<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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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CALIFORNIA (PRIOR TO 3576 77-0357037
REINCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER IDENTIFICATION
DELAWARE (AFTER REINCORPORATION) INDUSTRIAL NUMBER)
(STATE OR OTHER JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR ORGANIZATION) NUMBER)
</TABLE>
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. [ ]
CALCULATION OF REGISTRATION FEE
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======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value....................... 2,760,000 $16.00 $44,160,000 $13,382
======================================================================================================
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(1) Includes 360,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
------------------------
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 OCTOBER 24, 1997
2,400,000 SHARES
LOGO
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 $14.00 and $16.00 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
[DESCRIPTIONS OF ARTWORK TO COME]
[CAPTIONS TO ARTWORK TO COME]
------------------------
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."
2
<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
</TABLE>
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 intends to
reincorporate in Delaware prior to effectiveness of this offering. 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 thousands of
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
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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
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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
---------------- ------- ------- -------- -------- --------
(in thousands, except per share data)
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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)........... 13,321 13,212 13,647
======== ======== ========
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AS OF SEPTEMBER 30, 1997
--------------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
-------- ------------ --------------
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,506 $ 1,506 $ 28,833
Working capital...................................... 301 301 29,491
Total assets......................................... 7,389 7,389 34,716
Total debt........................................... 2,591 2,591 128
Convertible preferred stock.......................... 7 -- --
Accumulated deficit.................................. (14,434) (14,434) (14,434)
Total stockholders' equity........................... 899 899 30,689
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- ---------------
(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
$399,000 for the year ended December 31, 1996 and $156,000 and $758,000 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 $15.00 (less underwriting discounts and
commissions), would be $(0.16) 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 $15.00 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. 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.
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
6
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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."
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
7
<PAGE> 9
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 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,
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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 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
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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.
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 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
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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. 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 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 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
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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.
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
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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, 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
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
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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 7,523,407, or 49.8%,
of the outstanding shares of Common Stock (48.6% 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 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."
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
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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 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.
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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 $15.00 per share, investors purchasing shares of Common Stock in this
offering will incur immediate, substantial dilution of $12.94 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 $29.8 million ($34.8 million if the
underwriters' over-allotment option is exercised in full) at an assumed initial
public offering price of $15.00 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 $2.4 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.
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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 $15.00 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 45,953
Notes receivable from stockholders...................... (844) (844) (844)
Accumulated deficit.......................................... (14,434) (14,434) (14,434)
-------- --------
Total stockholders' equity......................... 899 899 30,689
-------- --------
Total capitalization............................... $ 1,611 $ 1,611 $ 30,801
======== ========
</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 $15.00 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 $30.7 million, or $2.06 per share, respectively. This represents
an immediate increase in the pro forma net tangible book value of $1.99 per
share to existing stockholders and an immediate dilution of $12.94 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..................... $15.00
Pro forma net tangible book value per share before offering....... $0.07
Increase per share attributable to new public investors(1)........ 1.99
------
--
Pro forma net tangible book value per share after offering.......... 2.06
-------
-
Dilution per share to new public investors.......................... $12.94
========
</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 $15.00 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 30.6% $ 1.14
New public investors(2).......... 2,200,000 14.7 33,000,000 69.4 $ 15.00
---------- ----- ----------- -----
Total.................. 14,931,100 100.0% $47,518,000 100.0%
========== ===== =========== =====
</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)....................... 13,321 13,212 13,647
======= ======= =======
</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
$399,000 for the year ended December 31, 1996 and $156,000 and $758,000 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 $15.00 (less underwriting discounts and
commissions), would be $(0.16) 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 will be reincorporated in Delaware prior to the closing of the
offering. 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 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.
25
<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 outstanding debt, 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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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 thousands of
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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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
thousands of 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 $4,500 - $6,000 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 $360 - $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 - $100,000 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 $360 - $14,000 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 $26,000 - $33,000 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 $360 - $14,000 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 $350,000. 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 $500,000. 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.
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.
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 13,000 square feet in Santa
Clara, California. The term of the lease expires in August 1998. The Company
believes that its facilities will be adequate to meet the Company's needs for
the next three to six months and is currently in the process of negotiating for
additional space.
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 $4,918,267 $6,422,295
James O. Mitchell Vice
President, Operations
and Chief Financial
Officer................ 66,666 7.2 2.50 07/23/06 1,462,213 2,427,052
Allwyn Sequeira Vice
President, Engineering
and Chief Technical
Officer................ 66,666 7.2 2.50 07/23/06 1,462,213 2,427,052
Alan J. McMillan Vice
President, Sales....... 66,666 7.2 2.50 07/23/06 1,462,213 2,427,052
</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 $15.00 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
1,669,205 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
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<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
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 August 15, 1997, the Company issued an
aggregate of 1,348,807 shares of Series C Preferred Stock at a price per share
ranging from $4.00 to $6.00. Between August 29, 1996 and July 25, 1997, the
Company issued an aggregate of 388,375 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........ 343,750 -- -- 29,351 12,500 378,106
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.
48
<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 8.9%
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% 4,899 206,499 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 *
All directors and executive officers as 7,578,306 58.7% 7,523,407 49.8
a group (10 persons)(9).............. 54,899
Other Selling Stockholders............. 2,902,843 22.7% 145,101 2,757,742 18.4%
</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.
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. Except for the purchase of Preferred Stock by
NEC Corporation ("NEC") described below, 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, by October 31, 1997, 100,000 shares of
Series D Preferred Stock at a purchase price of $8.00 per share. If NEC
exercises this right, the 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
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
40,624 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 Sock 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
The reincorporation described in Note 10 to the consolidated financial
statements has not been consummated at October 24, 1997. When it has been
consummated, we will be in a position to furnish the following report:
"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
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).................................... 13,321 13,212 13,647
======= ======= =======
</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 has 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 inter-company 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 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 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.
F-8
<PAGE> 67
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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.
Revenues from shipments to customers outside North America represented
approximately 37% of total revenues in 1995, approximately 36% of total revenues
in 1996, and approximately 22% of total revenues for the nine months ended
September 30, 1997.
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.
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.
F-9
<PAGE> 68
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1998. 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 have 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 (the "Offering")
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 Plan 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 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 Plan 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) (0.33)
</TABLE>
No pro forma information has been presented for 1995 since the Stock Option
Plan was adopted in 1996 and, accordingly, no stock options were granted under
the Stock Option Plan prior to 1996. The weighted-average estimated grant-date
minimum value for options granted under the Stock Option Plan 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 Stock Purchase 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, subject to
stockholder approval, the reincorporation of the Company in Delaware to be
effected prior to the effective date of the Registration Statement. The Board
also, subject to stockholder approval, increased the authorized shares of Common
Stock to 35,000,000, decreased the
F-17
<PAGE> 76
FIRST VIRTUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
authorized shares of Preferred Stock to 5,000,000, and increased the number of
options authorized and available under the Company's 1996 Stock Option Plans.
Additionally, the Board of Directors 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.
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................................. *
Blue Sky Fees and Expenses........................................ 5,000
Accounting Fees................................................... *
Legal Fees and Expenses........................................... *
Transfer Agent and Registrar Fees................................. *
Printing and Engraving............................................ 175,000
Miscellaneous..................................................... *
----------
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 2,546,759 shares of
Common Stock (net of repurchases) to 68 employees, consultants and
non-employee directors at a weighted average purchase price of $.64 per
share.
2. Since April 18, 1996, the Company has granted stock options to
purchase 1,857,698 shares of Common Stock (net of cancellations) to a total
of 74 employees, consultants and non-employee directors at a weighted
average exercise price of $4.90 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 August 15, 1997, the Company issued and sold
pursuant to the Company's 1996 Employee Stock Purchase Bonus Plan, an
aggregate of 98,807 shares of Series C Preferred Stock to 30 employees at
purchase prices ranging from $4.00 to $6.00 per share.
6. From August 29, 1996 to July 25, 1997, the Company issued and sold
pursuant to a Series D Preferred Stock Purchase Agreement, an aggregate of
388,375 shares of Series D Preferred Stock to 35 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 a financial institution.
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 a financial institution.
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+ 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+ 1997 Employee Stock Purchase Offering
10.6+ 1997 Non-Employee Directors' Stock Option Plan
</TABLE>
II-2
<PAGE> 81
<TABLE>
<C> <S>
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
10.10 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")
10.12 Subordinated Loan and Security Agreement between the Registrant and Comdisco,
dated April 30, 1997
10.13* Original Equipment Manufacturing Agreement between the Registrant and Bay
Networks, Inc., dated November 3, 1995, as amended
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
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>
- ---------------
+ To be filed by amendment.
* 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.
(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.
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
II-3
<PAGE> 82
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 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 October 23, 1997.
FIRST VIRTUAL CORPORATION
By: RALPH K. UNGERMANN
------------------------------------
Ralph K. Ungermann
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph K. Ungermann and James O. Mitchell, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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>
RALPH K. UNGERMANN Chief Executive Officer and October 23, 1997
- ---------------------------------- President (Principal Executive
Ralph K. Ungermann Officer)
JAMES O. MITCHELL Vice President, Operations and October 23, 1997
- ---------------------------------- Chief Financial Officer (Principal
James O. Mitchell Financial and Accounting Officer)
NEAL DOUGLAS Director October 23, 1997
- ----------------------------------
Neal Douglas
PIER CARLO FALOTTI Director October 23, 1997
- ----------------------------------
Pier Carlo Falotti
DAVID A. NORMAN Director October 23, 1997
- ----------------------------------
David A. Norman
JAMES SWARTZ Director October 23, 1997
- ----------------------------------
James Swartz
ENZO TORRESI Director October 23, 1997
- ----------------------------------
Enzo Torresi
</TABLE>
II-5
<PAGE> 84
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
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 + 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 + 1997 Employee Stock Purchase 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 Investors' 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
10.10 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")
10.12 Subordinated Loan and Security Agreement between the Registrant and Comdisco,
dated April 30, 1997
10.13 * Original Equipment Manufacturing Agreement between the Registrant and Bay
Networks, Inc., dated November 3, 1995, as amended
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
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>
- ---------------
+ To be filed by amendment.
* 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.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FIRST VIRTUAL CORPORATION
Ralph Ungermann and Lee Benton hereby certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of First Virtual Corporation, a California corporation
(the or this "Corporation").
2. The Articles of Incorporation of this Corporation are hereby amended and
restated to read as follows:
"I.
The name of this Corporation is First Virtual Corporation.
II.
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock this Corporation
shall have authority to issue is Forty Million (40,000,000). The total number of
shares of Preferred Stock this Corporation shall have authority to issue is Ten
Million (10,000,000). The total number of shares of Common Stock this
Corporation shall have authority to issue is Thirty Million (30,000,000).
B. Four Million (4,000,000) of the authorized shares of Preferred Stock are
hereby designated "Series A Preferred Stock" (the "Series A Preferred"). Two
Million Two Hundred Thousand (2,200,000) of the authorized shares of Preferred
Stock are hereby designated "Series B Preferred Stock" (the "Series B
Preferred"). One Million Three Hundred Seventy-Five Thousand (1,375,000) of the
authorized shares of Preferred Stock are hereby designated "Series C Preferred
Stock" (the "Series C Preferred"). Six Hundred Eighty-Seven Thousand Five
Hundred (687,500) of the authorized shares of Preferred Stock are hereby
designated "Series D Preferred Stock" (the "Series D Preferred"). The Series A
Preferred, Series B Preferred, Series C Preferred, and Series D Preferred are
collectively referred to as the "Series A, B, C, and D Preferred."
1.
<PAGE> 2
The remaining shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation (the "Board of
Directors") is expressly authorized to provide for the issue of all or any of
the remaining shares of the Preferred Stock in one or more series, and to fix
the number of shares and to determine or alter for each such series, such voting
powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such stock (a "Preferred Stock Designation") and as
may be permitted by the General Corporation Law of the State of California. The
Board of Directors is also expressly authorized to increase or decrease (but not
below the number of shares of such series then outstanding) the number of shares
of any series, including the Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred, within the limits set forth above, subsequent
to the issue of shares of that series. In case the number of shares of any such
series shall be so decreased, the stock constituting such decrease shall resume
the status that it had prior to the adoption of the resolution originally fixing
the number of shares of such series.
C. The powers, preferences, rights, restrictions, and other matters
relating to the Series A, B, C, and D Preferred are as follows:
1. DIVIDENDS.
(a) The holders of Series A, B, C, and D Preferred shall be
entitled to receive dividends at the rate of (i) with respect to the Series A
Preferred, $0.05 per share (as adjusted for any stock dividends, combinations or
splits with respect to such stock) per annum, payable out of funds legally
available therefor, (ii) with respect to the Series B Preferred, $0.15 per share
(as adjusted for any stock dividends, combinations or splits with respect to
such stock) per annum, payable out of funds legally available therefor, (iii)
with respect to the Series C Preferred, $0.40 per share (as adjusted for any
stock dividends, combinations or splits with respect to such stock) per annum,
payable out of funds legally available therefor, and (iv) with respect to the
Series D Preferred, $0.80 per share (as adjusted for any stock dividends,
combinations or splits with respect to such stock) per annum, payable out of
funds legally available therefor. Such dividends shall be payable only when, as,
and if declared by the Board of Directors and shall be noncumulative.
No dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends at the aforesaid rates (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) on the Series A, B, C, and D Preferred shall have been paid or declared
and set apart during that fiscal year, and no dividends shall be paid on any
share of Common Stock unless a dividend (including the amount of any dividends
paid pursuant to the above provisions of this Section C. 1) is paid with respect
to all outstanding shares of Series A, B, C, and D Preferred in an amount for
each such share of Series A, B, C, and D Preferred equal to or greater than the
aggregate amount of such dividends for all shares of Common Stock into which
each such share of Series A, B, C, and D Preferred could then be converted.
2.
<PAGE> 3
No right shall accrue to holders of Series A, B, C, and D Preferred by
reason of the fact that dividends on said stock are not declared in any prior
year, nor shall any undeclared or unpaid dividend bear or accrue any interest.
(b) In the event the Corporation shall declare a distribution
(other than any distribution described in Section C.2 or C.4) payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each such
case the holders of Series A, B, C, and D Preferred shall be entitled to a
proportionate share of any such distribution as though the holders of Series A,
B, C, and D Preferred were the holders of the number of shares of Common Stock
of the Corporation into which the respective shares of Series A, B, C, and D
Preferred are convertible as of the record date fixed for the determination of
the holders of Common Stock of the Corporation entitled to receive such
distribution.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred, the holders of Series B Preferred, the holders of Series C Preferred,
and the holders of Series D Preferred shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof and in proportion to the liquidation preference of any other outstanding
series of Preferred Stock, the amount of $0.50 (the "Series A Original Issue
Price"), $1.50 (the "Series B Original Issue Price"), $4.00 (the "Series C
Original Issue Price"), and $8.00 (the "Series D Original Issue price"),
respectively (as adjusted for any stock dividends, combinations or splits with
respect to such stock), plus all accrued or declared but unpaid dividends on
such stock for each share of Series A, B, C, and D Preferred then held by such
holders. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of Series A, B, C, and D Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of
Series A, B, C, and D Preferred in proportion to the preferential amount each
such holder is otherwise entitled to receive.
(b) After payment to the holders of Series A, B, C, and D
Preferred of the amounts set forth in Section C.2(a) above, the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock and Series A, B, C,
and D Preferred in proportion to the shares of Common Stock then held by them
and the shares of Common Stock which they then have the right to acquire upon
conversion of the shares of Series A, B, C, and D Preferred then held by them,
up to a total return to the holders of Series A Preferred, Series B Preferred,
Series C Preferred, and Series D Preferred of two times the Series A Original
Issue Price, Series B Original Issue Price, Series C Original Issue Price, and
Series D Original Issue Price, respectively.
3.
<PAGE> 4
(c) For purposes of this Section C.2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding stock of the Corporation is exchanged for securities or other
consideration issued, or caused to be issued, by the acquiring corporation or
its subsidiary (other than a mere reincorporation transaction) or (ii) a sale of
all or substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation and shall entitle the
holders of Series A, B, C, and D Preferred and Common Stock to receive at the
closing in cash, securities or other property (valued as provided in Section
C.2(d) below) amounts as specified in Sections C.2(a) and C.2(b) above.
(d) Whenever the distribution provided for in this Section C.2
shall be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other
property.
3. VOTING RIGHTS; DIRECTORS.
(a) Each holder of shares of Series A, B, C, and D Preferred
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Series A, B, C, and D Preferred could be
converted and shall have voting rights and powers equal to the voting rights and
powers of the Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a single class) and
shall be entitled to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes shall not, however, be permitted and
any fractional voting rights resulting from the above formula (after aggregating
all stock into which shares of Series A, B, C, and D Preferred held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward). Each holder of Common Stock shall be entitled to
one (1) vote for each share of Common Stock held.
