting products enable broadcast of high quality live
video on networks. At the center of First Virtual's product family is its MOS
software, which is designed to guarantee network resources for real-time video
applications on any QoS-capable network. The following diagram illustrates a
typical implementation of First Virtual's products and demonstrates the breadth
of the Company's product line.
LOGO
CONFERENCING PRODUCTS
V-Room. The V-Room attaches high-end room-system videoconferencing
equipment, such as the PictureTel Concorde, directly to an ATM network. The
ability to attach H.320 videoconferencing equipment directly to an ATM switch
using switched virtual circuits is a significant capability of the Company. The
V-Room system also enables connectivity of MCUs made by manufacturers such as
Lucent and BT to connect to an ATM network. The V-Room is available as a
stand-alone unit or as a module for the V-Switch.
V-NIC. The V-NIC is a 25Mb/s ATM interface card designed to attach both
desktop and group-system H.320 videoconferencing units to an ATM network. The
V-NIC can be used in data-only environments, but is typically used with the
Company's Multi-Vendor Interface Protocol ("MVIP")
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daughter cards to attach a videoconferencing system to the V-NIC. First Virtual
has developed specific connectivity solutions for the majority of the
commercially available videoconferencing systems, including those offered by
Nortel, PictureTel, VCON Telecommunications Ltd., VTEL and Zydacron.
V-MCU. The V-MCU is a highly specialized ATM attachment system specifically
architected to allow the connection of VideoServer's MCU directly to an ATM
network. The V-MCU enables more than two locations to participate in the same
videoconferencing session.
V-Gate. The V-Gate joins videoconferencing systems connected via an ATM
network to an ISDN network. Connectivity to ISDN provides a widely accessible,
cost effective means of communicating with videoconferencing participants on
remote networks. The V-Gate is able to operate at higher data rates required for
very high quality video networking. The V-Gate supports T1/E1 Primary Rate and
Basic Rate ISDN interfaces.
CACHING PRODUCTS
V-Cache. The V-Cache is a high capacity disk storage system designed to
stream stored MPEG-I and MPEG-II video across LANs and WANs. When connected
directly to an ATM network, the V-Cache can provide video streaming services to
both ATM and Ethernet desktop clients. The V-Cache can deliver up to 50
concurrent streams of MPEG-I video, with a low per-stream cost. The V-Cache is
sold in "Hours of Video," with pre-configured systems ranging from three hours
to 100 hours of MPEG-I video. The V-Cache's modular nature also enables First
Virtual to construct video storage systems with capacity of many hundreds of
hours.
MOS Client Software for the V-Cache. First Virtual's MOS client software
for the V-Cache includes V-Player and V-Recorder. The V-Player is used to
display video streams from the V-Cache. The V-Recorder is used to record video
to the V-Cache. The Company's MOS client software for V-Cache can be implemented
within both Microsoft Windows 95 and Windows NT as discrete applications or can
be executed within popular web browsers, such as Netscape Communications Inc.'s
("Netscape") Navigator and Microsoft's Internet Explorer.
V-Server. The V-Server is a web-server application designed to provide
simplified access to a "farm" of the Company's V-Caches. The V-Server provides
enhanced ease of use and transparent access to video content stored on a V-Cache
anywhere on the network.
CASTING PRODUCTS
V-Caster. The V-Caster is designed to transport high quality live video
across a LAN or WAN. The V-Caster supports NTSC (United States television
standard) or PAL (European television standard) video streams from external
sources such as a security camera, cable television or a commercial information
feed. The V-Caster transcodes analog video into either MPEG-I or MPEG-II digital
format for transport across an ATM network. The V-Caster is available in models
that support either one or three video "channels."
MOS Client Software for V-Caster. First Virtual's MOS client software for
V-Caster is the V-TV, which displays live video streams from the V-Caster. The
Company's MOS client software for V-Caster client applications can be
implemented within both Microsoft Windows 95 and Windows NT as discrete
applications or can be executed within popular web browsers, such as Netscape's
Navigator and Microsoft's Internet Explorer.
INFRASTRUCTURE PRODUCTS
V-Switch. The V-Switch is an ATM switching system based on a modular
chassis and targeted at workgroup and remote office environments. First Virtual
has developed a broad range of connectivity modules for the V-Switch in order to
connect video equipment to an ATM network in the presence of voice and bursts of
data packets.
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VSA-3000 V-NIC. The VSA-3000 is a low-cost ATM adapter card designed for
the IP video market.
PRODUCTS UNDER DEVELOPMENT
First Virtual is currently developing the following products to enable
delivery of high quality video on Ethernet/IP networks and broadcast quality
video on ATM networks.
V-Ether Module. The V-Ether is an Ethernet-to-ATM module for the V-Switch
intended to extend the QoS of ATM networks to Ethernet/IP clients. The V-Ether
is designed to provide high quality video from the Company's V-Cache and
V-Caster products to Ethernet desktop clients. First Virtual expects to ship the
V-Ether module in the first half of 1998.
V-Gate323. The V-Gate323 is designed to connect traditional
videoconferencing systems from manufacturers such as PictureTel, which use the
H.320 standard, and systems which support the emerging H.323 standard for
videoconferencing on TCP/IP networks, including Microsoft's NetMeeting 2.0. The
Company expects to ship the V-Gate323 in the first half of 1998.
Video Access Node ("VAN"). In October 1997, First Virtual entered into a
non-exclusive license agreement with IBM for IBM's VAN technology. This
agreement will enable the Company to develop the First Virtual Video Access
Node, an H.310 video networking system designed to allow very high-end video
collaboration using MPEG-II over ATM networks. The Company expects to ship the
VAN in the first quarter of 1998.
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The following chart summarizes First Virtual's currently available products
and products under development.
FIRST VIRTUAL'S PRODUCTS
<TABLE>
<CAPTION>
NAME FUNCTION SHIP DATE LIST PRICE FEATURES
- -------------------- ---------------------------- --------- ------------------ -------------------------------------
<S> <C> <C> <C> <C>
CONFERENCING
PRODUCTS
V-Room ATM to room-system 1997 $4,800 - $7,200 Supports H.320 room-systems on V.35
videoconferencing and X.21 interfaces. Supports H.320
connectivity MCU's from Lucent, BT and PictureTel.
V-NIC ATM Network Interface Card 1994 $495 - $6,000 Supports H.320 systems including
for attaching desktop/group- PictureTel: Live 100, Live 50, Live
system videoconferencing 200p, Venue 2000 VTEL: TC, LC,
units to an ATM network Smartstation Zydacron: Z240, Z250,
Z350 VCON: Armada Cruiser 100, 150
Nortel: Symposium. Supports H.323
systems including Zydacron: Z360
PictureTel: LiveLan 3.0 Microsoft:
NetMeeting 2.0.
V-MCU ATM to Multipoint 1997 $9,000 Supports the VideoServer range of
Conferencing Unit multipoint conferencing units.
connectivity
V-Gate ISDN to ATM connectivity 1995 $12,600 - $14,400 Supports simple access between ATM
and ISDN at a range of speeds
including 384Kb/s, 768Kb/s and
1152Kb/s; and T/E1 PRI, BRI physical
interfaces.
- --------------------
CACHING PRODUCTS
V-Cache High speed disk storage 1995 $9,000 - $108,000 Supports MPEG-I and MPEG-II on ATM
system for video content and Ethernet clients for video-
on-demand applications.
MOS Client Software Stored video-on-demand 1995 $300 - $14,400 Supports display of video-on-demand
application software streams through the V-Player
application for Microsoft Windows 95
and NT. Supports the recording of
videoconferences to the V-Cache via
V-Recorder application.
V-Server Web server application for 1997 $10,000 Supports location-independent access
browser-based V-Cache "farm" to video content via a web browser.
access Enhances V-Cache ease of use.
- ---------------------------------------------------------------------------------------------------------------------
CASTING PRODUCTS
V-Caster Live video broadcast on 1996 $26,400 - $32,000 Supports delivery of live MPEG-I
(MPEG-I) networks video to ATM or Ethernet clients from
any NTSC or PAL source.
V-Caster (MPEG-II) Live video broadcast on 1997 $40,000 - $70,000 Supports delivery of live MPEG-II
networks video to ATM clients from any NTSC or
PAL source.
MOS Client Software Live video-on-demand 1995 $300 - $14,400 Supports display of live MPEG-I or
application software MPEG-II video via V-TV application.
</TABLE>
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FIRST VIRTUAL'S PRODUCTS (CONTINUED)
<TABLE>
<CAPTION>
NAME FUNCTION SHIP DATE LIST PRICE FEATURES
- -------------------- ------------------------ ------------- ------------------ -------------------------------------
<S> <C> <C> <C> <C>
INFRASTRUCTURE
PRODUCTS
V-Switch Switch system to connect 1995 $7,080 - $35,000 Supports modules for:
videoconferencing, ATM @ 25Mb/s
caching and casting ATM @ 155Mb/s
products ATM @ T1
Ethernet/SNMP Management
VSA-3000 ATM NIC System for IP 1997 $200 Supports WinSock-II and LANE.
video
- --------------------
PRODUCTS UNDER
DEVELOPMENT
V-Ether ATM to Ethernet module 1998 TBA Supports display of high quality
for V-Switch video on Ethernet clients.
V-Gate323 H.320 - H.323 1998 TBA Supports video conferencing between
connectivity gateway H.320 and H.323 systems. Supports
PictureTel LiveLan 3.0 and Microsoft
NetMeeting 2.0.
Video Access Node High-end video 1998 TBA Supports H.310 broadcast-quality
collaboration system video collaboration over ATM.
</TABLE>
The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation. New products may contain
undetected errors or defects and are subject to delays. See "Risk
Factors -- Rapid Technological Change; Dependence on New Products: and "-- Risk
of Product Defects."
CUSTOMERS AND APPLICATIONS
The Company believes that a significant growth area for its video
networking products is the "distance learning" marketplace in education,
government and business environments. First Virtual's products take advantage of
the QoS-capable networks being implemented in these environments to achieve high
quality video transmission. The Company believes that high quality video is
essential for the successful deployment of learning and training applications.
To date, the Company's products have been purchased for more than 15 video
networking installations for distance learning applications. Representative
distance learning installations include:
DISTANCE LEARNING INSTALLATIONS
<TABLE>
<S> <C>
UNITED STATES INTERNATIONAL
Government Gifu University (Japan)
Air National Guard Korean Primary School System
Army National Guard Monash University (Australia)
Universities Toulouse University (France)
Indiana University UKM University (Malaysia)
Old Dominion University
Virginia Tech
School Districts
Bassett, California
Elizabeth Forward, Pennsylvania
Los Angeles, California
</TABLE>
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In addition to distance learning, other applications for the Company's
products include telemedicine, video-enabled marketing and sales, and
just-in-time video training for manufacturing environments. The Company's
products are used by organizations in such diverse industries as airline,
banking, education, consumer products, government, health care, retail and
telecommunications, including the following representative end-users:
INDUSTRY INSTALLATIONS
<TABLE>
<S> <C>
British Airways plc Airline
BT Telecommunications
City of El Paso, Texas Law Enforcement
IBM Computer Systems
The Limited, Inc. Retail
NTT Telecommunications
Nortel Telecommunications
Peregrine Incorporated Automotive
Shanghai Infoport Government
</TABLE>
A Case Study: Video in Distance Learning
First Virtual recently sold a multi-site video network that enabled a major
university in the eastern United States to implement a "virtual classroom"
environment across a state-wide ATM network. The university had experienced
rapidly escalating communications costs due to the increasing use of data, voice
and video applications over a separate network for each type of traffic. The
move to an ATM network, made available by the university's local carriers,
enabled the university to deploy all applications on an integrated network at a
much lower cost. The university purchased video networking equipment from the
Company, including V-Switches, V-Rooms and V-NICs, as well as T1 WAN equipment,
at aggregate revenues to First Virtual of approximately $220,000. The Company's
products are being used to create a virtual classroom environment that links all
parts of the statewide campus, enabling delivery of live lectures to students
across an ATM network. First Virtual's equipment enables VTEL videoconferencing
equipment to operate at high data rates, providing very high quality video
transmission. Additionally, the university is currently investing in the
Company's V-Caster product to enable lectures to be stored and replayed across
the network.
A Case Study: Video in Manufacturing
A major United States auto parts manufacturer recently implemented a
multi-location, 1000-plus user video network to enable it to move faster than
its global competitors. The manufacturer implemented an extensive video network
based on the Company's V-Switch and V-NIC products, at aggregate revenues to
First Virtual of approximately $700,000. The auto parts manufacturing business
has experienced great pressure on its product cycle times, which have moved from
years to months in the last decade. The manufacturer implemented an extensive
ATM network based on the Company's V-Switch ATM infrastructure products to allow
simultaneous delivery of video and data. The Chief Executive Officer and other
executives of this company use First Virtual's video networking products to
collaborate face-to-face and make business decisions in real-time. This end-user
implemented an ATM infrastructure to allow video and data to be carried
simultaneously on the network without slowing data transfer or compromising
video quality. This customer is currently investing in First Virtual's V-Cache
products to enable its executives to make more compelling presentations and to
implement factory floor learning.
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MARKETING, SALES AND CUSTOMER SUPPORT
First Virtual markets its products to business customers, government users
and educational providers through its internal sales force and indirect sales
channels. The Company's internal video sales force directly qualifies and
stimulates end-user demand, while also managing the Company's strategic
relationships with its OEMs, VARs and systems integrators, using First Virtual's
video networking products. A large portion of the Company's sales to date have
been fulfilled through the Company's OEMs, including Bay Networks. Sales through
Bay Networks represented approximately 29% of the Company's total sales in 1996
and 57% in the nine months ended September 30, 1997. These OEMs in turn work
with leading systems integrators to install the Company's products. Systems
integrators qualified to install First Virtual's products include Bell Atlantic
Network Integration, BT, Clover Communications, Inc., EDS, France Telecom, GTE
Corporation and NTT.
The Company has a formal training program in place to train its OEMs' and
resellers' sales personnel. This program focuses on developing their ability to
feature First Virtual's video products as a key part of a differentiated
offering. First Virtual also highlights the potential for its OEMs and resellers
to use the Company's product to seed sales of the OEMs' and resellers'
respective core networking products.
In addition to its global OEM relationships with Bay Networks and Nortel,
the Company maintains a network of distributors in Europe and Asia licensed to
sell its products under the First Virtual name. The Company's international
distributors are known as First Virtual Japan, operated by Kanematsu
Corporation; First Virtual France, operated by Tekelec Airtronic Gmbh; and First
Virtual Asia, Korea and the United Kingdom, operated by private companies. In
the year ended December 31, 1996 and the nine months ended September 30, 1997,
approximately 36% and 22%, respectively, of the Company's sales were generated
from customers outside of North America.
First Virtual provides service and support to its customers through its
OEMs, distributors and resellers in more than 40 countries worldwide. The
Company employs a support model that trains its business partners to enable them
to identify and resolve basic problems (level one and level two support). The
Company provides level three technical support to its OEMs and VARs.
First Virtual's service strategy for a majority of its product line is
predicated on designing products with extensive diagnostic capabilities. These
remote diagnostic capabilities often allow the Company's Technical Support
Center personnel to cost-effectively service its products without requiring
on-site service visits. First Virtual generally warrants its products to be free
of defects in materials and workmanship for periods ranging from three months to
36 months from date of shipment. To date, warranty expense and product returns
have not been material.
RESEARCH AND DEVELOPMENT
Since its inception, First Virtual has recognized that a strong technical
base is essential to its long-term success and has made a substantial investment
in research and development. To date, the Company has aggressively brought a
wide range of products into the marketplace. First Virtual intends to make
substantial investments in product development and to participate in the
development of industry standards. The Company monitors changing customer needs
and works closely with its OEM partners, end-user customers and market research
organizations to track changes in the marketplace, including emerging industry
standards in both networking and video. The Company intends to maintain its
focus on broadening its product line to include emerging video technologies,
such as MPEG-II at the high end and IP video at the low end. As part of this
strategy, First Virtual's near term development efforts include commercial
introduction of the V-Ether module, V-Gate323 and First Virtual's VAN products.
The Company's research and development expenditures totaled $2.6 million,
$2.9 million and $3.7 million for the years ended December 31, 1995 and 1996,
and for the nine months ended September 30, 1997, respectively. As of September
30, 1997, 27 full-time employees were engaged in
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<PAGE> 38
research and product development. First Virtual performs its research and
product development activities at its headquarters. The Company also hires
engineers located in India on a contract basis from time to time. First Virtual
is seeking to hire additional skilled development engineers, which are currently
in short supply. The Company's business, operating results and financial
condition could be adversely affected it if encounters delays in hiring required
engineers.
COMPETITION
The video networking industry is becoming increasingly competitive. First
Virtual believes that its principal competitive advantage in the video
networking market is the Company's ability to provide easy to use,
cost-effective, high quality video networking solutions that integrate video
with voice and data, while leveraging existing network infrastructures. Working
at the intersection of the video and networking markets provides First Virtual
with the potential to establish strategic relationships with a wide range of
companies. However, this also results in competition from many companies in
certain segments of the video networking area.
As an end-to-end high quality ATM-based video networking solution, First
Virtual's products face actual and potential competition in different market
segments. The Company's most direct competitors also currently offer video
networking over ATM, including FORE and Newbridge. The Company's video
networking products also compete with systems based on other technologies, such
as the ISDN-based video networking products offered by Madge. First Virtual's
network infrastructure products, when sold by its distribution partners such as
Bay Networks, are used to compete with ATM-based infrastructure products sold by
companies such as Cisco and 3Com. In the videoconferencing area, the Company's
technology licensing agreement with IBM is intended to result in products which
may compete with products sold by companies such as Newbridge in the high-end
H.310 videoconferencing market. In video storage, the Company's V-Cache products
face competition from companies which offer high-performance servers that can
store video, such as SGI, Starlight, Sun and TNC. In the video broadcast area,
First Virtual's products may compete in the future with systems and software
products of companies which provide "streamed" video over IP/Ethernet networks,
such as Optivision, and Precept Software. The Company faces potential
competition from large companies which have products in related areas, such as
Microsoft and Intel. The Company could encounter new competition if companies
which distribute First Virtual's products, or whose videoconferencing equipment
are used together with the Company's products, develop or acquire video
networking technologies or products. There can be no assurance that the Company
will be able to compete successfully in this environment.
Many of the Company's actual and potential competitors have greater name
recognition; a larger installed base of networking products and strong
relationships with end users; more extensive engineering, manufacturing,
marketing and distribution capabilities; and greater financial, technological
and personnel resources than First Virtual. The networking industry is
undergoing a period of consolidation in which companies, including some of the
Company's competitors, are participating in business combinations, creating
competitors with larger market shares, customer bases, sales forces, product
offerings and technology and marketing expertise.
The Company's principal method of competition is product performance. To
compete effectively, First Virtual must continue to offer an end-to-end
solution, provide high-performance products which comply with applicable
standards and are easy to use, and expand its product distribution channels
domestically and internationally. There can be no assurance that the Company
will be able to compete effectively on these bases.
In addition, the Company expects price competition to escalate in the video
networking industry. Although First Virtual has rarely lowered product prices in
the past, anticipated competition may force it in the future to lower product
prices on a regular basis and add new products and features without increasing
prices. There can be no assurance that the Company will be able to compete
successfully in such a price competitive environment. If such pricing pressures
are not mitigated by cost reduction or changes in product mix, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "Risk Factors -- Competition; Industry Consolidation."
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<PAGE> 39
MANUFACTURING
First Virtual uses third-party manufacturers to perform materials planning,
production scheduling, mechanical assembly, board testing, system integration,
burn-in and final system testing of its products. The Company currently
outsources manufacturing to Tanon, Empac and Sanmina as turnkey manufacturers of
certain of its products. The Company's operations staff develops manufacturing
strategies and qualifies manufacturing processes and suppliers. First Virtual
and its contract manufacturers work together to reduce manufacturing costs and
to resolve quality control issues. The manufacturer ships the products directly
to the customer, without any further testing by the Company. First Virtual's
contract manufacturers are IS0 9002 qualified. The Company's manufacturing
strategy enables it to leverage the manufacturing capabilities of its
third-party manufacturers, while allowing the Company to focus on its core
competencies of rapid product development and deployment. If one or more of
First Virtual's manufacturers experiences quality or other problems, product
shipments by the Company may be delayed. The Company has experienced such delays
in the past and may in the future experience delays. If the Company is required
to find replacements for its manufacturers, such change in manufacturers could
result in short-term cost increases and delays in delivery, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. First Virtual maintains a safety stock of critical
components and reserve inventory, which would not be sufficient to meet
increases in demand occurring simultaneously with delayed deliveries from
manufacturers. There can be no assurance that the Company will be able to
negotiate acceptable arrangements with its existing or any future manufacturers,
or, if negotiated, that such arrangements will be on terms favorable to the
Company. See "Risk Factors -- Dependence on Third Parties for Manufacturing."
INTELLECTUAL PROPERTY
First Virtual believes that its future success depends primarily upon its
ability to rapidly bring new products to market to enable it to remain at the
forefront of high quality video networking. The Company's success and ability to
compete in the networking industry also depends, in part, upon its ability to
protect its proprietary technology and operating without infringing the
proprietary rights of others.
The Company does not rely on patent protection for, and does not hold any
patents relating to, its products. In addition, First Virtual's adherence to
industry-wide technical standards and specifications may limit its opportunities
to provide proprietary product features capable of protection. The Company
currently relies upon a combination of trade secret, copyright and trademark
laws and contractual restrictions to establish and protect proprietary rights in
its products. First Virtual also enters into confidentiality and invention
assignment agreements with its employees and enters into non-disclosure
agreements with its suppliers, distributors and customers to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements will be sufficient to deter
misappropriation of the Company's proprietary technologies or that independent
third-parties will not develop similar or superior technologies. The development
of alternative technologies by third parties could adversely affect the
competitiveness of the Company's products. In addition, the laws of some
countries do not provide the same degree of protection of First Virtual's
proprietary information as do the laws of the United States.
The commercial success of First Virtual will also depend, in part, on its
ability to obtain licenses to third-party technology and on its not breaching
its existing and future licenses of third-party technology used in certain of
First Virtual's products. The Company entered into a license agreement for
certain technology with Advanced Telecommunications Modules Limited ("ATML") in
February 1994. The agreement provides First Virtual with a perpetual
non-exclusive license to certain ATML technology. The agreement can be
terminated by either party upon 60 days notice for material breach. In addition,
the Company entered into a non-exclusive technology license agreement with IBM
in October 1997 for IBM's VAN technology. The Company plans to integrate this
technology into its video networking systems. This agreement may be terminated
by IBM for material breach by First
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<PAGE> 40
Virtual. In addition, IBM has the right to acquire any First Virtual
intellectual property based on the licensed technology under certain
circumstances, including a material breach by the Company.
The Company is also subject to the risk of litigation alleging infringement
of third party intellectual property rights. A number of companies have
developed technologies or received patents on technologies that may be related
to or be competitive with First Virtual's technologies. The Company has not
conducted a patent search relating to the technology used in its products. In
addition, since patent applications in the United States are not publicly
disclosed until the patent issues, applications may have been filed which, if
issued as patents, would relate to the Company's products. Many of these
companies have significantly greater resources than the Company. Given the rapid
development of technology in the video networking industry, there can be no
assurance that First Virtual's existing or future products will not infringe
upon the existing or future proprietary rights of others. Further, the Company's
lack of patents may inhibit its ability to negotiate cross-licenses or oppose
patents of third parties, if necessary. The Company could incur substantial
costs in defending itself and its customers against any such claims, regardless
of the merits of such claims. The Company may be required by contract or by
statutory implied warranties to indemnify its distribution partners and
end-users against third-party infringement claims. Parties making such claims
may be able to obtain injunctive or other equitable relief which could
effectively block the Company's ability to sell its products in the United
States and abroad, and could result in an award of substantial damages. In the
event of a successful claim of infringement, the Company, its customers and
end-users may be required to obtain one or more licenses from third parties.
There can be no assurance that the Company or its customers could obtain
necessary licenses from third parties at a reasonable cost, or at all. The
defense of any lawsuit could result in time-consuming and expensive litigation,
damages, license fees, royalty payments and restrictions on the Company's
ability to sell its products, any of which could have a material adverse effect
on the Company's business, financial condition, and results of operations. See
"Risk Factors -- Reliance on Intellectual Property."
EMPLOYEES
As of September 30, 1997, the Company employed 54 individuals full-time. Of
the Company's total work force, 27 are engaged in engineering and research and
development activities, 14 are engaged in sales and marketing activities, and 13
are engaged in operating activities, including finance and administration. In
addition, the Company employs a number of temporary contract employees. The
Company's employees are not represented by a collective bargaining agreement.
The Company believes its relationships with its employees are good.
In keeping with its philosophy to concentrate on its core competencies, the
Company contracts with third parties for data processing, accounting and human
resource functions.
FACILITIES
The Company currently leases approximately 25,200 square feet of facility
space in Santa Clara, California under two operating lease agreements, for
approximate monthly rental payments of $38,500. The terms of the leases expire
in August 1998. Rent expense for the facility lease for the year ended December
31, 1996 was approximately $160,000. The Company believes that its facilities
will be adequate to meet the Company's needs for the foreseeable future.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Ralph Ungermann 55 Chief Executive Officer, President and Director
James O. Mitchell 52 Vice President, Operations and Chief Financial Officer
Allwyn Sequeira 36 Vice President, Engineering and Chief Technical Officer
Alan J. McMillan 42 Vice President, Sales
James M. Nielsen 38 Vice President, Marketing
Neal M. Douglas(1) 39 Director
Pier Carlo Falotti 55 Director
David A. Norman(1) 61 Director
James R. Swartz(2) 54 Director
Enzo Torresi(2) 52 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Ralph Ungermann has been a director and has served as the Company's Chief
Executive Officer and President since co-founding First Virtual in October 1993.
From July 1979 to July 1993, Mr. Ungermann was Chief Executive Officer and
co-founder of Ungermann-Bass, Inc. (now a subsidiary of Newbridge Networks), a
computer networking company. Mr. Ungermann obtained a B.S.E.E. in Communications
from the University of California at Berkeley and a M.S.E.E. in Computer
Architecture from the University of California at Irvine.
James O. Mitchell has served as the Company's Chief Financial Officer and
acted as its head of operations since June 1995. He was elected Vice President,
Operations in October 1997. From June 1989 to October 1994, Mr. Mitchell was
President and Chief Executive Officer of General Electric Computer Service, an
electronics service company and a division of General Electric Capital Services,
Inc., which is a division of General Electric Company. Mr. Mitchell holds a
Bachelor's degree in Industrial Management from Purdue University.
Allwyn Sequeira has headed the Company's product operations and acted as
the Company's Chief Technical Officer since co-founding First Virtual in October
1993. He was elected Vice President of Engineering and Chief Technical Officer
in October 1997. From February 1990 to October 1993, Mr. Sequeira served as
Business Unit Director at Ungermann-Bass, Inc. Mr. Sequeira holds a Bachelor's
degree in Computer Science from Indian Institute of Technology, Bombay, India,
and a Master's degree in Computer Science from the University of Wisconsin.
Alan J. McMillan has headed the Company's sales operations since September
1995. He was elected as the Company's Vice President of Sales in October 1997.
From June 1994 to September 1995, Mr. McMillan was a principal with Regis
McKenna, a consulting firm. From July 1992 to April 1994, Mr. McMillan was Vice
President of North American Sales at Software Publishing Corporation, a software
publishing company. Mr. McMillan holds an Associate Degree from Ohio University
and was a Sloan fellow at the Massachusetts Institute of Technology, where he
received an M.S. in Management Science.
James M. Nielsen has headed the Company's marketing operations since
October 1996. He was elected as Vice President of Marketing of the Company in
October 1997. From April 1996 to October 1996, Mr. Nielsen was Director of
Marketing at FORE, a computer networking company. From May 1991 to April 1996,
Mr. Nielsen held several product management and marketing manage-
40
<PAGE> 42
ment roles at Bay Networks, a computer networking company, and SynOptics
Communications, Inc., a computer networking company that merged with Wellfleet
Communications Inc. to form Bay Networks in 1994. Mr. Nielsen holds a Bachelors
degree in Computer Science from Deakin University, Victoria, Australia.
Neal M. Douglas has been a director of the Company since November 1994.
Since January 1993, he has been a General Partner of AT&T Ventures, a venture
capital firm. From May 1989 to January 1993, he was a partner of New Enterprise
Associates, a venture capital firm. Mr. Douglas also serves as a director of
Cellnet Data Systems and several privately held companies. He received a B.S.
degree from Cornell University, an M.S. degree from Stanford University, and an
M.B.A. from the University of California at Los Angeles.
Pier Carlo Falotti has served as a director of the Company since April
1996. Since September 1996, Mr. Falotti has been a Senior Vice President at
Oracle Corp., a database software company. From February 1994 to September 1996,
Mr. Falotti was President and Chief Executive Officer of AT&T's European, Middle
Eastern and African Operations and subsequently Executive Vice President of its
International Operations. From April 1992 to February 1994, he was President and
Chief Executive Officer of The ASK Group, Inc., a database and software company.
Mr. Falotti is also a director of Logitech International S.A. He holds a degree
in Electrical Engineering from the Institute Avogadro, Torino, Italy.
David A. Norman has served as a director of the Company since March 1994.
From October 1993 to the present, Mr. Norman has been Chairman and Chief
Executive Officer of Technically Elite, Inc., formally known as Network
Application Technology, Inc., a computer network monitoring company. From 1992
to October 1993, Mr. Norman was an independent consultant. From 1982 to 1992,
Mr. Norman was founder, President and Chief Executive Officer of Businessland,
Inc. Mr. Norman also founded Dataquest, Inc. in 1972. He holds a B.S.M.E. from
the University of Minnesota and an M.S.I.A. from Stanford University.
James R. Swartz has been a director of the Company since December 1993. Mr.
Swartz is a Managing Partner of Accel Partners, a venture capital investment
firm he co-founded in 1983. Mr. Swartz is also a director of Farallon
Communications, Inc., Polycom, Inc., Remedy Corporation, and a number of private
companies. Mr. Swartz holds an A.B. degree in Engineering Sciences and Applied
Physics from Harvard University and an M.S.I.A. degree from Carnegie Mellon
University.
Enzo Torresi, has been a director of the Company since November 1994. He
has been Chairman, co-founder, and Chief Executive Officer of ICAST Corporation,
an IP broadcast software company, since October 1996. From October 1994 to
November 1996, Mr. Torresi was Chairman of the Board and a co-founder of Power
Computing Corporation, a PC manufacturer. From January 1989 to October 1994, Mr.
Torresi was President, Chief Executive Officer, and co-founder of NetFRAME
Systems Incorporated, a network server company. Mr. Torresi is also a director
of SCO Incorporated and PictureTel. Mr. Torresi holds a Ph.D. in Electronics
Engineering from the Polytechnic Institute in Torino, Italy.