(b) In addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds (2/3)
of the outstanding shares of Series A Preferred shall be necessary for any
amendment, alteration, or repeal of any provision of the Articles of
Incorporation or the Bylaws of the Company (including any filing of a
Certificate of Determination), that affects adversely the voting powers,
preferences, or other special rights or qualifications, limitations, or
restrictions of the Series A Preferred.
(c) In addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds (2/3)
of the outstanding shares of Series B Preferred shall be necessary for any
amendment, alteration, or repeal of any provision of the Articles of
Incorporation or the Bylaws of the Company (including any filing of a
Certificate of Determination), that affects adversely the voting powers,
preferences, or other special rights or qualifications, limitations, or
restrictions of the Series B Preferred.
(d) In addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds (2/3)
of the outstanding shares of Series C Preferred shall be necessary for any
amendment, alteration, or repeal of any provision of the
4.
<PAGE> 5
Articles of Incorporation or the Bylaws of the Company (including any filing of
a Certificate of Determination), that affects adversely the voting powers,
preferences, or other special rights or qualifications, limitations, or
restrictions of the Series C Preferred.
(e) In addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds (2/3)
of the outstanding shares of Series D Preferred shall be necessary for any
amendment, alteration, or repeal of any provision of the Articles of
Incorporation or the Bylaws of the Company (including any filing of a
Certificate of Determination), that affects adversely the voting powers,
preferences, or other special rights or qualifications, limitations, or
restrictions of the Series D Preferred.
4. CONVERSION. The holders of Series A, B, C, and D Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series A Original Issue Price, Series B Original
Issue Price, Series C Original Issue Price, and Series D Original Issue Price,
respectively, by the Conversion Price applicable to the Series A Preferred,
Series B Preferred, Series C Preferred, and Series D Preferred, respectively,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series A Preferred (the "Series A
Conversion Price") shall initially be $0.50 per share of Common Stock. The price
at which shares of Common Stock shall be deliverable upon conversion of shares
of Series B Preferred (the "Series B Conversion Price") shall initially be $1.50
per share of Common Stock. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series C Preferred (the "Series C
Conversion Price") shall initially be $4.00 per share of Common Stock. The price
at which shares of Common Stock shall be deliverable upon conversion of shares
of Series D Preferred (the "Series D Conversion Price") shall initially be $8.00
per share of Common Stock. Such initial Series A Conversion Price, Series B
Conversion Price, and Series C Conversion Price, and Series D Conversion Price
shall be adjusted as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred,
Series B Preferred, Series C Preferred, and Series D Preferred shall
automatically be converted into shares of Common Stock at the then-effective
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
and Series D Conversion Price, respectively, upon the earlier of (i) the date
specified by vote or written consent or agreement of holders of at least
two-thirds (2/3) of the shares of such series then outstanding, or (ii)
immediately upon the closing of the sale of the Corporation's Common Stock in a
firm commitment, underwritten public offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), other than a registration
relating solely to a transaction under Rule 145 under such Act (or any successor
thereto) or to an employee benefit plan of the Corporation, at a public offering
price (prior to
5.
<PAGE> 6
underwriters' discounts and expenses) equal to or exceeding $8.00 per share of
Common Stock (as adjusted for any stock dividends, combinations or splits with
respect to such stock) and the aggregate proceeds to the Corporation and/or any
selling shareholders (after deduction for underwriters' discounts) of which
exceed $10,000,000.
(c) MECHANICS OF CONVERSION.
(i) Before any holder of Series A, B, C, or D Preferred shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein the name or names in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A, B, C, or D Preferred, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series A, B, C, or D Preferred to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(ii) If the conversion is in connection with an underwritten
offering of securities pursuant to the Securities Act, the conversion may, at
the option of any holder tendering shares of Series A, B, C, or D Preferred for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of Series A, B, C, or D Preferred shall
not be deemed to have converted such Series A, B, C, or D Preferred until
immediately prior to the closing of such sale of securities.
(d) ADJUSTMENTS TO THE SERIES A CONVERSION PRICE, SERIES B
CONVERSION PRICE, SERIES C CONVERSION PRICE, AND SERIES D CONVERSION PRICE FOR
CERTAIN DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section C.4(d), the
following definitions apply:
(1) "Option" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(2) "Original Issue Date" shall mean the date on which a
share of Series D Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A, Series B, Series
C, and Series D Preferred) or other securities convertible into or
exchangeable for Common Stock.
6.
<PAGE> 7
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section C.4(d)(iii), deemed
to be issued) by the Corporation after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A, B, C, and D
Preferred;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option or stock purchase
plans or agreements on terms approved by the Board of Directors;
(C) to leasing companies or financial institutions
providing leasing or debt financing to the Company, but not exceeding
200,000 shares of Common Stock, subject to adjustment for all subdivisions
and combinations;
(D) as a dividend or distribution on Series A, B, C,
and D Preferred; or
(E) for which adjustment of the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, and Series D
Conversion Price is made pursuant to Section C.4(e).
(ii) NO ADJUSTMENT OF THE SERIES A CONVERSION PRICE, SERIES B
CONVERSION PRICE, SERIES C CONVERSION PRICE, OR SERIES D CONVERSION PRICE. Any
provision herein to the contrary notwithstanding, no adjustment in the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price
or the Series D Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share (determined
pursuant to Section C.4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, or
Series D Conversion Price, respectively, in effect on the date of, and
immediately prior to, such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
7.
<PAGE> 8
(1) no further adjustments in the Conversion Price for the
Series A, B, C, or D Preferred shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, or Series D
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange
under such Convertible Securities (provided, however, that no such
adjustment of the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, or Series D Conversion Price shall affect Common
Stock previously issued upon conversion of the Series A, B, C, or D
Preferred);
(3) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, and the Series D Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities
and the consideration received therefor was the consideration actually
received by the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities as
the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section C.4(d)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
8.
<PAGE> 9
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, or the Series D
Conversion Price to an amount which exceeds the lower of (a) the Series A
Conversion Price, Series B Conversion Price, the Series C Conversion Price,
or the Series D Conversion Price, respectively, on the original adjustment
date, or (b) the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, or Series D Conversion Price, respectively, that
would have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date;
(5) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Series A Conversion Price, Series B Conversion Price, Series C Conversion
Price, or Series D Conversion Price, shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in
the same manner provided in clause (3) above.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event this Corporation, at any time after the
Original Issue Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
C.4(d)(iii)) without consideration or for a consideration per share less than
the Conversion Price for any series of Preferred Stock in effect on the date of
and immediately prior to such issue, then and in such event, the Conversion
Price for such series shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying the Conversion Price
for such series of Preferred Stock by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price for
such series of Preferred Stock in effect immediately prior to such issuance, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully diluted basis, as if all shares of Series A, B,
C, and D Preferred and all Convertible Securities had been fully converted into
shares of Common Stock immediately prior to such issuance and any outstanding
Options had been fully exercised immediately prior to such issuance (and the
resulting securities fully convertible into shares of Common Stock, if so
convertible) as of such date, but not including in such calculation any
additional shares of Common Stock issuable with respect to shares of Series A,
B, C, and D Preferred, Convertible Securities, or outstanding Options, solely as
a result of the adjustment of the respective Conversion Prices (or other
conversion ratios) resulting from the issuance of the Additional Shares of
Common Stock causing the adjustment in question.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Section
C.4(d), the consideration received by the Corporation for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
9.
<PAGE> 10
(1) CASH AND PROPERTY. Such consideration shall:
(A) Insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other stock or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section C.4(d)(iii), relating to
Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without
regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against the dilution)
issuable upon the exercise of such Options or conversion or exchange of
such Convertible Securities.
(E) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation
at any time or from time to time after the Original Issue Date shall declare or
pay, without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Conversion Price for any series of Preferred
Stock in effect immediately prior to such
10.
<PAGE> 11
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that this
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of Series A, B, C, or D Preferred shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section C.4(e) above or a merger or other reorganization referred to in Section
C.2(c) above), the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, and the Series D Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred,
the Series B Preferred, the Series C Preferred, and the Series D Preferred,
respectively, shall be convertible into, in lieu of the number of shares of
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred, respectively, immediately before that change.
(g) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section C.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of Series
A, B, C, and D Preferred against impairment.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section C.4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A, B, C, and D Preferred a certificate executed by the
Corporation's Chief Executive Officer or Chief Financial Officer setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A, B, C, and D Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price for such series at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of such series.
11.
<PAGE> 12
(i) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; then, in connection with each such event, the Corporation shall send to the
holders of Series A, B, C, and D Preferred:
(1) at least twenty (20) days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, 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
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such
event).
(j) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A, B, C, and D Preferred pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(k) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A, B, C, and D Preferred, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series A, B, C, and D Preferred; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of Series A, B, C, and D Preferred, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any necessary amendment
to these Articles.
(1) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series A, B, C, or D Preferred.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A, B, C, or D Preferred by a holder
thereof shall be aggregated for purposes of determining
12.
<PAGE> 13
whether the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
date of conversion (as determined in good faith by the Board of Directors).
(m) NOTICES. Any notice required by the provisions of this
Section C.4 to be given to the holders of shares of Series A, B, C, or D
Preferred shall be deemed given if deposited in the United States mail, postage
prepaid, or if sent by facsimile or delivered personally by hand or nationally
recognized courier addressed to each holder of record at such holder's address
or facsimile number appearing on the books of the Corporation.
5. INCREASING COMMON STOCK.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by an affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Corporation.
6. NO REISSUANCE OF SERIES A, B, C, AND D PREFERRED.
Any share or shares of Series A, B, C, and D Preferred acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
restored to the status of authorized but unissued shares of Preferred Stock.
IV.
A. BYLAWS. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power, subject to the provisions
of Section C.3 of Article III, both before and after receipt of any payment for
any of the Corporation's capital stock, to adopt, amend, repeal or otherwise
alter the Bylaws of the Corporation without any action on the part of the
shareholders; provided, however, that the grant of such power to the Board of
Directors shall not divest the shareholders of nor limit their power, subject to
the provisions of Section C.3 of Article III, to adopt, amend, repeal or
otherwise alter the Bylaws.
B. ELECTION OF DIRECTORS. Elections of Directors need not be by written
ballot unless the Bylaws of the Corporation so provide.
C. DIRECTOR LIABILITY.
(a) The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) The Corporation is authorized to indemnify the directors and
officers of the Corporation to the fullest extent permissible under California
law.
13.
<PAGE> 14
(c) Any repeal or modification of this Section C shall only be
prospective and shall not affect the rights under this Section C in effect at
the time of the alleged occurrence of any action or omission to act giving rise
to liability."
3. The foregoing amendment and restatement of the Articles of Incorporation
has been duly approved by the Board of Directors of this Corporation.
4. The foregoing amendment and restatement of the Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The Corporation has two classes
of stock outstanding, each entitled to vote separately as a class with respect
to the amendment herein set forth. The total number of outstanding shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock of the Corporation is 4,765,691,
4,000,000, 2,200,000, 1,320,606 and 168,375 respectively. The number of shares
of each class voting in favor of the amendment equalled or exceeded the vote
required. The percentage vote required was more than fifty percent (50%) of each
class.
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at Santa Clara, California on May 27, 1997.
/S/ Ralph Ungerman
----------------------------------------
Ralph Ungermann, Chief Executive Officer
/S/ Lee Benton
----------------------------------------
Lee Benton, Secretary
14.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
FIRST VIRTUAL CORPORATION
(A CALIFORNIA CORPORATION)
ADOPTED BY THE BOARD OF DIRECTORS, OCTOBER 20, 1993
AMENDED BY THE BOARD OF DIRECTORS, AUGUST 15, 1994
APPROVED BY THE SHAREHOLDERS, AUGUST 15, 1994
AMENDED BY THE BOARD OF DIRECTORS, JANUARY 9, 1996
APPROVED BY THE SHAREHOLDERS, APRIL 16, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I - OFFICES......................................................... 1
Section 1. Principal Office......................................... 1
Section 2. Other Offices............................................ 1
ARTICLE II - CORPORATE SEAL................................................. 1
Section 3. Corporate Seal........................................... 1
ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS...................... 1
Section 4. Place of Meetings........................................ 1
Section 5. Annual Meeting........................................... 1
Section 6. Postponement of Annual Meeting........................... 2
Section 7. Special Meetings......................................... 2
Section 8. Notice of Meetings....................................... 2
Section 9. Manner of Giving Notice.................................. 3
Section 10. Quorum and Transaction of Business....................... 4
Section 11. Adjournment and Notice of Adjourned Meetings............. 4
Section 12. Waiver of Notice, Consent to Meeting or Approval
of Minutes............................................... 5
Section 13. Action by Written Consent Without a Meeting.............. 5
Section 14. Voting................................................... 6
Section 15. Persons Entitled to Vote or Consent...................... 7
Section 16. Proxies.................................................. 7
Section 17. Inspectors of Election................................... 7
ARTICLE IV - BOARD OF DIRECTORS............................................. 8
Section 18. Powers................................................... 8
Section 19. Number of Directors...................................... 8
Section 20. Election Of Directors, Term, Qualifications.............. 9
Section 21. Resignations............................................. 9
Section 22. Removal.................................................. 9
Section 23. Vacancies................................................ 9
Section 24. Regular Meetings.........................................10
Section 25. Participation by Telephone...............................10
Section 26. Special Meetings.........................................10
Section 27. Notice of Meetings.......................................10
Section 28. Place of Meetings........................................10
Section 29. Action by Written Consent Without a Meeting..............11
Section 30. Quorum and Transaction of Business.......................11
Section 31. Adjournment..............................................11
Section 32. Organization.............................................11
Section 33. Compensation.............................................11
Section 34. Committees...............................................11
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE V - OFFICERS.......................................................12
Section 35. Officers................................................12
Section 36. Appointment.............................................12
Section 37. Inability to Act........................................13
Section 38. Resignations............................................13
Section 39. Removal.................................................13
Section 40. Vacancies...............................................13
Section 41. Chairman of the Board...................................13
Section 42. President...............................................13
Section 43. Vice Presidents.........................................14
Section 44. Secretary...............................................14
Section 45. Chief Financial Officer.................................15
Section 46. Compensation............................................15
ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS ...........15
Section 47. Execution of Contracts and Other Instruments............15
Section 48. Loans...................................................16
Section 49. Bank Accounts...........................................16
Section 50. Checks, Drafts, Etc.....................................16
ARTICLE VIII - CERTIFICATES FOR SHARES AND THEIR TRANSFER..................16
Section 51. Certificate for Shares..................................16
Section 52. Transfer on the Books...................................17
Section 53. Lost, Destroyed and Stolen Certificates.................17
Section 54. Issuance, Transfer and Registration of Shares...........17
ARTICLE VIII - INSPECTION OF CORPORATE RECORDS.............................18
Section 55. Inspection by Directors.................................18
Section 56. Inspection by Shareholders..............................18
Section 57. Written Form............................................19
ARTICLE IX - MISCELLANEOUS.................................................19
Section 58. Fiscal Year.............................................19
Section 59. Annual Report...........................................19
Section 60. Record Date.............................................19
Section 61. Bylaw Amendments........................................20
Section 62. Construction and Definition.............................20
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE X - INDEMNIFICATION................................................. 20
Section 63. Indemnification of Directors, Officers, Employees And
Other Agents.............................................. 20
ARTICLE XI - RIGHT OF FIRST REFUSAL......................................... 24
Section 64. Right of First Refusal.................................... 24
ARTICLE XII - LOANS OF OFFICERS AND OTHERS.................................. 27
Section 65. Certain Corporate Loans and Guaranties.................... 27
iii.
<PAGE> 5
BYLAWS
OF
FIRST VIRTUAL CORPORATION
(A California Corporation)
ARTICLE I - OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation
shall be located at such place or places, within or outside the State of
California, as the Board of Directors may from time to time authorize.
ARTICLE II - CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a
corporate seal such seal shall have inscribed thereon the name of the
corporation and the state and date of its incorporation. If and when a seal is
adopted by the Board of Directors, such seal may be engraved, lithographed,
printed, stamped, impressed upon, or affixed to any contract, conveyance,
certificate for shares, or other instrument executed by the corporation.
ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held
at the principal executive office of the corporation, or at any other place,
within or outside the State of California, which may be fixed either by the
Board of Directors or by the written consent of all persons entitled to vote at
such meeting, given either before or after the meeting and filed with the
Secretary of the Corporation.
SECTION 5. ANNUAL MEETING. The annual meeting of the shareholders of
the corporation shall be held on any date and time which may from time to time
be designated by the Board of Directors. At such annual meeting, directors shall
be elected and any other business may be transacted which may properly come
before the meeting.
1.
<PAGE> 6
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors
and the President shall each have authority to hold at an earlier date and/or
time, or to postpone to a later date and/or time, the annual meeting of
shareholders.
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose
or purposes, may be called by the Board of Directors, the Chairman of the Board
of Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the corporation
by any person or persons (other than the Board of Directors) entitled to call a
special meeting of the shareholders, such officer forthwith shall cause notice
to be given to the shareholders entitled to vote, that a meeting will be held at
a time requested by the person or persons calling the meeting, such time to be
not less than thirty-five (35) nor more than sixty (60) days after receipt of
such request. If such notice is not given within twenty (20) days after receipt
of such request, the person or persons calling the meeting may give notice
thereof in the manner provided by law or in these bylaws. Nothing contained in
this Section 7 shall be construed as limiting, fixing or affecting the time or
date when a meeting of shareholders called by action of the Board of Directors
may be held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required
by law and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(see Section 15 below), by the Secretary, assistant secretary or other person
charged with that duty, not less than ten (10) (or, if sent by third class mail,
thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place
and hour of the meeting and,
(a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given, intends
to present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on
any of the following proposals, the general nature of such proposal:
2.
<PAGE> 7
(1) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 902 (relating to amending
the Articles of Incorporation of the corporation);
(3) a proposal to approve a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 1900 (winding up and
dissolution);
(5) a proposal to approve a plan of distribution within
the provisions of California Corporations Code, Section 2007 (relating to
certain plans providing for distribution not in accordance with the liquidation
rights of preferred shares, if any).
At a special meeting, notice of which has been given in accordance
with this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting, action
may be taken with respect to business stated in the notice of such meeting,
given in accordance with this Section, and, subject to subsection 8(d) above,
with respect to any other business as may properly come before the meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section 605) on the
record date for such meeting, third-class mail, or telegraphic or other written
communication, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices shall be deemed to have been duly given
without further mailing if these shall be available to the shareholder on
written demand by the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
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An affidavit of mailing of any notice or report in accordance with
the provisions of this Section 9, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the
notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum. If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held
meeting of the shareholders at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, provided that any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
(c) In the absence of a quorum, no business other than
adjournment may be transacted, except as described in subsection (b) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of shareholders may be adjourned from time to time, whether or not a
quorum is present, by the affirmative vote of a majority of shares represented
at such meeting either in person or by proxy and entitled to vote at such
meeting.
In the event any meeting is adjourned, it shall not be necessary to
give notice of the time and place of such adjourned meeting pursuant to Sections
8 and 9 of these bylaws; provided that if any of the following three events
occur, such notice must be given:
(1) announcement of the adjourned meeting's time and
place is not made at the original meeting which it continues or
(2) such meeting is adjourned for more than forty-five
(45) days from the date set for the original meeting or
(3) a new record date is fixed for the adjourned
meeting.
At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
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SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF
MINUTES.
(a) Subject to subsection (b) of this Section, the
transactions of any meeting of shareholders, however called and noticed, and
wherever held, shall be as valid as though made at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to vote
but not present in person or by proxy signs a written waiver of notice or a
consent to holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting
or approval of the minutes thereof need not specify the business to be
transacted or transacted at nor the purpose of the meeting; provided that in the
case of proposals described in subsection (d) of Section 8 of these bylaws, the
general nature of such proposals must be described in any such waiver of notice
and such proposals can only be approved by waiver of notice, not by consent to
holding of the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute
waiver of notice of and presence at such meeting, except when such person
objects at the beginning of the meeting to transaction of any business because
the meeting is not lawfully called or convened and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
which are required by law or these bylaws to be in such notice (including those
matters described in subsection (d) of Section 8 of these bylaws), but are not
so included if such person expressly objects to consideration of such matter or
matters at any time during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
which may be taken at any meeting of shareholders may be taken without a meeting
and without prior notice if written consents setting forth the action so taken
are signed by the holders of the outstanding shares 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.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors;
provided that any vacancy on the Board of Directors (other than a vacancy
created by removal) which has not been filled by the board of directors may be
filled by the written consent of a majority of outstanding shares entitled to
vote for the election of directors.
Any written consent may be revoked pursuant to California
Corporations Code Section 603(c) prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the Secretary. Such revocation must be in writing and will be effective upon its
receipt by the Secretary.
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If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
SECTION 14. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of Section
15 of these bylaws, subject to the provisions of Sections 702 through 704 of the
California Corporations Code (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). Voting at any meeting of
shareholders need not be by ballot; provided, however, that elections for
directors must be by ballot if balloting is demanded by a shareholder at the
meeting and before the voting begins.
Every person entitled to vote at an election for directors may
cumulate the votes to which such person is entitled, i.e., such person may cast
a total number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such person's shares are entitled,
and may cast said total number of votes for one or more candidates in such
proportions as such person thinks fit; provided, however, no shareholder shall
be entitled to so cumulate such shareholder's votes unless the candidates for
which such shareholder is voting have been placed in nomination prior to the
voting and a shareholder has given notice at the meeting, prior to the vote, of
an intention to cumulate votes. In any election of directors, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.
Except as may be otherwise provided in the Articles of Incorporation
or by law, and subject to the foregoing provisions regarding the cumulation of
votes, each shareholder shall be entitled to one vote for each share held.
Any shareholder may vote part of such shareholder's shares in favor
of a proposal and refrain from voting the remaining shares or vote them against
the proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
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No shareholder approval, other than unanimous approval of those
entitled to vote, will be valid as to proposals described in subsection 8(d) of
these bylaws unless the general nature of such business was stated in the notice
of meeting or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of
Directors may fix a record date pursuant to Section 60 of these bylaws to
determine which shareholders are entitled to notice of and to vote at a meeting
or consent to corporate actions, as provided in Sections 13 and 14 of these
bylaws. Only persons in whose name shares otherwise entitled to vote stand on
the stock records of the corporation on such date shall be entitled to vote or
consent.
If no record date is fixed:
(1) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held;
(2) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given;
(3) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting; provided, however, that the Board of Directors shall fix a new record
date if the meeting is adjourned for more than forty-five (45) days from the
date set for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote or execute
consents may do so either in person or by one or more agents authorized to act
by a written proxy executed by the person or such person's duly authorized agent
and filed with the Secretary of the corporation; provided that no such proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any persons, other than
nominees for office, to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the
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chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE IV - BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any
limitations in the Articles of Incorporation or these bylaws, as to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised, by or under the direction of the Board of Directors.
The Board of Directors may delegate the management of the day-to-day operation
of the business of the corporation to a management company or other person,
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board of Directors.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors
of the corporation shall be not less than a minimum of four (4) nor more than a
maximum of seven (7). The exact number of directors shall be set within these
limits from time to time (a) by a resolution of the Board of Directors, or (b)
by the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
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affirmatively also constitute at least a majority of the required quorum) or by
the written consent of shareholders pursuant to Section 13 hereinabove.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The
directors shall be elected at each annual meeting of shareholders to hold office
until the next annual meeting. Each director, including a director elected or
appointed to fill a vacancy, shall hold office either until the expiration of
the term for which elected or appointed and until a successor has been elected
and qualified, or until his death, resignation or removal. Directors need not be
shareholders of the corporation.
SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be
removed from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of
Directors shall be deemed to exist in case of the death, resignation or removal
of any director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director. The shareholders may elect a
director at any time to fill any vacancy not filled by the directors. Any such
election by written consent, other than to fill a vacancy created by removal,
requires the consent of a majority of the outstanding shares entitled to vote.
Any such election by written consent to fill a vacancy created by removal
requires the consent of all of the outstanding shares entitled to vote.
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If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
SECTION 24. REGULAR MEETINGS. Immediately after each annual meeting
of shareholders, and at such place fixed by the Board of Directors, or if no
such place is fixed at the place of the annual meeting, the Board of Directors
shall hold a regular meeting for the purposes of organization, the appointment
of officers and the transaction of other business. Other regular meetings of the
Board of Directors shall be held at such times, places and dates as fixed in
these bylaws or by the Board of Directors; provided, however, that if the date
for such a meeting falls on a legal holiday, then the meeting shall be held at
the same time on the next succeeding full business day. Regular meetings of the
Board of Directors held pursuant to this Section 24 may be held without notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
(2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place
of all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by
first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the state which has been designated
in the notice of the meeting or, if not stated in the notice or there is no
notice, designated in the bylaws or by resolution of the Board of Directors.
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SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors,
whether or not a quorum is present, may be adjourned to another time and place
by the affirmative vote of a majority of the directors present. If the meeting
is adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the manner
and to the extent provided in the resolution of the Board of Directors, and may
have all the authority of the Board of Directors in the management of the
business and affairs of the corporation, except with respect to:
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(a) the approval of any action for which shareholders'
approval or approval of the outstanding shares also is required by the
California Corporations Code;
(b) the filling of vacancies on the Board of Directors or
any of its committees;
(c) the fixing of compensation of directors for serving on
the Board of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in
a periodic amount or within a price range determined by the Board of Directors;
or
(g) the appointment of other committees of the Board of
Directors or the members thereof.
Any committee may from time to time provide by resolution for
regular meetings at specified times and places. If the date of such a meeting
falls on a legal holiday, then the meeting shall be held at the same time on the
next succeeding full business day. No notice of such a meeting need be given.
Such regular meetings need not be held if the committee shall so determine at
any time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Sections 26 and 27 of these bylaws for meetings of the
Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of
these bylaws shall apply to committees, committee members and committee meetings
as if the words "committee" and "committee member" were substituted for the word
"Board of Directors", and "director", respectively, throughout such sections.
ARTICLE V - OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other officers with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
SECTION 36. APPOINTMENT. All officers shall be chosen and appointed
by the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief Financial Officer, as
the business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under a contract of employment.
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SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The acceptance
of any such resignation shall not be necessary to make it effective unless
otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 40. VACANCIES. A vacancy occurring in any office for any
cause may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be such an officer, shall, if present, preside at all meetings of the
Board of Directors and shall exercise and perform such other powers and duties
as may be assigned from time to time by the Board of Directors or prescribed by
these bylaws. If no President is appointed, the Chairman of the Board is the
general manager and chief executive officer of the corporation, and shall
exercise all powers of the President described in Section 42 below.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the general manager and chief executive
officer of the corporation and shall have general supervision, direction, and
control over the business and affairs of the corporation, subject to the control
of the Board of Directors. The President may sign and execute, in the name of
the corporation, any instrument authorized by the Board of Directors, except
when the signing and execution thereof shall have been expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.
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SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of
the corporation's shareholders, Board of Directors, and committees of the Board
of Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive
office of the corporation, or at the office of its transfer agent or registrar,
if any, a record of the corporation's shareholders, showing the names and
addresses of all shareholders, and the number and classes of shares held by
each. Such records shall be kept in written form or any other form capable of
being converted into written form.
(c) Keep, or cause to be kept, at the principal executive
office of the corporation, or if the principal executive office is not in
California, at its principal business office in California, an original or copy
of these bylaws, as amended.
(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe
custody.
(f) Exercise such powers and perform such duties as are
usually vested in the office of secretary of a corporation, and exercise such
other powers and perform such other duties as may be prescribed from time to
time by the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary,
or one of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
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SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall:
(a) Be responsible for all functions and duties of the
treasurer of the corporation.
(b) Keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due
and payable to the corporation from any source whatsoever; have charge and
custody of, and be responsible for, all monies and other valuables of the
corporation and be responsible for deposit of all such monies in the name and to
the credit of the corporation with such depositaries as may be designated by the
Board of Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the
funds of the corporation as may be ordered by the Board of Directors or a duly
appointed and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.
(f) Exercise such powers and perform such duties as are
usually vested in the office of chief financial officer of a corporation, and
exercise such other powers and perform such other duties as may be prescribed by
the Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are more
than one, in the order of their rank as fixed by the Board of Directors or, if
they are not so ranked, the assistant financial officer designated by the Board
of Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly appointed
and authorized committee may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances. Except as so authorized or
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otherwise expressly provided in these bylaws, 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 in
any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly
appointed and authorized committee from time to time may authorize the opening
and keeping of general and/or special bank accounts with such banks, trust
companies, or other depositaries as may be selected by the Board of Directors,
its duly appointed and authorized committee or by any officer or officers, agent
or agents, of the corporation to whom such power may be delegated from time to
time by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its duly
appointed and authorized committee. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositaries may be made, without
counter-signature, by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee, by resolution, shall have delegated such power or by
hand-stamped impression in the name of the corporation.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
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the signatures on the certificate may be facsimile. 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 by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only
partly paid, the certificate issued to represent such partly paid shares shall
have stated thereon the total consideration to be paid for such shares and the
amount paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary
or transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of
any certificate for shares of the corporation alleged to have been lost,
destroyed or stolen shall notify the corporation by making a written affidavit
or affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions and, in the case of a bond, with such
surety or sureties as may be acceptable to the Board of Directors or to its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors to determine the sufficiency thereof. The requirement of a
bond or other security may be waived in particular cases at the discretion of
the Board of Directors or its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors so to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board
of Directors may make such rules and regulations, not inconsistent with law or
with these bylaws, as it may deem advisable concerning the issuance, transfer
and registration of certificates for shares of the capital stock of the
corporation. The Board of Directors may appoint a transfer agent or registrar of
transfers, or both, and may require all certificates for shares of the
corporation to bear the signature of either or both.
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ARTICLE VIII - INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS.
(i) A shareholder or shareholders holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an absolute
right to do either or both of the following:
(A) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand upon the corporation; or
(B) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
(ii) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(iii) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and of any committees
of the Board of Directors of the corporation and of each of its subsidiaries
shall be open to inspection, copying and making extracts upon written demand on
the corporation of any shareholder or holder of a voting trust certificate at
any reasonable time during usual business hours, for a purpose reasonably
related to such holder's interests as a shareholder or as a holder of such
voting trust certificate.
(iv) Any inspection, copying, and making of extracts
under this subsection (a) may be done in person or by agent or attorney.
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(b) INSPECTION OF BYLAWS. The original or a copy of these
bylaws shall be kept as provided in Section 44 of these bylaws and shall be open
to inspection by the shareholders at all reasonable times during office hours.
If the principal executive office of the corporation is not in California, and
the corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
SECTION 57. WRITTEN FORM. If any record subject to inspection
pursuant to Section 56 above is not maintained in written form, a request for
inspection is not complied with unless and until the corporation at its expense
makes such record available in written form.
ARTICLE IX - MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st day
of December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the
Board of Directors shall cause an annual report to be sent to each shareholder
of the corporation in the manner provided in Section 9 of these bylaws not later
than one hundred twenty (120) days after the close of the corporation's fiscal
year. Such report shall include a balance sheet as of the end of such fiscal
year and an income statement and statement of changes in financial position for
such fiscal year, accompanied by any report thereon of independent accountants
or, if there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. When there are more than 100 shareholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the United States Securities Exchange Act of 1934, that Act shall take
precedence. Such report shall be sent to shareholders at least fifteen (15) (or,
if sent by third-class mail, thirty-five (35)) days prior to the next annual
meeting of shareholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the shareholders of the corporation is hereby expressly waived.
SECTION 60. RECORD DATE. The Board of Directors may fix a time in
the future as a record date for the determination of the shareholders entitled
to notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date
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so fixed shall not be more than sixty (60) days nor less than ten (10) days
prior to the date of the meeting nor more than sixty (60) days prior to any
other action or event for the purpose of which it is fixed. If no record date is
fixed, the provisions of Section 15 of these bylaws shall apply with respect to
notice of meetings, votes, and consents and the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolutions relating thereto, or the
sixtieth (60th) day prior to the date of such other action or event, whichever
is later.
Only shareholders of record at the close of business on the record
date shall be entitled to notice and to vote or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Articles of
Incorporation, by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the Board
of Directors or by the affirmative vote of a majority of the outstanding shares
entitled to vote, including, if applicable, the affirmative vote of a majority
of the outstanding shares of each class or series entitled by law or the
Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X - INDEMNIFICATION
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.
(A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the California General Corporation Law; provided, however, that
the corporation may limit 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 or any proceeding by such person against the corporation or its
directors, officers, employees or other agents 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 or (iii) such indemnification is
provided
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by the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the California General Corporation Law.
(B) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have the power to indemnify its other officers, employees and
other agents as set forth in the California General Corporation Law.
(C) DETERMINATION BY THE CORPORATION. Promptly after
receipt of a request for indemnification hereunder (and in any event within 90
days thereof) a reasonable, good faith determination as to whether
indemnification of the director or executive officer is proper under the
circumstances because such director or executive officer has met the applicable
standard of care shall be made by:
(1) a majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(2) if such quorum is not obtainable, by independent
legal counsel in a written opinion; or
(3) approval or ratification by the affirmative vote of
a majority of the shares of this corporation represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) or by written
consent of a majority of the outstanding shares entitled to vote; where in each
case the shares owned by the person to be indemnified shall not be considered
entitled to vote thereon.
(D) GOOD FAITH.