BOARD COMPOSITION
The Company currently has authorized six directors. In accordance with the
terms of the Company's Certificate of Incorporation, effective upon the closing
of this offering, the terms of office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 1998; Class II, whose term will expire at the annual
meeting of stockholders to be held in 1999; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2000. The Class I
directors are Mr. Torresi and Mr. Falotti, the Class II directors are Mr. Norman
and Mr. Douglas, and the Class III directors are Mr. Ungermann and Mr. Swartz.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Certificate
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<PAGE> 43
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
the Company. Although directors of the Company may be removed for cause by the
affirmative vote of the holders of a majority of the Common Stock, the Company's
Certificate of Incorporation provides that holders of two-thirds of the Common
Stock must vote to approve the removal of a director without cause. There are no
family relationships among any of the directors and executive officers of the
Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors, currently consisting of
Messrs. Douglas and Norman, reviews the internal accounting procedures of the
Company and consults with and reviews the services provided by the Company's
independent auditors. The Compensation Committee of the Board of Directors,
currently consisting of Messrs. Swartz and Torresi, reviews and recommends to
the Board of Directors the compensation and benefits of all officers of the
Company and reviews general policies relating to compensation and benefits of
employees of the Company.
DIRECTOR COMPENSATION
The Company does not currently compensate directors for services in such
capacity, but directors may be reimbursed for certain expenses in connection
with attendance at Board and Committee meetings. The Company may compensate
non-employee directors in the future.
All of the Company's non-employee directors are entitled to receive
non-discretionary annual stock option grants under the Company's 1997
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), adopted in
September 1997 (the "Effective Date"). Under the Directors' Plan, each current
non-employee director was automatically granted an option to purchase 10,000
shares of Common Stock upon the Effective Date. Messrs. Torresi, Douglas,
Swartz, Norman and Falotti were each granted an option to purchase 10,000 shares
of the Company's Common Stock at an exercise price of $11.00 per share. Each new
non-employee director who is subsequently elected for the first time will
automatically be granted an option to purchase 30,000 shares of Common Stock at
the time he or she is first elected to the Board of Directors. Each non-employee
director will additionally be granted an option to purchase 10,000 shares of
Common Stock on each anniversary of each such director's original grant under
the Directors' Plan. Options granted under the Directors' Plan are granted at
the fair market value of the Common Stock on the date of grant. Options granted
to non-employee directors under the Directors' Plan have a 10-year term and will
vest over a period of five years, with 10% of the shares vesting after six
months and the remaining shares vesting ratably on a daily basis thereafter. See
"Stock Plans -- 1997 NonEmployee Directors' Stock Option Plan."
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<PAGE> 44
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the year ended December 31, 1996 to its President and Chief
Executive Officer and the Company's other executive officers who earned more
than $100,000 in salary and bonus during the fiscal year ended December 31, 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------------------------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Ralph Ungermann
Chairman, Chief Executive Officer
and President.............................. $245,090 -- 300,000 $ 5,400(1)
James O. Mitchell
Vice President, Operations and Chief
Financial Officer.......................... 167,045 -- 66,666 2,440(1)
Allwyn Sequeira
Vice President, Engineering and Chief
Technical Officer.......................... 120,947 $20,000 66,666 5,392(1)
Alan J. McMillan
Vice President, Sales...................... 178,770 -- 66,666 2,378(1)
</TABLE>
- ---------------
(1) Represents insurance premiums paid by the Company with respect to group life
and health insurance for the benefit of the Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(4)
NAME AND PRINCIPAL OPTIONS FISCAL YEAR PRICE EXPIRATION -----------------------
POSITION GRANTED(#)(1) (%)(2) ($/SH)(3) DATE 5%($) 10%($)
- ------------------------- ------------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph Ungermann Chairman,
Chief Executive Officer
and President.......... 300,000 32.3% $2.75 07/23/01 $4,152,498 $5,455,989
James O. Mitchell Vice
President, Operations
and Chief Financial
Officer................ 66,666 7.2 2.50 07/23/06 1,245,030 2,081,223
Allwyn Sequeira Vice
President, Engineering
and Chief Technical
Officer................ 66,666 7.2 2.50 07/23/06 1,245,030 2,081,223
Alan J. McMillan Vice
President, Sales....... 66,666 7.2 2.50 07/23/06 1,245,030 2,081,223
</TABLE>
- ---------------
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<PAGE> 45
(1) 10% of the options generally become exercisable six months after the vesting
commencement date and .0548% each day thereafter for 54 months. The term of
each option granted is generally the earlier of (i) ten years or (ii) 30
days after termination of the holder.
(2) Based on an aggregate of 927,998 options granted to employees, consultants
and directors, including the Named Executive Officers, of the Company during
the fiscal year ended December 31, 1996.
(3) The exercise price per share of each option, other than the options granted
to Mr. Ungermann, was equal to the fair market value of the Common Stock on
the date of grant as determined by the Board of Directors. Mr. Ungermann's
exercise price per share for his options was equal to 110% of the fair
market value of the Common Stock on the date of grant, as determined by the
Board of Directors.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% or 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers. The potential realizable value is calculated by assuming
that the assumed initial public offering price of $13.00 per share
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price. The potential realizable value
computation is net of the applicable exercise price, but does not take into
account applicable federal or state income tax consequences and other
expenses of option exercises or sales of appreciated stock. Mr. Ungermann's
options have a five-year term and Messrs. Mitchell's, Sequeira's and
McMillan's options each have ten-year terms.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND DECEMBER 31, 1996 OPTION VALUES
There were no exercises of options by any Named Executive Officer in the
fiscal year ended December 31, 1996.
STOCK PLANS
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Incentive Plan"), to be effective upon the closing of the offering, was adopted
by the Board of Directors in October 1997 as an amendment and restatement of the
Company's 1996 Stock Option Plan, 1996 Stock Option Plan No. 2 (collectively,
the "1996 Plans") and the Company's 1993 Employee, Consultant and Director Stock
Purchase Plan (the "1993 Plan"). Except with respect to then outstanding stock
purchase grants and options, the 1996 Plans and the 1993 Plan, in their
respective current forms, will terminate upon the effectiveness of the Incentive
Plan. Upon effectiveness of the offering, no further grants will be made under
the 1996 Plans as currently in effect. Future stock and option grants to
employees, directors and consultants will be made under the successor Incentive
Plan. Outstanding options and grants under the 1996 Plans will continue to be
governed by their existing terms, which generally contain substantially the same
terms and conditions as those described below for the Incentive Plan. As of the
date of this Prospectus, the total number of authorized shares under the
Incentive Plan is 4,625,000 shares of Common Stock, of which approximately
1,397,205 shares will be available for grants under the Incentive Plan upon its
effectiveness.
The Incentive Plan provides for the grant of incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code"), to employees
(including officers and employee-directors) and nonstatutory stock options,
restricted stock purchase awards and stock bonuses to employees, directors and
consultants. The Incentive Plan is administered by the Board of Directors or a
committee appointed by the Board, which determines recipients and types of
awards to be granted, including the exercise price, number of shares subject to
the award and the exercisability thereof.
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<PAGE> 46
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market value
of the Common Stock on the date of the option grant and the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of option grant. Options granted under the
Incentive Plan vest at the rate specified in the option agreement. No stock
option may be transferred by the optionee other than by will or the laws of
descent or distribution, provided that a nonstatutory stock option may be
transferable if provided in the option agreement, and provided further that an
optionee may designate a beneficiary who may exercise the option following the
optionee's death. An optionee whose relationship with the Company or any related
corporation ceases for any reason (other than by death or permanent and total
disability) may exercise options in the 30-day period following such cessation
(unless such options terminate or expire sooner or later by their terms).
Options may be exercised for up to twelve months after an optionee's
relationship with the Company and its affiliates ceases due to disability and up
to eighteen months after an optionee's relationship with the Company and its
affiliates ceases due to death (unless such options expire sooner or later by
their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000. Upon the expiration of the transition
rule extending the effective date of Code Section 162(m) for newly public
companies, no person shall be eligible to receive options under the Incentive
Plan covering more than 500,000 shares in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full (or vested in the case of restricted stock
awards) shall again become available for the grant of awards under the Incentive
Plan, including shares subject to currently outstanding options and restricted
stock issued under the 1993 Plan and the 1996 Plans.
The Board of Directors has the authority to reprice outstanding options and
to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares.
Restricted stock purchase awards granted under the Incentive Plan may be
accompanied by a
repurchase option in favor of the Company in accordance with a vesting schedule
and at a price determined by the Board of Directors. Restricted stock purchases
must be at a price equal to at least 85% of the stock's fair market value on the
award date, but stock bonuses may be awarded without a purchase payment. Rights
under a stock bonus or restricted stock bonus agreement may not be transferred
other than by will, the laws of descent and distribution or a qualified domestic
relations order while the stock awarded pursuant to such an agreement remains
subject to the agreement.
Upon a change in control of the Company, any options shall remain
outstanding, be assumed by the acquiror or be substituted with similar options.
In the event the acquiror refuses to assume, substitute or continue any options,
then vested options shall be terminated if not exercised prior to the change of
control. For purposes of this Incentive Plan, "change in control" means: any
consolidation or merger of the Company with or into any other entity or person,
or any other corporate reorganization, in which the Company is not the
continuing or surviving entity, or any transaction or series of related
transactions by the Company in which in excess of 50% of the Company's voting
power is transferred, or any sale, lease, license or other disposition of all or
substantially all of the assets of the Company.
As of September 30, 1997, 300 shares of Common Stock had been issued upon
the exercise of options granted under the 1996 Plans, options to purchase
1,807,698 shares of Common Stock at a
45
<PAGE> 47
weighted average exercise price of $4.73 were outstanding and 322,002 shares
remained available for future grant under the 1996 Plans. As of September 30,
1997, 3,293,618 shares of Common Stock had been issued under the 1993 Plan and
1,382 shares remained available for future grant under the 1993 Plan. The
Incentive Plan will terminate in October 2007 unless sooner terminated by the
Board of Directors.
Employee Stock Purchase Plan. In October 1997, the Company's Board of
Directors approved the Employee Stock Purchase Plan (the "Purchase Plan")
covering an aggregate of 150,000 shares of Common Stock. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. Under the Purchase Plan, the Board of Directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the Purchase Plan. The offering period for
any offering will be no more than 27 months.
Under the Purchase Plan, employees are eligible to participate if they are
employed by the Company or an affiliate of the Company designated by the Board
of Directors and are employed at least 20 hours per week and five months per
year. Employees who participate in an offering will have the right to purchase
up to the number of shares of Common Stock purchasable with a percentage
designated by the Board of Directors, up to 15%, of an employee's earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board of Directors, to the purchase of shares of Common Stock.
The price of Common Stock purchased under the Purchase Plan will be equal to 85%
of the lower of the fair market value of the Common Stock on the commencement
date of each offering period or the relevant purchase date. Employees may end
their participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten the offering period and provide for all sums collected
by payroll deductions to be applied to purchase stock immediately prior to the
change in control. The Purchase Plan will terminate at the Board's discretion.
1997 Non-Employee Directors' Stock Option Plan. In September 1997, the
Company's Board of Directors adopted the Directors' Plan to provide for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of the Company. The Directors' Plan is administered by the Board,
unless the Board delegates administration to a Committee comprised of members of
the Board.
The Directors' Plan provides for the issuance of up to 250,000 shares of
Common Stock. The Directors' Plan provides that each current non-employee
director will automatically be granted an option to purchase 10,000 shares of
Common Stock upon the Effective Date of the Plan, and each person who is
subsequently elected for the first time to be a non-employee director will
automatically be granted an option to purchase 30,000 shares of Common Stock
upon the date of his or her election to the Company's Board of Directors. In
addition, on each anniversary of each directors' initial grant under the
Directors' Plan, each non-employee director will automatically be granted an
option to purchase an additional 10,000 shares of Common Stock. Options under
the Directors' Plan have a 10-year term and will vest over a period of five
years, with 10.0% of the shares subject to the option vesting on the date six
months following the grant date and the remaining shares vesting ratably on a
daily basis over the next four and one half years. The exercise price of options
under the Directors' Plan must equal the fair market value of the Common Stock
on the date of grant. Options granted under the Directors' Plan are generally
nontransferable. Unless otherwise terminated by the Board of Directors, the
Directors' Plan will terminate in September 2007.
As of September 30, 1997, options to purchase 50,000 shares of Common Stock
with a weighted average exercise price of $11.00 per share were outstanding
under the Directors' Plan.
46
<PAGE> 48
1997 Restricted Stock Bonus Plan. In October 1997, the Board of Directors
of the Company adopted a stock bonus plan (the "1997 Restricted Stock Bonus
Plan"). The 1997 Restricted Stock Bonus Plan allows the Company to award Common
Stock to certain employees, directors, and consultants of the Company, in
consideration for services rendered to the Company. The 1997 Restricted Stock
Bonus Plan is administered by the Board, which determines recipients and the
terms of awards to be granted, including the number of shares subject to the
award.
Stock bonuses granted under the 1997 Restricted Stock Bonus Plan are
granted pursuant to a reacquisition option in favor of the Company, in
accordance with a vesting schedule. Rights under a stock bonus agreement may not
be transferred other than by will, the laws of descent and distribution or a
domestic relations order, during such period as the stock awarded pursuant to
such an agreement remains subject to a reacquisition option.
Upon certain changes in control of the Company, all outstanding awards
under the 1997 Restricted Stock Bonus Plan subject to a reacquisition option
shall either be assumed or substituted by the surviving entity. If the surviving
entity determines not to assume or substitute such awards, then the awards
subject to a reacquisition option shall be terminated prior to such change in
control.
There are currently an aggregate of 9,750 shares of Common Stock authorized
for issuance under the 1997 Restricted Stock Bonus Plan. Shares of Common Stock
subject to outstanding restricted stock bonus awards that have been reacquired
by the Company again become available for the grant of stock bonuses under the
plan. As of December 1, 1997, an aggregate of 9,000 shares of Common Stock were
outstanding pursuant to the 1997 Restricted Stock Bonus Plan, subject to a
reacquisition option in favor of the Company.
The 1997 Restricted Stock Bonus Plan will terminate upon the closing of the
offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required to permitted to indemnify. Pursuant to this provision, the Company will
enter into indemnification agreements with each of its directors and executive
officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act. In addition, the Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
the Company's directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
Under current Delaware law, a director's liability to the Company or its
stockholders may not be limited with respect to any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, for improper transactions between the director and the Company, and for
improper distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
47
<PAGE> 49
CERTAIN TRANSACTIONS
Between December 28, 1993 and February 17, 1994, the Company issued an
aggregate of 4,000,000 shares of Series A Preferred Stock at a price per share
of $0.50. Between October 13, 1994 and November 30, 1994, the Company issued an
aggregate of 2,200,000 shares of Series B Preferred Stock at a price per share
of $1.50. Between June 28, 1995 and November 14, 1997, the Company issued an
aggregate of 1,351,778 shares of Series C Preferred Stock at a price per share
ranging from $4.00 to $11.00. Between August 29, 1996 and November 4, 1997, the
Company issued an aggregate of 488,375 shares of Series D Preferred Stock at a
price per share of $8.00. All of the Series A, Series B, Series C and Series D
Preferred Stock issued by the Company will convert into Common Stock on a
one-for-one basis upon the closing of the offering.
Listed below are the directors, executive officers and five percent
stockholders who have made equity investments in the Company to purchase shares
of the Company's Preferred Stock or Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING PRE-OFFERING
-----------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D AGGREGATE
COMMON PREFERRED PREFERRED PREFERRED PREFERRED CONSIDERATION
INVESTOR STOCK STOCK STOCK STOCK STOCK ($)
- ----------------------------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Venture Fund I, L.P.(1)...... -- -- 1,000,000 75,000 62,500 $ 2,300,000
Entities affiliated with
Accel IV L.P.(2)........... -- 1,700,000 400,000 125,000 62,500 2,450,000
Ralph Ungermann(3)........... 1,499,000 900,000 120,999 77,500 -- 978,974
James O. Mitchell............ 353,750 -- -- 30,243 12,500 412,918
Allwyn Sequeira.............. 360,000 50,000 40,000 -- -- 107,750
Alan J. McMillan............. 177,250 -- -- 16,191 -- 174,646
Neal M. Douglas(1)........... -- -- 1,000,000 75,000 62,500 2,300,000
Pier Carlo Falotti........... 50,000 -- -- 40,000 -- 197,500
David A. Norman(3)........... 50,000 30,000 61,667 -- -- 108,750
James R. Swartz(2)........... -- 1,700,000 400,000 125,000 62,500 2,450,000
Enzo Torresi................. 80,000 -- 33,333 5,000 -- 76,000
</TABLE>
- ---------------
(1) Share amounts shown for Mr. Douglas and Venture Fund I, L.P. have been
aggregated. See "Principal and Selling Stockholders."
(2) Share amounts shown for Mr. Swartz and entities affiliated with Accel IV
L.P. have been aggregated. See "Principal and Selling Stockholders."
(3) Share amounts shown for Messrs. Ungermann and Norman are held in trust. See
"Principal and Selling Stockholders."
Holders of Preferred Stock and certain holders of Common Stock are entitled
to certain registration rights with respect to the Common Stock issued or
issuable upon conversion thereof. See "Description of Capital
Stock -- Registration Rights."
The Company intends to enter into indemnification agreements with its
directors and executive officers for the indemnification of and advancement of
expenses to such persons to the full extent permitted by law. The Company also
intends to execute such agreements with its future directors and executive
officers.
The Company believes that the foregoing transactions were in its best
interest and were made on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties. All future transactions between
the Company and any of its officers, directors or principal stockholders will be
approved by a majority of the independent and disinterested members of the Board
of Directors, will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.
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<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997 and as adjusted
to reflect the sale of the Common Stock being offered hereby by: (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) each Named Executive Officer of the Company; (iii) each
director of the Company; (iv) all directors and executive officers of the
Company as a group; and (v) each selling stockholder. Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock,
subject to community property laws where applicable:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED NUMBER OF OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)
---------------------- BEING ----------------------
BENEFICIAL OWNER NUMBER PERCENT(%) OFFERED NUMBER PERCENT(%)
- --------------------------------------- --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Venture Fund I, L.P.(2)................ 1,137,500 8.9% -- 1,137,500 7.6%
3000 Sand Hill Road
Suite 235
Menlo Park, CA 94025
Entities Affiliated with Accel IV 2,287,500 18.0 2,287,500 15.3
L.P.(3).............................. --
One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Ralph Ungermann(4)..................... 2,678,308 20.9 25,000 2,653,308 17.7
James O. Mitchell(5)................... 403,558 3.2 -- 403,558 2.7
Allwyn Sequeira(6)..................... 479,006 3.8 25,000 454,006 3.0
Alan J. McMillan(7).................... 211,398 1.7 2,000 209,398 1.4
Neal M. Douglas(2)..................... 1,137,500 8.9 -- 1,137,500 7.6
Pier Carlo Falotti..................... 90,000 * -- 90,000 *
David A. Norman(8)..................... 141,667 1.1 -- 141,667 *
James R. Swartz(3)..................... 2,287,500 18.0 -- 2,287,500 15.3
Enzo Torresi........................... 118,333 * -- 118,333 *
All directors and executive officers as 7,578,306 58.7 7,526,306 49.8
a group (10 persons)(9).............. 52,000
Other Selling Stockholders(10)......... 2,554,559 20.0 148,000 2,406,559 16.1
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Beneficial ownership also
includes shares of stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this table. Percentage of beneficial ownership is based on
12,731,100 shares of Common Stock outstanding as of September 30, 1997 and
14,931,100 shares of Common Stock outstanding after completion of this
offering.
(2) Shares are held in the name of Venture Fund I, L.P., of which Mr. Douglas
is a general partner. Mr. Douglas disclaims beneficial ownership of all
shares owned by Venture Fund I, L.P., except to the extent of his pro rata
interest in the partnership.
(3) Includes 2,095,350 shares held by Accel IV L.P., 84,638 shares held by
Accel Investors '93 L.P., 50,324 shares held by Ellmore C. Patterson
Partners, 43,463 shares held by Accel Keiretsu L.P., and 13,725 shares held
by Prosper Partners. Mr. Swartz is a general partner of partnerships which
are the general partner of various Accel and certain other partnerships
and, as such, may be deemed to share voting and investment power with
respect to such Shares. Mr. Swartz disclaims beneficial ownership of all
shares held by such entities except to the extent of his pro rata interests
in such partnerships.
49
<PAGE> 51
(4) Includes 2,597,499 shares held in the name of Ralph Ungermann, Trustee or
Successor Trustee of the Ralph K. Ungermann Living Trust U/A/D May 18,
1988, as amended. Also includes 80,809 shares Mr. Ungermann has the right
to acquire pursuant to an option exercisable within 60 days.
(5) Includes 343,750 shares Mr. Mitchell acquired pursuant to restricted stock
awards, 173,865 of which are subject to repurchase by the Company as of the
date hereof. Also includes 17,957 shares Mr. Mitchell has the right to
acquire pursuant to an option exercisable within 60 days.
(6) Includes 360,000 shares Mr. Sequeira acquired pursuant to restricted stock
awards, 94,543 of which are subject to repurchase by the Company as of the
date hereof. Also includes 29,006 shares Mr. Sequeira has the right to
acquire pursuant to an option exercisable within 60 days.
(7) Includes 177,250 shares Mr. McMillan acquired pursuant to restricted stock
awards, 110,699 of which are subject to repurchase by the Company as of the
date hereof. Also includes 17,957 shares Mr. McMillan has the right to
acquire pursuant to an option exercisable within 60 days.
(8) Shares are held in the name of David Arthur Norman and Mamie R. Norman
TTEE, Norman Family Revocable Trust, U/A DTD 8/20/87.
(9) Includes 176,765 shares issuable upon exercise of options.
(10) Includes the following stockholders and the shares to be sold by such
stockholders in the offering: The Goldman Sachs Group, L.P. (26,214);
Kathryn M. Ungermann, Trustee or Successor Trustee of the Kathryn Mason
Ungermann Living Trust... May 18, 1988 (34,208); Thomas J. Leffingwell
(13,000); Marlis Rossetta, Trustee or Successor Trustee under the Marlis
Rossetta Living Trust U/A/D April 28, 1995 (21,014); David G. Norman
(6,615); Luen-Wuu Wey (4,225); Mike L. Regli (1,000); Frank J. Chu (5,030);
Russell D. Erikson (2,955); Todd Wilde (2,880); Bill Gallmeister, Trustee
of the 1994 Gallmeister Family Trust (1,500); Mark S. Berkeland (5,476);
Andrew Hopper (3,333); Hemant Vinchure (2,000); Michael Pham (1,500); Chris
Lanier (2,350); Birger Dalen (4,000); Michael Munoz (1,200); Alan Glowacki
(1,000); William B. Gunter (1,078); Patricia McBride (2,000); Michelle
LaVally, Trustee, The Jocelyn Jessica Williams Irrevocable Trust (1,000);
Steven Meredith (2,660); and Matthew J. Holley (1,762).
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of September 30, 1997, there were 12,731,100 shares of Common Stock
outstanding held of record by approximately 149 stockholders, after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of this offering. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the 2,200,000
shares of Common Stock offered by the Company hereby, there will be 14,931,100
shares of Common Stock outstanding on the closing of this offering.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The 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. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. Other than pursuant to the warrant described
in Note 10 of Notes to Consolidated Financial Statements, the Company has no
present plan to issue any shares of Preferred Stock.
WARRANTS AND SUBSCRIPTION RIGHT
As of September 30, 1997, in connection with a capital equipment lease, and
loan and security agreements, the Company had outstanding warrants to purchase
40,624 shares of Series D Preferred Stock at an exercise price of $8.00 per
share. The warrants expire at various times from 3.0 to 4.3 years following the
closing of this initial public offering. Each warrant contains provisions for
the adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassifications, consolidations and
certain dilutive sales of the securities for which the warrant is exercisable at
prices below the then existing exercise price. Each warrant may be exercised,
without the payment of cash, for the number of shares of Preferred Stock
purchasable, at the current market value of the Preferred Stock, by the
difference between the aggregate exercise price of the warrant and the value, at
the current market price per share of Preferred Stock of the aggregate number of
shares purchasable under the warrant. Upon the closing of the offering, such
warrants will become warrants exercisable to purchase the same number of shares
of Common Stock at an exercise price of $8.00 per share.
In conjunction with the last round of the Series D Preferred Stock
financing completed by the Company in July 1997, the Company granted NEC,
pursuant to a subscription agreement dated
51
<PAGE> 53
August 18, 1997, the right to acquire 100,000 shares of Series D Preferred Stock
at a purchase price of $8.00 per share. NEC exercised its right in October 1997
and was issued the shares on November 4, 1997. The 100,000 shares of Series D
Preferred Stock will automatically be converted into 100,000 shares of Common
Stock upon the closing of the offering.
REGISTRATION RIGHTS
Following this offering, holders (or their permitted transferees)
("Holders") of approximately 10,435,500 shares of Common Stock (assuming the
conversion of all outstanding Preferred Stock upon the closing of this offering)
and warrants to purchase 40,624 shares of Common Stock will be entitled to
certain rights with respect to the registration of their shares under the
Securities Act. Under the terms of that certain Amended and Restated Investor
Rights Agreement dated August 29, 1996, as amended October 17, 1997 (the
"Investor Rights Agreement"), if the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of others, subject to certain restrictions, the Holders are entitled to notice
of such registration and are entitled to include all or part of their shares of
Common Stock; provided, among other conditions, that the underwriters of any
offering have the right to limit the number of such shares included in such
registration or exclude such shares entirely. The Holders may also require the
Company, beginning one year after the date of this Prospectus, on not more than
two occasions, to file a registration statement under the Securities Act at the
Company's expense with respect to their shares of Common Stock, and the Company
is required to use its best efforts to effect such registration, subject to
certain conditions and limitations. Further, the Holders may also require the
Company, at the Company's expense, to register all or a portion of their shares
of Common Stock on Form S-3 when such form becomes available to the Company,
subject to certain conditions and limitations.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly-held Delaware corporation 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. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, 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, the Chairman of the Board, the Chief
Executive Officer of the Company or by any person or persons holding shares
representing at least 50% of the outstanding capital stock. The Company's
Certificate of Incorporation also provides for the classification of the Board
of Directors into three classes, only one of which will be elected at each
annual meeting, and specifies that the authorized number of directors may be
changed only by resolution of the Board of Directors. These provisions, which
require the vote of stockholders holding at least two-thirds of the outstanding
shares to amend, may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company. See "Management -- Board
Composition."
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. has been appointed as the
transfer agent and registrar for the Company's Common Stock.
52
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market price of the Common Stock
offered hereby. Furthermore, since only a limited number of shares will be
available for sale shortly after this offering because of certain contractual
and legal restrictions on resale described below, sales of Common Stock in the
market after the restrictions lapse could adversely affect the prevailing market
price and the ability of the Company to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of September 30, 1997, the Company will have outstanding an aggregate of
14,931,100 shares of Common Stock assuming (i) the issuance by the Company of
shares of Common Stock offered hereby, (ii) no issuance of 40,624 shares of
Common Stock relating to outstanding warrants, (iii) no exercise of exercisable
vested options (as of September 30, 1997) to purchase 252,951 shares of Common
Stock, and (iv) no exercise of the Underwriters' over-allotment option to
purchase 360,000 shares of Common Stock. Of these shares, 2,400,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except for shares held 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)
and the regulations promulgated thereunder.
The remaining 12,531,100 outstanding shares of the Company's Common Stock
were sold by the Company to officers, directors, employees, consultants and
other stockholders of the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted" securities
within the meaning of Rule 144 and Rule 701 under the Securities Act. 11,443,033
of these shares and an additional 536,623 shares issuable upon exercise of
outstanding vested options will be eligible for sale 180 days after the date of
this Prospectus upon expiration of the lock-up agreements described below and in
compliance with certain limitations set forth in the Securities Act. An
additional 282,602 of the outstanding shares will become eligible for sale at
various times after 180 days after the date of this Prospectus. The remaining
805,465 outstanding shares will be subject to rights of repurchase in favor of
the Company that expire at various dates through July 25, 2001 pursuant to
monthly vesting.
Each officer, director and other stockholders of the Company, who together
hold an aggregate of 12,531,100 shares of Common Stock and options to purchase
252,951 shares of Common Stock not being sold in the offering, have agreed with
the representatives of the Underwriters or the Company for a period of 180 days
after the date of this Prospectus, they will not, directly or indirectly, offer,
sell, contract to sell, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for, or any rights to purchase or acquire, Common Stock,
without the prior written consent of BancAmerica Robertson Stephens or, in
certain instances, the Company. The Company has agreed with BancAmerica
Robertson Stephens not to release any stockholder from any lock-up agreement
between the stockholder and the Company without the consent of BancAmerica
Robertson Stephens.
In general, under Rule 144 as currently in effect, beginning 180 days after
the date of this Prospectus, an affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
that were not acquired from the Company or an affiliate of the Company within
the previous one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's Common Stock or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
person whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 180 days immediately preceding the
53
<PAGE> 55
sale and who beneficially owns restricted securities is entitled to sell such
shares pursuant to Rule 144(k) without regard to the limitations described
above; provided that at least two years have elapsed since the later of the date
the shares were acquired from the Company or from an affiliate of the Company.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 180 days after the
date of this Prospectus. In addition, non-affiliates may sell Rule 701 shares
without complying with public information, volume and notice provisions of Rule
144.
The Company intends to file a registration statement under the Securities
Act to register 4,625,000, 250,000 and 150,000 shares of Common Stock reserved
for issuance under the Incentive Plan, Directors' Plan and the Purchase Plan,
respectively, thus permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act. Such registration
statement will become effective immediately upon filing.
As of the date of this Prospectus, warrants to purchase an aggregate of
60,936 shares of Common Stock were outstanding, all of which are subject to the
180-day lock-up.
In addition, after this offering, the holders of approximately 10,435,500
shares will be entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company, which will be subject to certain restrictions) immediately upon
the effectiveness of such registration. See "Description of Capital
Stock -- Registration Rights."
54
<PAGE> 56
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens and Hambrecht & Quist LLC (the
"Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
BancAmerica Robertson Stephens....................................
Hambrecht & Quist LLC.............................................
-------
Total...................................................... 2,400,000
=======
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
than $ per share, of which $ may be reallowed to other
dealers. After the public offering, the initial public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, solely to cover
over-allotments, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 360,000 additional shares of Common Stock at the
same price per share as will be paid for the 2,400,000 shares that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the 2,400,000 shares offered hereby. If purchased,
such additional shares will be sold by the Underwriters on the same terms as
those on which the 2,400,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each officer and director and certain holders of shares of the Company's
Common Stock have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. However, BancAmerica Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
Representatives and any of the Company's stockholders providing consent by the
Representatives to the sale of shares prior to the expiration of the Lock-Up
Period. The Company has agreed that during the Lock-Up Period, the
55
<PAGE> 57
Company will not, subject to certain exceptions, without the prior written
consent of BancAmerica Robertson Stephens, (i) consent to the disposition of any
shares held by stockholders prior to the expiration of the Lock-Up Period or
(ii) issue, sell, contract to sell or otherwise dispose of, any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock, other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options and warrants
and the Company's issuance of options and stock under existing stock option and
stock purchase plans. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations between the
Company and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP ("Cooley Godward"), Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this Prospectus, certain members and
associates of Cooley Godward own through an investment partnership an aggregate
of 98,958 shares of Common Stock of the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and September 30, 1997, for each of the three years in the period
ended December 31, 1996 and for the nine months ended September 30, 1997,
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of such
firm as experts in accounting and auditing.