(1) For purposes of any determination under this bylaw,
a director or executive officer shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in the best interests of the
corporation and its shareholders, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or other
persons as to matters which the director or executive officer believed to be
within such person's professional competence; and
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(iii) with respect to a director, a committee of the
Board upon which such director does not serve, as to matters within such
committee's designated authority, which committee the director believes to merit
confidence; so long as, in each case, the director or executive officer acts
without knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in the best
interests of the corporation and its shareholders or that he had reasonable
cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the
final disposition of any 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 shall 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 (f) of this bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding (or, if no such quorum exists, 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 the
best interests of the corporation and its shareholders.
(f) 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 the forum in
which the proceeding is or was pending or, if such forum is not available or a
determination is made that such forum is not convenient, 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. 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 California General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. Neither
the failure of the corporation (including its board of directors, independent
legal counsel or its
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shareholders) 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
California General Corporation Law, nor an actual determination by the
corporation (including its board of directors, independent legal counsel or its
shareholders) 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.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent
permitted by the corporation's Articles of Incorporation and the California
General Corporation Law, 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 Articles of Incorporation, bylaws,
agreement, vote of shareholders 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 permitted
by the California General Corporation Law and the corporation's Articles of
Incorporation.
(h) 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 or
executive officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(i) INSURANCE. 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.
(j) 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.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify
the directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) 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 fullest extent permitted by any applicable portion of this bylaw that
shall not have been invalidated, or by any other applicable law.
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(m) CERTAIN DEFINITIONS. For the purposes of this bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative 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, including
expenses of establishing a right to indemnification under this bylaw or any
applicable law.
(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," "officer," "employee,"
or "agent" of the corporation shall include, without limitation, situations
where such person is or was serving at the request of the corporation as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
ARTICLE XI - RIGHT OF FIRST REFUSAL
SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell,
assign, pledge, or in any manner transfer any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise
transfer any of his or her shares of stock, then the shareholder shall first
give written notice thereof to the corporation. The notice shall name the
proposed transferee and state the number of shares to be transferred, the
proposed consideration, and all other terms and conditions of the proposed
transfer.
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(b) For thirty (30) days following receipt of such notice,
the corporation shall have the option to purchase all (but not less than all) of
the shares specified in the notice at the price and upon the terms set forth in
such notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 64, the price shall be
deemed to be the fair market value of the stock at such time as determined (i)
in good faith by the Board of Directors or (ii) at the request of the
shareholder, by an independent appraisal. In the event the shareholder requests
an independent appraisal, shareholder must pay one-half of the cost of such
appraisal. In the event the corporation elects to purchase all of the shares or,
with consent of the shareholder, a lesser portion of the shares, it shall give
written notice to the transferring shareholder of its election and settlement
for said shares shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s)
elect to acquire any of the shares of the transferring shareholder as specified
in said transferring shareholder's notice, the Secretary of the corporation
shall so notify the transferring shareholder and settlement thereof shall be
made in cash within thirty (30) days after the Secretary of the corporation
receives said transferring shareholder's notice; provided that if the terms of
payment set forth in said transferring shareholder's notice were other than cash
against delivery, the corporation and/or its assignee(s) shall pay for said
shares on as similar a set of terms and conditions as those set forth in said
transferring shareholder's notice as reasonably feasible in the circumstances,
including without limitation the net cash value of any non-cash consideration.
(e) In the event the corporation and/or its assignees(s) do
not elect to acquire all of the shares specified in the transferring
shareholder's notice, said transferring shareholder may, within the sixty-day
period following the expiration of the option rights granted to the corporation
and/or its assignees(s) herein, transfer the shares specified in said
transferring shareholder's notice which were not acquired by the corporation
and/or its assignees(s) as specified in said transferring shareholder's notice.
All shares so sold by said transferring shareholder shall continue to be subject
to the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein
notwithstanding, the following transactions shall be exempt from the provisions
of this bylaw:
(1) A shareholder's transfer of any or all shares held
either during such shareholder's lifetime or on death by will or intestacy to
such shareholder's immediate family or to any custodian or trustee for the
account of such shareholder or such shareholder's immediate family. "Immediate
family" as used herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the shareholder making such transfer.
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(2) A shareholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.
(3) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or all of
its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of
its shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or
general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect
to any transfer either by the corporation, upon duly authorized action of its
Board of Directors, or by the shareholders, upon the express written consent of
the owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be transferred by the transferring
shareholder). This bylaw may be amended or repealed either by a duly authorized
action of the Board of Directors or by the shareholders, upon the express
written consent of the owners of a majority of the voting power of the
corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On December 31, 2003; or
(2) Upon the date securities of the corporation are
first offered and sold to the public pursuant to a registration statement filed
with, and declared effective by, the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended.
26.
<PAGE> 31
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
ARTICLE XII - LOANS OF OFFICERS AND OTHERS
SECTION 65. CERTAIN CORPORATE LOANS AND GUARANTIES. If the
corporation has outstanding shares held of record by 100 or more persons on the
date of approval by the Board of Directors, the corporation may make loans of
money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or any subsidiary, whether or not a director of the
corporation or its parent or any subsidiary, or adopt an employee benefit plan
or plans authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation. Notwithstanding the foregoing, the corporation shall have the power
to make loans permitted by the California Corporations Code.
27.
<PAGE> 1
EXHIBIT 10.7
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________,
1997 by and between FIRST VIRTUAL CORPORATION, a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws
(the "Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees and
other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent.
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such
1.
<PAGE> 2
amendment permits the Corporation to provide broader indemnification rights than
the Bylaws or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and Section
43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent
or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
2.
<PAGE> 3
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, 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 vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and
3.
<PAGE> 4
Agent in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of Agent's separate counsel shall be
at the expense of the Corporation. The Corporation shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on behalf of
the Corporation or as to which Agent shall have made the conclusion provided for
in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent 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. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE> 5
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE> 6
(B) If to the Corporation, to
First Virtual Corporation
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
FIRST VIRTUAL CORPORATION
By:
---------------------------------
Title:
---------------------------------
AGENT
------------------------------------
Address:
------------------------------------
------------------------------------
6.
<PAGE> 1
EXHIBIT 10.8
FIRST VIRTUAL CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
AUGUST 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1. DEFINITIONS.......................................................... 1
1.1 Certain Definitions........................................... 1
1.2 Restrictions on Transfer...................................... 3
1.3 Requested Registration........................................ 5
1.4 Company Registration.......................................... 7
1.5 Expenses of Registration...................................... 8
1.6 Registration on Form S-3...................................... 9
1.7 Registration Procedures....................................... 9
1.8 Indemnification............................................... 10
1.9 Information by Holder......................................... 12
1.10 Limitations on Subsequent Registration Rights................. 13
1.11 Rule 144 Reporting............................................ 13
1.12 Transfer or Assignment of Registration Rights................. 13
1.13 "Market Stand-Off" Agreement.................................. 13
1.14 Allocation of Registration Opportunities...................... 14
1.15 Delay of Registration......................................... 15
1.16 Termination of Registration Rights............................ 15
2. COVENANTS OF THE COMPANY............................................. 15
2.1 Basic Financial Information................................... 15
2.2 Additional Information and Rights............................. 16
2.3 Termination of Rights................................................ 17
3. MISCELLANEOUS............................................................... 17
3.1 Governing Law................................................. 17
3.2 Successors and Assigns........................................ 17
3.3 Entire Agreement; Amendment; Waiver........................... 17
3.4 Additional Series C Purchasers................................ 17
3.5 Notices, Etc.................................................. 18
3.6 Delays or Omissions........................................... 18
3.7 Rights; Separability.......................................... 18
3.8 Information Confidential...................................... 18
3.9 Titles and Subtitles.......................................... 18
3.10 Counterparts.................................................. 19
</TABLE>
i.
<PAGE> 3
FIRST VIRTUAL CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement")
is made and entered into as of the 29th day of August, 1996 by and among FIRST
VIRTUAL CORPORATION, a California corporation (the "Company"), and the holders
of the Company's Series A Preferred Stock identified on Exhibit A hereto, the
holders of the Company's Series B Preferred Stock identified on Exhibit B
hereto, the holders of the Company's Series C Preferred Stock identified on
Exhibit C hereto, the holders of the Company's Series C Preferred Stock
identified on Exhibit D hereto (the "Employee Holders"), and the purchasers of
the Company's Series D Preferred Stock identified on Exhibit E or Exhibit F
hereto (purchasers identified on Exhibit E or Exhibit F are collectively
referred to herein as the "Purchasers").
WHEREAS, certain of the shareholders of the Company (the "Shareholders")
hold shares of the Company's Series A Preferred Stock, shares of the Company's
Series B Preferred Stock and/or shares of the Company's Series C Preferred Stock
and possess registration rights, information rights and other rights pursuant to
an Amended and Restated Investors' Rights Agreement dated as of June 28, 1995
between the Company and such Shareholders (the "Prior Agreement");
WHEREAS, the Shareholders desire to terminate the Prior Agreement and to
accept the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement;
WHEREAS, the Employee Holders have purchased shares of the Company's
Series C Preferred Stock pursuant to the Company's 1996 Stock Purchase Bonus
Plan; and
WHEREAS, the Purchasers are parties to the Series D Preferred Stock
Purchase Agreement dated as of August 29, 1996 by and among the Company and the
Purchasers (the "Purchase Agreement"), pursuant to which certain of the
Company's and such Purchasers' obligations are conditioned upon the execution
and delivery by such Purchasers and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Shareholders who are parties to the Prior Agreement hereby
agree that the Prior Agreement shall be superseded and replaced in its entirety
by this Agreement, and the parties hereto further agree as follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1.
<PAGE> 4
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "Holder" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.2 and Section 1.12 hereof.
(d) "Initiating Holders" shall mean any Holder or Holders
who in the aggregate hold not less than thirty-three and one-third percent (33
1/3%) of the outstanding Registrable Securities.
(e) "Investors" shall mean the Purchasers, the Employee
Shareholders and the Shareholders.
(f) "Other Stockholders" shall mean persons other than
Holders who, by virtue of agreements with the Company, are entitled to include
securities in certain registrations hereunder.
(g) "Registrable Securities" shall mean (i) shares of
Common Stock issued or issuable pursuant to the conversion of the Shares, (ii)
any Common Stock issued as a dividend or other distribution with respect to, or
in exchange or in replacement of, the Shares referred to in clause (i) above,
and (iii) shares of Common Stock issued pursuant to the Company's 1993 Employee,
Consultant and Director Stock Purchase Plan (the "1993 Stock Purchase Plan") to
the extent necessary for such holders to repay any promissory notes to the
Company in connection with an initial public offering of the Company's Common
Stock; provided, however, that Registrable Securities shall not include any
shares of Common Stock which have previously been registered or which have been
sold to the public, or which have been sold in a private transaction in which
the transferor's rights under this Agreement are not assigned.
(h) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in effecting any registration pursuant to this
Agreement, including, without limitation, all registration, qualification, and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, and expenses of any regular or
special audits incident to or required by any such registration, but shall not
include Selling Expenses, fees and disbursements of counsel for the Holders and
the compensation of regular employees of the Company (which shall be paid in any
event by the Company).
2.
<PAGE> 5
(j) "Regulation S" shall mean Rules 902 through 904 as
promulgated by the Commission under the Securities Act, as such rules may be
amended from time to time, or any similar successor rules that may be
promulgated by the Commission.
(k) "Regulation S Purchasers" shall mean the Purchasers
listed on Exhibit E hereto.
(l) "Restricted Securities" shall mean any Registrable
Securities required to bear one or more of the legends set forth in Section
1.2(a) hereof.
(m) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(n) "Rule 415" shall mean Rule 415 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(o) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(p) "Selling Expenses" shall mean all underwriting
discounts, selling commissions and stock transfer taxes applicable to the sale
of Registrable Securities and fees and disbursements of counsel for any Holder
(other than the fees and disbursements of counsel included in Registration
Expenses.).
(q) "Shares" shall mean the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock of the Company.
(r) "U.S. Purchasers" shall mean the Purchasers listed on
Exhibit F hereto.
1.2 RESTRICTIONS ON TRANSFER. Each Holder agrees not to make any
disposition of all or any portion of the Registrable Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 1.2, provided and to the extent such Section is then applicable
and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the
3.
<PAGE> 6
circumstances surrounding the proposed disposition, and (B) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder which is (A) a partnership to its
partners or retired partners in accordance with partnership interests, or (B) to
the Holder's family member or trust for the benefit of an individual Holder,
provided that (A) the transfer is in accordance with Regulation S, if
applicable, and (B) the transferee will be subject to the terms of this Section
1.2 to the same extent as if such transferee were an original Holder hereunder.
(a) Each certificate representing Registrable
Securities shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with a legend substantially similar
to the following (in addition to any legend required under applicable state
securities laws and except that the Regulation S legend shall be applied only to
those securities issued to Regulation S Purchasers):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
PURSUANT TO REGULATION S OF THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
IN ACCORDANCE THEREWITH.
(b) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion, at such Holder's expense, of counsel (which counsel
may be counsel to the Company) reasonably acceptable to the Company to the
effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or legend.
(c) Each Regulation S Purchaser is aware that the Company
will, and the Company agrees that Company shall, to the extent required by
Regulation S, refuse to register any transfer of the Shares purchased by such
Purchaser that is not made in accordance with Regulation S.
4.
<PAGE> 7
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
1.3 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall
receive from Initiating Holders at any time or times not earlier than the
earlier of (i) five years after the date of this Agreement or (ii) one year
after the effective date of the first registration statement filed by the
Company covering an underwritten offering of any of its securities to the
general public, a written request that the Company effect any registration with
respect to all or a part of the Registrable Securities having an aggregate
offering price, net of underwriting discounts and expenses, equal to or
exceeding $10.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) and the aggregate proceeds
of which (after deduction for underwriter's discounts and expenses related to
the issuance) exceed $10,000,000 the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its best efforts
to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws, and appropriate compliance with the Securities
Act) and as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in a written request
received by the Company within ten (10) days after such written notice from the
Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(A) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated two
such registrations pursuant to this Section 1.3(a) (counting for these purposes
only registrations which have been declared or ordered effective and pursuant to
which securities have been sold and registrations which have been withdrawn by
the Holders as to which the Holders have not elected to bear the Registration
Expenses pursuant to Section 1.5 hereof and would, absent such election, have
been required to bear such expenses);
5.
<PAGE> 8
(C) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a Company-initiated registration; provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(D) If the Initiating Holders propose to
dispose of shares of Registrable Securities which may be immediately registered
on Form S-3 pursuant to a request made under Section 1.6 hereof;
(E) If the Initiating Holders do not request
that such offering be firmly underwritten by underwriters selected by the
Initiating Holders (subject to the consent of the Company, which consent will
not be unreasonably withheld); or
(F) If the Company and the Initiating
Holders are unable to obtain the commitment of the underwriter described in
clause (E) above to firmly underwrite the offer.
(b) Subject to the foregoing clauses (A) through (F), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders; provided, however, that if (i) in
the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company for
such registration statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing (except as provided in
clause (C) above) for a period of not more than one hundred eighty (180) days
after the receipt of the request of the Initiating Holders, and, provided
further, that the Company shall not defer its obligation in this manner more
than once in any twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 1.3(b) and 1.14
hereof, include other securities of the Company, with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company.
(c) UNDERWRITING. The right of any Holder to registration
pursuant to Section 1.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities such Holder holds.
6.
<PAGE> 9
(d) PROCEDURES. If the Company shall request inclusion in
any registration pursuant to Section 1.3 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.3, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section 1
(including Section 1.13). The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.3, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.14 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall also be withdrawn from such registration. If shares
are so withdrawn from the registration and if the number of shares to be
included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 1.3(d), then the Company shall offer to all
Holders who have retained rights to include securities in the registration the
right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in accordance with
Section 1.14.
1.4 COMPANY REGISTRATION.
(a) If the Company shall determine to register any of
its securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.3 or 1.6 hereof), other than a registration relating
solely to employee benefit plans, or a registration relating solely to a Rule
145 transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.4(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder and received by the Company
within ten (10) days after the written notice from the Company described in
clause (i) above is mailed or delivered by the Company. Such written request may
specify all or a part of a Holder's Registrable Securities.
7.
<PAGE> 10
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section l.4(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected by the
Company.
Notwithstanding any other provision of this Section 1.4, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
Holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.14. If any person does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company or the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall also be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 1.14 hereof.
1.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Sections 1.4 and 1.6 hereof, and the first two registrations pursuant to Section
1.3 hereof and reasonable fees of one counsel for the selling stockholders in
the case of registrations pursuant to Section 1.3 shall be borne by the Company;
provided, however, that if the Holders bear the Registration Expenses for any
registration proceeding begun pursuant to Section 1.3 and subsequently withdrawn
by the Holders registering shares therein, such registration proceeding shall
not be counted as a requested registration pursuant to Section 1.3 hereof.
Furthermore, in the event that a withdrawal by the Holders is based upon
material adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.3, such registration shall not be treated as a
counted registration for purposes of Section 1.3 hereof, even though the Holders
do not bear the Registration Expenses for such registration. All Selling
Expenses relating to securities so registered shall be borne by the
8.