56
<PAGE> 58
CHANGE OF ACCOUNTANTS
On July 19, 1996, as a result of a decision by the Company to outsource to
KPMG its accounting and data processing functions, KPMG resigned as the
Company's independent accountants. On November 1, 1996, Price Waterhouse LLP was
engaged as the Company's independent accountants. The resignation of KPMG and
appointment of Price Waterhouse LLP was approved by the Company's Board of
Directors. Prior to November 1, 1996, the Company had not consulted with Price
Waterhouse LLP on items which included the Company's accounting principles or
the form of audit report to be issued on the Company's financial statements.
The reports of KPMG on the financial statements of the Company for the two
years ended December 31, 1994 and 1995, did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.
In connection with the audits by KPMG of the two years of the Company ended
December 31, 1995, and during the subsequent interim period through July 19,
1996, there were no disagreements between the Company and KPMG on any matter of
accounting principles or practice, financial statement disclosure or auditing
scope or procedures, which if not solved to the satisfaction of KPMG, would have
caused them to make reference to the matter in their report. KPMG has not
audited or reported on any financial statements of the Company subsequent to
December 31, 1995.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission (the "Commission"), Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to 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. 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 thereto. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C. and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission through the Electronic Data Gathering, Analysis, and Retrieval
("EDGAR") system.
57
<PAGE> 59
FIRST VIRTUAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent 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
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
First Virtual Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
First Virtual Corporation and its subsidiary at December 31, 1995 and 1996 and
September 30, 1997 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 and for the nine
month period ended September 30, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
October 22, 1997, except as
to Note 10 which is as of
December 2, 1997
F-2
<PAGE> 61
FIRST VIRTUAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 2,787 $ 676 $ 1,506
Accounts receivable, less allowance of $211 at September 30,
1997..................................................... 677 2,337 2,856
Inventory................................................... 205 1,230 1,672
Prepaid expenses and other current assets................... 40 59 45
------- ------- --------
Total current assets................................ 3,709 4,302 6,079
Property and equipment, net................................... 648 913 1,022
Other assets.................................................. 159 217 288
------- ------- --------
$ 4,516 $ 5,432 $ 7,389
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under bank line of credit........................ $ -- $ 999 $ 1,306
Current portion of long term debt........................... 150 211 573
Accounts payable............................................ 528 1,129 2,488
Accrued liabilities......................................... 486 637 1,169
Deferred revenue............................................ 1,093 280 242
------- ------- --------
Total current liabilities........................... 2,257 3,256 5,778
------- ------- --------
Long-term debt................................................ 242 102 712
------- ------- --------
Commitments (Note 6)
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 10,000,000
shares authorized actual; 5,000,000 shares authorized pro
forma (unaudited):
Series A: 4,000,000 shares designated, issued and
outstanding actual; none issued and outstanding pro
forma (unaudited)...................................... 4 4 4 $ --
Series B: 2,200,000 shares designated, issued and
outstanding actual; none issued and outstanding pro
forma (unaudited)...................................... 2 2 2 --
Series C: 1,375,000 shares designated; 1,183,125,
1,331,260 and 1,348,807 shares issued and outstanding
actual; none issued and outstanding pro forma
(unaudited)............................................ 1 1 1 --
Series D: 687,500 shares designated; 0, 168,375 and
388,375 shares issued and outstanding actual; none
issued and outstanding pro forma (unaudited)........... -- -- -- --
Common Stock, $.001 par value; 30,000,000 shares authorized,
actual; 35,000,000 shares authorized, pro forma;
4,261,999, 4,863,963 and 4,793,918 shares issued and
outstanding actual; 12,731,100 issued and outstanding pro
forma (unaudited)........................................ 4 5 5 12
Additional paid-in capital.................................. 10,156 13,192 16,165 16,165
Notes receivable from stockholders.......................... (187) (924) (844) (844)
Accumulated deficit......................................... (7,963) (10,206) (14,434) (14,434)
------- ------- -------- --------
Total stockholders' equity.......................... 2,017 2,074 899 $ 899
========
------- ------- --------
$ 4,516 $ 5,432 $ 7,389
======= ======= ========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-3
<PAGE> 62
FIRST VIRTUAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ -- $ 3,670 $12,093 $ 8,151 $11,123
Cost of revenues................................. -- 2,874 6,547 4,711 6,477
------- ------- ------- ------- -------
Gross profit................................... -- 796 5,546 3,440 4,646
------- ------- ------- ------- -------
Operating expenses:
Research and development....................... 1,208 2,582 2,930 2,089 3,749
Selling, general and administrative............ 1,419 3,603 4,886 3,367 4,978
------- ------- ------- ------- -------
Total operating expenses.................... 2,627 6,185 7,816 5,456 8,727
------- ------- ------- ------- -------
Loss from operations............................. (2,627) (5,389) (2,270) (2,016) (4,081)
Interest income.................................. 46 117 118 81 52
Interest expense................................. -- (38) (91) (65) (199)
------- ------- ------- ------- -------
Net loss......................................... $(2,581) $(5,310) $(2,243) $(2,000) $(4,228)
======= ======= ======= ======= =======
Pro forma net loss per share (unaudited)......... $ (0.17) $ (0.15) $ (0.31)
======= ======= =======
Shares used in pro forma per share calculations
(unaudited).................................... 13,132 13,023 13,458
======= ======= =======
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-4
<PAGE> 63
FIRST VIRTUAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------ ------------------ PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
--------- ------ --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993........................ 1,000,000 $1 2,000,000 $2 $ 547 $ (13) $ (72) $ 465
Issuance of Common Stock,
net......................... -- -- 1,058,000 1 43 (38) -- 6
Issuance of Series A Preferred
Stock, net.................. 3,000,000 3 -- -- 1,483 -- -- 1,486
Issuance of Series B Preferred
Stock, net.................. 2,200,000 2 -- -- 3,241 -- -- 3,243
Net loss...................... -- -- -- -- -- (2,581) (2,581)
-- --
--------- --------- ------- ----- -------- -------
Balance at December 31,
1994........................ 6,200,000 6 3,058,000 3 5,314 (51) (2,653) 2,619
Issuance of Common Stock,
net......................... -- -- 1,203,999 1 138 (136) -- 3
Issuance of Series C Preferred
Stock, net.................. 1,183,125 1 -- -- 4,704 -- -- 4,705
Net loss...................... -- -- -- -- -- (5,310) (5,310)
-- --
--------- --------- ------- ----- -------- -------
Balance at December 31,
1995........................ 7,383,125 7 4,261,999 4 10,156 (187) (7,963) 2,017
Issuance of Common Stock,
net......................... -- -- 601,964 1 1,085 (737) -- 349
Issuance of Series C Preferred
Stock, net.................. 148,135 -- -- -- 637 -- -- 637
Issuance of Series D Preferred
Stock, net.................. 168,375 -- -- -- 1,314 -- -- 1,314
Net loss...................... -- -- -- -- -- (2,243) (2,243)
-- --
--------- --------- ------- ----- -------- -------
Balance at December 31,
1996........................ 7,699,635 7 4,863,963 5 13,192 (924) (10,206) 2,074
Issuance of Series C Preferred
Stock, net.................. 17,547 -- -- -- 104 -- -- 104
Issuance of Series D Preferred
Stock, net.................. 220,000 -- -- -- 1,749 -- -- 1,749
Exercise of stock options..... -- -- 300 -- 1 -- -- 1
Issuance (repurchase) of
Common Stock, net........... -- -- (70,345) -- 1,119 80 -- 1,199
Net loss...................... -- -- -- -- -- -- (4,228) (4,228)
-- --
--------- --------- ------- ----- -------- -------
Balance at September 30,
1997........................ 7,937,182 $7 4,793,918 $5 $ 16,165 $ (844) $ (14,434) $ 899
========= == ========= == ======= ===== ======== =======
</TABLE>
The accompanying notes are integral part of these conslidated financial
statements.
F-5
<PAGE> 64
FIRST VIRTUAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(2,581) $(5,310) $(2,243) $(2,000) $(4,228)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 48 156 342 236 379
Non-cash stock compensation............ -- -- 339 183 1,009
Other.................................. (1) (6) (42) -- 211
Changes in assets and liabilities:..........
Accounts receivable.................... -- (676) (1,660) (1,004) (730)
Inventory.............................. (71) (134) (1,025) (127) (442)
Prepaid expenses and other current
assets.............................. 413 (21) (19) 3 14
Other assets........................... (1) (32) (28) (36) --
Accounts payable....................... 133 377 601 468 1,359
Accrued liabilities.................... 20 458 151 367 532
Deferred revenue....................... 200 893 (813) (615) (38)
------- ------- ------- ------- -------
Net cash used in operating
activities........................ (1,840) (4,295) (4,397) (2,525) (1,934)
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of property and equipment....... (207) (184) (504) (270) (376)
Restricted cash............................. -- (105) (30) (30) --
------- ------- ------- ------- -------
Net cash used in investing
activities........................ (207) (289) (534) (300) (376)
------- ------- ------- ------- -------
Cash flows from financing activities:
Borrowings under line of credit............. -- -- 999 -- 801
Repayments under line of credit............. -- -- -- -- (494)
Proceeds from note payable.................. -- -- -- -- 1,250
Repayment of note payable................... -- -- -- -- (141)
Proceeds from issuance of stock, net........ 4,736 4,714 2,003 1,904 1,885
Repayment of capital lease obligations...... -- (42) (182) (135) (161)
------- ------- ------- ------- -------
Net cash provided by financing
activities........................ 4,736 4,672 2,820 1,769 3,140
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................. 2,689 88 (2,111) (1,056) 830
Cash and cash equivalents at beginning of the
period...................................... 10 2,699 2,787 2,787 676
------- ------- ------- ------- -------
Cash and cash equivalents at end of the
period...................................... $ 2,699 $ 2,787 $ 676 $ 1,731 $ 1,506
======= ======= ======= ======= =======
Supplemental cash flow information:
Interest paid............................... $ -- $ 38 $ 78 $ 60 $ 185
Equipment acquired under capital lease
obligations.............................. -- 434 103 103 112
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 65
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
The Company
First Virtual Corporation (the "Company") was incorporated in California in
October 1993 and subsequently reincorporated in Delaware (see Note 10). The
Company develops, manufactures and markets video networking systems for use in
business, government and educational environments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, cost being determined
using the first-in, first-out method.
Restricted Cash
As of December 31, 1995 and 1996 and September 30, 1997, the Company's
other assets included restricted cash of $105,000, $135,000, and $135,000,
respectively, representing collateral for an outstanding letter of credit, which
expires October 30, 1997 and is expected to be renewed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining lease term.
Long-Term Assets
The Company periodically reviews the recoverability of long-term assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable.
Revenue Recognition
Revenues are recognized upon shipment of product to customers, provided no
significant obligations remain and collectibility is probable. Revenues from
sales to certain of the Company's distributors are subject to agreements
allowing rights of return and price protection. Accordingly, the
F-7
<PAGE> 66
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company provides for estimated future returns and credits for price protection
upon revenue recognition. Such reserves are estimated based upon historical
rates of returns and allowances, distributor inventory levels, the Company's
estimates of expected sell-through by distributors and other related factors.
Actual results could differ from these estimates.
Advance payments received from customers are recorded as deferred revenue
and are recognized as revenue upon shipment of product.
The Company on occasion receives nonrecurring engineering funding for
development projects. Revenues from such funding are recognized over the term of
the respective contract using the percentage of completion method. Amounts
received under such projects have not been material to date.
A provision is made upon revenue recognition for the estimated cost to
repair or replace products under warranty arrangements. The Company provides a
limited amount of telephone technical support to customers. These activities are
generally considered insignificant customer support obligations and related
costs are accrued upon revenue recognition.
Software Development Costs
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized, if material. To date, all software
development costs have been expensed as incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." (See Note 8)
Income Taxes
Income taxes are accounted for using an asset and liability approach. The
asset and liability approach requires the recognition of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of currently enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
Pro Forma Stockholders' Equity (unaudited)
If the Offering contemplated by this prospectus (the "Offering") is
consummated, all shares of Preferred Stock outstanding at the closing date will
automatically convert into an aggregate of 7,937,182 shares of Common Stock. The
pro forma effect of such conversion has been reflected in the accompanying
unaudited pro forma stockholders' equity as of September 30, 1997.
F-8
<PAGE> 67
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share is computed using the weighted average number
of shares of common stock, preferred stock (on an as converted basis) and common
equivalent shares outstanding during the periods (using the treasury stock
method, if dilutive). Pursuant to the requirements of the Securities and
Exchange Commission, Common Stock, and common equivalent shares relating to
Preferred Stock (using the as converted method) and stock options and warrants
(using the treasury stock method and assuming the initial public offering price)
issued subsequent to September 30, 1996 have been included in the computations
for all periods presented.
Historical net loss per share data has not been presented since such
amounts are not deemed to be meaningful due to the significant change in the
Company's capital structure which will occur upon the completion of the
Offering.
Interim Results (unaudited)
The accompanying statements of operations and cash flows for the nine
months ended September 30, 1996 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the results for the interim
period.
Concentration of Credit Risk and Geographic Distribution of Revenues
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents and
trade accounts receivable. The Company places its cash and cash equivalents
primarily in market rate accounts. The Company sells its products to original
equipment manufacturers, distributors, value added resellers and end-user
customers throughout the world. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral from
its customers. The Company provides an allowance for uncollectible accounts
receivable based upon the expected collectibility of such receivables. To date,
the Company has not experienced any significant bad debts.
In 1995, revenues from two customers represented 24% and 17% of total
revenues. In 1996, revenues from one customer represented 29% of total revenues.
For the nine months ended September 30, 1997, revenues from one customer
represented 57% of total revenues.
The following table summarizes the percentage of total revenues accounted
for by shipments to customers outside North America:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------- NINE MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
--- --- ------------------
<S> <C> <C> <C>
Asia.................................................. 22% 17% 11%
Europe................................................ 15% 19% 10%
Other................................................. -- -- 1%
--- --- ---
Total............................................ 37% 36% 22%
=== === ===
</TABLE>
At December 31, 1995, outstanding receivables from two customers
represented 17% and 10% of accounts receivable. At December 31, 1996,
outstanding receivables from two customers represented 27% and 10% of accounts
receivable. At September 30, 1997, outstanding receivables from one customer
represented 59% of accounts receivable.
F-9
<PAGE> 68
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents and other current assets
and liabilities such as accounts receivable, accounts payable and accrued
liabilities, as presented in the financial statements, approximates fair value
based on the short-term nature of these instruments. The recorded amount of
long-term debt approximates fair value as the actual interest rates approximate
current competitive rates.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS 128). This
Statement is effective from the quarter ending December 31, 1997. The Statement
redefines earnings per share under generally accepted accounting principles.
Under the new standard, primary earnings per share is replaced by basic earnings
per share and fully diluted earnings per share is replaced by diluted earnings
per share.
If the Company had adopted FAS 128, for the year ended 1996 and the nine
month period ended September 30, 1997, the Company's pro forma loss per share
would have been as follows:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
Basic loss per share..................... $(0.18) $ (0.16) $(0.33)
Diluted loss per share................... (0.17) (0.15) (0.31)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (FAS
130) and No. 131 "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). The Company does not believe that FAS 130 and 131 will
have any material impact on its financial statement reporting requirements.
Dependence on Suppliers
The Company's ability to timely deliver its products is dependent upon the
availability of quality components and subsystems used in these products. The
Company depends in part upon subcontractors to manufacture, assemble and deliver
certain items in a timely and satisfactory manner. The Company obtains certain
components and subsystems from single or a limited number of sources. A
significant interruption in the delivery of such items could have a material
adverse effect on the Company's financial condition and results of operations.
F-10
<PAGE> 69
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Inventory:
Raw materials........................................ $ 124 $ 711 $ 1,113
Finished goods....................................... 81 519 559
----- ------ -------
$ 205 $1,230 $ 1,672
===== ====== =======
Property and equipment:
Computers and equipment.............................. $ 697 $1,137 $ 1,590
Furniture and fixtures............................... 80 236 244
Leasehold improvements............................... 62 73 100
----- ------ -------
839 1,446 1,934
Less accumulated depreciation and amortization....... (191) (533) (912)
----- ------ -------
$ 648 $ 913 $ 1,022
===== ====== =======
Accrued liabilities:
Accrued employee compensation........................ $ 286 $ 296 $ 478
Accrued warranty..................................... 72 162 359
Other................................................ 128 179 332
----- ------ -------
$ 486 $ 637 $ 1,169
===== ====== =======
</TABLE>
As of December 31, 1995 and 1996 and September 30, 1997, property and
equipment recorded under capital leases, consisting primarily of computers and
equipment, totaled $434,000, $537,000, and $650,000, respectively, with related
accumulated amortization of $50,000, $256,000, and $430,000, respectively.
NOTE 3 -- LINE OF CREDIT:
The Company has a working capital line of credit agreement with a bank
which provides for borrowings of up to $3,000,000. Borrowings under the line of
credit are limited to a specified percentage of eligible accounts receivable and
inventory, and are secured by substantially all of the assets of the Company.
Interest on borrowings is set at the bank's prime rate (8.5% at September 30,
1997) plus 0.5%. Among other provisions, the Company is required to maintain
certain financial covenants and is prohibited from paying dividends. The line of
credit agreement expires in April 1998. Borrowings outstanding under the line of
credit totaled $1,306,000 as of September 30, 1997 and an additional
approximately $800,000 was available to the Company. At September 30, 1997, the
Company was not in compliance with certain covenants, for which the bank issued
a waiver.
F-11
<PAGE> 70
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- LONG-TERM DEBT:
Long-term debt comprises:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
12% Subordinated debt due in monthly
installments of $41,000 through 2000.... $ -- $ -- $ 1,021
Capitalized lease obligations.............. 392 313 264
---- ---- ------
392 313 1,285
Less current portion....................... 150 211 573
---- ---- ------
$242 $102 $ 712
==== ==== ======
</TABLE>
In April 1997, the Company entered into a subordinated debt agreement
pursuant to which the Company borrowed $1,250,000. The debt is secured by
certain assets of the Company, including accounts receivables, inventory,
property and equipment. Future principal payments of the subordinated debt as of
September 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1997 (three months)................................. $ 82
1998................................................ 363
1999................................................ 414
2000................................................ 162
------
$1,021
======
</TABLE>
NOTE 5 -- INCOME TAXES:
No provision or benefit for income taxes has been recognized for any of the
periods presented as the Company has incurred net operating losses for income
tax purposes and has no carryback potential.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards and capitalized start-up
costs..................................................... $3,238 $3,825 $ 4,636
Research and development credit carryforwards............... 311 518 753
Accruals and reserves....................................... 175 297 419
------ ------ ------
Total deferred tax assets................................... 3,724 4,640 5,808
Valuation allowance......................................... (3,724) (4,640) (5,808)
------ ------ ------
Net deferred tax assets..................................... $ -- $ -- $ --
====== ====== ======
</TABLE>
Based on a number of factors, including the lack of a history of profits
and the fact that the Company competes in a developing market that is
characterized by rapidly changing technology, management believes that the
weight of available evidence indicates that it is more likely than not that the
Company will not be able to realize its deferred tax assets and thus a full
valuation allowance has been provided at December 31, 1995 and 1996 and
September 30, 1997.
At September 30, 1997, the Company had federal net operating loss
carryforwards of approximately $11.7 million available to reduce future taxable
income. The federal net operating loss carryforwards expire from 2008 through
2012.
F-12
<PAGE> 71
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the Tax Reform Act of 1986, the amount of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership change
of more than 50% over a three-year period, as defined.
NOTE 6 -- COMMITMENTS:
Leases
The Company leases its facility under a noncancelable operating lease
agreement which expires in 1998. In addition, the Company leases certain
equipment under long-term lease agreements that are classified as capital
leases. These capital leases terminate at various dates through 2001. Future
minimum lease payments under all noncancelable operating and capital leases as
of September 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending December 31,
1997 (three months)........................................... $ 47 $ 96
1998.......................................................... 118 117
1999.......................................................... -- 37
2000.......................................................... -- 37
2001.......................................................... -- 3
------- -------
Total minimum payments........................................ $ 165 290
=======
Less amount representing interest............................. -- (26)
-------
Present value of capital lease obligations.................... -- 264
Less current portion.......................................... -- (191)
-------
Lease obligations, long-term.................................. -- $ 73
=======
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996, and for
the nine months ended September 30, 1997 was approximately $20,000, $110,000,
$320,000 and $171,000, respectively.
NOTE 7 -- CONVERTIBLE PREFERRED STOCK:
As of September 30, 1997 the Company had issued 7,937,182 shares of
convertible Preferred Stock, of which 4,000,000 shares, 2,200,000 shares,
1,348,807 shares and 388,375 shares, have been designated as Series A, B, C and
D, respectively. The convertible Preferred Stock has been issued at prices
ranging from $0.50 per share to $8.00 per share.
In August 1997, in conjunction with the last round of Series D Preferred
Stock, under a stock subscription agreement, the Company agreed to issue 100,000
shares of Series D Preferred Stock to an investor at $8.00 per share for cash.
The stock subscription agreement expires on October 31, 1997.
The rights, preferences and privileges with respect to the Series A, B, C
and D Preferred Stock (collectively "Preferred Stock") are as follows:
Dividends
Holders of Preferred Stock are entitled to receive noncumulative,
preferential dividends of $0.05, $0.15, $0.40 and $0.80, respectively, per
annum, when and if declared by the Board of Directors. No such dividends have
been declared.
F-13
<PAGE> 72
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of the Preferred Stock are
entitled to a per share distribution in preference to holders of Common Stock
equal to $0.50, $1.50, $4.00 and $8.00 per share, respectively, plus any
declared but unpaid dividends. In the event funds are sufficient to make a
complete distribution to holders of Preferred Stock as described above, the
remaining assets will be distributed to the holders of Common Stock and
Preferred Stock based upon the number of shares of Common Stock held by each,
assuming conversion of all Preferred Stock, until the holders of Preferred Stock
receive two times their original per share preference. Thereafter, the remaining
assets will be distributed to the holders of Common Stock.
Voting Rights
The holders of Preferred Stock have one vote for each share of Common Stock
into which such Preferred Stock may be converted.
Conversion
Each share of Preferred Stock is convertible at any time into one share of
Common Stock at the option of the holder, subject to adjustment for dilution.
Such conversion is automatic upon the earlier of the date specified by vote,
written consent or agreement of holders of at least two-thirds of such series
then outstanding or immediately upon the closing date of a public offering of
the Company's Common Stock for which the aggregate net proceeds exceed
$10,000,000 and the per share offering price equals or exceeds $8.00, subject to
adjustment for dilution. At September 30, 1997, a total of 8,037,182 shares of
Common Stock have been reserved for issuance upon conversion of the Preferred
Stock.
Series D Preferred Stock Warrants
In conjunction with certain financing arrangements, during the nine months
ended September 30, 1997 the Company issued warrants to purchase 40,624 shares
of its Series D Preferred Stock at $8.00 per share. The warrants are exercisable
immediately and expire at various times from 3 to 4.3 years following the
closing of an initial public offering. As of September 30, 1997, no warrants
have been exercised. The aggregate value of these warrants was estimated by the
Company, using the Black-Scholes models, at approximately $159,000 and is being
expensed as additional cost of financing over the term of the related
borrowings.
NOTE 8 -- STOCK PLANS:
1993 Employee, Consultant and Director Stock Purchase Plan
In December 1993, the Company adopted a stock purchase plan (the "1993
Plan"). As of September 30, 1997, 3,295,000 shares of Common Stock were
authorized for issuance of stock purchase rights awarded under the 1993 Plan.
The 1993 Plan, which expires in 2003 unless terminated earlier, is administered
by the Board of Directors and provides for the granting of rights to purchase
the Company's Common Stock. All awards have been made at a purchase price equal
to at least 100% of the fair value of the stock as determined by the Board of
Directors on the date of grant. Stock purchase rights granted under the 1993
Plan must be exercised at the time of grant. Common Stock issued under the 1993
Plan generally vests 10% after six months and ratably each month over the
remaining fifty-four month period, provided that the grantee remains associated
with the Company. In the event that the grantee's continuous status as an
employee, director or consultant terminates, the Company has the
F-14
<PAGE> 73
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
right to repurchase all unvested shares of Common Stock issued upon exercise of
an award at a repurchase price equal to the original issuance price of such
shares. As of September 30, 1997, a total of 3,293,618 shares of the Company's
Common Stock had been issued under the 1993 Plan, 493,450 shares had been
repurchased or cancelled pursuant to the Company's repurchase rights, and
approximately 1,185,541 shares were subject to repurchase.
1996 Stock Purchase Bonus Plan
In February 1996, the Company adopted an employee stock purchase bonus plan
(the "1996 Plan") and reserved 125,000 shares of Series C Preferred Stock
("Series C") for issuance to eligible employees upon the exercise of stock
purchase rights awarded under the 1996 Plan. The 1996 Plan, which expires in
2006 unless terminated earlier, is administered by the Board of Directors and
provides for the grant of rights to purchase shares of Series C at a purchase
price equal to 100% of the fair value of the stock as determined by the Board of
Directors on each offering date. Offering periods begin on the first day of the
second month following the end of each calendar quarter (the "Offering Date")
and end ten business days later. On each Offering Date, eligible employees are
granted the right to purchase the number of shares of Series C purchasable with
up to 100% of such employee's bonus amount attributable to the calendar quarter
ended immediately prior to the Offering Date. Each offering contains a single
purchase date occurring ten business days following the Offering Date of such
offering. During 1996, and the nine months ended September 30, 1997 the Company
issued 81,260 shares and 17,547 shares, respectively, of Series C at prices
ranging from $4.00 to $6.00 per share under the 1996 Plan.
1996 Stock Option Plans
The Company has two stock option plans which were adopted in 1996 (the
"Stock Option Plans"). The Stock Option Plans, which expire in 2006, provide for
the grant of incentive stock options and nonstatutory stock options to
employees, directors and consultants. As of September 30, 1997, 2,130,000 shares
of Common Stock were authorized under the Stock Option Plans. The Board of
Directors may, at its discretion, terminate the Stock Option Plans at any time.
Options granted under the Stock Option Plans are for periods not to exceed ten
years, and must be issued at prices not less than 100% and 85% for incentive and
nonstatutory stock options, respectively, of the fair value of the stock, as
determined by the Board of Directors on the date of grant. Options granted to
stockholders who own greater than 10% of the outstanding stock are for periods
not to exceed five years and must be issued at prices not less than 110% of the
fair value of the stock, as determined by the Board of Directors on the date of
grant. Options granted under the Stock Option Plans are exercisable immediately
and generally vest 10% after six months and ratably each month over the
remaining fifty-four month period, provided that the optionee remains associated
with the Company. In the event that the optionee's continuous status as an
employee, director or consultant terminates, the Company has the right to
repurchase all unvested shares of Common Stock issued upon exercise of an option
at a repurchase price equal to the exercise price of such shares. Additionally,
all unvested options terminate and any vested options must be exercised within
30 days.
1997 Non-Employee Directors' Stock Option Plan
On September 25, 1997, the Company's Board of Directors approved the 1997
Non-Employee Director Stock Option Plan (the "Director's Plan") and reserved
250,000 shares of the Company's Common Stock for issuance thereunder.
The Director's Plan provides for the grant of options to purchase 30,000
shares of Common Stock to each director upon initial election to the Board of
Directors and subsequent automatic grants of
F-15
<PAGE> 74
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
options to purchase 10,000 shares of Common Stock on each anniversary of a
previous grant. An initial grant of 10,000 shares was made to each of the five
non-employee directors of the Company in September 1997 upon inception of the
Director's Plan, at a price of $11.00 per share.
Option activity under the Company's various currently effective stock
option plans is summarized as follows:
<TABLE>
<CAPTION>
SHARES
SUBJECT
TO WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted................................................... 927,998 $ 2.60
---------
Balance at December 31, 1996.............................. 927,998 $ 2.60
Granted................................................... 980,644 $ 7.03
Exercised................................................. (300) $ 3.50
Cancelled................................................. (50,644) $ 4.00
---------
Balance at September 30, 1997............................. 1,857,698 $ 4.90
=========
Options vested at September 30, 1997...................... 252,951
=========
Options available for future grant at September 30,
1997.................................................... 522,002
=========
</TABLE>
With respect to certain options and restricted stock granted in 1996 and
the nine months ended September 30, 1997, the Company is recognizing a
compensation charge of $2,121,000. The Company recognized $339,000 and
$1,009,000 of said amount as compensation expense in the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively. The Company
will recognize the balance of this deferred compensation over the related
vesting period of the options. The future compensation charges are subject to
reduction for any employee who terminates employment prior to the expiration of
such employee's option vesting period.
Significant option groups outstanding at September 30, 1997 and related
weighted average exercise price and contractual life information are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
RANGE OF CONTRACTUAL AVERAGE
EXERCISE NUMBER LIFE (IN EXERCISE
PRICES OUTSTANDING YEARS) PRICE
- ----------- ----------- ----------- --------
<S> <C> <C> <C>
$2.50 612,998 8.89 $ 2.50
$2.75 300,000 3.75 $ 2.75
$3.50 14,700 9.08 $ 3.50
$4.00 505,000 9.49 $ 4.00
$11.00 425,000 9.92 $11.00
-------
$2.50 - $11.00 1,857,698 9.10 $ 4.90
=======
</TABLE>
F-16
<PAGE> 75
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value Disclosures
Had compensation cost for the Company's Stock Option Plans been determined
based on the minimum value of such options at the grant dates as prescribed by
FAS No. 123, the Company's pro forma net loss would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1996 1996 1997
------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C> <C>
Net loss:
As reported.............................. $ (2,243) $(2,000) $(4,228)
Pro Forma as adjusted.................... (2,395) (2,056) (4,551)
Pro Forma net loss per share:
As reported.............................. $ (0.17) $ (0.15) $ (0.31)
As adjusted.............................. (0.18) (0.16) (0.34)
</TABLE>
No pro forma information has been presented for 1995 since the Stock Option
Plans were adopted in 1996 and, accordingly, no stock options were granted under
the Stock Option Plans prior to 1996. The weighted-average estimated grant-date
minimum value for options granted under the Stock Option Plans during 1996 and
during the nine months ended September 30, 1997 was $0.70 and $0.97,
respectively. The minimum value of each option is estimated on the date of grant
with the following assumptions for grants during 1996 and the nine months ended
September 30, 1997: annual dividend yield of 0.0% for both periods; risk-free
annual interest rates of 5.97% to 6.64% and 6.00% to 6.61%, respectively; and an
expected option term of five years for both periods.