<PAGE> 11
Holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf, as shall any other expenses in
connection with the registration required to be borne by the Holders of such
securities.
1.6 REGISTRATION ON FORM S-3.
(a) After its initial public offering, the Company
shall use its best efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms. After the Company has qualified for the
use of Form S-3, in addition to the rights contained in the foregoing provisions
of this Section 1, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the Company shall not be obligated to effect any such
registration if (i) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) on Form S-3 at an
aggregate price to the public of less than $1,000,000; or (ii) in the event that
the Company shall furnish the certification described in paragraph 1.3(b)(ii)
(but subject to the limitations set forth therein); or (iii) in a given
twelve-month period, the Company has effected one (1) such registration in such
period; or (iv) it is to be effected more than five (5) years after the
Company's initial public offering.
(b) If a request complying with the requirements of
Section 1.6(a) hereof is delivered to the Company, the provisions of Sections
1.3(a) and Section 1.3(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.3(c)
and 1.3(d) hereof shall apply to such registration.
1.7 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 1, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of
one hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (i) such 120-day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 145, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events
9.
<PAGE> 12
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request;
(d) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
(e) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration;
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(g) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to Section 1.3 hereof, the Company
will enter into an underwriting agreement in form reasonably necessary to effect
the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.
1.8 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement
10.
<PAGE> 13
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular, or other document (including any related registration
statement, notification, or the like) incident to any such registration,
qualification, or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification, or compliance, and will reimburse each
such Holder, each of its officers, directors, partners, legal counsel, and
accountants and each person controlling such Holder, each such underwriter, and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 1.8(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder and Other
Stockholder, and each of their officers, directors, and partners, and each
person controlling such Holder or Other Stockholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular, or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Stockholders, directors, officers, partners, legal counsel, and accountants,
persons, underwriters, or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 1.8 exceed the gross proceeds
from the offering received by such Holder.
11.
<PAGE> 14
(c) Each party entitled to indemnification under this
Section 1.8 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1, to the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section
1.8 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.9 INFORMATION BY HOLDER. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.
12.
<PAGE> 15
1.10 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are more favorable than the registration rights granted to the Holders
hereunder.
1.11 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information regarding the
Company available as those terms are understood and defined in Rule 144 under
the Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Holder owns any Restricted Securities,
furnish to the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy, of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.12 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to a Holder by the Company
under this Section 1 may be transferred or assigned by a Holder only to a
transferee or assignee of not less than 50,000 shares of Registrable Securities
(as presently constituted and subject to subsequent adjustments for stock
splits, stock dividends, reverse stock splits, and the like), provided that the
Company is given written notice at the time of or within a reasonable time after
said transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and, provided further, that the
transferee or assignee of such rights assumes in writing the obligations of such
Holder under this Section 1.
1.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company
and an underwriter of Common Stock (or other securities) of the Company, a
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) during the one hundred eighty
13.
<PAGE> 16
(180) day period following the effective date of a registration statement of the
Company filed under the Securities Act, provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company, including securities to be sold on its
behalf to the public in an underwritten offering; and
(b) all Holders and officers and directors of the
Company are bound by similar agreements.
The obligations described in this Section 1.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
1.14 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which all of the Registrable Securities and other shares of
Common Stock of the Company (including shares of Common Stock issued or issuable
upon conversion of shares of any currently unissued series of Preferred Stock of
the Company) with registration rights (the "Other Shares") requested to be
included in a registration on behalf of the Holders or other selling
stockholders cannot be so included as a result of limitations of the aggregate
number of shares of Registrable Securities and Other Shares that may be so
included, the number of shares of Registrable Securities and Other Shares that
may be so included shall be allocated among the Holders and other selling
stockholders requesting inclusion of shares pro rata on the basis of the number
of shares of Registrable Securities and Other Shares that would be held by such
Holders and other selling stockholders, assuming conversion; provided, however,
so that such allocation shall not operate to reduce the aggregate number of
Registrable Securities and Other Shares to be included in such registration, if
any Holder or other selling stockholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
such person pursuant to the above-described procedure, the remaining portion of
such person's allocation shall be reallocated among those requesting Holders and
other selling stockholders whose allocations did not satisfy their requests pro
rata on the basis of the number of shares of Registrable Securities and Other
Shares which would be held by such Holders and other selling stockholders,
assuming conversion, and this procedure shall be repeated until all of the
shares of Registrable Securities and Other Shares which may be included in the
registration on behalf of the Holders and other selling stockholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
shares held by stockholders with no registration rights or to include founder's
stock or any other shares of stock issued to employees, officers, directors, or
consultants pursuant to the Company's 1993 Stock Purchase Plan except to the
extent necessary for the repayment of promissory notes issued to the Company by
holders of Common Stock issued to such holders under the 1993 Stock Purchase
Plan, or with respect to registrations under
14.
<PAGE> 17
Section 1.6 hereof, in order to include in such registration securities
registered for the Company's own account.
1.15 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.16 TERMINATION OF REGISTRATION RIGHTS.
(a) Except as set forth in subparagraph (b) below, the
right of any Holder to request registration or inclusion in any registration
pursuant to Section 1.3, 1.4 or 1.6 shall terminate on the closing of the first
Company initiated registered public offering of Common Stock of the Company, if
all shares of Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately be sold under Rule 144 during any 90-day period,
or on such date after the closing of the first Company-initiated registered
public offering of Common Stock of the Company as all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144 during any 90-day period.
(b) The provisions of subparagraph (a) shall not apply to
any Holder who owns more than two percent (2%) of the Company's outstanding
stock until the earlier of (i) such time as such Holder owns less than two
percent (2%) of the outstanding stock of the Company, or (ii) the expiration of
three years after the closing of the first registered public offering of Common
Stock of the Company.
2. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees, so long as any Holder
owns any Registrable Shares, as follows:
2.1 BASIC FINANCIAL INFORMATION. The Company will furnish the
following reports to each Holder:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and cash
flows of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and a
Company-prepared comparison to the Company's operating plan for such year.
(b) As soon as practicable after the end of the first,
second, and third quarterly accounting periods in each fiscal year of the
Company, and in any event within
15.
<PAGE> 18
forty-five (45) days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year and to the Company's operating
plan then in effect and approved by its Board of Directors, subject to changes
resulting from normal year-end audit adjustments, all in reasonable detail,
except that such financial statements need not contain the notes required by
generally accepted accounting principles.
2.2 ADDITIONAL INFORMATION AND RIGHTS.
(a) The Company will permit any Holder, so long as such
Holder (or its representative) owns at least 500,000 Shares, or such number of
shares of Common Stock issued upon conversion of 500,000 or more Shares, or any
combination thereof (as presently constituted and subject to subsequent
adjustment for stock splits, stock dividends, reverse stock splits,
recapitalizations and the like) and to each Holder which represents that it is a
"venture capital operating company" for purposes of Department of Labor
Regulation Section 2510.3-101, who requests them (a "Significant Holder") (or a
representative of any Significant Holder) to visit and inspect any of the
properties of the Company, including its books of account and other records (and
make copies thereof and take extracts therefrom), and to discuss its affairs,
finances and accounts with the Company's officers and its independent public
accountants, all at such reasonable times and as often as any such person may
reasonably request.
(b) The Company will deliver to each Significant Holder,
who so requests in writing, annually (and in any event no later than ten (10)
days after adoption by the Board of Directors of the Company) the financial plan
of the Company, in such manner and form as approved by the Board of Directors of
the Company, which financial plan shall include at least a projection of income
and a projected cash flow statement for each month in such fiscal year and a
projected balance sheet as of the end of each fiscal quarter in such fiscal
year. Any material changes in such business plan shall be delivered to each
Significant Holder as promptly as practicable after such changes have been
approved by the Board of Directors of the Company.
(c) The Company will deliver to each Significant Holder,
who so requests in writing, within thirty (30) days after the end of each month,
a consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of each month, and consolidated statements of income and cash flows of
the Company and its subsidiaries, if any, for such month.
(d) The provisions of Section 2.1 and this Section 2.2
shall not be in limitation of any rights which any Holder or Significant Holder
may have with respect to the books and records of the Company and its
subsidiaries, or to inspect their properties or discuss their affairs, finances
and accounts, under the laws of the jurisdictions in which they are
incorporated.
16.
<PAGE> 19
(e) Anything in Section 2 to the contrary notwithstanding,
no Holder or Significant Holder by reason of this Agreement shall have access to
any trade secrets or classified information of the Company. Each Significant
Holder hereby agrees to hold in confidence and trust and not to misuse or
disclose any confidential information provided pursuant to this Section 2.2. The
Company shall not be required to comply with this Section 2.2 in respect of any
Holder whom the Company reasonably determines to be a competitor or an officer,
employee, director or greater than 10% stockholder of a competitor. For purposes
of this Section 2.2, AT&T Venture Company, L.P. ("AT&T Ventures") shall not be
considered a competitor of the Company; provided, however, that AT&T Ventures
hereby agrees not to disclose any confidential information of the Company to any
other person or entity.
(f) Each Holder who represents to the Company that such
Holder is a "venture capital operating company" for purposes of Department of
Labor Regulation Section 2510.3-101 shall in addition have the right to consult
with and advise the officers of the Company as to the management of the Company.
2.3 TERMINATION OF RIGHTS. In lieu of the rights granted to
Holders under Section 2.2 of this Agreement, from the date the Company becomes
subject to the reporting requirements of the Exchange Act, the Company will
provide to any Holder who requests such in writing, copies of the Company's
annual reports on Form 10-K and quarterly reports on Form 10-Q.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
3.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
(including the Exhibits hereto) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Registrable Securities
and any such amendment, waiver, discharge or termination shall be binding on all
the Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
3.4 ADDITIONAL SERIES C PURCHASERS. Any person who has purchased
or who purchases shares of the Company's Series C Preferred Stock pursuant to
the Company's 1996 Employee Stock Purchase Bonus Plan may execute a counterpart
copy of this Agreement and
17.
<PAGE> 20
shall thereupon become an "Employee Shareholder" and an "Investor" under this
Agreement, and shall have the rights and obligations of an "Investor" hereunder
and thereunder.
3.5 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first-class
mail, postage prepaid, sent by facsimile or delivered personally by hand or
nationally or internationally recognized courier (as the case may be) addressed
(a) if to a Holder, as indicated on the list of Holders attached hereto as
Exhibit A, Exhibit B, Exhibit C, Exhibit D, Exhibit E, or Exhibit F or at such
other address or facsimile number as such Holder or permitted assignee shall
have furnished to the Company in writing, or (b) if to the Company, at such
address or facsimile number as the Company shall have furnished to each Holder
in writing. All such notices and other written communications shall be effective
on the date of mailing, facsimile transfer or delivery.
3.6 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
3.7 RIGHTS; SEPARABILITY. Unless otherwise expressly provided
herein, a Holder's rights hereunder are several rights, not rights jointly held
with any of the other Holders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
3.8 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the
information received by such Holder pursuant hereto may be confidential and for
such Holder's use only, and Holder will not use such confidential information in
violation of the Exchange Act or reproduce, disclose or disseminate such
information to any other person (other than its employees or agents having a
need to know the contents of such information, and its attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or such Holder is
required to disclose such information by a governmental body.
3.9 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting this Agreement.
18.
<PAGE> 21
3.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
19.
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.
FIRST VIRTUAL CORPORATION
By:___________________________________________
James O. Mitchell, Chief Financial Officer
Address: 3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Facsimile: (408) 988-7077
20.
<PAGE> 23
<TABLE>
<S> <C>
INVESTORS
BOB SCHUCHARD SERGE FELDMANN
Signature:_______________________________ Signature:________________________________
Address: van Aerssenstraat 124 Address: 9 rue d'Odessa
2582 JS DEN HAAG 75014 PARIS
The Netherlands France
Facsimile: 31-70-350-5108
JAN ABERCROMBIE PHILIPPE LE MESTREALLAN
Signature:_______________________________ Signature:________________________________
Address: Ringslangweide 63 Address: 47 Avenue de la division
3437 VD Nieuwegein LECLERC 92320
The Netherlands CHATILLON
JEAN CLAUDE FINO ERIC LE GUINNIEC
Signature:_______________________________ Signature:________________________________
Address: 4 Villa Cour creuse Address: 5 Villa des Buttes Chaumont
92140 CLAMART 75019 PARIS
France France
</TABLE>
<PAGE> 24
MIKE CARLUCCI
Signature:_______________________________
Address: 14 Chemin De La Mare Close
78240 Chambourcy
France
Facsimile: 33-1-30747229
JOANNE CLARE KNIGHT
Signature:_______________________________
Address: 793 View Street
Mountain View, CA 94041
Facsimile: (415) 960-0433
<PAGE> 25
INSIGHT COMPUTER SYSTEMS PTY LTD
By:______________________________________
ALAN GRAY
Title:___________________________________
Address: C/- Trevor Dumas
Management Services Pty Ltd
1st Floor, 8 The Highway
Mt Waverley, Victoria 3149
Australia
Facsimile: 011-61-3-96966483
<PAGE> 26
<TABLE>
<S> <C>
JEAN CLAUDE ASSCHER GOTTFRIED HAEDERLE
Signature:_______________________________ Signature:________________________________
Address: First Virtual Corporation Address: First Virtual Corporation
(France) (UK)
c/o Tekelec Airtronic SA c/o INL
5, rue Carle Vernet 4th Floor, 25 City Road
92315 Sevres Cedex London
France United Kingdom EC1Y 1AA
Facsimile: 33-1-45072191 Facsimile: 44 171 972 0019
MURIEL ASSCHER BRUCE WITHINGTON
Signature:_______________________________ Signature:________________________________
Address: First Virtual Corporation Address: First Virtual Corporation
(France) (UK)
c/o Tekelec Airtronic SA c/o INL
5, rue Carle Vernet 4th Floor, 25 City Road
92315 Sevres Cedex London
France United Kingdom EC1Y 1AA
Facsimile: 33-1-45072191 Facsimile: 44 171 972 0019
KOEN GIELEN CAMILLA N. WITHINGTON
Signature:_______________________________ Signature:________________________________
Address: Miraeusstraat 10 Address: First Virtual Corporation
2018 ANTWERPEN (UK)
Belgium c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44 171 972 0019
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
DAVID MILLER
Signature:________________________________
Address: First Virtual Corporation
(UK)
c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44 171 972 0019
FIRST VIRTUAL (ASIA) LTD
By:______________________________________
Name:____________________________________
Title:___________________________________
Address: 17B, 23 Braemar Hill
North Point, Hong Kong
Attention: Ratna Widjaja
JINNES TECHNOLOGIES, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
Address: 624 E. Evelyn Ave, Suite F
Sunnyvale, CA 94086
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
NOBUO NAKAJIMA RYOSUKE ICHIKAWA
Signature:_______________________________ Signature:________________________________
Address: Attention: Sohei Mori Address: Attention: Sohei Mori
Kanematsu Electronics Ltd. Kanematsu Electronics Ltd.
17-5 Kyobashi 2-chome, 17-5 Kyobashi 2-chrome,
Chuo-ku, Tokyo 104 Chuo-ku, Tokyo 104
Japan Japan
Facsimile: 81-3-5250-6178 Facsimile: 91-3-5250-6178
TOYOHIKO HARA YUJI TOI
Signature:_______________________________ Signature:________________________________
Address: Attention: Sohei Mori Address Attention: Sohei Mori
Kanematsu Electronics Ltd. Kanematsu Electronics Ltd.
17-5 Kyobashi 2-chrome, 17-5 Kyobashi 2-chrome,
Chuo-ku, Tokyo 104 Chuo-ku, Tokyo 104
Japan Japan
Facsimile: 91-3-5250-6178 Facsimile: 91-3-5250-6178
SOHEI MORI TOSHIMI KUROSAWA
Signature:_______________________________ Signature:________________________________
Address: Kanematsu Electronics Ltd. Address: Attention: Sohei Mori
17-5 Kyobashi 2-chome, Kanematsu Electronics Ltd.
Chuo-ku, Tokyo 104 17-5 Kyobashi 2-chrome,
Japan Chuo-ku, Tokyo 104
Facsimile: 81-3-5250-6178 Japan
Facsimile: 91-3-5250-6178
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
NOBUO WATANABE AAC INC.
Signature:_______________________________
By:______________________________________
Address: Attention: Sohei Mori
Kanematsu Electronics Ltd. Name:____________________________________
17-5 Kyobashi 2-chrome,
Chuo-ku, Tokyo 104 Title:___________________________________
Japan
Facsimile: 91-3-5250-6178 Address: 5701 Webster Street
Dayton, OH 45414-3531
KANEMATSU ELECTRONICS LTD.
TANON MANUFACTURING, INC.