1997 Employee Stock Purchase Plan
The Company's 1997 Stock Purchase Plan (the "Purchase Plan") was approved
by the Board of Directors in October 1997 and will become effective upon the
closing of the Offering. Under the Purchase Plan a total of 150,000 shares of
Common Stock have been reserved for issuance to participating employees who meet
eligibility requirements.
The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's base
compensation, including commissions, bonuses and overtime, at a price equal to
85% of the fair market value of the Common Stock at the beginning of each
offering period or the end of the purchase period, whichever is lower.
NOTE 9 -- NOTES RECEIVABLE FROM STOCKHOLDERS:
During the period from January 1994 through October 1996, the Company made
full recourse loans to certain executives and employees pursuant to the
Company's 1993 Plan. The loans bear interest at rates ranging from 4.92% to
7.96% per annum and interest on the notes accrues monthly. The loans are due on
the earlier of various dates from January 1998 through October 2001 or
termination of employment.
NOTE 10 -- SUBSEQUENT EVENTS
On October 22, 1997, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission covering the proposed sale of shares of its Common Stock to the
public. In addition, the Company's Board of Directors authorized, and the
stockholders subsequently approved, the reincorporation of the Company in
F-17
<PAGE> 76
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Delaware which was effected on December 2, 1997. The Board also authorized, and
the stockholders subsequently approved, an increase in the authorized shares of
Common Stock to 35,000,000 and a decrease in the authorized shares of Preferred
Stock to 5,000,000 to be effective upon the closing of the Offering. The Board
and stockholders also approved an increase in the number of options authorized
and available under the Company's 1996 Stock Option Plans. Additionally, the
Board of Directors and stockholders approved the consolidation and restatement
of the Company's 1993 Plan and Stock Option Plans into the 1997 Equity Incentive
Plan to be effective upon the closing of the offering. All per share amounts
have been adjusted in the accompanying consolidated financial statements to
reflect the reincorporation in Delaware.
In October 1997, the Company entered into a subordinated debt agreement
pursuant to which the Company borrowed $1,000,000. The debt bears interest at
12% per annum and is due in monthly installments through October 2000. The debt
is secured by certain assets of the Company, including accounts receivable,
inventory, property and equipment. In conjunction with the issuance of the
subordinated debt, the Company agreed to issue a warrant to purchase 20,312
shares of Series D Preferred Stock at $8.00 per share. The warrant is
exercisable immediately and expires on the earlier of 7 years from the date of
issuance or 3 years following the closing of an initial public offering.
F-18
<PAGE> 77
Appendix -- Description of Graphics
Top caption: VIDEO NETWORKING
Company Logo
INSIDE FRONT COVER
Top Left Graphic: illustration of a teacher conducting a class using
video networking tools.
Caption: DISTANCE LEARNING
Enhancing the quality of distance learning. Conducting simultaneous
classes in multiple locations. Teaching a broad array of subjects
requiring visual reinforcement.
Top Right Graphic: illustration of surgeons performing an operation on a
patient using video networking tools.
Caption: TELEMEDICINE
Bringing doctors and patients together for remote
consultation. Conferencing during in-progress surgery. Enabling
training seminars with close-up precision imaging.
Bottom Left Graphic: illustration of a business person delivering a
presentation to a group of people using video networking tools.
Caption: VIDEO MARKETING
Enabling face-to-face communication without travel. Delivering live
presentations to several locations simultaneously.
Bottom Right Graphic: illustration of workers at a factory reviewing the
configuration of machinery using video networking tools.
Caption: VIDEO MANUFACTURING
Enabling remote floor maintenance, inspection and supervision.
Providing just-in-time training and efficient technology transfer.
Lower caption:
First Virtual's broad product line delivers end-to-end solutions for a
wide range of customer applications including distance learning,
telemedicine, video marketing and video manufacturing.
GATE FOLD (left side)
Graphic: Computer screen showing video networking graphical interfaces. The
computer screen is linked via lines to a rack containing First
Virtual equipment.
Caption:
Conferencing: The ability to meet face-to-face in real-time over the
network. First Virtual's products provide high quality, cost effective
and scaleable video collaboration over an ATM network and allow the
efficient connection of traditional ISDN conferencing.
Caching: The ability to use high quality stored video over the network, also
called video on demand. Caching is the cornerstone of all distance
learning applications. First Virtual's caching products allow
concurrent access to high quality stored video on ATM and Ethernet
networks.
Casting: The ability to broadcast high quality live video over the network.
First Virtual's casting products enable applications such as real-time
delivery of lectures to be broadcast to students over multiple
desktops across both ATM and Ethernet networks.
GATE FOLD (right side)
Graphic: Network diagram depicting the First Virtual
product set interconnected by lines. The graphic shows the Company's
V-Caster, V-Switch, V-MCU, V-Gate323, V-Switch
and V-Cache.
Caption: First Virtual provides a high quality cost effective, video networking
solution that integrates video with voice and data, and leverages
existing network infrastructures including Ethernet, ISDN, ATM and
T1/E1. The Company's Multimedia Operating Software (MOS) is designed
to guarantee network resources for real-time video applications
on any QoS capable network in the presence of voice and bursts
of data packets.
Company Logo
Page 30:
Graphic: Network diagram depicting First Virtual's product set
interconnected by lines. The graphic shows the Company's
V-Caster, V-Switch, V-MCU, V-Gate323, V-Switch and V-Cache.
Caption:
First Virtual provides a high quality cost effective, video networking
solution that integrates video with voice and data, and leverages
existing network infrastructures including Ethernet, ISDN, ATM and T1.
The Company's Multimedia Operating Software (MOS) is designed to
guarantee network resources for real-time video applications on any
QoS-capable network in the presence of voice and bursts of data
packets.
OUTSIDE BACK COVER
Company logo
<PAGE> 78
LOGO
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the Common Stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 13,382
NASD Filing Fee................................................... 4,916
Nasdaq National Market Filing Fee................................. 49,000
Blue Sky Fees and Expenses........................................ 5,000
Accounting Fees................................................... 290,000
Legal Fees and Expenses........................................... 350,000
Transfer Agent and Registrar Fees................................. 7,500
Printing and Engraving............................................ 175,000
Miscellaneous..................................................... 5,202
----------
Total................................................... $900,000
==========
</TABLE>
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that directors of
the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. The Registrant's Bylaws provide for indemnification of officers and
directors to the full extent and in the manner permitted by Delaware law.
Section 145 of the Delaware General Corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain executive officers which provide indemnification under
certain circumstances for acts and omissions which may not be covered by any
directors' and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the
Registration Statement, provides for indemnification of the Registrant and its
controlling persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since October 24, 1994, the Company has issued and sold the following
securities:
1. Since October 24, 1994, the Company issued 2,564,159 shares of
Common Stock (net of repurchases) to 73 employees, consultants and
non-employee directors at a weighted average purchase price of $.67 per
share.
2. Since April 18, 1996, the Company has granted stock options to
purchase 2,119,698 shares of Common Stock (net of cancellations) to a total
of 82 employees, consultants and non-employee directors at a weighted
average exercise price of $5.62 per share pursuant to the Company's stock
plans.
II-1
<PAGE> 80
3. From October 13, 1994 to November 30, 1994, the Company issued and
sold, pursuant to a Series B Preferred Stock Purchase Agreement, an
aggregate of 2,200,000 shares of Series B Preferred Stock to 30 private
investors at a purchase price of $1.50 per share.
4. From June 28, 1995 to April 23, 1996, the Company issued and sold
pursuant to a Series C Preferred Stock Purchase Agreement, an aggregate of
1,250,000 shares of Series C Preferred Stock to 28 private investors at a
purchase price of $4.00 per share.
5. From March 11, 1996 to November 14, 1997, the Company issued and
sold pursuant to the Company's 1996 Employee Stock Purchase Bonus Plan, an
aggregate of 101,778 shares of Series C Preferred Stock to 34 employees at
purchase prices ranging from $4.00 to $11.00 per share.
6. From August 29, 1996 to November 4, 1997, the Company issued and
sold pursuant to a Series D Preferred Stock Purchase Agreement, an
aggregate of 488,375 shares of Series D Preferred Stock to 36 private
investors at a purchase price of $8.00 per share.
7. On April 11, 1997, the Company issued a warrant to purchase 18,750
shares of Series D Preferred Stock at an exercise price of $8.00 per share
to Silicon Valley Bank.
8. On April 30, 1997, the Company issued warrants to purchase 21,874
shares of Series D Preferred Stock at an exercise price of $8.00 per share
to Comdisco, Inc.
9. On November 19, 1997, the Company issued a warrant to purchase
20,312 shares of Series D Preferred Stock at an exercise price of $8.00 per
share to Comdisco, Inc.
The sales and issuances of securities in the transactions described in
paragraphs (1), (2) and (5) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder in that
they were offered and sold either pursuant to a written compensatory benefit
plan or pursuant to a written contract relating to compensation as provided by
Rule 701.
The sales and issuances of securities in the transactions described in
paragraphs (3) through (4) and (6) through (8) above were deemed to be exempt
from registration under the Securities Act by virtue of Section 4(2), Regulation
D or Regulation S promulgated thereunder. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
received either adequate information about the Registrant or had access, through
employment or other relationships, to such information.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1 Underwriting Agreement
**3.1 Amended and Restated Articles of Incorporation of the Registrant as filed
June 6, 1997
**3.2 Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be effective upon
closing of the offering
3.4 Bylaws of the Registrant to be effective upon the closing of the offering
4.1 Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward LLP as to legality of the Common Stock
10.1 1997 Equity Incentive Plan
10.2 Form of Incentive Stock Option Grant
10.3 Form of Non-Incentive Stock Option Grant
</TABLE>
II-2
<PAGE> 81
<TABLE>
<C> <S>
10.4 1997 Employee Stock Purchase Plan
10.5 Form of 1997 Employee Stock Purchase Plan Offering
10.6 1997 Non-Employee Directors' Stock Option Plan
**10.7 Form of Indemnification Agreement between the Registrant and its directors
and executive officers
**10.8 Amended and Restated Investor Rights Agreement, dated as of August 29, 1996
among the Registrant and the investors named therein, as amended October
17, 1997
**10.9 Lease Agreement between the Registrant and John Arrillaga, or his successor
Trustee, UTA 7/20/77, dated July 19, 1995
10.9(i) Amendment No. 1 to Lease Agreement between the Registrant and John
Arrillaga, or his successor Trustee, UTA 7/20/77, dated November 7, 1997
**10.10 Loan and Security Agreement between the Registrant and Silicon Valley Bank
("SVB"), dated July 3, 1996, as amended
**10.11 Master Lease Agreement between the Registrant and Comdisco, Inc.
("Comdisco"), dated April 30, 1997
**10.12 Subordinated Loan and Security Agreement between the Registrant and
Comdisco
**10.13* Original Equipment Manufacturing Agreement between the Registrant and Bay
Networks, Inc., dated November 3, 1995, as amended through April 9, 1997
**10.13(i)* Fourth Amendment to OEM Agreement, between the Registrant and Bay Networks,
Inc., dated October 26, 1997
**10.14* OEM Reseller Agreement between the Registrant and Northern Telecom Inc.,
dated May 1, 1997
**10.15* Development and License Agreement between the Registrant and Advanced
Telecommunications Modules Limited, dated February 25, 1994, as amended
**10.16* Equipment Manufacturing OEM Agreement between the Registrant and VTEL
Corporation, dated August 20, 1997
**10.17* Technology Licensing Agreement between IBM Corporation and First Virtual
Corporation, dated October 16, 1997
**10.18 Warrant issued to SVB, dated April 11, 1997
**10.19 Warrants issued to Comdisco, each dated April 30, 1997
10.20 Subordinated Loan and Security Agreement between the Registrant and
Comdisco, dated October 23, 1997
10.21 Warrant issued to Comdisco, dated November 19, 1997
10.22 Lease Agreement between the Registrant and John Arrillaga, or his successor
Trustee, UTA 7/20/77, dated November 7, 1997
**11.1 Statement re computation of net loss per share
**16.1 Letter of KPMG Peat Marwick LLP
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
**24.1 Power of Attorney (see page II-5)
**27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment is being sought for portions of this exhibit. A
separate filing setting forth the Registrant's application for
confidential treatment has been made with the Commission.
** Previously filed as an Exhibit to the Registration Statement.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
II-3
<PAGE> 82
ITEM 17. UNDERTAKINGS
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Virtual
Corporation has duly caused this Amendment No. 3 to the Registration Statement
to be signed on its behalf, by the undersigned, thereunto duly authorized, in
the City of Santa Clara, County of Santa Clara, State of California, on December
3, 1997.
FIRST VIRTUAL CORPORATION
By: /s/ RALPH K. UNGERMANN
------------------------------------
Ralph K. Ungermann
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------- ------------------
<S> <C> <C>
/s/ RALPH K. UNGERMANN Chief Executive Officer and December 3, 1997
- --------------------------------- President (Principal Executive
Ralph K. Ungermann Officer)
/s/ JAMES O. MITCHELL Vice President, Operations and December 3, 1997
- --------------------------------- Chief Financial Officer
James O. Mitchell (Principal Financial and
Accounting Officer)
* Director December 3, 1997
- ---------------------------------
Neal Douglas
* Director December 3, 1997
- ---------------------------------
Pier Carlo Falotti
* Director December 3, 1997
- ---------------------------------
David A. Norman
* Director December 3, 1997
- ---------------------------------
James Swartz
* Director December 3, 1997
- ---------------------------------
Enzo Torresi
/s/ JAMES O. MITCHELL
- ---------------------------------
James O. Mitchell
*(Attorney-in-fact)
</TABLE>
II-5
<PAGE> 84
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <S>
1.1 Underwriting Agreement
**3.1 Amended and Restated Articles of Incorporation of the Registrant as filed June
6, 1997
**3.2 Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be effective upon closing
of the offering
3.4 Bylaws of the Registrant to be effective upon the closing of the offering
4.1 Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward LLP as to legality of the Common Stock
10.1 1997 Equity Incentive Plan
10.2 Form of Incentive Stock Option Grant
10.3 Form of Non-Incentive Stock Option Grant
10.4 1997 Employee Stock Purchase Plan
10.5 Form of 1997 Employee Stock Purchase Plan Offering
10.6 1997 Non-Employee Directors' Stock Option Plan
**10.7 Form of Indemnification Agreement between the Registrant and its directors and
executive officers
**10.8 Amended and Restated Investor Rights Agreement, dated as of August 29, 1996
among the Registrant and the investors named therein, as amended October 17,
1997
**10.9 Lease Agreement between the Registrant and John Arrillaga, or his successor
Trustee, UTA 7/20/77, dated July 19, 1995
10.9(i) Amendment No. 1 to Lease Agreement between the Registrant and John Arrillaga,
or his successor Trustee, UTA 7/20/77, dated November 7, 1997
**10.10 Loan and Security Agreement between the Registrant and Silicon Valley Bank
("SVB"), dated July 3, 1996, as amended
**10.11 Master Lease Agreement between the Registrant and Comdisco, Inc. ("Comdisco"),
dated April 30, 1997
**10.12 Subordinated Loan and Security Agreement between the Registrant and Comdisco
**10.13* Original Equipment Manufacturing Agreement between the Registrant and Bay
Networks, Inc., dated November 3, 1995, as amended through April 9, 1997
**10.13(i)* Fourth Amendment to OEM Agreement, between the Registrant and Bay Networks,
Inc., dated October 26, 1997
**10.14* OEM Reseller Agreement between the Registrant and Northern Telecom Inc., dated
May 1, 1997
**10.15* Development and License Agreement between the Registrant and Advanced
Telecommunications Modules Limited, dated February 25, 1994, as amended
**10.16* Equipment Manufacturing OEM Agreement between the Registrant and VTEL
Corporation, dated August 20, 1997
**10.17* Technology Licensing Agreement between IBM Corporation and First Virtual
Corporation, dated October 16, 1997
**10.18 Warrant issued to SVB, dated April 11, 1997
**10.19 Warrants issued to Comdisco, each dated April 30, 1997
10.20 Subordinated Loan and Security Agreement between the Registrant and Comdisco,
dated October 23, 1997
10.21 Warrant issued to Comdisco, dated November 19, 1997
10.22 Lease Agreement between the Registrant and John Arrillaga, or his successor
Trustee, UTA 7/20/77, dated November 7, 1997
**11.1 Statement re computation of net loss per share
**16.1 Letter of KPMG Peat Marwick LLP
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
**24.1 Power of Attorney (see page II-5)
**27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment is being sought for portions of this exhibit. A
separate filing setting forth the Registrant's application for
confidential treatment has been made with the Commission.
** Previously filed as an Exhibit to the Registration Statement.
<PAGE> 1
EXHIBIT 1.1
2,400,000 SHARES(1)
FIRST VIRTUAL CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
December __, 1997
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
First Virtual Corporation, a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter
called the "Selling Stockholders") address you as the Representatives of each
of the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,200,000 shares of its authorized and unissued Common Stock, $0.001 par value
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 200,000 shares of
the Company's authorized and outstanding Common Stock, $0.001 par value per
share, to the several Underwriters. The 2,200,000 shares of Common Stock,
$0.001 par value per share, of the Company to be sold by the Company are
hereinafter called the "Company Shares" and the 200,000 shares of Common Stock,
$0.001 par value per share to be sold by the Selling Stockholders are
hereinafter called the "Selling Stockholder Shares." The Company Shares and
the Selling Stockholder Shares are hereinafter collectively referred to as the
"Firm Shares." The Company also proposes to grant to the Underwriters an
option to purchase up to 360,000 additional shares of the Company's Common
Stock, $0.001 par value per share, (the "Option Shares"), as provided in
Section 7 hereof. As used in this Agreement, the term "Shares" shall include
the Firm Shares and the Option Shares. All shares of Common Stock, $0.001 par
value per share of the Company to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
__________________
(1) Plus an option to purchase up to 360,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company and
the Selling Stockholders.
I. The Company represents and warrants to and agrees
with each Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File
No. 333-38755) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration statement,
such amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations as
may have been required prior to the date hereof have been similarly prepared
and filed with the Commission; and the Company will file such additional
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements as may hereafter be
required. Copies of such registration statement and amendments, of each
related prospectus subject to completion (the "Preliminary Prospectuses") and
of any abbreviated registration statement pursuant to Rule 462(b) of the Rules
and Regulations have been delivered to you.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancAmerica Robertson
Stephens, on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as applicable,
of the Rules and Regulations pursuant to subparagraph (1), (4) or (7) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
the registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of prospectus,
or, if BancAmerica Robertson Stephens, on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) or files a term sheet pursuant to Rule 434 of the Rules and
Regulations, the information deemed to be a part of the registration statement
at the time it became effective pursuant to Rule 430A(b) or Rule 434(d) of the
Rules and Regulations) and, in the event of any amendment thereto or the filing
of any abbreviated registration statement pursuant to Rule 462(b) of the Rules
and Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of BancAmerica Robertson Stephens, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject
to completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed
to be a part of the Registration Statement at the time it became effective
pursuant to Rule 434(d) of the Rules and Regulations). Notwithstanding the
foregoing, if any revised prospectus shall be provided to the Underwriters by
the Company for use in connection with the offering of the Shares that differs
from the prospectus referred to in the immediately preceding sentence (whether
or not
-2-
<PAGE> 3
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of BancAmerica Robertson Stephens, on behalf
of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up
to and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (iii) the Prospectus, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact
or omit to state a material fact necessary 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 contained in
this subparagraph (b) shall apply to information contained in or omitted from
the Registration Statement or Prospectus, or any amendment or supplement
thereto, in reliance upon, and in conformity with, written information relating
to any Underwriter furnished to the Company by such Underwriter specifically
for use in the preparation thereof.
(c) Each of the Company and its subsidiary has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with full
power and authority (corporate) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the reincorporation of the
Company from a California corporation into a Delaware corporation was duly and
properly effectuated in accordance with the Delaware and California corporation
laws, the successor Company succeeded to all rights, privileges and obligations
of the predecessor Company, the reincorporation was effectuated as a merger
(the "Merger") pursuant to Delaware law and the offer and sale of the
securities issued in connection with the Merger were in compliance with the
applicable federal and state securities laws; the Company owns all of the
outstanding capital stock of its subsidiary free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiary considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiary is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities that are
material to the conduct of its business, all of which are valid and in full
force and effect; neither the Company nor its subsidiary is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other material agreement or instrument to which the Company or
any of its subsidiary is a party or by which it or any of its subsidiary or
their respective properties may be bound; and neither the Company nor any of
its subsidiary is in material violation of any law, order, rule, regulation,
writ, injunction, judgment or
-3-
<PAGE> 4
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its subsidiary or over their
respective properties of which it has knowledge. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than First Virtual Limited.
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a material breach or violation of any of the terms and
provisions of, or constitute a material default under, (i) any material bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other material agreement or instrument to which the Company or any of its
subsidiary is a party or by which it or its subsidiary or their respective
properties may be bound, (ii) the charter or bylaws of the Company or its
subsidiary, or (iii) any material law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or its
subsidiary or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or its subsidiary or over their respective properties is required for
the execution and delivery of this Agreement and the consummation by the
Company of the transactions herein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws.
(e) There is not any pending or, to the best of
the Company's knowledge, threatened action, suit, claim or proceeding against
the Company, its subsidiary or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or its subsidiary or over their respective officers or properties or
otherwise which (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiary considered as one enterprise or
might materially and adversely affect their properties, assets or rights, (ii)
might prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed; and there are no agreements, contracts, leases or documents of
the Company or any of its subsidiary of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) All outstanding shares of capital stock of
the Company (including the Selling Stockholder Shares) have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" (as of September 30, 1997) and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Company Shares and the Option Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right of stockholders exists with respect to any of the Company Shares or
Option Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon and will not apply to the consummation of the transactions
contemplated on or before the Closing Date (as defined below). No further
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<PAGE> 5
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the
Company Shares and the Option Shares, except as may be required under the Act or
under state or other securities or Blue Sky laws. All issued and outstanding
shares of capital stock of the subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and were
not issued in violation of or subject to any preemptive right, or other rights
to subscribe for or purchase shares and are owned by the Company free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest. Except as disclosed or contemplated in the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, neither the Company nor its subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Price Waterhouse LLP, which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of December 31, 1995 and 1996 and as of September 30,
1997 and for each of the years in the three (3) years ended December 31, 1996
and for the nine month period ended September 30, 1997 filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiary at the respective dates and for
the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to
be included in the Registration Statement.
(h) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or, to the Company's knowledge,
business prospects of the Company and its subsidiary considered as one
enterprise, (ii) any transaction that is material to the Company and its
subsidiary considered as one enterprise, except transactions entered into in
the ordinary course of business, (iii) any obligation, direct or contingent,
that is material to the Company and its subsidiary considered as one
enterprise, incurred by the Company or its subsidiary, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or its subsidiary that is
material to the Company and its subsidiary considered as one enterprise, (v)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or its subsidiary, or (vi) any loss or damage (whether or
not insured) to the property of the Company or its subsidiary which has
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiary considered as one enterprise.
(i) Except as set forth in the Registration
Statement and Prospectus, (i) each of the Company and its subsidiary has good
and marketable title to all properties and assets described in the Registration
Statement and Prospectus as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiary considered as one enterprise, (ii) the agreements to which
the Company or its subsidiary is a party described in the Registration
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<PAGE> 6
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiary (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company
and its subsidiary has valid and enforceable leases for all properties
described in the Registration Statement and Prospectus as leased by it, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
described in the Registration Statement and Prospectus.
(j) The Company and its subsidiary have timely
filed all necessary federal, state and foreign income and franchise tax returns
or have properly requested extensions thereof and have 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 its
subsidiary that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiary considered as one enterprise; and the Company
has made adequate charges, accruals and reserves for all periods as to which
tax liabilities of the Company and its subsidiary have not been finally
determined.
(k) The Company and its subsidiary maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiary against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; neither the
Company nor its subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor its subsidiary has any 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 and its
subsidiary considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or its subsidiary exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
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 and its
subsidiary considered as one enterprise. 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.
(m) Each of the Company and its subsidiary owns
or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; no patents, patent rights, trade secrets, trademarks,
service marks, trade names or copyrights, the expiration of which would have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiary
considered as one enterprise, have expired or terminated, and no patents,
patent rights, trademarks, service marks, trade names and copyrights necessary
to conduct its business as described in the Registration Statement and
Prospectus will expire or terminate prior to four years from the date of this
Agreement; the Company has not received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company by others
with
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<PAGE> 7
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and neither the Company
nor its subsidiary has received any notice of, nor has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiary considered as
one enterprise.
(n) The Common Stock has been approved for
quotation on The Nasdaq National Market, subject to official notice of
issuance.
(o) The Company has been advised concerning 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 conduct, its affairs in such a manner as to ensure that it is not and
will not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) Neither the Company nor its subsidiary has at
any time during the last four (4) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
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 or any jurisdiction thereof.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company,
each Selling Stockholder and each beneficial owner of shares of Common Stock
has agreed in writing that such person will not, for a period of 180 days from
the date that the Registration Statement is declared effective by the
Commission (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this restriction, (ii) as a distribution to
partners or stockholders of such person, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, (iii) with the
prior written consent of BancAmerica Robertson Stephens, or (iv) with respect
to Shares purchased on the open market after the date that the Registration
Statement is declared effective. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from the Securities. Furthermore, such person has also
agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
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<PAGE> 8
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and stockholders have agreed to such or similar
restrictions (the "Lock-up Agreements") presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancAmerica
Robertson Stephens.
(t) (i) The Company and its subsidiary is in
compliance with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to its respective
business, (ii) neither the Company nor its subsidiary has received notice from
any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus and is not so disclosed, (iii) to the Company's
knowledge, neither the Company nor its subsidiary will be required to make
future material capital expenditures to comply with existing Environmental
Laws, and (iv) no property which is owned, leased or occupied by the Company or
its subsidiary has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
(u) The Company and its subsidiary maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business and loans made in connection with stock issuances under the Company's
1993 Employee, Consultant and Director Stock Purchase Plan) 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.
(w) The Company has complied with all provisions
of Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has and on the
Closing Date will have good and valid title to the Shares to be sold by such
Selling Stockholder under this Agreement, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than pursuant
to this Agreement; and upon delivery of such Shares hereunder and payment of
the purchase price as herein contemplated, assuming each such Underwriter has no
notice of any adverse claim as such term is used in the Uniform Commercial
Code, each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized
(if applicable), executed and delivered, in the form heretofore furnished to
the Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing Ralph Ungermann and James O. Mitchell as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with American
Securities Transfer & Trust, Inc., as custodian (the "Custodian"); each of the
Power of Attorney and
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<PAGE> 9
the Custody Agreement constitutes a valid and binding agreement on the part of
such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of
such Selling Stockholder's Attorneys, acting alone, is authorized to execute
and deliver this Agreement and the certificate referred to in Section 6(i)
hereof on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the several Underwriters to such Selling Stockholder as provided
in Section 3 hereof, to authorize the delivery of the Selling Stockholder
Shares under this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or powers
with respect thereto, to accept payment therefor, and otherwise to act on
behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and
orders required by reason of facts specifically pertaining to such Selling
Stockholder or its legal or regulatory status in connection with the execution
and delivery by such Selling Stockholder of the Power of Attorney and by the
Attorneys-in-fact of the Custody Agreement, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and delivery
of the Selling Stockholder Shares under this Agreement (other than, at the time
of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws or the rules and regulations of the NASD, have been
obtained and are in full force and effect; such Selling Stockholder, if other
than a natural person, has been duly organized and is validly existing in good
standing under the laws of the jurisdiction of its organization as the type of
entity that it purports to be; and such Selling Stockholder has full legal
right, power and authority to enter into and perform its obligations under this
Agreement and such Power of Attorney and Custody Agreement, and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Stockholder
under this Agreement.
(d) Such Selling Stockholder will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which such
Selling Stockholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or stockholders of such Selling Stockholder, provided
that the distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) with the prior written consent of BancAmerica Robertson
Stephens, or (iv) with respect to Shares purchased on the open market after the
date the Registration Statement is declared effective. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Securities.
Such Selling Stockholder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
securities held by such Selling Stockholder except in compliance with this
restriction.
(e) Certificates in negotiable form for all
Shares to be sold by such Selling Stockholder under this Agreement, together
with, to the extent requested, a stock power or powers duly endorsed in blank
by such Selling Stockholder, have been placed in custody with the Custodian for
the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by
each Selling Stockholder that is not a natural person and has been duly
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law or public policy and except as the
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<PAGE> 10
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a material breach or violation of any of the terms and provisions of,
or constitute a default under, (i) any material bond, debenture, note or other
evidence of indebtedness, or under any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other material
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder, or any Selling Stockholder Shares hereunder or
any properties of such Selling Stockholder may be bound, (ii) to the best of
such Selling Stockholders' knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder, or (iii) if such Selling Stockholder is other than a
natural person, result in any violation of any provisions of the charter,
bylaws or other organizational documents of such Selling Stockholder, except in
the case of clauses (i), (ii) or (iii) for any violations, defaults, conflicts
or breaches, which would not result in a material adverse effect in the
financial condition of the Selling Stockholder.
(g) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares other than any preliminary prospectus
filed with the Commission or the Prospectuses or other material permitted by
the Act or the Rules and Regulations.
(i) All information furnished by or on behalf of
such Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is contained in the representations and warranties of
such Selling Stockholder in such Selling Stockholder's Power of Attorney or set
forth in the Registration Statement or the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date, was or will be,
true, correct and complete in all material respects, and does not, and at the
time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date,
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
information not misleading.
(j) Such Selling Stockholder (or the person
signing the Power of Attorney on behalf of the Selling Stockholder if the
Selling Stockholder is not a natural person) will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and will advise one of its Attorneys and BancAmerica Robertson
Stephens prior to the Closing Date if any statement to be made on behalf of
such Selling Stockholder in the certificate contemplated by Section 6(i) would
be inaccurate if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or
has waived prior to the date hereof, any preemptive right, co-sale right or
right of first refusal or other similar right to purchase any of the Shares
that are to be sold by the Company or any of the other Selling Stockholders to
the Underwriters pursuant to this Agreement; such Selling Stockholder does not
have, or has waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus, other than
such rights of participation as have been satisfied by the participation of
such Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Stockholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described or
contemplated in the Registration Statement and the Prospectus.
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<PAGE> 11
(l) Such Selling Stockholder (or the person
signing the Power of Attorney on behalf of the Selling Stockholder if the
Selling Stockholder is not a natural person) is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per
share, the respective number of Company Shares as hereinafter set forth and
Selling Stockholder Shares set forth opposite the names of the Company and the
Selling Stockholders in Schedule B hereto. The obligation of each Underwriter
to the Company and to each Selling Stockholder shall be to purchase from the
Company or such Selling Stockholder that number of Company Shares or Selling
Stockholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Stockholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Stockholder in Schedule B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in
Schedule A hereto (subject to adjustment as provided in Section 10) is to the
total number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Selling
Stockholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Stockholder agrees that
the certificates for the Selling Stockholder Shares of such Selling Stockholder
so held in custody are subject to the interests of the Underwriters hereunder,
that the arrangements made by such Selling Stockholder for such custody,
including the Power of Attorney are, to the extent enforceable by law,
irrevocable and that the obligations of such Selling Stockholder hereunder
shall not be terminated by any act of such Selling Stockholder or by operation
of law, whether by the death or incapacity of such Selling Stockholder or the
occurrence of any other event, except as specifically provided herein or in the
Custody Agreement. If any Selling Stockholder should die or be incapacitated,
or if any other such event should occur, before the delivery of the
certificates for the Selling Stockholder Shares hereunder, the Selling
Stockholder Shares to be sold by such Selling Stockholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
receipt of a wire transfer reference number issued by the Federal Reserve
System evidencing payment of the purchase price therefor by the several
Underwriters by wire transfer of immediately available funds, to an account
specified in writing by the Company with regard to the Shares being purchased
from the Company, and to an account specified in writing by the Custodian for
the respective accounts of the Selling Stockholders with regard to the Shares
being purchased from such Selling Stockholders, at the offices of Cooley
Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA
94306-2155 (or at such other place as may be agreed upon among the
Representatives and the Company and the Attorneys), at 7:00 A.M., San Francisco
time (a) on the third (3rd) full business day following the first day that
Shares are traded, (b) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered, or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company and the Attorneys may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment
and delivery being herein called the "Closing Date;" provided, however, that if
the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than
two (2) full business days following delivery of copies of the Prospectus to
the Representatives. The certificates for the Firm Shares to be so delivered
will be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking
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<PAGE> 12
at least one (1) full business day prior to the Closing Date and will be in
such names and denominations as you may request, such request to be made at
least two (2) full business days prior to the Closing Date. If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the first, second, sixth and eighth paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with
the several Underwriters that:
(a) The Company will use its best efforts to
cause the Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible; the Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the Prospectus
has been filed; if the Company omitted information from the Registration
Statement at the time it was originally declared effective in reliance upon
Rule 430A(a) of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the
Company files a term sheet pursuant to Rule 434 of the Rules and Regulations,
the Company will provide evidence satisfactory to you that the Prospectus and
term sheet meeting the requirements of Rule 434(b) or (c), as applicable, of
the Rules and Regulations have been filed, within the time period prescribed,
with the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules
and Regulations; if for any reason the filing of the final form of Prospectus
is required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file
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<PAGE> 13
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the opinion of counsel to the Company and counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection with
the sale of the Shares, it will prepare promptly upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior
to the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after
it shall receive notice or obtain knowledge, of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement or
of the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith
or as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements
to such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if BancAmerica
Robertson Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
(e) Not later than the [45]th 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.
(f) During a period of three (3) years after the
date hereof, the Company will furnish to its stockholders as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as
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<PAGE> 14
soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"), (v) every material
press release and every material news item or article in respect of the
Company, its subsidiary or its or their affairs which was generally released to
the press and to stockholders and prepared by the Company or its subsidiary,
and (vi) any additional information of a public nature concerning the Company
or its subsidiary, or its business which you may reasonably request. During
such three (3) year period, if the Company shall have an active subsidiary, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and such subsidiary are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from
the sale of the Shares being sold by it in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for its Common
Stock.
(i) If the transactions contemplated hereby are
not consummated by reason of any failure, refusal or inability on the part of
the Company or any Selling Stockholder to perform any agreement on its or their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters
in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which, in your opinion, the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement if, in the opinion of counsel to the Company, such statement is
required, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will
not, without the prior written consent of BancAmerica Robertson Stephens,
effect the Disposition of, directly or indirectly, any Securities other than
(i) the sale of the Company Shares and the Option Shares hereunder, (ii) the
Company's issuance of options or Common Stock under the Company's presently
authorized employee benefit plans (the "Stock Plans"), (iii) pursuant to
warrants outstanding as of or issued pursuant to agreements dated prior to the
date hereof, (iv) pursuant to equipment or lease financing activities entered
into in the ordinary course of the Company's business; or (v) to a strategic
partner of the Company in connection with a technical, manufacturing, marketing
or distribution arrangement.
5. Expenses.
(a) The Company and the Selling Stockholders
agree with each Underwriter that:
(i) The Company will pay and bear
all costs and expenses in connection with the preparation, printing and filing
of the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey
and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power
of Attorney, and any instruments related to any of the foregoing; the issuance
and delivery of the Shares hereunder
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<PAGE> 15
to the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent public accountants; the cost of furnishing
to the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, and any
amendments or supplements to any of the foregoing; NASD filing fees and the
cost of qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of Underwriters'
Counsel in connection with such NASD filings and Blue Sky qualifications); and
all other expenses directly incurred by the Company in connection with the
performance of its obligations hereunder. Any additional expenses incurred
as a result of the sale of the Shares by the Selling Stockholders will be borne
by the Company and the Selling Stockholders. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholders hereunder to the several Underwriters.
(ii) In addition to its other
obligations under Section 8(a) hereof, the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Sections 8(a)(ii) or (iii) hereof (other than a
claim, action, investigation, inquiry or other proceeding initiated by or on
behalf of the Underwriters), it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(b) In addition to their other obligations under
Section 8(c) hereof, the Underwriters severally and not jointly agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(c) hereof, they will
reimburse the Company and each Selling Stockholder on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and
each such Selling Stockholder for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company and each such Selling Stockholder shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company and each such Selling
Stockholder within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in
Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts and
the basis on which such amounts shall be apportioned among the reimbursing
parties, shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the
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<PAGE> 16
event the party demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the party responding to
said demand or notice is authorized to do so. Any such arbitration will be
limited to the operation of the interim reimbursement provisions contained in
Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve the ultimate
propriety or enforceability of the obligation to indemnify for expenses which
is created by the provisions of Sections 8(a), 8(b) and 8(c) hereof or the
obligation to contribute to expenses which is created by the provisions of
Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the Selling
Stockholders herein, to the performance by the Company and the Selling
Stockholders of its their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date and time as shall be consented
to in writing by you; and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company, any Selling Stockholder or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of
this Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiary considered as
one enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, the following opinion of Cooley Godward LLP, counsel for the Company
and certain of the Selling Stockholders, as marked with an asterisk on Schedule
B ("U.S. Individual/Trust Selling Stockholders"), dated the Closing Date or
such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(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;
(ii) The Company has the corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus;
(iii) To such counsel's knowledge,
the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if
any, in which the ownership or leasing of its properties or
the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the
financial condition, earnings, operations or business of the
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<PAGE> 17
Company and its subsidiary considered as one enterprise. To
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other
entity other than First Virtual Limited.
(iv) The authorized, issued and
outstanding capital stock of the Company was as set forth in
the Prospectus under the caption "Capitalization" as of the
date stated therein, the issued and outstanding shares of
capital stock of the Company (including the Selling
Stockholder Shares) have been duly and validly issued and are
fully paid and nonassessable, and to such counsel's knowledge,
have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) The Firm Shares or the Option
Shares, as the case may be, to be issued by the Company
pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable, and to such
counsel's knowledge, will not have been issued in violation of
or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar
right.
(vi) The Company has the corporate
power and authority to enter into this Agreement and to issue,
sell and deliver to the Underwriters the Company Shares or
the Option Shares, as the case may be, to be issued and sold
by it hereunder;
(vii) This Agreement has been duly
authorized by all necessary corporate action on the part of
the Company and has been duly executed and delivered by the
Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except
insofar as indemnification and contribution provisions may be
limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights
generally or by general equitable principles and limitations
on equitable remedies;
(viii) The Registration Statement has
become effective under the Act and, to such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(ix) The Registration Statement and
the Prospectus, and each amendment or supplement thereto
(other than the financial statements and supporting schedules
and financial information and statistical data derived
therefrom as to which such counsel need not express an
opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and
Regulations;
(x) The information in the
Prospectus under the caption "Description of Capital Stock,"
to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and fairly
presents, to the extent required under the Act and the
applicable Rules and Regulations, the matters referred to
therein; and the form of certificate evidencing the Common
Stock and filed as an exhibit to the Registration Statement
complies with Delaware law;
(xi) The descriptions in the
Registration Statement and the Prospectus of the charter and
bylaws of the Company under the captions "Risk
Factors--Anti-Takeover Effects of Certain Charter Provisions
and Delaware Law" and "Description of Capital
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<PAGE> 18
Stock" are accurate and fairly present the information
required to be presented by the Act and the applicable Rules
and Regulations;
(xii) To such counsel's knowledge,
there are no agreements, contracts, leases or documents to
which the Company or its subsidiary is a party of a character
required under the Act and the applicable Rules and
Regulations to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to
therein or filed as required;
(xiii) The performance of this
Agreement and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed) will not (a)
result in any violation of the charter or bylaws of the
Company or its subsidiary or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms
and provisions of, or constitute a default under, any material
bond, debenture, note or other evidence of indebtedness, or
any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other material
agreement or instrument, filed as an exhibit to the
Registration Statement, or any applicable statute, rule or
regulation known to such counsel (other than state securities
or Blue Sky laws as to which such counsel need not express an
opinion) or, to such counsel's knowledge, any order, writ or
decree of any court, government or governmental agency or body
having jurisdiction over the Company or its subsidiary, or
over any of their properties or operations;
(xiv) No consent, approval,
authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction
over the Company or its subsidiary, or over any of their
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act
or such as may be required under state or other securities or
Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xv) To such counsel's knowledge,
there are no legal or governmental proceedings pending or
threatened against the Company or its subsidiary of a
character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein;
(xvi) To such counsel's knowledge,
neither the Company nor its subsidiary is presently (a) in
material violation of its respective charter or bylaws, or (b)
subject to any order, writ or decree of any court or
governmental agency or body having jurisdiction over the
Company or its subsidiary, or over any of their properties or
operations;
(xvii) To such counsel's knowledge,
except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of
Common Stock or other securities, because of the filing of the
Registration Statement by the Company, have, with respect to
the offering contemplated thereby, waived such rights or such
rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement;
(xviii) Each U.S. Individual/Trust
Selling Stockholder which is not a natural person has full
power and authority under its charter documents to enter into
and to perform its obligations under the Power of Attorney and
Custody Agreement to be executed and delivered by it in
connection with the transactions contemplated herein; the
Power of Attorney and
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<PAGE> 19
Custody Agreement of each U.S. Individual/Trust Selling
Stockholder that is not a natural person has been duly
authorized by such U.S. Individual/Trust Selling Stockholder;
the Power of Attorney and Custody Agreement of each U.S.
Individual/Trust Selling Stockholder has been duly executed
and delivered by or on behalf of such U.S. Individual/Trust
Selling Stockholder; and the Power of Attorney and Custody
Agreement of each U.S. Individual/Trust Selling Stockholder
constitutes the valid and binding agreement of such U.S.
Individual/Trust Selling Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles
and limitations on equitable remedies;
(xix) Each of the U.S.
Individual/Trust Selling Stockholders which is not a natural
person has full power and authority under its charter
documents to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the
Shares to be sold by such U.S. Individual/Trust Selling
Stockholder hereunder;
(xx) This Agreement has been duly
authorized by each U.S. Individual/Trust Selling Stockholder
that is not a natural person and has been duly executed and
delivered by or on behalf of each U.S. Individual/Trust
Selling Stockholder; and
(xxi) Upon the delivery of
certificates representing the U.S. Individual/Trust Selling
Stockholder Shares, duly endorsed for transfer and payment for
the U.S. Individual/Trust Selling Stockholder Shares as
contemplated in this Agreement, good and marketable title to
the U.S. Individual/Trust Selling Stockholder Shares will be
transferred to the Underwriters, free and clear of any adverse
claim. In rendering such opinion, such counsel may assume
that the Underwriters are without notice of any adverse claim
or defect in the title of the Selling Stockholder Shares being
purchased from the U.S. Individual/Trust Selling
Stockholders.
In addition, such counsel shall state that such
counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which such conferences
the contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified, and are not passing upon,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads such counsel to believe that, at the time the
Registration Statement became effective, the Registration Statement and any
post-effective amendment thereto (other than the financial statements,
including supporting schedules, financial information and statistical
information derived therefrom, as to which such counsel need express no
comment) 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, or as of its date or at the Closing Date or
any later date on which the Option Shares are to be purchased, as the case may
be, the Prospectus and any supplement thereto (except as aforesaid) contained
or contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
California and Delaware General Corporation Law upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company, the U.S. Individual/Trust Selling Stockholders or officers of the
U.S. Individual/Trust Selling Stockholders (when the U.S. Individual/Trust
Selling Stockholder is not a natural person), and of government officials, in
which case their opinion is to state that they are so relying (without any
independent investigation). Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
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<PAGE> 20
(e) You shall have received on the Closing Date,
the following opinion of counsel for each Selling Stockholder listed in Exhibit
B which is not a U.S. Individual/Trust Selling Stockholder, dated the Closing
Date addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Selling Stockholder which is
not a natural person has full power and authority under its
charter documents to enter into and to perform its obligations
under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the
transactions contemplated herein; the Power of Attorney and
Custody Agreement of the Selling Stockholder that is not a
natural person has been duly authorized by such Selling
Stockholder; the Power of Attorney and Custody Agreement of
each individual Selling Stockholder has been duly executed and
delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of the Selling
Stockholder constitutes the valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
general equitable principles and limitations on equitable
remedies;
(ii) The Selling Stockholder which
is not a natural person has full power and authority under its
charter documents to enter into and to perform its obligations
under this Agreement and to sell, transfer, assign and deliver
the Shares to be sold by such Selling Stockholder hereunder;
(iii) This Agreement has been duly
authorized by the Selling Stockholder that is not a natural
person and has been duly executed and delivered by or on behalf
of each Selling Stockholder; and
(iv) Assuming that the Underwriters
purchase the Selling Stockholder Shares to be delivered at the
time of delivery for value and without notice of any adverse
claim as such term is used in the Uniform Commercial Code, the
delivery of certificates representing such Selling Stockholder
Shares registered in the name of the Underwriters or
effectively endorsed to the Underwriters in blank will pass to
the Underwriters all rights that the transferor has in such
Selling Stockholder Shares, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of its jurisdiction upon opinions of
local counsel, and as to questions of fact upon representations or certificates
of the Selling Stockholders or officers of the Selling Stockholders (when the
non-U.S. Individual/Trust Selling Stockholder is not a natural person), and of
government officials, in which case their opinion is to state that they are so
relying (without any independent investigation). Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(f) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, an opinion of Wilson Sonsini Goodrich & Rosati, P.C., in form and
substance satisfactory to you, with respect to the sufficiency of all such
corporate proceedings and other legal matters relating to this Agreement and
the transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, a letter from Price Waterhouse LLP addressed to the
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<PAGE> 21
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, confirming that they are independent
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in the letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (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
on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter that are necessary to reflect any changes in the
facts described in the Original Letter since its date, or to reflect the
availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiary considered as one enterprise from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from Price Waterhouse LLP shall be addressed
to or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and Price Waterhouse LLP and shall (i) represent, to the extent
true, that they are independent accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations, (ii)
set forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of December 31, 1996 and as of September 30,
1997 and related consolidated statements of operations, stockholders' equity,
and cash flows for the twelve (12) months ended December 31, 1996 and the nine
(9) months ended September 30, 1997, (iii) state that Price Waterhouse LLP has
performed the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information on the financial
statements for each of the quarters in the seven-quarter period ended September
30, 1997 (the "Quarterly Financial Statements"), (iv) state that in the course
of such review, nothing came to their attention that leads them to believe that
any material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in conformity with generally accepted
accounting principles consistently applied across the periods presented, and
(v) address other matters agreed upon by Price Waterhouse LLP and you.
(h) You shall have received on the Closing Date
and on any later date on which Option Shares are to be purchased, as the case
may be, a certificate of the Company, dated the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and
warranties of the Company in this Agreement are true and
correct in all material respects, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied in
all material respects with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or,
to such officer's knowledge, are pending or threatened under
the Act;
(iii) When the Registration Statement
became effective and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and
the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included
therein by the Act and the Rules and Regulations, and in all
material respects conformed to the requirements of the Act and
the Rules and Regulations, the Registration Statement, and any
amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or
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<PAGE> 22
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not
and does not include any untrue statement of a material fact
or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, and, since the effective
date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective
dates as of which information is given in the Registration
Statement and Prospectus, there has not been (a) any material
adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the
Company and its subsidiary considered as one enterprise, (b)
any transaction that is material to the Company and its
subsidiary considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company and its subsidiary considered as one enterprise,
incurred by the Company or its subsidiary, except obligations
incurred in the ordinary course of business, (d) any change in
the capital stock or outstanding indebtedness of the Company
or any of its subsidiary that is material to the Company and
its subsidiary considered as one enterprise, (e) any dividend
or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiary, or (f)
any loss or damage (whether or not insured) to the property of
the Company or any of its subsidiary which has been sustained
which had a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiary
considered as one enterprise.
(i) You shall be satisfied that, and you shall
have received a certificate, dated the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, from the Attorneys for
the Selling Stockholders to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and
warranties made by each Selling Stockholder herein are not
true or correct in any material respect on the Closing Date or
on any later date on which Option Shares are to be purchased,
as the case may be; or
(ii) Any Selling Stockholder has not
complied with any obligation or satisfied any condition which
is required to be performed or satisfied on the part of such
Selling Stockholder at or prior to the Closing Date or any
later date on which Option Shares are to be purchased, as the
case may be.
(j) The Company shall have obtained and delivered
to you an agreement from each officer and director of the Company, each Selling
Stockholder and each beneficial owner of shares of Common Stock in writing
prior to the date hereof that such person will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by
this restriction, (ii) as a distribution to partners or stockholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with the prior written consent of
BancAmerica Robertson Stephens, or (iv) with respect to Shares purchased on the
open market after the date the Registration Statement is declared effective.
The foregoing restriction shall have been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to
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<PAGE> 23
or derives any significant part of its value from the Securities. Furthermore,
such person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(k) The Company and the Selling Stockholders
shall have furnished to you such further certificates and documents as you
shall reasonably request (including certificates of officers of the Company,
the Selling Stockholders or officers of the Selling Stockholders (when the
Selling Stockholder is not a natural person)), as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein, as to the performance by the Company and the Selling Stockholders of
its their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company and the Selling
Stockholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants to the several
Underwriters, for the purpose of covering over-allotments in connection with
the distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of 360,000 Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several Underwriters
(set forth in Schedule A hereto), adjusted by the Representatives in such
manner as to avoid fractional shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against receipt of a wire
transfer reference number issued by the Federal Reserve System evidencing
payment of the purchase price therefor by the several Underwriters by wire
transfer of immediately available funds to an account specified in writing by
the Company. Such delivery and payment shall take place at the offices of
Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA
94306-2155 or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment
and delivery and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to such date
of payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the accounts
at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as
the Representatives of the several Underwriters, may make payment of the
purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be
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<PAGE> 24
purchased by such Underwriter or Underwriters. Any such payment by you shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company and the
Selling Stockholders herein, to the accuracy of the statements of the Company,
the Selling Stockholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of its their respective obligations hereunder, to the conditions
set forth in Section 6 hereof, and to the condition that all proceedings taken
at or prior to the payment date in connection with the sale and transfer of
such Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the
Company and the Selling Stockholders or the satisfaction of any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject (including,
without limitation, in its capacity as an Underwriter or as a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules
of the NASD), under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, 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 (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
The Company agrees to indemnify and hold harmless
each of the Selling Stockholders to the same extent that the Company has agreed
to indemnify and hold harmless each Underwriter pursuant to the preceding
paragraph; provided, however, the Company shall not be liable under this
paragraph to the extent any loss, liability, claim, damage or expense described
in the preceding paragraph arises out of or is based upon an untrue statement,
alleged untrue statement, omission or alleged omission based upon information
relating to such Selling Stockholder expressly for use in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendments or
supplements thereto.
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<PAGE> 25
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter (or Selling Stockholder,
as applicable) within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which the Company
may otherwise have.
(b) Each Selling Stockholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including, without limitation, in its capacity
as an Underwriter or as a "qualified independent underwriter" within the
meaning of Rule 2720 of the Conduct Rules of the NASD) under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of such Selling Stockholder herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, 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 (iii)
any untrue statement or alleged untrue statement of any material fact contained
in any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company or such Underwriter by such Selling Stockholder, directly or
through such Selling Stockholder's representatives, specifically for use in the
preparation thereof, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been
sent or given to such person within the time required by the Act and the Rules
and Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof.
Each Selling Stockholder agrees to indemnify and hold
harmless the Company to the same extent that each Selling Stockholder has
agreed to indemnify and hold harmless each Underwriter pursuant to the
preceding paragraph.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company and each Selling Stockholder
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, 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 (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that
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<PAGE> 26
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter, directly or through you,
specifically for use in the preparation thereof, and agrees to reimburse the
Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8, except to the extent
the indemnifying party is prejudiced thereby. In case any such action is
brought against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to assume the defense
of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding and does not
include any statement as to or an admission of fault, culpability or a failure
to act, by or on behalf of any indemnified party. No indemnifying party shall
be liable for any settlement of any action or claim for monetary damages which
an indemnified party may effect without the written consent of the indemnifying
party.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses,
-26-
<PAGE> 27
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that, except as set forth in Section 8(f)
hereof, the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount bears
to the initial public offering price, and the Company and the Selling
Stockholders are responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Underwriter exceeds the amount of damages which such Underwriter has been
otherwise required to pay; (ii) no Selling Stockholder shall be liable for any
untrue statement, alleged untrue statement, omission or alleged omission of any
other Selling Stockholder; and (iii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter, the Company or any
Selling Stockholder within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each director
of the Company.
(f) The liability of each Selling Stockholder
under the representations, warranties and agreements contained herein and under
the indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of each such
Selling Stockholder's Shares sold by such Selling Stockholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders 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. No Selling Stockholder
shall be liable for any untrue statement, alleged untrue statement, omission or
alleged omission of any other Selling Stockholder.
(g) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented
by counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 8 fairly allocate the risks in light of the ability of the parties
to investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Act and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company, the Selling Stockholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Stockholder, or any of its their officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
10. Substitution of Underwriters. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of
such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for
-27-
<PAGE> 28
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase, the Closing Date shall be postponed for twenty-four (24)
hours to allow the several Underwriters the privilege of substituting within
twenty-four (24) hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24)
hours, if necessary, to allow the Company the privilege of finding another
underwriter or underwriters, satisfactory to you, to purchase the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the
Prospectus or other such documents which may thereby be made necessary, and
(ii) the respective number of Firm Shares to be purchased by the remaining
Underwriters and substituted underwriter or underwriters shall be taken as the
basis of their underwriting obligation. If the remaining Underwriters shall
not take up and pay for all such Firm Shares so agreed to be purchased by the
defaulting Underwriter or Underwriters or substitute another underwriter or
underwriters as aforesaid and the Company shall not find or shall not elect to
seek another underwriter or underwriters for such Firm Shares as aforesaid,
then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections
5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or any Selling Stockholder (except to
the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the
earlier of (i) 6:30 A.M., San Francisco time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time of
the initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may
prevent this Agreement from becoming effective without liability of any party
to any other party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Stockholder shall have failed,
refused or been unable to perform any agreement on its part to be performed
hereunder, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiary
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or (ii)
if additional material governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading
-28-
<PAGE> 29
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company or its
subsidiary shall have sustained a material loss by strike, fire, flood,
earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (iv) if
there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes
it inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(i) and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party except as
provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 3393 Octavius Drive, Suite 102,
Santa Clara, CA 95054 telecopier number (408) 988-7077, Attention: Ralph
Ungermann, Chief Executive Officer; if sent to one or more of the Selling
Stockholders, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Ralph Ungermann
and James O. Mitchell, as Attorneys-in-Fact for the Selling Stockholders, at
3393 Octavius Drive, Suite 102, Santa Clara, CA 95054, telecopier number (408)
988-7077, with a copy to Marian Rothman, Goldman Sachs & Co., 85 Broad Street,
New York, New York 10004.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign by reason merely of
such purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancAmerica Robertson Stephens on behalf of you.
-29-
<PAGE> 30
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
-30-
<PAGE> 31
If the foregoing correctly sets forth the understanding among
the Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Stockholders and the several Underwriters.
Very truly yours,
FIRST VIRTUAL CORPORATION
By ______________________________
SELLING STOCKHOLDERS
By ______________________________
Attorney-in-Fact for the Selling
Stockholders named in Schedule
B hereto
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By __________________________________
Authorized Signatory
-31-
<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ -----------
<S> <C>
BancAmerica Robertson Stephens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hambrecht & Quist LLC
[NAMES OF OTHER UNDERWRITERS]
--------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>
-1-
<PAGE> 33
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
------- ----------
<S> <C>
First Virtual Corporation 2,200,000
-----------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
=================
</TABLE>
<TABLE>
<CAPTION>
Number of
Selling
Stockholder
Shares
Name of Selling Stockholder To Be Sold
___________________________ ___________
<S> <C>
*Ralph Ungermann 25,000
*Allwyn Sequeira 25,000
*Alan J. McMillan 2,000
The Goldman Sachs Group, L.P. 26,214
*Kathryn M. Ungermann, Trustee or Successor Trustee of the Kathryn Mason Ungermann Living 34,208
Trust May 18, 1988
*Thomas J. Leffingwell 13,000
*Marlis Rossetta, Trustee or Successor Trustee under the Marlis Rossetta Living Trust U/A/D 21,014
April 28, 1995
*David G. Norman 6,615
*Luen-Wuu Wey 4,225
*Mike L. Regli 1,000
*Frank J. Chu 5,030
*Russell D. Erikson 2,955
*Todd Wilde 2,880
*Bill Gallmeister, Trustee of the 1994 Gallmeister Family Trust 1,500
*Mark S. Berkeland 5,476
Andrew Hopper 3,333
*Hemant Vinchure 2,000
*Michael Pham 1,500
*Chris Lanier 2,350
Birger Dalen 4,000
*Michael Munoz 1,200
*Alan Glowacki 1,000
*William B. Gunter 1,078
*Patricia McBride 2,000
*Michelle LaVally, Trustee, The Jocelyn Jessica Williams Irrevocable Trust 1,000
*Steven Meredith 2,660
*Matthew J. Holley 1,762
-----------------
</TABLE>
-1-
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C>
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
=================
</TABLE>
- -------------
* U.S. Individual/Trust Selling Stockholder
-2-
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIRST VIRTUAL CORPORATION
I.
The name of the corporation is:
First Virtual Corporation
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Forty Million
(40,000,000) shares. Thirty Five Million (35,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1.
<PAGE> 2
V.
A. For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(1) The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number
2.
<PAGE> 3
of directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by the
stockholders, except as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, even though less
than a quorum of the Board of Directors, and not by the stockholders. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the director for which the vacancy was created
or occurred and until such director's successor shall have been elected and
qualified.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, and
notwithstanding the fact that some lesser percentage may be specified law, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering. Following
the closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
3.
<PAGE> 4
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Restated
Certificate of Incorporation or any Preferred Stock Designation, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
Articles V, VI, and VII.
4.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
FIRST VIRTUAL CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES....................................................... 1
Section 1. Registered Office...................................... 1
Section 2. Other Offices.......................................... 1
ARTICLE II CORPORATE SEAL................................................ 1
Section 3. Corporate Seal......................................... 1
ARTICLE III STOCKHOLDERS' MEETINGS........................................ 1
Section 4. Place Of Meetings...................................... 1
Section 5. Annual Meeting......................................... 2
Section 6. Special Meetings....................................... 3
Section 7. Notice Of Meetings..................................... 4
Section 8. Quorum................................................. 4
Section 9. Adjournment And Notice Of Adjourned Meetings........... 5
Section 10. Voting Rights.......................................... 5
Section 11. Joint Owners Of Stock.................................. 5
Section 12. List Of Stockholders................................... 5
Section 13. Action Without Meeting................................. 6
Section 14. Organization........................................... 6
ARTICLE IV DIRECTORS..................................................... 7
Section 15. Number And Term Of Office.............................. 7
Section 16. Powers................................................. 7
Section 17. Classes Of Directors................................... 7
Section 18. Vacancies.............................................. 8
Section 19. Resignation............................................ 8
Section 20. Removal................................................ 8
Section 21. Meetings............................................... 9
(a) Annual Meetings........................................ 9
(b) Regular Meetings....................................... 9
(c) Special Meetings....................................... 9
(d) Telephone Meetings..................................... 9
(e) Notice Of Meetings..................................... 9
(f) Waiver Of Notice....................................... 9
Section 22. Quorum And Voting......................................10
Section 23. Action Without Meeting.................................10
Section 24. Fees And Compensation..................................10
Section 25. Committees.............................................10
(a) Executive Committee....................................10
(b) Other Committees.......................................11
(c) Term...................................................11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(d) Meetings............................................... 11
Section 26. Organization........................................... 11
ARTICLE V OFFICERS...................................................... 12
Section 27. Officers Designated.................................... 12
Section 28. Tenure And Duties Of Officers.......................... 12
(a) General................................................ 12
(b) Duties Of Chairman Of The Board Of Directors........... 12
(c) Duties Of President.................................... 12
(d) Duties Of Vice Presidents.............................. 13
(e) Duties Of Secretary.................................... 13
(f) Duties Of Chief Financial Officer...................... 13
Section 29. Delegation Of Authority................................ 13
Section 30. Resignations........................................... 13
Section 31. Removal................................................ 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION............................... 14
Section 32. Execution Of Corporate Instruments..................... 14
Section 33. Voting Of Securities Owned By The Corporation.......... 14
ARTICLE VII SHARES OF STOCK............................................... 15
Section 34. Form And Execution Of Certificates..................... 15
Section 35. Lost Certificates...................................... 15
Section 36. Transfers.............................................. 15
Section 37. Fixing Record Dates.................................... 16
Section 38. Registered Stockholders................................ 17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................... 17
Section 39. Execution Of Other Securities.......................... 17
ARTICLE IX DIVIDENDS..................................................... 18
Section 40. Declaration Of Dividends............................... 18
Section 41. Dividend Reserve....................................... 18
ARTICLE X FISCAL YEAR................................................... 18
Section 42. Fiscal Year............................................ 18
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XI INDEMNIFICATION................................................18
Section 43. Indemnification Of Directors, Executive Officers,
Other Officers, Employees And Other Agents..............18
(a) Directors and Executive Officers........................18
(b) Other Officers, Employees and Other Agents..............19
(c) Expenses................................................19
(d) Enforcement.............................................19
(e) Non-Exclusivity Of Rights...............................20
(f) Survival Of Rights......................................20
(g) Insurance...............................................20
(h) Amendments..............................................20
(i) Saving Clause...........................................20
(j) Certain Definitions.....................................20
ARTICLE XII NOTICES........................................................22
Section 44. Notices.................................................22
(a) Notice To Stockholders..................................22
(b) Notice To directors.....................................22
(c) Affidavit Of Mailing....................................22
(d) Time Notices Deemed Given...............................22
(e) Methods Of Notice.......................................22
(f) Failure To Receive Notice...............................22
(g) Notice To Person With Whom Communication Is Unlawful....22
(h) Notice To Person With Undeliverable Address.............23
ARTICLE XIII AMENDMENTS.....................................................23
Section 45. Amendments..............................................23
ARTICLE XIV LOANS TO OFFICERS..............................................23
Section 46. Loans To Officers.......................................23
</TABLE>
iii.