By:______________________________________
Name:____________________________________ By:______________________________________
Title:___________________________________ Name:____________________________________
Title:___________________________________
Address: Attention: Y. Yamada Address: 46360 Fremont Boulevard
2-17-5 Kyobashi Fremont, CA 94538-6406
Chuo-ku, Tokyo 104 Facsimile: (510) 249-5198
Japan
PHILIP MELLETT
KPMG PEAT MARWICK LLP
Signature:_______________________________
Address: 17 Bay Street By:______________________________________
Brighton, Victoria
Australia 3186 Name:____________________________________
Title:___________________________________
Address: KPMG Peat Marwick LLP
3 Embarcadero Center, 20th
Floor
San Francisco, CA 94111
Facsimile: (415) 677-9745
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
EDWIN A. RODRIGUEZ AND ACCEL IV L.P.
PAMELA R. RODRIGUEZ, JTWRS
By: Accel IV Associates L.P.
Signature:_______________________________
Its: General Partner
Address: 12308 Trayside Lane
Saratoga, CA 95070
Facsimile: (408) 255-2993 By:______________________________________
James Swartz, General Partner
Address: One Embarcadero Center
San Francisco, CA 94111
Facsimile: (408) 989-5554
VIEW TECH, INC.
ACCEL INVESTORS '93 L.P.
By:______________________________________
By:______________________________________
Name:____________________________________ James Swartz, General Partner
Title:___________________________________ Address: One Embarcadero Center
San Francisco, CA 94111
Address: 950 Flynn Road, Suite F Facsimile: (408) 989-5554
Camarillo, CA 93012
RALPH K. UNGERMANN, TRUSTEE OR ACCEL KEIRETSU L.P.
SUCCESSOR TRUSTEE OF THE RALPH K.
UNGERMANN LIVING TRUST UAD MAY 18, By: Accel Partners & Co., Inc.
1988, AS AMENDED Its: General Partner
Signature:_______________________________ By:______________________________________
James Swartz, General Partner
By: Ralph K. Ungermann, Trustee or
Successor Trustee Address: One Embarcadero Center
San Francisco, CA 94111
Address: 27240 Natoma Road Facsimile: (408) 989-5554
Los Altos Hills, CA 94022
(415) 941-3134
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
ELLMORE C. PATTERSON PARTNERS RICHARD T. PEERY SEPARATE PROPERTY
TRUST
By:______________________________________
Arthur C. Patterson, General Partner By:______________________________________
Richard T. Peery, Trustee
Address: Attn: Arthur C. Patterson
c/o Accel Partners Address: 2560 Mission College Blvd.
One Palmer Square Suite 101
Princeton, NJ 08542 Santa Clara, CA 95054-1291
Facsimile: (609) 683-0384 (408) 988-4893
AT&T VENTURE COMPANY, L.P.
PROSPER PARTNERS
By:______________________________________
Neal M. Douglas
By:______________________________________ General Partner
Carter Sednaoui, Attorney-in-Fact
Address: Building 4 - Suite 235
Address: Attn: G. Carter Sednaoui 3000 Sand Hill Road
c/o Accel Partners Menlo Park, CA 94025
One Palmer Square Facsimile: (415) 854-8083
Princeton, NJ 08542
Facsimile: (609) 683-0384
ROBERT W. WILMOT AND MARY J.
WILMOT, TRUSTEES OF THE WILMOT
GC&H INVESTMENTS LIVING TRUST U/D/T DATED APRIL 18,
1995
By:______________________________________
John L. Cardoza Signature:_______________________________
Executive Partner By: Robert W. Wilmot, Trustee
Address: One Maritime Plaza
20th Floor Signature:_______________________________
San Francisco, CA 94111 By: Mary J. Wilmot, Trustee
Facsimile: (415) 951-3699
Address: Attn: Mary J. Wilmot
10969 Wellworth Avenue
Westwood, CA 90024
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
KANEMATSU CORPORATION
Signature:_______________________________
Printed Name: James O. Mitchell
By:______________________________________ Address: c/o First Virtual Corporation
Title:___________________________________ 3393 Octavius Drive
Printed Name:____________________________ Suite 102
Santa Clara, CA 95054
Address: 2-1 Shibauna 1-Chome Facsimile: (408) 988-7077
Minato-Ku, Tokyo 105-05
Signature:_______________________________
Printed Name: Kanwaldeep S. Bindra
BRUCE A. WILFORD AND RUTH WILFORD,
TRUSTEES, OR THE SUCCESSOR TRUSTEE, Address: 225 Kansas Way
UNDER THE BRUCE A. AND RUTH Fremont, CA 94539
WILFORD REVOCABLE LIVING TRUST
DATED DECEMBER 9, 1993
Signature:_______________________________
Signature:_______________________________ Printed Name: Heather Gelormini
Printed Name: Bruce A. Wilford
Title: Trustee or the Successor Trustee Address: 915 Oak Lane, #4
Menlo Park, CA 94025
Address: 935 Eastwood Pl.
Los Altos, CA 94022-5022
Signature:_______________________________
Printed Name: Joseph H. Lacombe
Signature:_______________________________
Printed Name: Ruth Wilford Address: 143 Wyndham Drive
Title: Trustee or the Successor Trustee Portola Valley, CA 94028
Address: 935 Eastwood Pl.
Los Altos, CA 94022-5022 Signature:_______________________________
Printed Name: David G. Norman, Jr.
Signature:_______________________________ Address: 1748 Dorrance Drive
Printed Name: Bruce Wilford San Jose, CA 95125
Address: 935 Eastwood Pl.
Los Altos, CA 94022-5022 Signature:_______________________________
Printed Name: Michael Pham
Address: 1987 Autumn Gold Drive
San Jose, CA 95131
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
KATHRYN M. UNGERMANN, TRUSTEE OR
Signature:_______________________________ SUCCESSOR TRUSTEE OF THE KATHRYN
Printed Name: Gernot Scheichl MASON UNGERMANN LIVING TRUST UAD
MAY 18, 1988, AS AMENDED
Address: 101 First Street, Suite 273
Los Altos, CA 94022
Signature:_______________________________
By: Kathryn M. Ungermann,
Trustee or Successor Trustee
Signature:_______________________________ Address: 27240 Natoma Road
Printed Name: Douglas W. Tsui Los Altos Hills, CA 94022
Facsimile: (415) 941-3134
Address: 972 Michelangelo Drive
Sunnyvale, CA 94087
THE GOLDMAN, SACHS GROUP, L.P.
Signature:_______________________________
Printed Name: Luen Wuu Wey
By:_______________________________________
Address: 711 Hebrides Way Joseph Gleberman
Sunnyvale, CA 94087
Title: ___________________________________
Signature:_______________________________ Address: 85 Broad Street, 19th Floor
Printed Name: Todd Wilde New York, New York 10004
Facsimile: (212) 902-3000
Address: 2335 Amherst Dr.
Palo Alto, CA 94306
THE RICHARD T. PEERY 1976 CHILDREN
TRUST
Signature:_______________________________
By: Boyd C. Smith, Trustee
Address: 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
Signature:_______________________________ Signature:_______________________________
Printed Name: Robert F. Mitro Printed Name: Alan Glowacki
Address: 20 East Main Street, #47 Address: 6901 B Rodling Way
Los Gatos, CA 95032 San Jose, CA 95138
Signature:_______________________________ Signature:_______________________________
Printed Name: Maureen B. Bannister Printed Name: William Gunter
Address: 20 East Main Street, #47 Address: 6579 Cooperage Court
Los Gatos, CA 95032 San Jose, CA 95120
Signature:_______________________________
Printed Name: Kevin Asano Signature:_______________________________
Printed Name: J. Matthew Holley
Address: Fieldcrest Drive
San Jose, CA 95123 Address: 3227 McKinney Ave, #19C
Dallas, TX 75204
Signature:_______________________________
Printed Name: Frank Chu
MARLIS ROSSETTA, TRUSTEE OR
Address: 6388 Bancroft Way SUCCESSOR TRUSTEE UNDER THE
San Jose, CA 93129 MARLIS ROSSETTA LIVING TRUST
U/A/D APRIL 28, 1995
Signature:_______________________________
Printed Name: Russell Erickson Signature:_______________________________
By: Marlis Rossetta,
Address: 1260 Lorelei Court Trustee or Successor Trustee
Campbell, CA 95008
Address: 2117 Bush Street, Flat A
San Francisco, CA 94115
Signature:_______________________________
Printed Name: Bill Gallmeister
Signature:_______________________________
Address: 16210 Lilac Lane Printed Name: Alan J. McMillan
Los Gatos, CA 95032 Address: 187 Bryant Street
Palo Alto, CA 94301
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
Signature:_______________________________ Signature:_______________________________
Printed Name: Howard Moser Printed Name: Rick Witmer
Address: 1075 East 32nd Street Address: 5592 Vassar Drive
Brooklyn, NY 11210 San Jose, CA
Signature:_______________________________
Printed Name: Allwyn Sequeira
Address 18580 Paseo Pueblo
Signature:_______________________________ Saratoga, CA 95070
Printed Name: Karen Munoz
and Leroy Munoz,
Joint Tenants
Address: 6148 Franciscan Court
San Jose, CA 95120
Signature:_______________________________
Printed Name: Mark Munoz
Separate Property
Address: 6148 Franciscan Court
San Jose, CA 95120
Signature:_______________________________
Printed Name: Michael Munoz
Address: 6921 B. Rodling Way
San Jose, CA 95138
Signature:_______________________________
Printed Name: Mike Regli
Address: 3393 Octavius Drive, Ste. 102
Santa Clara, CA 95054
Signature:_______________________________
Printed Name: Andrew Schwartz
Address: 4212 17th Street
San Francisco, CA 94114
</TABLE>
<PAGE> 36
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Name Series A Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Ralph K. Ungermann, Trustee 900,000 27240 Natoma Road
or Successor Trustee of the Los Altos Hills, CA 94022
Ralph K. Ungermann Living Facsimile: (415) 941-3134
Trust UAD May 18, 1988,
as amended
Kathryn M. Ungermann, 300,000 27240 Natoma Road
Trustee or Successor Trustee Los Altos Hills, CA 94022
of the Kathryn Mason Ungermann Facsimile: (415) 941-3134
Living Trust UAD May 18, 1988,
as amended
Allwyn Sequeira 50,000 18580 Paseo Pueblo
Saratoga, CA 95070
Thomas J. Leffingwell 200,000 3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Elserino Piol 66,667 10015 Ivrea (TO) Italy
Via G. Jervis, 77
Italy
Providence Investment
Company Limited 66,667 Motte Chambers
St. Heller Jersey
Channel Islands, JE1 1BJ
Andrew Hopper 66,666 Old Addenbrooke Site
240 Trumpington Street
Cambridge CB2 1QA
England
Accel IV L.P. 1,557,200 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
Number of Shares of
Name Series A Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Accel Keiretsu L.P. 32,300 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Accel Investors '93 L.P. 62,900 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Ellmore C. Patterson Partners 37,400 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
Prosper Partners 10,200 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
John Arrillaga Separate
Property Trust 270,000 c/o Peery/Arrillaga
2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
Richard T. Peery Separate
Property Trust 270,000 c/o Peery/Arrillaga
2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
GC&H Investments 60,000 One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
Robert C. Harris, Jr. 20,000 c/o Unterberg Harris
275 Battery Street
29th Floor
San Francisco, CA 94111
David Norman 30,000 16101 Greenwood Road
Monte Sereno, CA 95030
</TABLE>
<PAGE> 38
EXHIBIT B
<TABLE>
<CAPTION>
Number of Shares of
Name Series B Preferred Address
- ---- ------------------- -------
<S> <C> <C>
AT&T Venture Company, L.P. 1,000,000 3000 Sand Hill Road
Building 4 - Suite 235
Menlo Park, CA 94025
Facsimile: (415) 854-8083
Accel IV L.P. 366,400 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Accel Keiretsu L.P. 7,600 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Accel Investors '93 L.P. 14,800 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Ellmore C. Patterson Partners 8,800 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
Prosper Partners 2,400 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
GC&H Investments 33,333 One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
David Norman 66,667 16101 Greenwood Road
Monte Sereno, CA 95030
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Number of Shares of
Name Series B Preferred Address
- ---- ------------------- -------
<S> <C> <C>
John Arrillaga Separate 100,000 c/o Peery/Arrillaga
Property Trust 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
Richard T. Peery Separate 100,000 c/o Peery/Arrillaga
Property Trust 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
Allwyn Sequiera 40,000 18580 Paseo Pueblo
Saratoga, CA 95070
Enzo Torresi 33,333 211 Tourney Loop
Los Gatos, CA 95032
Ralph K. Ungermann, Trustee 140,999 27240 Natoma Road
or Successor Trustee of the Los Altos Hills, CA 94022
Ralph K. Ungermann Living Facsimile: (415) 941-3134
Trust UAD May 18, 1988,
as amended
Kathryn M. Ungermann, 33,333 27240 Natoma Road
Trustee or Successor Trustee Los Altos Hills, CA 94022
of the Kathryn Mason Ungermann Facsimile: (415) 941-3134
Living Trust UAD May 18, 1988,
as amended
Mark Berkeland 6,667 389 Bay Street
San Jose, CA 95123
Kanwaldeep S. Bindra 11,000 225 Kansas Way
Fremont, CA 94539
Russell Erikson 6,667 1260 Lorelei Court
Campbell, CA 95008
Heather Gelormini 34,000 915 Oak Lane, #4
Menlo Park, CA 94025
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
Number of Shares of
Name Series B Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Diane Guthmann 6,667 5533 Yale Drive
San Jose, CA 95118
Joseph Lacombe 12,000 143 Wyndham Drive
Portola Valley, CA 94028
Thomas J. Leffingwell 20,001 3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Kathleen Lytle 16,667 3376 Shady Spring Lane
Mountain View, CA 94040
Patricia McBride 3,333 83 S. El Monte Avenue
Los Altos, CA 94022
David G. Norman 60,000 1748 Dorrance Drive
San Jose, CA 95125
Michael Pham 6,667 1987 Autumn Gold Drive
San Jose, CA 95131
Gernot Scheichl 20,000 101 First Street, Suite 273
Los Altos, CA 94022
Douglas W. Tsui 10,000 972 Michelangelo Drive
Sunnyvale, CA 94087
Hemant Vinchure 3,333 1875 Masuda Landing
San Jose, CA 95132
Luen Wuu Wey 23,333 711 Hebrides Way
Sunnyvale, CA 94087
Todd Wilde 12,000 10188 Ridgeway Drive
Cupertino, CA 95014
</TABLE>
<PAGE> 41
EXHIBIT C
<TABLE>
<CAPTION>
Number of Shares of
Name Series C Preferred Address
- ---- ------------------- -------
<S> <C> <C>
AT&T Venture Company, L.P. 75,000 3000 Sand Hill Road
Building 4 - Suite 235
Menlo Park, CA 94025
Facsimile: (415) 854-8083
Accel IV L.P. 114,500 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Accel Keiretsu L.P. 4,625 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Accel Investors '93 L.P. 2,375 One Embarcadero Center
Suite 3820
San Francisco, CA 94111
Attn: Mr. James Swartz
Ellmore C. Patterson Partners 2,750 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
Prosper Partners 750 One Palmer Square
Princeton, NJ 08542
Attn: Mr. G. Carter Sednaoui
GC&H Investments 5,625 One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
John Arrillaga Separate 50,000 c/o Peery/Arrillaga
Property Trust 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Number of Shares of
Name Series C Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Richard T. Peery Separate 50,000 c/o Peery/Arrillaga
Property Trust 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054-1291
Enzo Torresi 5,000 211 Tourney Loop
Los Gatos, CA 95032
Ralph K. Ungermann, Trustee 75,000 27240 Natoma Road
or Successor Trustee of the Los Altos Hills, CA 94022
Ralph K. Ungermann Living Facsimile: (415) 941-3134
Trust UAD May 18, 1988,
as amended
Robert W. Wilmot and 125,000 Attn: Mary J. Wilmot
Mary J. Wilmot, trustees 10969 Wellworth Avenue
of the Wilmot Living Trust Apartment 312
u/d/t dated April 18, 1995 Westwood, CA 90024
Kanematsu Corporation 125,000 2-1 Shibaura 1-Chome
Minato-Ku, Tokyo 105-05
Bruce A. Wilford and 25,000 935 Eastwood Pl.