<PAGE> 5
BYLAWS
OF
FIRST VIRTUAL CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE> 6
SECTION 5. ANNUAL MEETING.
(A) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(B) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
2.
<PAGE> 7
(C) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stock- holder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(D) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(A) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than fifty percent (50%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
3.
<PAGE> 8
(B) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding
4.
<PAGE> 9
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open
5.
<PAGE> 10
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(A) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(B) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(C) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the General Corporation Law of Delaware.
(D) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(A) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is
6.
<PAGE> 11
absent, a chairman of the meeting chosen by a majority in interest of the
stockholders entitled to vote, present in person or by proxy, shall act as
chairman. The Secretary, or, in his absence, an Assistant Secretary directed to
do so by the President, shall act as secretary of the meeting.
(B) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, following the closing
of the Initial Public Offering, the directors shall be divided into three
classes designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second
7.
<PAGE> 12
annual meeting of stockholders following the Closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock,
the Board of Directors or any individual director may be removed from office at
any time (i) with cause by the affirmative vote of the holders of a majority of
the voting power of all the then-outstanding shares of voting stock of the
corporation entitled to vote at an election of directors (the "Voting Stock") or
(ii) without cause by the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the voting power of all the then-outstanding
shares of the Voting Stock.
8.
<PAGE> 13
SECTION 21. MEETINGS.
(A) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(B) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(C) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(D) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(E) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.)
(F) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
9.
<PAGE> 14
SECTION 22. QUORUM AND VOTING.
(A) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting, whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(B) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(A) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
10.
<PAGE> 15
(B) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(C) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(D) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the
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meeting. The Secretary, or in his absence, an Assistant Secretary directed to do
so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(A) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(C) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
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(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(E) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
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SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(A) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(B) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(A) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(B) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
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(C) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
from January 1 through December 31 of each year unless and until the Board of
Directors shall otherwise set the fiscal year by resolution.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers
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vested in the corporation under the Delaware General Corporation Law or (iv)
such indemnification is required to be made under subsection (d).
(B) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(C) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(D) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive
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officer is or was a director of the corporation) for advances, the corporation
shall be entitled to raise a defense as to any such action clear and convincing
evidence that such person acted in bad faith or in a manner that such person did
not believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(F) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(G) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(H) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(I) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(J) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
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(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to such stockholder's last known post office address as
shown by the stock record of the corporation or its transfer agent.
(B) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(D) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(E) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(F) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
to such director in the manner above provided, shall not be affected or extended
in any manner by the failure of such stockholder or such director to receive
such notice.
(G) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving
22.
<PAGE> 27
of such notice to such person shall not be required and there shall be no duty
to apply to any governmental authority or agency for a license or permit to give
such notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall have
the same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
(H) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
23.
<PAGE> 28
subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
24.
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
-------- --------
FIRST VIRTUAL
[LOGO] CORPORATION
-------- --------
INCORPORATED UNDER SEE REVERSE FOR
THE LAWS OF DELAWARE CERTAIN DEFINITIONS
AND RESTRICTIONS
CUSIP 337485 10 6
- --------------------------------------------------------------------------------
This Certifies That
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
FIRST VIRTUAL CORPORATION
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[SIG] [SIG]
Secretary [FIRST VIRTUAL CORPORATION SEAL] Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER, INC.
(P.O. Box 1596, Denver CO 80201) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
<TABLE>
<S><C>
FIRST VIRTUAL CORPORATION
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _______________________ Custodian ___________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right of survivorship under Uniform Gifts to Minors
and not as tenants in common Act ____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, _________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
-------------------
Attorney to
- --------------------------------------------------------------------------------------------------------------------
transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated, X
--------------------------------- -----------------------------------------------------------------------------------------
X
-----------------------------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED:
---------------------------------------------
</TABLE>
<PAGE> 1
[COOLEY GODWARD LETTERHEAD]
EXHIBIT 5.1
December 3, 1997
First Virtual Corporation
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by First Virtual Corporation (the "Company"), of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), covering the underwritten public
offering of up to 2,760,000 shares of the Company's common stock (the "Common
Stock") (including 360,000 shares of Common Stock for which the underwriters
will be granted an over-allotment option), 2,560,000 of which are being sold by
the Company (the "Company Shares") and 200,000 of which are being sold by
certain stockholders of the Company (the "Selling Stockholder Shares").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related prospectus included therein (the
"Prospectus"), the Company's Amended and Restated Articles of Incorporation and
Bylaws, and the originals or copies certified to our satisfaction of such
records, documents, certificates, memoranda and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expressed below, (ii) assumed that the amended and Restated Certificate of
Incorporation, as set forth in Exhibit 3.3 of the Registration Statement, shall
have been duly approved and filed with the office of the Delaware Secretary of
State, and (iii) assumed that the shares of the Common Stock will be sold by the
underwriters at a price established by the Pricing Committee of the Board of
Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Company Shares and the Selling Stockholder Shares, when sold, issued
and paid for in accordance with the Registration Statement and related
Prospectus, will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Lee F. Benton
-------------------------
Lee F. Benton
<PAGE> 1
EXHIBIT 10.1
FIRST VIRTUAL CORPORATION
1997 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 22, 1997
APPROVED BY THE STOCKHOLDERS ON DECEMBER 2, 1997
1. INTRODUCTION; PURPOSES.
(A) The Board of Directors previously adopted the Company's 1996 Stock
Option Plan, 1996 Stock Option Plan No. 2, and 1993 Employee Consultant and
Director Stock Purchase Plan (collectively, the "Prior Plans"). In October 1997,
the Board of Directors amended and restated the Prior Plans in the form of this
1997 Equity Incentive Plan. Shares reserved for issuance under the Prior Plans
shall hereafter be reserved for issuance, and issued, under the terms of this
Plan in the form below.
(B) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(C) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(D) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
1.
<PAGE> 2
(D) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(E) "COMPANY" means First Virtual Corporation, a Delaware corporation.
(F) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(G) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board or the Chief
Executive Officer of the Company may determine, in that party's sole discretion,
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Company, including sick leave, military leave, or any other personal leave; or
(ii) transfers between the Company, Affiliates or their successors.
(H) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(I) "DIRECTOR" means a member of the Board.
(J) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(K) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(L) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the last market trading day prior to
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
<PAGE> 3
(M) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(N) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K"), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(O) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(P) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(Q) "OPTION" means a stock option granted pursuant to the Plan.
(R) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(S) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.
(T) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(U) "PLAN" means this 1997 Equity Incentive Plan.
(V) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(W) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3.
<PAGE> 4
(X) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(Y) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(A) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(B) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(C) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything to the contrary contained
herein,
4.
<PAGE> 5
the Board may delegate administration of the Plan to any person or persons and
the term "Committee" shall apply to any person or persons to whom such authority
has been delegated. In addition, and notwithstanding anything in this Section 3
to the contrary, the Board or the Committee may delegate to a committee of one
or more members of the Board the authority to grant Options to eligible persons
who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Option, or
(ii) not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate four million six hundred twenty-five thousand
(4,625,000) shares of Common Stock (which includes shares remaining for future
issuance and shares subject to unvested options under the Prior Plans, as of the
date of adoption of the amended and restated Plan). In the event an option or
right to purchase restricted stock granted pursuant to the Prior Plans or a
Stock Award granted pursuant to the Plan shall for any reason expire or
otherwise terminate after the date of grant, in whole or in part, without having
been exercised in full, the stock not acquired under such option, right to
purchase restricted stock or Stock Award shall revert to and again become
available for issuance under the Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(A) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(B) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(C) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than five hundred thousand (500,000) shares of the Company's common stock
in any calendar year. This subsection 5(c) shall not apply until (i) the
earliest of: (A) the first material modification of the Plan (including any
increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of common
stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of stockholders at which directors are to be elected that
occurs after the close of the third calendar year
5.
<PAGE> 6
following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(A) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(B) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the common
stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board. In the case of any
deferred payment arrangement, interest shall be payable at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
(D) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee
6.
<PAGE> 7
pursuant to a domestic relations order. Notwithstanding the foregoing, the
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(E) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(F) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(G) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(H) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the
7.
<PAGE> 8
Optionee was entitled to exercise the Option as of the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement), or (ii)
the expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after death, the Option is not exercised within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
(I) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(A) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(B) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order, so long as stock awarded under such agreement remains subject
to the terms of the agreement.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold,
except that payment of the common stock's "par value" (as defined in the
Delaware General Corporation Law) shall not be made by deferred payment; or
(iii) in any
8.
<PAGE> 9
other form of legal consideration that may be acceptable to the Board or
Committee in its discretion. Notwithstanding the foregoing, the Board or
Committee to which administration of the Plan has been delegated may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company for its benefit.
(D) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.
(E) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(A) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of common stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of a ten percent (10%) stockholder (as defined in subsection 5(b)), not
less than one hundred and ten percent (110%) of the Fair Market Value) per share
of common stock on the new grant date.
(B) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to the Plan. The repricing of an Option hereunder resulting in
a reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and the grant of a substitute Option; in the event of such
repricing, both the original and the substituted Options shall be counted
against the maximum awards of Options permitted to be granted pursuant to the
Plan, to the extent required by Section 162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(A) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(B) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
either the Plan, any Stock Award or any stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the
9.
<PAGE> 10
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(A) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(B) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(C) Nothing in the Plan nor any instrument executed nor Stock Award
granted pursuant hereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's By-Laws and
the provisions of the General Corporation Law of the State of Delaware, or to
terminate the relationship of any Consultant in accordance with the terms of
that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.
(D) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
this Plan and all other plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(E) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company
10.
<PAGE> 11
stating that such person is acquiring the stock subject to the Stock Award for
such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise or acquisition of stock under the Stock Award has
been registered under a then currently effective registration statement under
the Securities Act, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(F) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(B) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise; or (4) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
11.
<PAGE> 12
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving corporation (or an Affiliate thereof shall assume any
Stock Awards outstanding under the Plan or shall substitute similar Stock Awards
for those outstanding under the Plan, or (ii) such Stock Awards shall continue
in full force and effect. In the event any surviving corporation (or an
Affiliate) refuses to assume or continue such Stock Awards, or to substitute
similar Stock Awards for those outstanding under the Plan, then the Stock Awards
shall be terminated if not exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(B) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(C) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(D) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(E) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
12.
<PAGE> 13
(B) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
This amendment and restatement of the Plan shall become effective on the
effective date of the registration statement with respect to the Company's
initial public offering of shares of Common Stock, but no Stock Awards granted
under the Plan shall be exercised unless and until the Plan has been approved by
the stockholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
13.
<PAGE> 1
EXHIBIT 10.2
INCENTIVE STOCK OPTION
__________________________________, Optionee:
First Virtual Corporation (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ____________________
(__________).
2. VESTING. Subject to the limitations contained herein, ten percent
(10%) of the shares will vest (become exercisable) on ____________, 19__ (which
shall be the date six months following the vesting commencement date) and .0548%
of the shares will then vest each day thereafter until either (i) you cease to
provide services to the Company for any reason, or (ii) this option becomes
fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(A) EXERCISE PRICE. The exercise price of this option is
___________________________ ($___________) per share, being not less than the
fair market value of the Common Stock on the date of grant of this option.
(B) METHOD OF PAYMENT. Payment of the exercise price per share is due
in full upon exercise of all or any part of each installment which has accrued
to you. You may elect, to the extent permitted by applicable statutes and
regulations, to make payment of the exercise price under one of the following
alternatives:
(I) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(II) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt
1.
<PAGE> 2
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;
(III) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(IV) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act of
1933, as amended (the "Act") or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.
6. TERM. The term of this option commences on __________, 19__, the date
of grant, and expires on ________________________ (the "Expiration Date," which
date shall be no more than ten (10) years from the date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no event
may this option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date as follows: thirty (30) days after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company unless one of the following
circumstances exists:
(A) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your disability. This option will then expire on the
earlier of the Expiration Date set forth above or six (6) months following such
termination of Continuous Status as an Employee, Director or Consultant. You
should be aware that if your disability is not considered a permanent and total
disability within the meaning of Section 422(c)(6) of the Code, and you exercise
this option more than three (3) months following the date of your termination of
employment, your exercise will be treated for tax purposes as the exercise of a
"nonstatutory stock option" instead of an "incentive stock option."
(B) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within thirty (30) days
following your termination of Continuous Status as an Employee, Director or
Consultant for any other reason. This option will then expire on the earlier of
the Expiration Date set forth above or eighteen (18) months after your death.
2.
<PAGE> 3
(C) If during any part of such thirty (30) day period you may not
exercise your option solely because of the condition set forth in paragraph 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have been exercisable for an
aggregate period of thirty (30) days after your termination of Continuous Status
as an Employee, Director or Consultant.
(D) If your exercise of the option within thirty (30) days after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under section 16(b) of the Securities Exchange Act of 1934, then your option
will expire on the earlier of (i) the Expiration Date set forth above, (ii) the
tenth (10th) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions of
paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or if you exercise your option more than three (3)
months after the date your employment with the Company and all Affiliates of the
Company terminates.
7. EXERCISE.
(A) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection
11(e) of the Plan.
(B) By exercising this option you agree that:
(I) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of this option; (2) the lapse of any
substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (3) the disposition of shares acquired upon such exercise;
3.
<PAGE> 4
(II) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
(III) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
4.
<PAGE> 5
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 19__.
Very truly yours,
FIRST VIRTUAL CORPORATION
By
---------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
First Virtual Corporation 1997 Equity Incentive Plan
Notice of Exercise
5.
<PAGE> 6
The undersigned:
(A) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(B) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company, and (ii)
the following agreements only:
NONE
--------
(Initial)
OTHER
-----------------------------
-----------------------------
-----------------------------
--------------------------------------------
OPTIONEE
Address:
------------------------------------
------------------------------------
6.
<PAGE> 1
EXHIBIT 10.3
NONSTATUTORY STOCK OPTION
_________________________, Optionee:
First Virtual Corporation (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is not intended to qualify and will not be treated as an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ______________________
(_________).
2. VESTING. Subject to the limitations contained herein, ten (10%)
percent of the shares will vest (become exercisable) on _________________, 19__
(which shall be the date six months following the vesting commencement date) and
.0548% of the shares will then vest each day thereafter until either (i) you
cease to provide services to the Company for any reason, or (ii) this option
becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(A) EXERCISE PRICE. The exercise price of this option is
__________________ ($______) per share, being not less than 100% of the fair
market value of the Common Stock on the date of grant of this option.
(B) METHOD OF PAYMENT. Payment of the exercise price per share is due
in full upon exercise of all or any part of each installment which has accrued
to you. You may elect, to the extent permitted by applicable statutes and
regulations, to make payment of the exercise price under one of the following
alternatives:
(I) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(II) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
1.
<PAGE> 2
(III) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(IV) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act of
1933, as amended (the "Act") or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.
6. TERM. The term of this option commences on __________________, 19__,
the date of grant and expires on ________________________ (the "Expiration
Date," which date shall be no more than ten (10) years from the date this option
is granted), unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration Date.
This option shall terminate prior to the Expiration Date as follows: thirty (30)
days after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company for any reason or for
no reason unless:
(A) such termination of Continuous Status as an Employee,
Director or Consultant is due to your disability, in which event the option
shall expire on the earlier of the Expiration Date set forth above or six (6)
months following such termination of Continuous Status as an Employee, Director
or Consultant; or
(B) such termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within thirty
(30) days following your termination for any other reason, in which event the
option shall expire on the earlier of the Expiration Date set forth above or
eighteen (18) months after your death; or
(C) during any part of such thirty (30) day period the option is
not exercisable solely because of the condition set forth in paragraph 5 above,
in which event the option shall not expire until the earlier of the Expiration
Date set forth above or until it shall have been exercisable for an aggregate
period of thirty (30) days after the termination of Continuous Status as an
Employee, Director or Consultant; or
2.
<PAGE> 3
(D) exercise of the option within thirty (30) days after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act),
in which case the option will expire on the earlier of (i) the Expiration Date
set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions of
paragraph 2 of this option.
7. EXERCISE.
(A) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection
11(e) of the Plan.
(B) By exercising this option you agree that:
(I) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
cash payment by you to the Company of any tax withholding obligation of the
Company arising by reason of: (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise. You
also agree that any exercise of this option has not been completed and that the
Company is under no obligation to issue any Common Stock to you until such an
arrangement is established or the Company's tax withholding obligations are
satisfied, as determined by the Company; and
(II) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
3.
<PAGE> 4
8. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers, or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the _____ day of _________________________, 19__.
Very truly yours,
FIRST VIRTUAL CORPORATION
By
----------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
First Virtual Corporation 1997 Equity Incentive Plan
Notice of Exercise
4.
<PAGE> 5
The undersigned:
(A) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(B) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company, and (ii)
the following agreements only:
NONE
-----------
(Initial)
OTHER
---------------------------
---------------------------
---------------------------
--------------------------------------------
OPTIONEE
Address:
------------------------------------
------------------------------------
5.
<PAGE> 1
EXHIBIT 10.4
FIRST VIRTUAL CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 22, 1997
APPROVED BY THE STOCKHOLDERS ON DECEMBER 2, 1997
1. PURPOSE.
(A) The purpose of this 1997 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of First Virtual Corporation, a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(B) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(C) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(D) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(A) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. The
Committee shall have, in connection with the administration of the Plan, all
powers possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. Notwithstanding anything to the foregoing, the Board shall
have full power and authority to take any action that may be taken by the
Committee hereunder.
(B) The Board or the Committee shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(I) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(II) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
1.
<PAGE> 2
(III) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board or the Committee, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(IV) To amend the Plan as provided in paragraph 13.
(V) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one hundred fifty thousand
(150,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(A) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any
2.
<PAGE> 3
Affiliate shall not be eligible to be granted rights under the Plan unless, on
the Offering Date, such employee has been in the employ of the Company or any
Affiliate for such continuous period preceding such grant as the Board or the
Committee may require, but in no event shall the required period of continuous
employment be equal to or greater than two (2) years. In addition, unless
otherwise determined by the Board or the Committee and set forth in the terms of
the applicable Offering, no employee of the Company or any Affiliate shall be
eligible to be granted rights under the Plan unless, on the Offering Date, such
employee's customary employment with the Company or such Affiliate is for at
least twenty (20) hours per week and at least five (5) months per calendar year.
(B) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(I) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(II) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(III) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(C) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(D) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(E) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board or the Committee may
3.
<PAGE> 4
provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(A) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(B) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(C) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(I) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(II) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(A) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company
intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section
402(h), or Section 403(b)
4.
<PAGE> 5
of the Code, and also including any deferrals under a non-qualified deferred
compensation plan or arrangement established by the Company), and may include,
if determined by the Board or the Committee and set forth in the terms of the
Offering, all of the following items of compensation: bonuses, commissions,
overtime pay, incentive pay, profit sharing, or other remuneration (excluding
fringe benefits) paid directly to the employee. Notwithstanding the foregoing,
Earnings shall not include the cost of employee benefits paid for by the Company
or an Affiliate, education or tuition reimbursements, imputed income arising
under any group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation, as determined by the Board or the
Committee. The payroll deductions made for each participant shall be credited to
an account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero) or
increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for in
the Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(B) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(C) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(D) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(A) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of
5.
<PAGE> 6
stock of the Company, up to the maximum number of shares permitted pursuant to
the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. Unless otherwise provided for in the applicable
Offering, no fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 7(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account on the
final Purchase Date of an Offering after the purchase of shares which is equal
to or in excess of the value of one whole share of common stock shall be
distributed in full to the participant after such Purchase Date, without
interest.
(B) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(A) During the terms of the rights granted under the Plan, the Company
shall at all times keep available as authorized but unissued shares that number
of shares of stock required to satisfy such rights.
(B) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
6.
<PAGE> 7
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights
granted under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(B) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
7.
<PAGE> 8
13. AMENDMENT OF THE PLAN.
(A) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment if such amendment requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(B) The Board or the Committee may amend the Plan in any respect the
Board or the Committee deems necessary or advisable to provide eligible
employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(C) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(A) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(B) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board or the Committee in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under the Plan while
the Plan is suspended or after it is terminated.
8.
<PAGE> 9
(B) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon adoption by the Board (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
9.
<PAGE> 1
EXHIBIT 10.5
FIRST VIRTUAL CORPORATION
FORM OF EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED _______________, 1997
1. GRANT; OFFERING DATE.
(A) The Board of Directors of First Virtual Corporation (the "Company"),
pursuant to the Company's 1997 Employee Stock Purchase Plan (the "Plan"), hereby
authorizes the grant of rights to purchase shares of the common stock of the
Company ("Common Stock") to all Eligible Employees (an "Offering"). Subject to
earlier termination in accordance with subsection 1(b) below, the first Offering
shall commence on [_______________], 1997 and end on [______________], 1999 (the
"Initial Offering"). Thereafter, an Offering shall begin on [______________]
every two (2) years, beginning with calendar year 1999, and shall end on the day
prior to the second anniversary of its Offering Date. The first day of an
Offering is that Offering's "Offering Date."
(B) Notwithstanding anything to the contrary, in the event that the fair
market value of a share of Common Stock on any Purchase Date (as defined herein)
during an Offering is less than the fair market value on the Offering Date of
the Offering, then following the purchase of Common Stock on such Purchase Date
(i) the Offering shall terminate, (ii) a new Offering shall commence on the day
following the Purchase Date that shall extend for [the duration of the original
Offering][two (2) years], and (iii) participants shall automatically be enrolled
in the new Offering.
(C) Prior to the commencement of any Offering, the Board of Directors
(or the Committee described in subparagraph 2(c) of the Plan, if any) may change
any or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
2. ELIGIBLE EMPLOYEES.
(A) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee"). Notwithstanding the
foregoing, the following employees shall not be Eligible Employees or be granted
rights under an Offering: (i) part-time or seasonal employees whose customary
employment is less than 20 hours per week or 5 months per calendar year or (ii)
5%
1.
<PAGE> 2
stockholders (including ownership through unexercised options) described in
subparagraph 5(c) of the Plan.
(B) Each person who first becomes an Eligible Employee during any
Offering and at least [_______________] months prior to the final Purchase Date
of the Offering will, on the next [INSERT DATES IMMEDIATELY FOLLOWING PURCHASE
DATES] during that Offering, receive a right under such Offering, which right
shall thereafter be deemed to be a part of the Offering. Such right shall have
the same characteristics as any rights originally granted under the Offering
except that:
(1) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right; and
(2) the Offering for such right shall begin on its Offering Date
and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(A) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to fifteen percent (15%) of
such Eligible Employee's Earnings paid during such Offering after the Eligible
Employee first commences participation; provided, however, that no employee may
purchase Common Stock on a particular Purchase Date that would result in more
than fifteen percent (15%) of such employee's Earnings in the period from the
Offering Date to such Purchase Date having been applied to purchase shares under
all ongoing Offerings under the Plan and all other Company plans intended to
qualify as "employee stock purchase plans" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). For this Offering, "Earnings"
means the total compensation paid to an employee, including all salary, wages
(including amounts elected to be deferred by the employee, that would otherwise
have been paid, under any cash or deferred arrangement established by the
Company), overtime pay, commissions, bonuses, and other remuneration paid
directly to the employee, but excluding profit sharing, the cost of employee
benefits paid for by the Company, education or tuition reimbursements, imputed
income arising under any Company group insurance or benefit program, traveling
expenses, business and moving expense reimbursements, income received in
connection with stock options, contributions made by the Company under any
employee benefit plan, and similar items of compensation.
(B) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a fair market value (determined
as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering has been
outstanding at any time, minus (y) the fair market value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) which, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such
2.
<PAGE> 3
calendar years in which the right is outstanding. The amount in clause (y) of
the previous sentence shall be determined in accordance with regulations
applicable under Section 423(b)(8) of the Code based on (i) the number of shares
previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of shares subject to other rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
(C) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date (eighty-five percent (85%) of the fair market value of the
Common Stock on the first day on which the Company's Common Stock is actively
traded that immediately follows the Offering Date if an Offering does not fall
on a day during which the Company's Common Stock is not actively traded) or
eighty-five percent (85%) of the fair market value of the Common Stock on the
Purchase Date (eighty-five percent (85%) of the fair market value of the Common
Stock on the first day on which the Company's Common Stock is actively traded
that immediately precedes the Purchase Date if a Purchase Date does not fall on
a day during which the Company's Common Stock is not actively traded), in each
case rounded up to the nearest whole cent per share.
5. PARTICIPATION.
(A) An Eligible Employee may elect to participate in an Offering at the
beginning of the Offering or as of any [INSERT DATES IMMEDIATELY FOLLOWING
PURCHASE DATES] during the Offering. An Eligible Employee shall become a
participant in an Offering by delivering an agreement authorizing payroll
deductions. Such deductions may be in whole dollars or whole percentages not to
exceed fifteen percent (15%) of Earnings. A participant may not make additional
payments into his or her account. The agreement shall be made on such enrollment
form as the Company provides, and must be delivered to the Company before the
date of participation to be effective for such Offering, as determined by the
Company and communicated to Eligible Employees.
(B) A participant may increase or reduce (including to zero) his or her
participation level effective as of any [INSERT DATES IMMEDIATELY FOLLOWING
PURCHASE DATES] during the course of
3.
<PAGE> 4
an Offering. A participant may also reduce (including to zero) his or her
participation level once (and only once) during any three-month period ending on
a Purchase Date, effective as soon as administratively practicable. Any such
change in participation shall be made by delivering a notice to the Company or a
designated Affiliate in such form and at such time as the Company provides. In
addition, a participant may change his or her deductions prior to the beginning
of a new Offering to be effective at the beginning of such new Offering. A
participant may withdraw from an Offering and receive his or her accumulated
payroll deductions from the Offering (reduced to the extent, if any, such
deductions have been used to acquire Common Stock for the participant on any
prior Purchase Dates), without interest at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to participants), by delivering a withdrawal notice to the Company
in such form as the Company provides. A participant who has withdrawn from an
Offering shall not be entitled to again participate in such Offering, but may
participate in other Offerings under the Plan by submitting a new participation
agreement in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering. "Purchase
Date" shall be defined as each [________________] and [_________________].
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
4.
<PAGE> 5
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
5.
<PAGE> 1
EXHIBIT 10.6
FIRST VIRTUAL CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 25, 1997
APPROVED BY THE SHAREHOLDERS ON DECEMBER 2, 1997
1. PURPOSE.
(A) The purpose of the 1997 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of First Virtual
Corporation (the "Company") who is not otherwise at the time of grant an
employee of or consultant to the Company or of any Affiliate of the Company
(each such person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.
(B) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(C) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(A) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(B) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate two hundred fifty thousand
(250,000) shares of the Company's common stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without
1.
<PAGE> 2
having been exercised in full, the stock not purchased under such option shall
again become available for the Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(A) Upon the date of the approval of the Plan by the Board (the
"Adoption Date"), each person who is then a Non-Employee Director automatically
shall be granted an option to purchase ten thousand (10,000) shares of common
stock of the Company on such date on the terms and conditions set forth herein.
(B) Each person who is, after the Adoption Date, elected for the first
time to be a Non-Employee Director automatically shall, on the date of his or
her initial election as a Non- Employee Director by the Board or the
shareholders of the Company, be granted an option to purchase thirty thousand
(30,000) shares of common stock of the Company on the terms and conditions set
forth herein.
(C) Each Non-Employee Director who received an initial grant described
in subparagraph 5(a) or 5(b) automatically shall, on each anniversary following
the date of such grant, be granted an option to purchase ten thousand (10,000)
shares of common stock of the Company provided that such person (i) is at that
time a Non-Employee Director, and (ii) has served continuously as a Non-Employee
Director for the entire preceding twelve (12) months.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(A) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable as of
the date of termination of all such service under the provisions of subparagraph
6(e).
2.
<PAGE> 3
(B) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subparagraph 9(e)) subject to such option on the date such option is granted.
(C) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(I) Payment of the exercise price per share in cash at the time
of exercise; or
(II) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date preceding the date of exercise; or
(III) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company either
prior to the issuance of shares of the Company's common stock or pursuant to the
terms of irrevocable instructions issued by the optionee prior to the issuance
of shares of the Company's common stock.
(D) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(E) The option shall become exercisable over a period of five (5) years
from the date of grant, with ten percent (10%) of the shares becoming
exercisable on the date six months following the date of grant and the remaining
ninety percent (90%) of the shares becoming exercisable on a daily ratable basis
thereafter for the remaining four and one half years, provided that the optionee
has continuously served as a Non-Employee Director or employee of or consultant
to the Company or any Affiliate of the Company during the period prior to each
vesting installment date, whereupon such option shall become fully exercisable
in accordance with its terms with respect to that portion of the shares
represented by that installment.
3.
<PAGE> 4
(F) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(G) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
(H) The Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities of the Company under the Securities Act, require that any optionee
not sell or otherwise transfer or dispose of any shares of common stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters.
7. COVENANTS OF THE COMPANY.
(A) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(B) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
4.
<PAGE> 5
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(A) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(B) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or shareholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of the California
Corporations Code.
(C) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(D) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(E) As used in this Plan, "Fair Market Value" means, as of any date, the
value of the common stock of the Company determined as follows:
(I) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of the Nasdaq Stock Market, the Fair Market Value of a share of common
stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange with
the greatest volume of trading in common stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
5.
<PAGE> 6
(II) If the common stock is quoted on Nasdaq Stock Market (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(III) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(B) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger solely
to effect a reincorporation of the Company into another jurisdiction); (3) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then options outstanding under the Plan shall terminate
if not exercised at or prior to such event.
11. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the shareholders of the Company
to the extent shareholder approval is necessary
6.
<PAGE> 7
for the Plan to comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act or any Nasdaq or securities exchange listing requirements.
(B) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 24, 2007. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(B) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(C) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
The Plan shall become effective on September 25, 1997, the date adopted
by the Board.
7.
<PAGE> 1
EXHIBIT 10.9(i)
PSII-3
AMENDMENT NO. 1
TO LEASE
THIS AMENDMENT NO. I is made and entered into this 7th day of November,
1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated
7/20/77, of the John Arrillaga Survivor's Trust ("JOHN ARRILLAGA SURVIVOR'S
TRUST") (previously known as the "John Arrillaga Separate Property Trust") as
amended, and RICHARD T, PEERY, Trustee, or his Successor Trustee UTA dated
7/20/77, of the Richard T. Peery Separate Property Trust ("RICHARD T. PEERY
SEPARATE PROPERTY TRUST") as amended, collectively as LANDLORD, and FIRST
VIRTUAL CORPORATION, a Delaware corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated July 19, 1995 Landlord leased to
Tenant approximately 12,690+ square feet of that certain 48,000+/- square foot
building located at 3393 Octavius Drive, Suite 202, Santa Clara, California, the
details of which are more particularly set forth in said July 19, 1995 Lease
Agreement, and
B. WHEREAS, said Lease was amended by Letter Agreement dated November 6,
1997, whereby Landlord consented to Tenant's assignment of said Lease from First
Virtual Corporation, a California corporation to First Virtual Corporation, a
Delaware corporation, and,
C. WHEREAS, it is now the desire of the parties hereto to amend the Lease
by adding a Co-terminous paragraph and a Cross Default paragraph to said Lease
Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. LEASE TERMS CO-TERMINOUS: It is acknowledged that (i) concurrently with the
execution of this Amendment, Landlord and Tenant are also executing a separate
Lease Agreement dated November 7, 1997 (hereinafter referred to as the "New
Lease") affecting property located at 3233 Scott Blvd., Suite 103, Santa Clara,
California and (ii) it is the intention of the parties that the term of this
Lease be conterminous with the term of the New Lease such that the terms of both
leases expire on the same date; provided, however, the termination of this Lease
resulting from the terms and conditions stated under Paragraph 22 "Bankruptcy
and Default" (subject to Landlord's option as stated in the respective leases'
"Cross Default" Paragraph) or Paragraph 24 "Destruction" or Paragraph 25
"Eminent Domain" shall not result in a termination of the New Lease unless
Landlord elects, at its sole and absolute discretion, to terminate either or
both of the leases.
2. CROSS DEFAULT: As a material part of the consideration for the execution of
the New Lease by Landlord, it is agreed between Landlord and Tenant that a
default under this Lease, or a default under said New Lease may, at the option
of Landlord, be considered a default under both leases, in which event Landlord
shall be entitled (but in no event required) to apply all rights and remedies of
Landlord under the terms of one lease to both leases including, but not limited
to, the right to terminate one or both of said leases by reason of a
<PAGE> 2
PSII-3
default under said New Lease or hereunder.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said
July 19, 1995 Lease Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. I to
Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S FIRST VIRTUAL CORPORATION
TRUST a Delaware corporation
By /s/ John Arrillaga By /s/ Anita Neumann
John Arrillaga, Trustee
ANITA NEUMANN
Date: 11/17/97 Print or Type Name
RICHARD T. PEERY SEPARATE TITLE: Facilities Operations
PROPERTY TRUST
By /s/ Richard T. Peery, Trustee Date: NOVEMBER 13, 1997
Date: 11/17/97
<PAGE> 1
EXHIBIT 10.20
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of October 23, 1997, is
entered into by and between First Virtual Corporation, a California corporation,
with its chief executive office, and principal place of business located at 3393
Octavius Drive, Suite 102, Santa Clara, California 95054 (the "Borrower") and
Comdisco, Inc., a Delaware corporation, with its principal place of business
located at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" or
sometimes, "Comdisco"). In consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan in the aggregate principal amount of ONE MILLION AND 00/100 DOLLARS
($1,000,000,000).00 (the "Loan"), which would be evidenced by Subordinated
Promissory Note(s) executed by Borrower substantially in the form of Exhibit A
hereto (as the same may from time to time be amended, modified, supplemented or
restated the "Note(s)").
WHEREAS, Lender and Borrower agree any Loan hereunder shall be
subordinate to Senior Debt (as defined herein) to the extent set forth in the
Subordination Agreement (as defined herein).
WHEREAS, Lender is willing to make the Loan on the terms and conditions
set forth in this Agreement, and
WHEREAS, the Secured Obligations hereunder shall be expressly
subordinated, to the extent and in the manner set forth in the Subordination
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "Account" means any "account," as such term is defined in Section
9106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from
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any other transaction, whether or not the same involves the sale of goods or
services by Borrower (including, without limitation, any such obligation which
may be characterized as an account or contract right under the UCC) and all of
Borrower's rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower's rights to
any goods represented by any of the foregoing (including, without limitation,
unpaid seller's rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies
due or to become due to Borrower under all purchase orders and contracts for the
sale of goods or the performance of services or both by Borrower (whether or not
yet earned by performance on the part of Borrower or in connection with any
other transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "Account Debtor" means any "account debtor," as such term is defined
in Section 9105(1)(a) of the UCC.
1.3 "Chattel Paper" means any "chattel paper," as such term is defined
in Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.4 "Closing Date" means the date of funding of each installment of the
Loan.
1.5 "Collateral" shall have the meaning assigned to such term in Section
3 of this Agreement.
1.6 "Contracts" means all contracts, undertakings, franchise agreements
or other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.7 "Documents" means any "documents," as such term is defined in
Section 9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.8 "Equipment" means any "equipment," as such term is defined in
Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
1.9 "Excluded Agreements" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants (including, without limitation, the warrant
agreement dated as of May 28, 1997) to acquire, or agreements governing the
rights of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of August 7, 1996 between Borrower, as lessee,
and Lender, as lessor, including, without limitation, any Equipment Schedules
and Summary Equipment Schedules to the Master Lease Agreement executed or
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delivered by Borrower pursuant thereto and any other modifications or amendments
thereof, whereby Borrower (as lessee) leases equipment, software, or goods from
Lender (as lessor) to Borrower (as lessee).
1.10 "Facility Fee" means one-half (.5%) percent of the principal amount
of the installment of the Loan due at the Closing Date.
1.11 "Fixtures" means any "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.12 "General Intangibles" means any "general intangibles," as such term
is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, interests in partnerships, joint ventures and other business
associations, proprietary or confidential information, ), claims in or under
insurance policies, including unearned premiums, uncertificated securities, cash
and other forms of money or currency, deposit accounts (including as defined in
Section 9105(e) of the UCC), , rights to receive tax refunds and other payments
and rights of indemnification.
1.13 "Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.14 "Inventory " means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, goods and
other personal property which are held by or on behalf of Borrower for sale or
lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.15 "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale
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or other title retention agreement, any lease in the nature of a security
interest, and the filing of any financing statement (other than a precautionary
financing statement with respect to a lease that is not in the nature of a
security interest) under the UCC or comparable law of any jurisdiction.
1.16 "Loan Documents" shall mean and include this Agreement, the
Note(s), and any other documents executed in connection with the Secured
Obligations or the transactions contemplated hereby, as the same may from time
to time be amended, modified, supplemented or restated, provided, that the Loan
Documents shall not include any of the Excluded Agreements.
1.17 "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
1.18 " Maturity Date" means the date thirty-six (36) months from the
Closing Date of each installment of the Loan.
1.19 "Permitted Liens" means any and all of the following: (i) liens in
favor of Lender, or (ii) liens related to, or arising in connection with, Senior
Debt.
1.20 "Proceeds" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), and (d) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
1.21 "Receivables" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.22 "Secured Obligations" shall mean and include all principal,
interest, fees, costs, or other liabilities or obligations for monetary amounts
owed by Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.23 "Senior Creditor" means Silicon Valley Bank or a successor bank,
insurance company, pension fund, or other institutional lender to be determined,
or a syndication of such
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institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.24 "Senior Debt" means the obligations of Borrower to Senior Creditor
now existing or hereafter arising, together with all costs of collecting such
obligations, any and all indebtedness and obligations for borrowed money
(including, attorney's fees) , including, without limitation, all interest
accruing after the commencement by or against Borrower of any liquidation,
dissolution, bankruptcy, receivership or reorganization and all obligations
under the Loan Agreement between Borrower and Senior Creditor dated September 3,
1997.
1.25 "Subordination Agreement" means the Amendment to the Subordination
Agreement of even date herewith, entered into between Borrower, Lender Senior
Creditor.
1.26 "UCC' shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.27 "Warrant Agreement(s)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit I
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series D Preferred Stock of Borrower as more particularly set forth
therein.
SECTION 2. THE LOAN
2.1 Lender hereby agrees to make the Loan to Borrower on the terms and
conditions contained in this Loan Agreement. The outstanding principal amount of
the Loan, together with interest thereon precomputed at the rate of twelve
(12.0%) percent per annum, shall be due and payable in thirty-six (36)
installments consisting of one (1) monthly payment of zero (0) followed by
thirty-five (35) equal monthly installments of principal and interest, payable
in advance on the first day of each month , to and including the Maturity Date
(each, a "Payment Date"). If any payment under the Note(s) shall be payable on a
day other than a business day, then such payment shall be due and payable on the
next succeeding business day.
2.2 Borrower shall have the option to prepay the Loan , in whole or in
part, as of any Payment Date after the Closing Date by paying to Lender such
principal amount being prepaid together with all accrued and unpaid interest
with respect to such principal amount, as of the date of such prepayment.
2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest
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exceeds interest calculated at the Maximum Rate on said principal chargeable
over said period of time, then such excess interest actually paid by Borrower
shall be applied first, to the payment of principal outstanding on the Note(s);
second, after all principal is repaid, to the payment of Lender's out of pocket
costs, expenses, and professional fees which are owed by Borrower to Lender
under this Agreement or the Loan Documents; and third, after all principal,
costs, expenses, and professional fees owed by Borrower to Lender are repaid,
the excess (if any) shall be refunded to Borrower, and the effective rate of
interest will be automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in section 2.1.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in section 2.1. plus five percent (5%) per annum ("Default
Rate").
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a security interest in, all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether
tangible or intangible, other than all intellectual property, and
whether now or hereafter owned or existing, leased, consigned by
or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
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The Borrower represents, warrants and agrees that;
4.1 Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
4.2 Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, a perfected security interest in the Collateral as
security for the Secured Obligations, free of all liens, security interests,
encumbrances and claims , other than Permitted Liens and shall execute such
Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except as set forth herein and other than the
Permitted Liens, no other lien, security interest, adverse claim or encumbrance
has been created by Borrower or is known by Borrower to exist with respect to
any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in
good standing under the laws of the State of California, and is duly qualified
as a foreign corporation in all jurisdictions in which the nature of its
business or location of its properties require such qualifications and where the
failure to be qualified would have a material adverse effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in connection herewith, and the Excluded Agreements have
been duly authorized by all necessary corporate action of Borrower, the
individual or individuals executing the Loan Documents and the Excluded
Agreements were duly authorized to do so; and the Loan Documents and the
Excluded Agreements constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization or other similar laws
generally affecting the enforcement of the rights of creditors.
4.5 This Agreement ,the other Loan Documents and the Excluded Agreements
do not and will not violate any provisions of Borrower's Articles/Certificate of
Incorporation, bylaws or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which the Borrower is subject, or result
in the creation or imposition of any lien, security interest or other
encumbrance upon the Collateral, other than those created by this Agreement.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Excluded Agreements do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage
of time, the giving of notice, or both) constitute a default under the Loan
Agreement between Borrower and Senior Creditor.
4.9 Borrower has filed and will file all tax returns, federal, state and
local, which it is required to file and has duly paid or fully reserved for all
taxes or installments thereof (including
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any interest or penalties) as and when due, which have or may become due
pursuant to such returns or pursuant to any assessment received by Borrower for
the three (3) years preceding the Closing Date, if any(including any taxes being
contested in good faith and by appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained comprehensive general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks customarily insured against in Borrower's line of business.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate. Borrower shall use commercially reasonable efforts to cause all
policies evidencing such insurance to provide for at least thirty (30) days
prior written notice by the underwriter or insurance company to Lender in the
event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
5.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral, other than
claims arising at or caused by Lender's gross negligence or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30)
days) after the end of each month, unaudited interim financial
statements as of the end of such month (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows.
(b) as soon as practicable (and in any event within one hundred
twenty (120) days) after the end of each fiscal year, unqualified
audited financial statements as of the end of such year (prepared on a
consolidated and consolidating basis, if applicable), including balance
sheet and related statements of income and cash flows, and setting forth
in comparative form the corresponding figures for the preceding fiscal
year, certified by a firm of independent certified public accountants
selected by Borrower
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and reasonably acceptable to Lender, accompanied by any management
report from such accountants;
(c) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statement, financial statements or reports
which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any
national securities exchange; and
(d) promptly, any additional information, financial otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate
Borrower's continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and
its attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower at
reasonable times during normal business hours. In addition, such representative
of Lender and its attorneys and accountants shall have the right to meet with
management and officers of the Company to discuss such books of account and
records.
6.2 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be requested by Lender; and take all
further action that may be necessary or desirable, or that Lender may request,
to confirm, perfect, preserve and protect the security interests intended to be
granted hereby, and in addition, and for such purposes only, Borrower hereby
authorizes Lender to execute and deliver on behalf of Borrower and to file such
financing statements, security agreement and other documents without the
signature of Borrower either in Lender's name or in the name of Borrower as
agent and attorney-in-fact for Borrower. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu thereof.
6.3 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender) and shall give Lender immediate written notice thereof.
6.4 Without Lender's prior written consent, Borrower shall not (a) grant
any material extension of the time of payment of any of the Receivables, (b) to
any material extent, compromise, compound or settle the same for less than the
full amount thereof, (c) release, wholly or partly, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
trade discounts granted in the ordinary course of business of Borrower.
6.5 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition
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(taking into consideration ordinary wear and tear) and from time to time make or
cause to be made all necessary and proper repairs, renewals and replacements
thereto and shall competently manage and care for its property in accordance
with prudent industry practices.
6.6 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of twenty (20) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender. In the event Lender does not consent to such
assignment the parties agree Borrower shall prepay the loan in accordance with
Section 1.2 hereof.
6.7 Borrower shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld, declare or pay any cash dividend
or make a distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold in the normal course of business).
6.8 Upon the request of Lender, Borrower shall, during business hours,
make the Inventory and Equipment available to Lender for inspection at the place
where it is normally located and shall make Borrower's log and maintenance
records pertaining to the Inventory and Equipment available to Lender for
inspection. Borrower shall take all action necessary to maintain such logs and
maintenance records in a correct and complete fashion.
6.9 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file on or before the due date therefor all personal
property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
6.10 Borrower shall not relocate any item of the Collateral (other than
sale of inventory in the ordinary course of business) except: (i) with the prior
written consent of the Lender not to be unreasonably withheld (except no consent
will be required for demo equipment ); and (ii) if such relocation shall be
within the continental United States. If permitted to relocate Collateral
pursuant to the foregoing sentence, unless otherwise agreed in writing by
Lender, Borrower shall first (a) cause to be filed and/or delivered to the
Lender all Uniform Commercial Code financing statements, certificates or other
documents or instruments necessary to continue in effect the perfected security
interest of the Lender in the Collateral, and (b) have given the Lender no less
than thirty (30) days prior written notice of such relocation.
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SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Closing Date shall be
subject to Lender's discretion and satisfactory completion of its due diligence
and approval process, and satisfaction by Borrower or waiver by Lender, in
Lender's sole discretion, of the following conditions:
7.1 (a) The Closing Date for any installment shall occur before October
23, 1998.
7.2 Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Note(s), and all other Loan
Documents, and the Warrant Agreement(s), including any documents
reasonably required by Lender to effectuate the liens of Lender, with
respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of
directors evidencing approval of the borrowing and other transactions
evidenced by the Loan Documents and the Warrant Agreements;
(c) certified copies of the Articles of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have
a Material Adverse Effect;
(e) payment of the Facility Fee;
(f) Borrower's written instructions to Lender regarding the
manner of disbursement of the Loan, which must be reasonably
satisfactory to Lender; and
(g) such other documents as Lender may reasonably request.
In the event that Borrower has not issued and authorized additional
shares of Series D Preferred Stock within 30 days of the date hereof and in
accordance with the terms of the Warrant Agreement, the Borrower shall then
immediately prepay this loan in accordance with Section 2.2 hereof.
7.3 Perfection of Security Interests. Borrower shall have taken or
caused to be taken such actions requested by Lender to grant Lender a perfected
security interest in the Collateral, subject only to Permitted Liens. Such
actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
7.4 Revenue and Income Milestones. At the time of the request, Borrower
shall have achieved seventy-five (75%) or more of its cumulative revenue and
income projections as set forth for in its Business Plan dated September 25,
1997 for the prior six (6) month period.
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<PAGE> 12
7.5 Absence of Events of Defaults. As of the Closing Date, no fact or
condition exists that would (or would, with the passage of time, the giving of
notice, or both) constitute an Event of Default under this Agreement or any of
the Loan Documents and no fact or condition exists that would (or would, with
the passage of time, the giving of notice, or both) constitute a default under
the Senior Loan Documents between Borrower and Senior Creditor.
7.6 Material Adverse Effect. As of the Closing Date, no event which has
had or could reasonably be expected to have a Material Adverse Effect has
occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the other Loan Documents, and such default continues for more
than five (5) days after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or
Secured Obligation of Borrower hereunder or under the Note(s) or any of the
other Loan Documents, and such default continues for more than ten (10) days
after Lender has given notice of such default to Borrower.; or
8.3 Any representation or warranty made herein by Borrower shall prove
to have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an
action by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
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<PAGE> 13
8.6 Sixty (60) days shall have expired after the appointment, without
the consent or acquiescence of Borrower, of any trustee, receiver or liquidator
of Borrower or of all or any substantial part of the properties of Borrower
without such appointment being vacated; or
8.7 The default by Borrower under any Loan Documents, any other
promissory note or agreement for borrowed money, any lease or any other
agreement between Borrower and Lender; or
8.8 The occurrence of any default under any lease or other agreement or
obligation of Borrower involving an amount in excess of $200,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower in excess
of $200,000.00 or that would have a Material Adverse Effect, that has not been
bonded or stayed on appeal within thirty (30) days; or
8.9 The occurrence of any material default under the Senior Loan
Documents; or
8.10 The occurrence of any material default under the Excluded
Agreements.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type described in Subsections 8.4 or 8.5, the
Note(s) and all of the other Secured Obligations shall automatically be
accelerated and made due and payable without any further act), whereupon the
unpaid principal of and accrued interest on such Note(s) and all other
outstanding Secured Obligations shall become immediately due and payable, and
shall thereafter bear interest at the Default Rate set forth in, and calculated
according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights
and remedies with respect to the Collateral under the Loan Documents or
otherwise available to it under applicable law, including the right to release,
hold or otherwise dispose of all or any part of the Collateral and the right to
occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs
and professionals' and advisors' fees and expenses;
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<PAGE> 14
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its sole
discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction may
direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordinated Agreement.
SECTION 10. MISCELLANEOUS
10.1 Continuation of Security Interest. This is a continuing Agreement
and the grant of a security interest hereunder shall remain in full force and
effect and all the rights, powers and remedies of Lender hereunder shall
continue to exist until the Secured Obligations are paid in full as the same
become due and payable and until Lender has executed a written termination
statement (which Lender shall execute within a reasonable time after full
payment of the Secured Obligations hereunder), reassigning to Borrower, without
recourse, the Collateral and all rights conveyed hereby and returning possession
of the Collateral to Borrower. The rights, powers and remedies of Lender
hereunder shall be in addition to all rights, powers and remedies given by
statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers and remedies provided herein shall not be construed as a
waiver of or election of remedies with respect to any other rights, powers and
remedies of Lender.
10.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 Notice. Except as otherwise provided herein, all notices and
service of process required, contemplated, or permitted hereunder or with
respect to the subject matter hereof shall be in writing, and shall be deemed to
have been validly served, given or delivered upon the earlier of: (i) the first
business day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) If to Lender:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
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<PAGE> 15
With a copy to:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) If to Borrower:
FIRST VIRTUAL CORPORATION
Attention: Chief Financial Officer
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Facsimile (408) 988-7077
or to such other address as each party may designate for itself by like notice.
10.4 Entire Agreement; Amendments. This Agreement, the Note(s), and the
other Loan Documents, and the Excluded Agreements constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated April 14, 1997),
all of which are merged herein and therein. None of the terms of this Agreement,
the Note(s), any of the other Loan Documents or Excluded Agreements may be
amended except by an instrument executed by each of the parties hereto.
10.5 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 Survival. All agreements, representations and warranties contained
in this Agreement, the Note(s), the other Loan Documents and the Excluded
Agreements or in any document delivered pursuant hereto or thereto shall be for
the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.
10.8 Successor and Assigns. The provisions of this Agreement, the other
Loan Documents and the Excluded Agreements shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note(s), any of the other Loan
Documents or the Excluded Agreements,
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<PAGE> 16
without Lender's express written consent, and any such attempted assignment
shall be void and of no effect. Lender may assign, transfer, or endorse its
rights hereunder and under the other Loan Documents or Excluded Agreements
without prior notice to Borrower, and all of such rights shall inure to the
benefit of Lender's successors and assigns.
10.9 Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
10.10 Governing Law. This Agreement, the Note(s),the other Loan
Documents and the Excluded Agreements have been negotiated and delivered to
Lender in the State of Illinois, and shall not become effective until accepted
by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured
Obligations is due in the State of Illinois. This Agreement, the Note(s), the
other Loan Documents and the Excluded Agreements shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois,
excluding conflict of laws principles that would cause the application of laws
of any other jurisdiction.
10.11 Consent To Jurisdiction And Venue. All judicial proceedings
arising in or under or related to this Agreement, the Note(s), any of the other
Loan Documents or Excluded Agreements may be brought in any state or federal
court of competent jurisdiction located in the State of Illinois. By execution
and delivery of this Agreement, each party hereto generally and unconditionally:
(a) consents to personal jurisdiction in Cook County, State of Illinois; (b)
waives any objection as to jurisdiction or venue in Cook County, State of
Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or
venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement, the Note(s), the
other Loan Documents or Excluded Agreements. Service of process on any party
hereto in any action arising out of or relating to this agreement shall be
effective if given in accordance with the requirements for notice set forth in
Subsection 10.3, above and shall be deemed effective and received as set forth
in Subsection 10.3, above. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of either
party to bring proceedings in the courts of any other jurisdiction.
10.12 Mutual Waiver Of Jury Trial. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL
BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY
CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST
LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This
waiver extends to all such Claims, including, without limitation, Claims which
involve persons or entities other than Borrower and Lender; Claims which arise
out of or are in any way connected to the relationship between Borrower and
Lender; and any Claims for damages, breach of contract arising out of this
Agreement, any other Loan Document or any of the Excluded Agreements, specific
performance, or any equitable or legal relief of any kind.
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<PAGE> 17
10.13 Confidentiality. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of intellectual property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
10.14 Counterparts. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER: FIRST VIRTUAL CORPORATION
Signature: _____________________________
Print Name: _____________________________
Title: _____________________________
Accepted in Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature: _____________________________
Print Name: _____________________________
Title: _____________________________
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<PAGE> 18
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$1,000,000.00 Date: October 28, 1997
Due: October 1, 2000
For value received, First Virtual Corporation, a California corporation, (the
"Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware
corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other
place of payment as the holder of this Subordinated Promissory Note (this
"Note") may specify from time to time in writing, in lawful money of the United
States of America, the principal amount of One Million and 00/100 Dollars
($1,000,000.00) together with interest at the rate per annum provided in the
Loan Agreement (as defined below), from the date of this Note to maturity of
each installment on the principal hereof remaining from time to time unpaid,
such principal and interest to be paid in thirty (36) monthly installments
consisting of one (1) installment of zero (0) commencing November 1, 1997
followed by thirty-five (35) equal monthly installments of principal and
interest in the amount of $34,343.72 each, commencing December 1, 1997 and on
the same day of each month thereafter to and including October 1, 2000, such
installments to be applied first to accrued and unpaid interest and the balance
to unpaid principal. Interest shall be computed on the basis of a year
consisting of twelve months of thirty days each.
This Note is the promissory note referred to in, and is executed and delivered
in connection with, that certain Subordinated Loan and Security Agreement dated
as of October 23, 1997 by and between Borrower and Lender (as the same may from
time to time be amended, modified or supplemented in accordance with its terms,
the "Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
<PAGE> 19
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: FIRST VIRTUAL CORPORATION
Signature: _______________________
Print Name: _______________________
Title: _______________________
Accepted in Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature: _______________________
Print Name: _______________________
Title: _______________________
<PAGE> 1
EXHIBIT 10.21
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
FIRST VIRTUAL CORPORATION
Dated as of November 19, 1997 (the "Effective Date")
WHEREAS, First Virtual Corporation, a California corporation (the
"Company") has entered into a Subordinated Loan and Security Agreement dated as
of October 23, 1997, (the "Loan") , with Comdisco, Inc., a Delaware corporation
(the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loan, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loan and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 20,312 fully paid and
non-assessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") at a purchase price of $8.00 per share (the "Exercise Price"). If and to
the extent that the Company's Series D Preferred Stock has, pursuant to the
provisions of the Company's Restated Articles of Incorporation in effect at the
time (the "Restated Articles"), automatically converted into the Company's
Common Stock ("Common Stock"), this Warrant Agreement shall thereafter
automatically entitle the Warrantholder to purchase the number of shares of
Common Stock into which the Series D Preferred Stock was then convertible, and
references hereinafter to Preferred Stock shall be deemed, as appropriate, to
thereafter mean such Common Stock. The number and purchase price of such shares
are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (I)
seven (7) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute
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<PAGE> 2
the acknowledgment of exercise in the form attached hereto as Exhibit II
(the "Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
Registration Statement relating to such public offering has been
declared effective by the SEC, then the fair market value per share
shall be the product of (x) the initial "Price to Public" specified in
the final prospectus with respect to the offering and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of the
closing prices over a ten (10) day period ending three days
before the day the current fair market value of the securities is
being determined and (y) the number of shares of Common Stock
into which each share of Preferred Stock is convertible at the
time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ system (or
similar system) over the twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of Preferred
Stock shall be the product of (x) the highest price per share which the
Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board
of Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
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<PAGE> 3
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. Within 30 days after the
execution of this Warrant Agreement and thereafter, during the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as then
in effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered, listed or
approved for listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein) or within the provisions of the Restated Articles covering the Series D
Preferred Stock itself, or a merger or consolidation of the Company with or into
another corporation whether or not the Company is the surviving corporation, or
the sale of all or substantially all of the Company's properties and assets to
any other person (hereinafter referred to as a "Merger Event"), then, as a part
of such Merger Event, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of the Warrant, the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
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<PAGE> 4
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock or
within the provisions of the Restated Articles covering the Series D Preferred
Stock itself, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all shares
of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of all
shares of the Company's stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Right to Purchase Additional Stock. If, the Company has not repaid
the Loan in its entirety by the end of the 36th month, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock, which number
shall be determined by (i) multiplying the then outstanding principal amount of
the Loan by 1% for each additional month that the Loan remains unpaid.
(f) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Restated
Articles.). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Restated Articles.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. The Company shall provide notice to the Warrantholder
of the events specified in this Section 8, which notice shall be in advance of
the event as to which Warrantholder's rights would be prejudiced without such
advance notice. Failure to timely provide such notice required by subsection (f)
above shall entitle Warrantholder to retain the benefit of the applicable notice
period notwithstanding anything to the contrary contained in any insufficient
notice received by Warrantholder. The notice period shall begin on the date
Warrantholder actually receives a written notice containing all the information
specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Company shall, within 30 days of
the date of execution of this Warrant Agreement, cause the Preferred Stock
issuable upon exercise of the Warrantholder's rights have been duly and validly
reserved and, when issued in accordance with the provisions of this Warrant
Agreement, such Preferred Stock will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Preferred Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
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<PAGE> 5
the Warrantholder true, correct and complete copies of its Restated Articles and
the Company's Bylaws, as amended. The issuance of certificates for shares of
Preferred Stock upon exercise of the Warrant Agreement shall be made without
charge to the Warrantholder for any issuance tax in respect thereof, or other
cost incurred by the Company in connection with such exercise and the related
issuance of shares of Preferred Stock. The Company shall not be required to pay
any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. Subject to approval by the Company's shareholders of
an amendment to its Restated Articles to authorize more shares of Series D
Preferred Stock and approval by the prior purchasers of Series D Preferred Stock
of the issuance and sale of more shares of Series D Preferred Stock, the
execution and delivery by the Company of this Warrant Agreement and the
performance of all obligations of the Company hereunder, including the issuance
to Warrantholder of the right to acquire the shares of Preferred Stock, have
been duly authorized by all necessary corporate action on the part of the
Company and, subject to the aforementioned shareholder approvals, this Warrant
Agreement is not inconsistent with the Company's Restated Articles or the
Company's Bylaws, do not contravene any law or governmental rule, regulation or
order applicable to it, do not and will not contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound, and this Warrant
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition, the authorized capital of the Company consists of:
(i) Preferred Stock. 10,000,000 shares of preferred stock, no par
value, of which 4,000,000 shares have been designated Series A Preferred
Stock, all of which are issued and outstanding; 2,200,000 shares have
been designated Series B Preferred Stock, all of which are issued and
outstanding; 1,375,000 shares have been designated Series C Preferred
Stock, 1,351,778 of which are issued and outstanding and 687,500 shares
of Series D Preferred Stock, of which 488,375 are issued and
outstanding. The rights, privileges and preferences of the Series A,
Series B, Series C and Series D Preferred Stock are as stated in the
Restated Articles.
(ii) Common Stock. 30,000,000 shares of Common Stock no par
value, of which 4,817,318 shares are issued and outstanding.
(iii) There are no outstanding options, warrants, rights
(including conversion or preemptive rights or similar rights), or
agreements for the purchase or acquisition from the Company of any
shares of its capital stock except for (a) the conversion privileges of
the Series A, Series B, Series C and Series D Preferred Stock; (b)
outstanding options to purchase 2,079,998 shares of the Company's Common
Stock pursuant to its 1996 Stock Option Plan and 1996 Stock Option Plan
No. 2 (the "Option Plans"); and (c) 3 warrants to purchase 18,750;
20,312 and 1,562 shares of Series D Preferred Stock respectively. The
Company has reserved an aggregate of 1,405,823 shares of its Common
Stock for additional issuances under the Option Plans. The Company has
also reserved 3,295,000 shares of its Common Stock for purchases under
the 1993 Employee, Consultant and Director Stock Purchase Plan (the
"Purchase Plan"), of which 3,293,618 shares have been issued and are
outstanding on the date hereof, and 125,000 shares of its Series C
Preferred Stock for issuance under its 1996 Employee Stock Purchase
Bonus Plan (the "Bonus Plan"), of which 101,778 shares have been issued
on the date hereof. In addition, the Company has reserved 250,000,
150,000 and 9,750 shares of Common Stock, respectively, under the
Company's 1996 Non-Employee Director's Stock Option Plan, 1997 Employee
Stock Purchase Plan and 1997 Restricted Stock Bonus Plan, of which
30,000 shares, no shares and 9,000 shares, respectively, are issued and
outstanding. The Company has additionally adopted the 1997 Equity
Incentive Plan (the "Incentive Plan") as an amendment and restatement
of the Option Plans and the Purchase Plan, effective upon the closing
of the Company's initial public offering. The Company has authorized an
aggregate of 4,625,000 shares of Common Stock for issuance under the
Incentive Plan.
(iv) In accordance with the Restated Articles, no shareholder of
the Company has preemptive rights to purchase new issuances of the
Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
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<PAGE> 6
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. After completion of any initial public
offering of the Company's stock, at the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. This Warrant and the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein will be acquired
for investment and not with a view to the sale or distribution of any part
thereof, and the Warrantholder has no present intention of selling or engaging
in any public distribution of the same except pursuant to a registration or
exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for this
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
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<PAGE> 7
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, Attention: James Labe',
Venture Group, cc: Legal Department, Attention: General Counsel, (and/or, if by
facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 3393
Octavius Drive, Suite 102, Santa Clara, CA 95054, Attention: James O. Mitchell
(and/or if by facsimile, (408) 988-7077 or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
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<PAGE> 8
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d) and (f) of Section 9 above. The Company shall also
supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: FIRST VIRTUAL CORPORATION
By: _________________________
Title: _________________________
Warrantholder: COMDISCO, INC.