Ruth Wilford, Trustees, Los Altos, CA 94022-5022
or the Successor Trustee,
under the Bruce A. and
Ruth Wilford Revocable Living
Trust dated December 9, 1993
James O. Mitchell 25,000 c/o First Virtual Corporation
3393 Octavius Drive
Suite 102
Santa Clara, Ca 95054
Facsimile: (408) 988-7077
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Number of Shares of
Name Series C Preferred Address
- ---- ------------------- -------
<S> <C> <C>
The Goldman, Sachs Group, L.P. 375,000 85 Broad Street, 19th Floor
New York, NY 10004
Farrokh Billimoria 10,000 23 Wield Court
Park Ridge, NJ 07656
Robert C. Harris, Jr . 10,000 c/o Unterberg Harris
275 Battery Street, 29th Floor
San Francisco, CA 94111
Laura K. Arrillaga 12,500 c/o Peery/Arrillaga
2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054
John Arrillaga, Jr. 12,500 c/o Peery/Arrillaga
2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054
The Richard T. Peery 25,000 c/o Peery/Arrillaga
1976 Children Trust 2560 Mission College Blvd.
Suite 101
Santa Clara, CA 95054
Jeannette Schirtzinger 2,500 15681 Lomas Lane
Los Gatos, CA 95030
Robert F. Mitro 25,000 20 East Main Street, #47
Los Gatos, CA 95032
Maureen B. Bannister 25,000 20 East Main Street, #47
Los Gatos, CA 95032
Jean-Claude Asscher 21,875 34 Avenue Raphael
75016 Paris
France
Pier Carlo Falotti 40,000 15 Chemin de Vignes
1299 Crans (VD)
Switzerland
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Number of Shares of
Name Series C Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Eric Le Guinniec 5,000 5 Villa des Buttes Chaumont
75019 PARIS
France
</TABLE>
<PAGE> 45
EXHIBIT D
Name Address
- ---- -------
Kevin Asano 405 Fieldcrest Drive
San Jose, CA 95123
Kanwaldeep S. Bindra 225 Kansas Way
Fremont, CA 94539
Frank Chu 6388 Bancroft Way
San Jose, CA 93129
Russell Erickson 1260 Lorelei Court
Campbell, CA 95008
Bill Gallmeister 16210 Lilac Lane
Los Gatos, CA 95032
Heather Gelormini 915 Oak Lane, #4
Menlo Park, CA 94025
Alan Glowacki 6901 B Rodling Way
San Jose, CA 95138
William Gunter 6579 Cooperage Court
San Jose, CA 95120
Joseph H. Lacombe 143 Wyndham Drive
Portola Valley, CA 94028
Marlis Rossetta, 2117 Bush Street, Flat A
Trustee or Successor Trustee under San Francisco, CA 94115
the Marlis Rossetta Living Trust
U/A/D April 28, 1995
Alan J. McMillan 187 Bryant Street
Palo Alto, CA 94301
Michael Munoz 6921 B. Rodling Way
San Jose, CA 95138
David G. Norman 1748 Dorrance Drive
San Jose, CA 95125
Michael Pham 1987 Autumn Gold Drive
San Jose, CA 95131
<PAGE> 46
Name Address
- ---- -------
Ralph K. Ungermann, Trustee or c/o First Virtual Corporation
Successor Trustee of the Ralph K. 3393 Octavius Drive, Suite 102
Ungermann Living Trust ... May 18, Santa Clara, CA 95054
1988
Mike Regli 3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Andrew Schwartz 4212 17th Street
San Francisco, CA 94114
Douglas W. Tsui 972 Michelangelo Drive
Sunnyvale, CA 94087
Luen-Wuu Wey 711 Hebridges Way
Sunnyvale, CA 94087
Todd Wilde 2335 Amherst Drive
Palo Alto, CA 94024
Bruce Wilford 935 Eastwood Place
Los Altos, CA 94024
<PAGE> 47
EXHIBIT E
FIRST CLOSING
<TABLE>
<CAPTION>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Jan Abercrombie 12,500 Ringslangweide 63
3437 VD Nieuwegein
The Netherlands
Jean Claude Fino 2,500 4 Villa Cour creuse
92140 CLAMART
France
Serge Feldmann 2,500 9 rue d'Odessa
75014 PARIS
France
Philippe Le Mestreallan 2,500 47 Avenue de la Division LECLERC
92320 CHATILLON
France
Eric Le Guinniec 1,250 5 Villa des Buttes Chaumont
75019 PARIS
France
Jean Claude Asscher 12,500 First Virtual Corporation (France)
c/o Tekelec Airtronic SA
5, rue Carle Vernet
92315 Sevres Cedex
France
Facsimile: 33-1-45072191
Muriel Asscher 12,500 First Virtual Corporation (France)
c/o Tekelec Airtronic SA
5, rue Carle Vernet
92315 Sevres Cedex
France
Facsimile: 33-1-45072191
Mike Carlucci 12,500 14 Chemin De La Mare Close
78240 Chambourcy
France
Facsimile: 33-1-30747229
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Gottfried Haederle 11,174 First Virtual Corporation (UK)
c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44 171 972 0019
Bruce Withington 12,500 First Virtual Corporation (UK)
c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44 171 972 0019
Camilla N. Withington 7,250 First Virtual Corporation (UK)
c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44 171 972 0019
Sohei Mori 1,000 Kanematsu Electronics Ltd.
17-5 Kyobashi 2-chome,
Chuo-ku, Tokyo 104
Japan
Facsmile: 81-3-5250-6178
Ryosuke Ichikawa 1,000 Attn: Sohei Mori
Kanematsu Electronics Ltd.
17-5 Kyobashi 2-chome,
Chuo-ku, Tokyo 104
Japan
Facsmile: 81-3-5250-6178
Almargen Pty Ltd 6,250 Attn: Philip Mellett
17 Bay Street
Brighton, Victoria
Australia 3186
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Insight Computer Systems Pty Ltd 6,250 Attn: Alan Gray
C/- Trevor Dumas Management
Services Pty Ltd
1st Floor, 8 The Highway
Mt Waverley, Victoria 3149
Australia
Facsimile: 011-61-3-96966483
</TABLE>
SECOND CLOSING
<TABLE>
<CAPTION>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Bob Schuchard 3,750 van Aerssenstraat 124
2582 JS DEN HAAG
The Netherlands
Facsimile: 31-70-350-5108
Koen Gielen 2,500 Miraeusstrat 10
2018 ANTWERPEN
Belgium
Gottfried Haederle 326 First Virtual Corporation (UK)
c/o INL
4th Floor, 25 City Road
London
United Kingdom EC1Y 1AA
Facsimile: 44-171-972-0019
First Virtual (Asia) Ltd. 12,500 17B, 23 Braemar Hill
North Point, Hong Kong
Attn: Ratna Widjaja
</TABLE>
<PAGE> 50
EXHIBIT F
FIRST CLOSING
<TABLE>
<CAPTION>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
Edwin A. Rodriguez and
Pamela R. Rodriguez, JTWRS 6,250 12308 Trayside Lane
Saratoga, CA 95070
Facsimile: (408) 255-2993
Joanne Clare Knight 1,375 793 View Street
Mountain View, CA 94041
Facsimile: (415) 960-0433
James O. Mitchell 12,500 3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Facsimile: (408) 988-7077
</TABLE>
SECOND CLOSING
<TABLE>
Number of Shares of
Name Series D Preferred Address
- ---- ------------------- -------
<S> <C> <C>
KPMG Peat Marwick LLP 12,500 3 Embarcadero Center, 20th Floor
San Francisco, CA 94111
Attn: Allen Holter, Partner
Facsimile: (415) 677-9145
Jinnes Technologies, Inc. 12,500 624 E. Evelyn Ave., Suite F
Sunnyvale, CA 94086
Attn: In Hong Kim
Facsimile: (408) 736-1433
</TABLE>
<PAGE> 51
AMENDMENT
TO
INVESTOR RIGHTS AGREEMENT DATED OCTOBER 17, 1997
LOCK-UP AGREEMENT
An important factor to the Representatives in determining whether or not to
proceed with the Offering will be their ability to manage an orderly public
market for the Company's Common Stock during the distribution and following the
Offering. The Representatives have requested that you execute a lock-up
agreement which restricts sales of all of the Company's securities you hold
during the 180-day period following the effective date of the Registration
Statement of the Offering.
Such a lock-up period is both reasonable and customary in initial public
offerings by corporations like the Company. The Representatives believe that
during the lock-up period, the aftermarket should be composed primarily of
shares sold in the Offering, and that shares not sold in the Offering should be
subject to a restriction on sale during such period. The Company believes that
your agreement to restrict sales during the lock-up period will be of benefit to
the Company and to its shareholders.
Pursuant to the Investor Rights Agreement, you have already agreed to a lock-up
of your shares for 180 days in connection with a public offering by the Company.
However, we request that you agree to amend and restate Section 1.13 of the
Investor Rights Agreement, by signing the Consent and Waiver, attached hereto as
Exhibit A. Section 1.13 will be replaced in its entirety with a lock-up
agreement (the "Lock-Up Agreement") in the form substantially attached hereto as
Exhibit B, so that the lock-up may be implemented by the Representatives. We
also request that you sign and return the enclosed Lock-Up Agreement.
<PAGE> 52
EXHIBIT A
CONSENT AND WAIVER
October ___, 1997
CONFIDENTIAL
Ladies and Gentlemen:
Reference is made to the Notice of Registration, dated October ___, 1997 (the
"Notice") describing a proposed underwritten public offering of shares of Common
Stock of First Virtual Corporation (the "Company") pursuant to a Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission.
All capitalized terms used herein have the same meaning given them in the
Notice.
A. CONSENT AND WAIVER RE REGISTRATION RIGHTS AND AMENDMENT OF SECTION 1.13
OF THE INVESTOR RIGHTS AGREEMENT.
The undersigned is a party to or assignee of rights under the Amended and
Restated Investor Rights Agreement, dated August 29, 1996, as amended, among the
Company and the Investors thereunder (the "Investor Rights Agreement"). The
undersigned has been requested to consent to (a) a waiver of the Company's
obligations under the Investor Rights Agreement (i) to cause Registrable
Securities to be included in the Offering and (ii) to comply with the specific
notice requirements of the Investor Rights Agreement with respect to the
Offering; (b) the possible participation of certain holders of the Company's
shares in the Offering, at the sole discretion of the Representatives; and (c)
the amendment of Section 1.13 of the Investor Rights Agreement.
With respect to the aforementioned request, the undersigned:
CHECK
APPLICABLE
SPACE BELOW
(A) consents to such waivers of his/her/its rights and the rights of the other
holders of Registrable Securities under the Investor Rights Agreement with
respect to the Offering and to the possible participation of certain
holders of the Company's shares in the Offering, and consents to the
amendment of Section 1.13 of the Investor Rights Agreement [ ]
1.
<PAGE> 53
EXHIBIT B
FIRST VIRTUAL CORPORATION
LOCK-UP AGREEMENT
OCTOBER __, 1997
BancAmerica Robertson Stephens
Hambrecht & Quist LLC
As Representatives of the Several Underwriters
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with First Virtual Corporation (the
"Company") providing for a public offering (the "Public Offering") by the
Underwriters, including yourselves, of Common Stock of the Company (the "Common
Stock") pursuant to the Company's Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission on or about October 24, 1997 (the
"Registration Statement").
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Common Stock, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby agrees, for a period of 180 days after the date of the final
prospectus constituting part of the Registration Statement related to the Public
Offering (the "Lock-Up Period"), not to 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 the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided that the donee or
donees thereof agree in writing to be bound by the terms of this Lock-Up
Agreement, (ii) as a distribution to limited partners or shareholders of the
undersigned, provided that the distributees thereof agree in writing to be bound
by the terms of this Lock-Up Agreement or (iii) with the prior written consent
of BancAmerica Robertson Stephens. The foregoing restriction is expressly agreed
to preclude the holder of the Securities from engaging in any hedging or other
transaction that 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 undersigned. 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
1.
<PAGE> 54
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Notwithstanding the foregoing,
this Lock-Up Agreement does not prohibit the sale of Securities by the
undersigned to the Underwriters in the Public Offering.
Furthermore, the undersigned hereby agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement. In the event that the Registration Statement shall not
have been declared effective on or before February 28, 1998, this Lock-Up
Agreement shall be of no further force or effect.
Very truly yours,
------------------------------------
(signature)
Name:
-------------------------------
Address:
------------------------------
------------------------------
------------------------------
Accepted as of the date first set forth above:
BancAmerica Robertson Stephens
Hambrecht & Quist LLC
As Representatives of the Several Underwriters
By: BancAmerica Robertson Stephens
By:
- ----------------------------------
(authorized signatory)
2.
<PAGE> 1
EXHIBIT 10.9
LEASE AGREEMENT BLDG. PSII-3
OWNER: 500
PROP: 323
UNIT: 202
TENANT: 32304
THIS LEASE, made this 19th day of July, 1995, between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE
PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor
Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as
amended, hereinafter called Landlord, and FIRST VIRTUAL CORPORATION, a
California 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, two-story building
located at 3393 Octavius Drive, Suite 202, Santa Clara, California
95054, consisting of approximately 12,690+/- square feet of space on the
second floor. Said Premises is more particularly shown within the area
outlined in Red on Exhibit A. The entire parcel, of which the Premises
is a part, is shown within the area outlined in Green on Exhibit A
attached hereto. 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.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
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 an 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 or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, or any of its contents, or will cause
a cancellation of any insurance covering the Complex 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 or the Complex which will in any way obstruct or interfere
with the rights of other
<PAGE> 2
tenants or occupants of the Complex 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 or the Complex. 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 natures
shall be stored upon or permitted to remain outside the Premises or on any
portion of common area of the Complex. No loudspeaker or other device, system or
apparatus which can be heard outside the Premises shall be used on 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,
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 Complex.
2. TERM *
A. The term of this Lease shall be for a period of THREE (3)years
SEVENTEEN (17) days (unless sooner terminated as hereinafter provided) and,
subject to Paragraphs 2(B) and 3, shall commence on the 15th day of August. 1995
and end on the 31st day August of 1998.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work as been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy,in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
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 2(b), 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, at its option, may, by
written notice to Landlord, terminate this Lease.
*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 scheduled for the projected
<PAGE> 3
commencement date as shown in Paragraph 43.
Page 1 of 8
<PAGE> 4
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
FOUR HUNDRED EIGHTY SIX THOUSAND SIX HUNDRED FORTY ONE AND 03/100
($)486,641.03--------) Dollars in lawful money of the United States of America,
payable as follows:
See Paragraph 43 for Basic Rent Schedule
B. Time for Payment. 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, 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 (10%) percent 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 in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex
as set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating
to the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex in
which the Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including 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 on
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.
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 (30) 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 approximate 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 so 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
refunding to Tenant (providing Tenant is not
<PAGE> 5
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. 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.
F. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of TWENTY SEVEN THOUSAND NINE HUNDRED
EIGHTEEN AND NO/100 ($27,918.00) Dollars. 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 of Tenant's
default or to compensate Landlord for 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. 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 Complex 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 Complex 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 interest of the occupants of the Complex. The Rules and Regulations
shall be binding upon Tenant upon delivery of a copy of them to Tenant, and
Tenant shall abide by them and cooperate in their observance. Such Rules and
Regulations may be amended by Landlord from time to time, with or without
advance notice, and all amendments shall be effective upon delivery of a copy to
Tenant.
<PAGE> 6
Landlord shall not be responsible to Tenant for the non-performance by any other
tenant or occupant of the Complex 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.
Page 2 of 8
<PAGE> 7
6. PARKING Tenant shall have the right to use with other tenants or occupants of
the Complex 51 parking spaces in the common parking areas of the Complex. Tenant
agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees
shall not use parking spaces in excess of said 51 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 areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex 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 areas 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 or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area 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
Complex. 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 such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex 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 areas for vehicle parking
only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional Rent and in
accordance with Paragraph 4 D of this Lease, Tenant shall 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 Complex 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 of landscaped areas, lakes,
parking lots, sidewalks, driveways; maintenance, repair and replacement of all
fixtures and electrical, mechanical, and plumbing systems; structural elements
and exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; 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.
"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.
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 common areas such as lobbies, restrooms, janitor's closets,
hallways, elevators, mechanical and telephone rooms,
<PAGE> 8
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 and 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), store fronts, roofs, 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; license, permit, and inspection fees;
security; salaries and employee benefits of personnel and payroll taxes
applicable thereto; 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
under, and benefits of, subsection 1 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.
8. 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 peaceably 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; the airconditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense 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.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
<PAGE> 9
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, 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 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 or against the Complex for work claimed to have been done for, or
material 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 expense of Tenant. Any exceptions to the foregoing must be made in writing
and executed by both Landlord and Tenant.
10. 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 condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, janitorization, plumbing systems with 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 with 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 in surrounding areas. Areas of excessive wear shall be
replaced at Tenant's sole expense upon Lease termination.
Page 3 of 8
<PAGE> 10
11. 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, 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 Premises when such interruption or failure is caused by
accident, breakage, repair, 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 Complex hereinbefore referred to, reasonable
quantities of water, gas, electricity suitable for the intended use of the
Premises and heat and airconditioning required in Landlord's judgment for the
comfortable use and occupation of 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 fusing 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.