By: _________________________
Title: _________________________
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EXHIBIT I
NOTICE OF EXERCISE
TO: ____________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares
of the Series D Preferred Stock of _________________, pursuant to the
terms of the Warrant Agreement dated the ______ day of
________________________, 19__ (the "Warrant Agreement") between
_____________________________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series D Preferred Stock of
________________________________________, the undersigned hereby
confirms and acknowledges the investment representations and warranties
made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series D Preferred Stock in the name of the undersigned or in such other
name as is specified below.
- ---------------------------------
(Name)
- ---------------------------------
(Address)
WARRANTHOLDER: COMDISCO, INC.
By: ___________________________
Title: ___________________________
Date: ___________________________
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<PAGE> 10
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Series D Preferred Stock of _________________, pursuant to the terms of
the Warrant Agreement, and further acknowledges that ______ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company: FIRST VIRTUAL CORPORATION
By:________________________________
Title: ____________________________
Date: ____________________________
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<PAGE> 11
EXHIBIT III
TRANSFER NOTICE
(TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM
AND SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE
SHARES.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_________________________________________________________________
(Please Print)
whose address is_________________________________________________
_________________________________________________________________
Dated: ____________________________________
Holder's Signature: _______________________
Holder's Address: _______________________
___________________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Transfer Notice must correspond with
the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any change
whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing
Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.22
LEASE AGREEMENT
THIS LEASE, made this 7th day of November, 1997 between JOHN ARRILLGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77, of the John Arrillaga
Survivor's Trust ("John Arrillaga Survivor's Trust") as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77, of the Richard T.
Peery Separate Property Trust ("Richard T. Peery Separate Property Trust") as
amended, hereinafter called Landlord and FIRST VIRTUAL CORPORATION, a Delaware
corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 48,000+/- square foot, one-story building located at
3233 Scott Blvd., Suite 103, Santa Clara, California 95054, consisting of
approximately 12,240 +/- square feet of space. Said Premises is more
particularly shown within the area outlined in Red on Exhibit A attached hereto.
The entire parcel, of which the Premises is a part, is shown within the area
outlined in Green on Exhibit A attached. The Premises is leased on an "as-is"
basis, in its present condition, and in the configuration as shown in Red on
Exhibit B attached hereto.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the building shall be measured from outside of exterior walls to outside
of exterior walls, and shall include any atriums, covered entrances or egresses
and covered loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises nor bring or keep or permit to be brought or kept in or about the
Premises anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls, or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside
<PAGE> 2
the Premises. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door partition or wall which may appear unsightly
from outside the Premises. No loudspeaker or other device, system or apparatus
which can be heard outside the Premises shall be used in or at the Premises
without the prior written consent of Landlord. Tenant shall not commit or suffer
to be committed any waste in or upon the Premises. Tenant shall indemnify,
defend and hold Landlord harmless against any loss, expense, damage, reasonable
attorneys fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for the
benefit of Landlord only and shall not be construed to be for the benefit of any
tenant or occupant of the Premises.
2. TERM*
A. The term of this Lease shall be for a period of NINE (9) months
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B
and 3, shall commence on the 1st day of December, 1997 and end on the 31st day
of August, 1998.
B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence on December 1, 1997, or
(d) As otherwise agreed in writing.
*It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent rate scheduled for the projected commencement date as shown in
Paragraph 39.
page 1 of 8
<PAGE> 3
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinabove specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2B, above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 30 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, as its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
TWO HUNDRED TWENTY THOUSAND THREE HUNDRED TWENTY AND NO/100 Dollars
($220,320.00) in lawful money of the United States of America, payable as
follows:
See Paragraph 39 for Basic Rent Schedule
B. Time for Payment. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, the Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten percent (10%) of each rental payment
so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph
9, and
(b) All insurance premiums relating to the Premises, as set forth
in Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure or Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
<PAGE> 4
The additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five days for taxes and insurance and within thirty
days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
appropriate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled within 120 days of the end of each calendar
year or more frequently if Landlord elects to do so at Landlord's sole and
absolute discretion as compared to Landlord's actual expenditure for said
Additional Rent items, with Tenant paying to Landlord, upon demand, any amount
of actual expenses expended by Landlord in excess of said estimated amount, or
Landlord crediting to Tenant (providing Tenant is not in default in the
performance of any of the terms, covenants and conditions of this Lease) any
amount of estimated payments made by Tenant in excess of Landlord's actual
expenditures for said Additional Rent Items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. Fixed Management Fee. Beginning with the Commencement Date of the
Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent
and Additional Rent, a fixed monthly management fee ("Management Fee") equal to
3% of the Basic Rent due for each month during the Lease Term.
F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San
Francisco, CA 94160 or to such other person or to such other place as Landlord
may from time to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of FORTY EIGHT THOUSAND NINE HUNDRED
SIXTY AND NO/100 Dollars ($48,960.00). Said sum shall be held by Landlord as a
Security Deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to the provisions relating to the payment of
rent and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may spend by reason spend by
reason of Tenant's default or to compensate Landlord for
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<PAGE> 5
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in the amount sufficient to restore the Security Deposit to its original amount.
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep this Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant
fully and faithfully performs every provision of this Lease to be performed by
it, the Security Deposit or any balance thereof shall be returned to Tenant (or
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceable to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; all broken, marred or
nonconforming accoustical ceiling tiles replaced; all windows washed; the
airconditioning and heating systems serviced by a reputable and licensed service
firm and in good operating condition and repair; the plumbing and electrical
systems and lighting in good order and repair, including replacement of any
burned out or broken light bulbs or ballasts; the lawn and shrubs in good
condition including the replacement of any dead or damaged plantings; the
sidewalk, driveways and parking areas in good order, condition and repair;
together with all alterations, additions, and improvements which may have been
made in, to, or on the Premises (except moveable trade fixtures installed at the
expenses of Tenant) except that Tenant shall ascertain from Landlord within
thirty (30) days before the end of the term of this Lease whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay. Nothing contained herein shall
be construed as an extension of the term hereof or as a consent of Landlord to
any holding over by Tenant. The voluntary or other surrender of this Lease or
the Premises by Tenant or a mutual cancellation of this Lease shall not work as
a merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.
6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant (such consent not to be
unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all
<PAGE> 6
contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical,
airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees
that it will not proceed to make such alteration or additions, without having
obtained consent from Landlord to do so, and until five (5) days from the
receipt of such consent, in order that Landlord may post appropriate notices to
avoid any liability to contractors or material suppliers for payment for
Tenant's improvements. Tenant will at all times permit such notices to be posted
and to remain posted until the completion of work. Tenant shall, if required by
Landlord, secure at Tenant's own cost and expense, a completion and lien
indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expenses of Tenant. Any
exceptions to the foregoing must be made in writing and executed by both
Landlord and Tenant.
7. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary conditions.
Tenant's maintenance and repair responsibilities herein referred to include, but
are not limited to, janitorization, plumbing systems within the non-common areas
of the Premises (such as water and drain lines, sinks), electrical systems
within the non-common areas of the Premises (such as outlets, lighting fixtures,
lamps, bulbs, tubes, ballasts), heating and airconditioning controls within the
non-common areas of the Premises (such as mixing boxes, thermostats, time
clocks, supply and return grills), all interior improvements within the premises
including but not limited to: wall coverings, window coverings, acoustical
ceilings, vinyl tile, carpeting, partitioning, doors (both interior and
exterior, including closing mechanisms, latches, locks), and all other interior
improvements of any nature whatsoever. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of the
carpet caused by such rolling chairs if such wear and tear exceeds that caused
by normal foot traffic is surrounding areas. Areas of excessive wear shall be
replaced at Tenant's sole expense upon Lease termination.
8. UTILITIES
9. TAXES
A. As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax
Collector, All Real Property Taxes relating to the Premises leased hereunder
consist of only a portion of the entire tax parcel, Tenant shall pay to Landlord
Tenant's proportionate share of such real estate taxes allocated to the leased
Premises by square footage or other reasonable basis as calculated and
determined by Landlord. If the tax billing pertains 100% to the leased Premises,
and Landlord chooses to have Tenant pay said real estate taxes directly to the
Tax Collector, then in such event it shall be the responsibility of Tenant to
obtain the tax and assessment bills and pay, prior to delinquency, the
applicable real property taxes and assessments pertaining to the leased
Premises, and failure to receive a bill for taxes and/or assessments shall not
provide a basis for cancellation of or nonresponsibility for payment of
penalties for nonpayment or late payment by Tenant. The term "Real Property
Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Premises)
now or hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied or assessed against, or with respect to the value, occupancy or
use of, all or any portion of the Premises (as now constructed or as may at any
time hereafter be constructed, altered, or otherwise changed) or Landlord's
interest therein; any improvements located within the Premises (regardless of
ownership); the fixtures, equipment and other property of Landlord, real
<PAGE> 7
or personal, that are an integral part of and located in the Premises; or
parking areas, public utilities, or energy within the Premises; (ii) all
charges, levies or fees imposed by reason of environmental regulation or other
governmental control of the Premises; and (iii) all costs and fees (including
page 3 of 8
<PAGE> 8
reasonable attorneys' fees) incurred by Landlord in reasonably contesting any
Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Premises prevailing as of the commencement date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Premises or Landlord's interest therein or (ii)
on or measured by the gross receipts, income or rentals from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. Taxes on Tenant's Property Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if property or if the assessed value of the Premises is
increased by the inclusion therein of a value placed upon such personal property
or trade fixtures of Tenant and if Landlord, after written notice to Tenant,
pays the taxes based on such increased assessment, which Landlord shall have the
right to do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord's the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for bodily injury and property damage occurring in,
on or about the Premises, including parking and landscaped areas. Such insurance
shall be primary and noncontributory as respects any insurance carried by
Landlord. The policy or policies effecting such insurance shall name Landlord as
additional insureds, and shall insure any liability of Landlord, contingent or
otherwise, as respects acts or omissions of Tenant, its agents, employees or
invitees or otherwise by any conduct or transactions of any of said persons in
or about or concerning the Premises, including any failure of Tenant to observe
or perform any of its obligations hereunder; shall be issued by an insurance
company admitted to transact business in the State of California; and shall
provide that the insurance effected thereby shall not be canceled, except upon
thirty (30) days' prior written notice to Landlord. A certificate of insurance
of said policy shall be delivered to Landlord. If, during the term of this
Lease, in the considered opinion of Landlord's Lender, insurance advisor, or
counsel, the amount of insurance described in this Paragraph 10 is not adequate,
Tenant agrees to increase said coverage to such reasonable amount as Landlord's
Lender, insurance advisor, or counsel shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.
<PAGE> 9
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (excluding routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any other cause whatsoever.
14. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. Tenant shall, at its
sole cost and expense, comply with any and all requirements pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.
<PAGE> 10
15. LIENS Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
such lien, cause the same to be released of record, 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. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, or subletting,
Landlord shall require Tenant to pay to Landlord, as Additional Rent, all rents
and/or additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the
assigned, transferred and/or subleased space. Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any part
of the term hereof. Within thirty (30) days after receipt of said written
notice, Landlord may, in its sole discretion, elect to terminate this Lease as
to the portion of the Premises described in Tenant's notice on the date
specified in Tenant's notice by giving written notice of such election to
terminate. If no such notice to terminate is given to Tenant within said thirty
(30) day period, Tenant may proceed to locate an acceptable sublessee, assignee,
or other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 16. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing with
respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square feet
retained by Tenant, and this Lease as so amended shall continue in full force
and effect. In the event Tenant is allowed to assign, transfer or sublet the
whole or any part of the Premises, with the prior written
page 4 of 8
<PAGE> 11
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant from
any of Tenant's obligation hereunder or be deemed to be consent to any
subsequent similar or dissimilar assignment, transfer, hypothecation,
subletting, occupation or use by any other person. Any such assignment,
transfer, hypothecation, subletting, occupation or use without such consent
shall be void and shall constitute a breach of this Lease by Tenant and shall,
at the option of Landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any interest
therein, be assignable for any purpose by operation of law without the written
consent of Landlord. As a condition to its consent, Landlord shall require
Tenant to pay all expenses in connection with the assignment, and Landlord shall
require Tenant's assignee or transferee (or other assignees or transferees) to
assume in writing all of the obligations under this Lease and for Tenant to
remain liable to Landlord under the Lease. Notwithstanding the above, in no
event will Landlord consent to a sub-sublease.
17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust; upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such Lease.
Notwithstanding any such subordination, Tenant's possession under this Lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all rent and observe and perform all of the provisions set forth in this
Lease.
18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to make repairs or provide any services to a contiguous tenant(s); to
submit the Premises to prospective purchasers, mortgagers or tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises or
other parts of the building, all without abatement of rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least extent
that is reasonably practical. Any entry to the Premises by Landlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of
<PAGE> 12
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
therein. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease.
Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises or
any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such reasonable
<PAGE> 13
hereunder for the period of such subletting (to the extent such period does not
exceed the term hereof) exceeds the amount to be paid as rent for the Premises
for such periods or (ii) at the option of Landlord, rents received from such
subletting shall be applied first to payment of indebtedness other than rent due
hereunder from Tenant to Landlord; second, to the payment of any costs of such
subletting and of such alterations and repairs; third to payment of rent due and
unpaid hereunder; and the residue, if any, shall be held by Landlord and applied
in payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be less
than that to be paid during that month by Tenant hereunder, Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No taking possession of the Premises by Landlord, shall be construed as
an election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d. above.
20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
21. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
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<PAGE> 14
damage and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense except for any deductible, which is the responsibility of Tenant,
promptly to rebuild or restore the Premises to their condition prior to the
damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargos, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated are
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent of the rebuilding costs net of the
deductible.
22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, then Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of the
date of receipt of said written advice, or commencement of said action or
proceeding or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following
<PAGE> 15
the month in which such notice is given or the date on which title to the
Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed so substantial that the Tenant no
longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days of such taking or conveyance, upon
written notice to Landlord of its intention so to do, and upon giving of such
notice this Lease shall terminate on the last day of the calendar month next
following the month in which such notice is given, upon payment by Tenant of the
rent from the date of such taking or conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
23. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Premises and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
25. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.
26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises. Tenant's failure
to deliver such statement within such time shall be conclusive upon Tenant that
this Lease is in full force and effect, without modification except as may be
<PAGE> 16
represented by Landlord; that there are no uncured defaults in Landlord's
performance, and that not more than one month's rent has been paid in advance.
27. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obliged to, make any such payment or perform any such other term or
covenant on Tenant's part to be performed. All sums so paid by Landlord and all
necessary costs of such performance by Landlord together with interest thereon
at the rate of the prime rate of interest per annum as quoted by the Bank of
America from the date of such payment on performance by Landlord, shall be paid
(and Tenant covenants to make such payment) to Landlord on demand by Landlord,
and Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of nonpayment by Tenant as in the case
of failure by Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses including
reasonable attorneys' fees,
page 6 of 8
<PAGE> 17
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the first part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
30. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
31. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises of if sent by United Stated certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College
Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as the
case may be.
32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have heretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
<PAGE> 18
36. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(a) the sole and exclusive remedy shall be against Landlord's interest
in the Premises leased herein;
(b) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
(d) no partner or Landlord shall be required to answer or otherwise
plead to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(g) no writ of execution will ever by levied against the assets of any
partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
37. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If it is allowed to print or affix or in any way
place a sign in, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS
A. Use of Building Name. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
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<PAGE> 19
B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective by any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. Definition of Terms. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
the Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.
D. Time of Essence. Time is of the essence of this Lease and of each and
all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
F. Incorporation of Prior Agreement; Amendments. This instrument along
with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
G. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without consent of the other.
H. Amendments for Financing. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Additional Paragraphs. Paragraphs 39 through 54 are added hereto and
are included as a part of this lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed
by Landlord and Tenant and endorsed on or affixed to this Lease are a part
hereof.
K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent or result in any liability of
Landlord to Tenant.
<PAGE> 20
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST FIRST VIRTUAL CORPORATION
a Delaware corporation
By /s/ John Arrillaga By /s/ Anita Neumann
John Arrillaga, Trustee
Date: 11/17/97 Title Facilities Operations
RICHARD T. PEERY SEPARATE PROPERTY TRUST Type or Print Name Anita Neumann
By /s/ Richard T. Peery Date: November 13, 1997
Richard T. Peery, Trustee
Date: 11/17/97
Page 8 of 8
<PAGE> 21
Paragraphs 39 through 54 to Lease Agreement dated November 7, 1997, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and First Virtual Corporation, a Delaware
corporation, as Tenant for 12,240+ Square Feet of Space Located at 3233 Scott
Blvd., Suite 103, Santa Clara, California.
39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of TWO HUNDRED TWENTY THOUSAND THREE HUNDRED TWENTY AND N0/100 DOLLARS
($220,320.00), shall be payable as follows:
On December 1, 1997, the sum of TWENTY FOUR THOUSAND FOUR HUNDRED EIGHTY
AND NO/100 DOLLARS ($24,480.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including August 1, 1998; or until the
entire aggregate sum of TWO HUNDRED TWENTY THOUSAND THREE HUNDRED TWENTY AND
N0/100 DOLLARS ($220,320.00) has been paid.
40. EARLY OCCUPANCY: In the event the Premises leased hereunder become available
for Tenant's use and occupancy prior to the scheduled Commencement Date hereof,
Tenant shall have the right to occupy the Premises as of the date Landlord so
completes said Premises for Tenant's use and occupancy. This Lease shall
commence and Tenant shall pay to Landlord, effective as of the date Premises are
delivered to Tenant, all Additional Rent expenses which are Tenant's
responsibility hereunder (however, Tenant shall not be responsible for paying
Basic Rent during the early occupancy period), and Tenant shall be obligated to
perform, and be bound by, each and every term, covenant, and condition of this
Lease. In the event Tenant occupies the Premises prior to December 1, 1997, the
Term of this Lease will be extended to include the early occupancy period (i.e.
If Tenant occupies said space on November 15, 1997, the Lease Term will be
extended for sixteen days from a nine month Term to a nine month sixteen day
Term).
41. "AS-IS" BASIS: It is hereby agreed that the Premises leased hereunder is
leased strictly on an "as-is" basis and in its present condition, and in the
configuration as shown on Exhibit B attached hereto, and by reference made a
part hereof. It is specifically agreed between the parties that Landlord shall
not be required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease. Notwithstanding
anything to the contrary within this Lease, Landlord makes no warranty or
representation of any kind or nature whatsoever as to the condition or repair of
the Premises, nor as to the use or occupancy which may be made thereof.
42. RULES AND REGULATIONS AND COMMON AREA: Subject to the terms and conditions
of this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Parcel/Building in which the premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Parcel/Building in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area". This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of Common Area. Landlord further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Common Area, and any part or parts thereof, as Landlord may deem appropriate
for the best interests of the occupants
<PAGE> 22
to time, with or without advance notice, and all amendments shall be effective
upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant
for the non-performance by any other tenant or occupant of the Parcel/Building
of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in which
the Common Area shall be maintained and the expenditures for such maintenance
shall be at the discretion of Landlord.
43. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE PARCEL AND BUILDING IN WHICH THE PREMISES ARE LOCATED: As Additional Rent
and in accordance with Paragraph 4D of this Lease, Tenant shall
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<PAGE> 23
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Parcel including,
but not limited to, license, permit, and inspection fees; security; utility
charges associated with exterior landscaping and lighting (including water and
sewer charges); all charges incurred in the maintenance and replacement of
landscaped areas, lakes, parking lots and paved areas (including repairs,
replacement, resealing and restriping), sidewalks, driveways, maintenance,
repair and replacement of all fixtures and electrical, mechanical and plumbing
systems; supplies, materials, equipment and tools; the cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Landlord makes such capital improvements, Landlord
may amortize its investment in said improvements (together with interest at the
rate of fifteen (15%) percent per annum on the unamortized balance) as an
operating expense in accordance with standard accounting practices, provided,
that such amortization is not at a rate greater than the anticipated savings in
the operating expenses.
As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of operation (including
common utilities), management, maintenance, and repair of the building
(including structural and common areas such as lobbies, restrooms, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings and janitorization of said common areas) in
which the Premises are located. The maintenance items herein referred to
include, but are not limited to, all windows, window frames, plate glass,
glazing, truck doors, main plumbing systems of the building (such as water drain
lines, sinks, toilets, faucets, drains, showers and water fountains), main
electrical systems (such as panels and conduits), heating and airconditioning
systems (such as compressors, fans, air handlers, ducts, boilers, heaters),
structural elements and exterior surfaces of the building; store fronts, roof,
downspouts, building common area interiors (such as wall coverings, window
coverings, floor coverings and partitioning), ceilings, building exterior doors,
skylights (if any), automatic fire extinguishing systems, and elevators (if
any); license, permit and inspection fees; security, supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect of
reducing operating expenses, provided, however, that in the event Landlord makes
such capital improvements, Landlord may amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights hereunder, and benefits of, subsection I of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar law,
statute or ordinance now or hereafter in effect.
"Additional Rent" as used herein shall not include Landlord's debt repayments;
interest on charges, expenses directly or indirectly incurred by Landlord for
the benefit of any other tenant; cost for the installation of partitioning or
any other tenant improvements; cost of attracting tenants; depreciation;
interest; or executive salaries.
44. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED: As Additional
Rent and in accordance with Paragraph 4D of this Lease Tenant shall pay its
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the cost of all utility charges such as water, gas,
electricity, (telephone, telex and other electronic communications service, if
applicable) sewer service, waste pick-up and any other utilities, materials or
services furnished directly to the building in which the Premises are located,
including, without limitation, any temporary or permanent utility surcharge or
other exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the
<PAGE> 24
strikes, lockouts, or other labor disturbances or labor disputes of any nature,
or by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord.
Provided that Tenant is not in default in the performance or observance of any
of the terms, covenants or conditions of this Lease to be performed or observed
by it, Landlord shall furnish to the Premises between the hours of 8:00 am and
6:00 pm, Mondays through Fridays (holidays excepted) and subject to the rules
and regulations of the Common Area hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and airconditioning required in Landlord's judgment for the
use and occupation of
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the Premises for such purposes. Tenant agrees that at all times it will
cooperate fully with Landlord and abide by all regulations and requirements that
Landlord may prescribe for the proper functioning and protection of the building
heating, ventilating and airconditioning systems. Whenever heat generating
machines, equipment, or any other devices (including exhaust fans) are used in
the Premises by Tenant which affect the temperature or otherwise maintained by
the airconditioning system, Landlord shall have the right to install
supplementary airconditioning 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. Tenant
will not, without the written consent of Landlord, use any apparatus or device
in the Premises (including, without limitation), electronic data processing
machines or machines using current in excess of 110 Volts which will in any way
increase the amount of electricity, gas, water or airconditioning usually
furnished or supplied to premises being used as general office space, or connect
with electric current (except through existing electrical outlets in the
Premises), or with gas or water pipes any apparatus or device for the purposes
of using electric current, gas, or water. If Tenant shall require water, gas, or
electric current in excess of that usually furnished or supplied to premises
being used as general office space, Tenant shall first obtain the written
consent of Landlord, which consent shall not be unreasonably withheld and
Landlord may cause an electric current, gas or water meter to be installed in
the Premises in order to measure the amount of electric current, gas or water
consumed for any such excess use. The cost of any such meter and of the
installation, maintenance and repair thereof all charges for such excess water,
gas and electric current consumed (as shown by such meters and at the rates then
charged by the furnishing public utility); and any additional expense incurred
by Landlord in keeping account of electric current, gas, or water so consumed
shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly
upon demand by Landlord.
45. PARKING: Tenant shall have the right to the nonexclusive use of seventy one
(71) parking spaces in the common parking area of the building. Tenant agrees
that Tenant, Tenant's employees, agents, representatives, and/or invitees shall
not use parking spaces in excess of said 71 parking spaces allocated to Tenant
hereunder. Landlord shall have the right, at Landlord's sole discretion, to
specifically designate the location of Tenant's parking spaces within the common
parking area of the building in the event of a dispute among the tenants
occupying the building referred to herein, in which event Tenant agrees that
Tenant, Tenant's employees, agents, representatives and/or invitees shall not
use any parking spaces other than those parking spaces specifically designated
by Landlord for Tenant's use. Said parking spaces, if specifically designated by
Landlord to Tenant, may be relocated by Landlord at any time, and from time to
time. Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice of
any change in Tenant's parking spaces. Tenant shall not, at any time, park, or
permit to be parked, any trucks or vehicles adjacent to the loading area so as
to interfere in any way with the use of such areas, nor shall Tenant, at any
time, park or permit the parking of Tenant's trucks and other vehicles or the
trucks and vehicles of Tenant's suppliers or others, in any portion of the
common areas not designated by Landlord for such use by Tenant. Tenant shall not
park nor permit to be parked, any inoperative vehicles or equipment on any
portion of the common parking area or other common areas of the building. Tenant
agrees to assume responsibility for compliance by its employees with the parking
provision contained herein. If Tenant or its employees park in other than
designated parking areas, then Landlord may charge Tenant, as an additional
charge, and Tenant agrees to pay Ten Dollars ($10.00) per day for each day or
partial day each such vehicle is parking in any area other than that designated.
Tenant hereby authorizes Landlord, at Tenant's sole expense, to tow away from
the building any vehicle belonging to Tenant or Tenant's employees parked in
violation of these provisions, or to attach violation stickers or notices to
such vehicles. Tenant shall use the parking area for vehicle parking only and
shall not use the parking areas for storage.
<PAGE> 26
46. ASSESSMENT CREDITS: The demised property herein may be subject to a special
assessment levied by the City of Santa Clara as part of an Improvement District.
As a part of said special assessment proceedings (if any), additional bonds were
or may be sold and assessments were or may be levied to provide for construction
contingencies and reserve funds. Interest shall be earned on such funds created
for contingencies and on reserve funds which will be credited for the benefit of
said assessment district. To the extent surpluses are created in said district
through unused contingency funds, interest earnings or reserve funds, such
surpluses shall be-deemed the property of Landlord. Notwithstanding that such
surpluses may be credited on assessments otherwise due against the Leased
Premises, Tenant shall pay to Landlord, as additional rent if, and at the time
of any such credit of surpluses, an amount equal to all such surpluses so
credited. For
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example: if (i) the property is subject to an annual assessment of $1,000.00,
and (ii) a surplus of $200.00 is credited towards the current year's assessment
which reduces the assessment amount shown on the property tax bill from
$1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to
Landlord said $200.00 credit as Additional Rent.
47. ASSIGNMENT AND SUBLETTING (CONTINUED): Any and all sublease agreement(s)
between Tenant and any and all subtenant(s) (which agreements must be consented
to by Landlord, pursuant to the requirements of this Lease) shall contain the
following language:
"If Landlord and Tenant jointly and voluntarily elect, for any
reason whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect) shall
terminate concurrently with the termination of the Master Lease. Subtenant
expressly acknowledges and agrees that (1) the voluntary termination of the
Master Lease by Landlord and Tenant and the resulting termination of this
Sublease shall not give Subtenant any right or power to make any legal or
equitable claim against Landlord, including without limitation any claim for
interference with contract or interference with prospective economic advantage,
and (2) Subtenant hereby waives any and all rights it may have under law or at
equity against Landlord to challenge such an early termination of the Sublease,
and unconditionally releases and relieves Landlord, and its officers, directors,
employees and agents, from any and all claims, demands, and/or causes of action
whatsoever (collectively, "Claims"), whether such matters are known or unknown,
latent or apparent, suspected or unsuspected, foreseeable or unforeseeable,
which Subtenant may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's acknowledgment
that, in determining the net benefits to be derived by Subtenant under the terms
of this Sublease, Subtenant has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
Initials:_____________ Initials:_____________"
Subtenant Tenant
48. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such cure
to completion.
49. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in
default under the Lease if it leaves all or any part of Premises vacant so long
as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such
<PAGE> 28
of insurance carried by Landlord with respect to the Premises, and (iv) the
utilities and heating and ventilation system are operated and maintained to the
extent necessary to prevent damage to the Premises or its systems.
50. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Parcel, which
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<PAGE> 29
includes the entire parcel of land on which the Premises are located as shown in
Green on Exhibit A attached hereto (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be withheld
in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not
<PAGE> 30
limited to (x) properly restoring and repairing the Property to the extent
damaged by such closure activities, and (y) obtaining from the local Fire
Department or other appropriate governmental authority with jurisdiction a
written concurrence that closure has been completed in compliance with
applicable Environmental Laws. Tenant shall promptly provide Landlord with
copies of any claims, notices, work plans, data and reports prepared, received
or submitted in connection with any such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become, contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limied to
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<PAGE> 31
obtaining and analyzing samples of soil and groundwater, for the purpose of
determining the nature and extent of such contamination. Tenant shall promptly
reimburse Landlord for the costs of such an investigation, including but not
limited to reasonable attorneys' fees Landlord incurs with respect to such
investigation, that discloses Hazardous Materials contamination for which Tenant
is liable under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's discretion.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
sampling, testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 50 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
50.
51. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
52. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
53. LEASE TERMS CO-TERMINOUS: It is acknowledged that (i) concurrently with the
execution of this Lease, Landlord and Tenant are also executing Amendment No. I
dated November 7, 1997 to Lease Agreement dated July 19, 1995 (hereinafter
referred to as the "Existing Lease") affecting property located at 3393 Octavius
Drive, Suite 102, Santa Clara, California and (ii) it is the intention of the
parties that the Term of this Lease be co-terminous with the term of the
Existing Lease such that the terms of both leases expire on the same date;
provided, however, the termination of this Lease resulting from the date terms
and conditions stated under Paragraph 19 "Bankruptcy and Default" (subject to
Landlord's option as stated in the respective leases' "Cross Default" Paragraph)
or
<PAGE> 32
termination of the Existing Lease unless Landlord elects, at its sole and
absolute discretion, to terminate both leases.
54. CROSS DEFAULT: As a material part of the consideration for the execution of
this Lease by Landlord, it is agreed between Landlord and Tenant that a default
under this Lease, or a default under said Existing Lease may, at the option of
Landlord, be considered a default under both leases, in which event Landlord
shall be entitled (but in no event required) to apply all rights and remedies of
Landlord under the terms of one lease to both leases including, but not limited
to, the right to terminate one or both of said leases by reason of a default
under said Existing Lease or hereunder.
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EXHIBIT A
SITE PLAN OMITTED
<PAGE> 34
EXHIBIT B
FLOOR PLAN OMITTED
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-1 of our report dated
October 22, 1997, except as to Note 10 which is as of December 2, 1997, relating
to the Financial Statements of First Virtual Corporation, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
San Jose, California
December 3, 1997