12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the lease Premises by
square footage or other equitable basis, as calculated by Landlord. 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 Complex) now or hereafter imposed by any governmental or quasi-
<PAGE> 11
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 Complex (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 Complex (regardless of ownership); the fixtures, equipment and other
property of Landlord, real or personal, that are an integral part of and located
in the Complex; or parking areas, public utilities, or energy within the
Complex; (ii) all charges, levies or fees imposed by reason of environmental
regulation or other governmental control of the Complex; and (iii) all costs and
fees (including attorneys' fees) incurred by Landlord in 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 Complex 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 Complex or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Complex, on Landlord's
business of leasing the Complex, or computed in any manner with respect to the
operation of the Complex, 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 Complex, then only that part of such real Property Tax that is fairly
allocable to the Complex 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
(a) 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 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 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 any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(b) if the Tenant improvements in the Premises, whether installed,
and/or paid for by Landlord or tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12Ba, above. If
the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said Tenant improvements are assessed
at a higher valuation than standard office improvements in other space in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for injuries to or death of persons occurring in, on or about the Premises or
the Complex, and property damage. The
<PAGE> 12
policy or policies affecting such insurance, certificates of insurance of which
shall be furnished to Landlord, 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. If, during the terms of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
14. 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.
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.
15. 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 (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and floor 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 or the Complex,
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 Complex.
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.
Page 4 of 8
<PAGE> 13
16. 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 or the Complex by
or from any cause whatsoever, inducing, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex 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 expense, 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 cause whatsoever.
17. 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 judgement 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. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. 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 the Premises.
18. LIENS Tenant shall keep the Premises and the Complex 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.
19. 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 may
require that Tenant agrees to pay to Landlord, as additional rent, all rents or
additional consideration received by Tenant from its assignees, transferees, or
subtenants in excess of the rent payable by Tenant to Landlord hereunder. 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
<PAGE> 14
for Landlord's approval, all in accordance with the terms, covenants, and
conditions of this paragraph 19. 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
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 which consent shall not be unreasonably withheld. 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 obligations hereunder
or be deemed to be a 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 which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may 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.
20. 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 deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
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.
21. 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 submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, 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. For each of the foregoing purposes
any entry to the Premises obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from the Premises or any portion thereof.
Landlord shall also have the right at any time to change the arrangement or
location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Complex and to change
the name, number or designation by which the Complex is commonly known, and none
of the foregoing shall be deemed an actual or constructive eviction of Tenant,
or shall entitle Tenant to any reduction of rent hereunder.
22. 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
<PAGE> 15
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 rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
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 Premised 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
thereto. 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;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days is required to cure the same, Tenant shall not be in default so
long as Tenant commences performance within such thirty (30) day period and
thereafter prosecutes the same to completion. 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
Page 5 of 8
<PAGE> 16
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
right 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 see 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 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
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period 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. For all purposes set forth in this subparagraph d. 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.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder) 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.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part from
any cause, except for routine maintenance and repairs and incidental damage and
destruction
<PAGE> 17
caused from vandalism and accidents for which Tenant is responsible for under
Paragraph 10, 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, 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
embargoes, 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 canceled 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 1944, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost there, Landlord may elect to terminate this Lease whether the Premises be
injured or not.
25. 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
take 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 (i) 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, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof
<PAGE> 18
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 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 is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date 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.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex 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 Complex 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.
27. 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.
28. 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.
Page 6 of 8
<PAGE> 19
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10)
days' prior written notice to 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, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, 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 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.
30. 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, or
any changes in plans for any other portions of the Complex 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.
31. 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 or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obligated
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 or 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.
32. ATTORNEY'S 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, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the 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 judgement.
(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.
33. 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
<PAGE> 20
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.
34. 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 or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advises 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.
35. 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.
36. 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 thirty (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.
37. 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.
[38. OMITTED]
39. 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:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets:
(ii) 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)
(iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of
the partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process:
(v) no judgment will be taken against any partner of Landlord:
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of
any partner
<PAGE> 21
of Landlord;
(viii) 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 common law.
Page 7 of 8
<PAGE> 22
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. 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.
b. 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 for any reason
whatsoever, all other provisions hereof shall be and remain in full
force and effect.
c. 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 this Lease are for convenience of reference only
and shall have no effect upon the construction or interpretation of any
provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. 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 of encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
f. 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. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. 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. Paragraphs 43 through 48 are added hereto and are included as a part
of this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. 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 hereunder
<PAGE> 23
or result in any liability of Landlord to Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. 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 Tenant is allowed to print or affix or in any
way place a sign in, on, 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.
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 SEPARATE PROPERTY TRUST FIRST VIRTUAL CORPORATION
a California corporation
By /s/ John Arrillaga By /s/ M. Rossetta
---------------------------------- -----------------------------
John Arrillaga, Trustee
Dated: Aug. 10, 1995 Title Founding Partner
---------------------------------- -----------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By /s/Richard T. Peery Type or Print Name M. Rossetta
---------------------------------- -----------------
Richard T. Peery, Trustee
Dated: 7-20-95
-------
Dated: Aug. 10, 1995
----------------------------------
Page 8 of 8
<PAGE> 24
Paragraphs 43 through 48 to Lease Agreement Dated July 19, 1995, By and Between
John Arrillaga and Richard T. Peery Separate Property Trusts, as Landlord, and
First Virtual Corporation, a California corporation, as Tenant for 12,690+
Square Feet of Space Located - at 3393 Octavius Drive, Suite 202, Santa Clara,
California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of FOUR HUNDRED EIGHTY SIX THOUSAND SIX HUNDRED FORTY ONE AND 03/100 DOLLARS
($486,641.03) shall be payable as follows:
On August 15, 1995, the sum of SIX THOUSAND NINE HUNDRED FIFTY NINE AND
03/100 DOLLARS ($6,959.03) shall be due, representing the rental for the period
August 15, 1995 through August 31, 1995.
On September 1, 1995, the sum of TWELVE THOUSAND SIX HUNDRED NINETY AND
NO/100 DOLLARS ($12,690.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including August 1, 1996.
On September 1, 1996, the sum of THIRTEEN THOUSAND THREE HUNDRED TWENTY
FOUR AND 50/100 DOLLARS ($13,324.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including August 1, 1997.
On September 1, 1997, the sum of THIRTEEN THOUSAND NINE HUNDRED FIFTY
NINE AND NO/100 DOLLARS ($13,959.00) 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 FOUR HUNDRED EIGHTY SIX THOUSAND SIX HUNDRED
FORTY ONE AND 03/100 DOLLARS ($486,641.03) has been paid.
44. EARLY ENTRY: Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 44 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but without limiting
thereby the generality of the foregoing, injury to or death of persons and
damage to or loss of property arising out of the exercise by Tenant of any early
entry right granted hereunder. In the event Tenant's work in said Premises
delays the completion of the interior improvements to be provided by Landlord,
if any, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of
August 15, 1995 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord.
45. "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. Landlord makes no
warranty or representation of any kind of
<PAGE> 25
nature whatsoever as to the condition or repair of the Premises, nor as to the
use or occupancy which may be made thereof.
46. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
Page 9
<PAGE> 26
47. 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
(hereinafter collectively referred to as the "Property") and the Complex:
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 47, Tenant shall have no obligation to
"clean up," reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term of
the Lease) or other parties on the Property or Complex, as described below,
(during the term of this Lease) did not store, dispose, or transport in, use, or
cause to be on the Property or which Tenant, its agents, employees, contractors,
invitees or its future subtenants and/or assignees (if any) (during the Term of
this Lease), did not store, dispose, or transport in, use or cause to be on the
Complex in violation of applicable law.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, invitees or its future subtenants
and/or assignees (if any), or other parties on the Property, does store,
dispose, or transport in, use or cause to be on the Property, and which Tenant,
its agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any) does store, dispose, or transport in, use or cause to be on
the Complex and (ii) any claims, including third party claims, resulting from
such Hazardous Materials contamination. Tenant shall indemnify Landlord and hold
Landlord harmless from any liabilities, demands, costs, expenses and damages,
including, without limitation, attorney fees incurred as a result of any claims
resulting from such Hazardous Materials contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property or the Complex without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding the
use or removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Property or the Complex as stated above, and
prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate governing agency. If Tenant used Hazardous Materials,
Tenant also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary. It is agreed that the
Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 47.
48. TERMINATION OF PREVIOUS LEASE UPON COMMENCEMENT OF THIS LEASE: It is
understood that Tenant is currently occupying approximately 4,832+/- square feet
of space located at 3393 Octavius Drive, Suite 102, Santa Clara, California,
leased under separate Lease Agreement dated February 1, 1994 between Landlord
and Tenant. It is therefore agreed that upon commencement of this Lease
Agreement, said February 1, 1994 Lease Agreement shall terminate and this Lease
Agreement shall be considered the only Lease Agreement between
<PAGE> 27
the parties for the Premises leased hereunder. Tenant also agrees that, upon
termination of said 4,832+/- square feet of space, Tenant shall, if so requested
by Landlord, restore all or part of the Premises, at Landlord's sole discretion,
pursuant to Paragraph 8 ("Acceptance and Surrender of Premises") of said
February 1, 1994 Lease Agreement.
Page 10
<PAGE> 28
PEERY/ARRILLAGA
August 15, 1997
FIRST VIRTUAL CORP
Attn: Marliss Rossetta
3393 Octavius Drive
Santa Clara CA 95054
RE: BASE RENT INCREASE FOR LEASED PREMISES LOCATED AT 3393 OCTAVIUS, SANTA
CLARA, CALIFORNIA UNDER YOUR LEASE AGREEMENT DATED JULY 19, 1995,
BETWEEN JOHN ARRILLAGA SURVIVOR'S TRUST AND RICHARD T. PERRY SEPARATE
PROPERTY TRUST, AS LANDLORD AND FIRST VIRTUAL CORP, AS TENANT.
Per the terms of your Lease dated July 19, 1995, your Monthly Basic Rent is
scheduled to increase effective September 1, 1997 as follows:
<TABLE>
<S> <C>
August Basic Rent: $ 13,324.50
Increase by: $ 634.50
-----------
Monthly Basic Rent effective September 1, 1997: $ 13,959.00
===========
</TABLE>
Please adjust your records to insure payment of the correct Rent amount
beginning September 1, 1997 (please see the attached Summary of Expenses which
states your total monthly Rent payment including both Basic Rent and Additional
Rent expenses). If you have any questions, please call me at (408) 980-0130.
Sincerely,
/s/ Dawn Anderson
Dawn Anderson
Accountant
<PAGE> 29
August 15, 1997
REMIT TO: PERRY/ARRILLAGA
File 1504
Box 60000
San Francisco, CA 94160
BILL TO: FIRST VIRTUAL CORPORATION
Attn: Marlis Rosetta
3398 Octavius Drive #102
Santa Clara, CA 95054
TENANT NO: 500 323 / 102 / 32303
SUMMARY OF RENT EXPENSES
<TABLE>
<CAPTION>
DUE MONTHLY
BEGINNING
EXPENSE ITEM 09/01/97
- ------------ ----------
<S> <C>
Base Rent $13,959.00
Landscaping 150.00
Utilities (Estimated) 3,500.00
Miscellaneous (Estimated) 760.00
----------
TOTALS $18,369.00
==========
</TABLE>
<PAGE> 30
(IMAGE OMITTED)
LEASE AGREEMENT DATED JULY 19, 1995 BY AND BETWEEN JOHN ARRILLAGA AND RICHARD T.
PERRY SEPARATE PROPERTY TRUSTS, AS LANDLORD, AND FIRST VIRTUAL CORPORATION, AS
TENANT.
PSII-3
<PAGE> 1
EXHIBIT 10.10
------------------------------------------------------------------
FIRST VIRTUAL CORPORATION
LOAN AND SECURITY AGREEMENT
-------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 6
2. LOAN AND TERMS OF PAYMENT 6
2.1 Advances 6
2.2 Overadvances 8
2.3 Interest Rates, Payments, and Calculations 8
2.4 Crediting Payments 9
2.5 Fees 9
2.6 Additional Costs 9
2.7 Term 10
3. CONDITIONS OF LOANS 10
3.1 Conditions Precedent to Initial Advance 10
3.2 Conditions Precedent to all Advances 10
4. CREATION OF SECURITY INTEREST 10
4.1 Grant of Security Interest 10
4.2 Delivery of Additional Documentation Required 11
4.3 Right to Inspect 11
5. REPRESENTATIONS AND WARRANTIES 11
5.1 Due Organization and Qualification 11
5.2 Due Authorization; No Conflict 11
5.3 No Prior Encumbrances 11
5.4 Bona Fide Eligible Accounts 11
5.9 Merchantable Inventory 11
5.6 Name; Location of Chief Executive Office 11
5.7 Litigation 11
5.8 No Material Adverse Change in Financial Statements 11
5.9 Solvency 12
5.10 Regulatory Compliance 12
5.11 Environmental Condition 12
5.12 Taxes 12
5.13 Subsidiaries 12
5.14 Government Consents 12
5.15 Full Disclosure 12
6. AFFIRMATIVE COVENANTS 12
6.1 Good Standing 13
6.2 Government Compliance 13
6.3 Financial Statements, Reports, Certificates 13
6.4 Taxes 13
6.5 Insurance 14
6.6 Principal Depository 14
6.7 Quick Ratio 14
6.8 Debt-Net Worth Ratio 14
6.9 Tangible Net Worth 14
6.10 Further Assurances 15
i
<PAGE> 3
7. NEGATIVE COVENANTS 15
7.1 Dispositions 15
7.2 Change in Business 15
7.3 Mergers or Acquisitions 15
7.4 Indebtedness 15
7.5 Encumbrances 15
7.6 Distributions 15
7.7 Investments 15
7.8 Transactions with Affiliates 16
7.9 Subordinated Debt 16
7.10 Inventory 16
7.11 Compliance 16
8. EVENTS OF DEFAULT 16
8.1 Payment Default 16
8.2 Covenant Default 16
8.3 Material Adverse Change 16
8.4 Attachment 17
8.5 Insolvency 17
8.6 Other Agreements 17
8.7 Subordinated Debt 17
8.8 Judgments 17
8.9 Misrepresentations 17
9. BANK'S RIGHTS AND REMEDIES 17
9.1 Rights and Remedies 17
9.2 Power of Attorney 18
9.3 Accounts Collection 19
9.4 Bank Expenses 19
9.5 Bank's Liability for Collateral 19
9.6 Remedies Cumulative 19
9.7 Demand; Protest 19
10. NOTICES 19
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 20
12. GENERAL PROVISIONS 20
12.1 Successors and Assigns 20
12.2 Indemnification 20
12.3 Time of Essence 20
12.4 Severability of Provisions 20
12.5 Amendments in Writing, Integration 20
12.6 Counterparts 21
12.7 Survival 21
12.8 Confidentiality 21
ii
<PAGE> 4
This LOAN AND SECURITY AGREEMENT is entered into as of July 3,1996 by
and between SILICON VALLEY BANK ("Bank") and FIRST VIRTUAL CORPORATION
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any, of the foregoing.
"Advance" or "Advances" means an Advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
enforcing or defending the Loan Documents (including fees and expenses of
appeal), whether or not suit is brought
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such. information.
"Borrowing Base" has the meaning set forth in Section
2.1 hereof.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Line" means One Million Dollars ($1,000,000).
1
<PAGE> 5
"Contingent Obligation" means, as applied to any Person,
any direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency, or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of me primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement
"Current Liabilities" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
except that "Current Liabilities" shall not include Deferred Revenue, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed
at the end of a given day.
"Eligible Accounts" means those Accounts that arise in the ordinary course of
Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank; Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to which the account
debtor is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account
debtor is an Affiliate of Borrower;
(f) Accounts with respect to which the account
debtor does not have its principal place of business in the United States,
except for Eligible Foreign Accounts;
2
<PAGE> 6
(g) Accounts with respect to which the account
debtor is the United States or any department, agency, or instrumentality of the
United States;
(h) Accounts with respect to which Borrower is
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect
to which the account debtor does not have its principal place of business in the
United States and that are: (1) covered by credit insurance in form and amount,
and by an insurer satisfactory to Bank less the amount of any deductibles) which
may be or become owing thereon; or (2) supported by one or more letters of
credit in favor of Bank as beneficial, in an amount and of a tenor; and issued
by a financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as
in effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed
money or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced
by or against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds,
3
<PAGE> 7
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means July 2, 1997.
"Negotiable Collateral" means all of Borrower's present
and future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
4
<PAGE> 8
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank;
(c) Investments consisting of (i) compensation of
employees, officers and directors of Borrower or its Subsidiaries so long as the
Board of Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business; (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries, (iv) other loans to officers and employees
approved by the Board of Directors in an aggregate amount not in excess of
$250,000 outstanding at any time; and
(d) Other Investments aggregating not in excess of
$150,000 at any one time.
"Permitted Liens" means the following:
(e) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(f) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;
(g) Liens (i) upon or in any equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(h) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by, liens of the type
described in clauses (a) through (c) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and be principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank. 5
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"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue cash advances, as specified in Section 2.1
hereof.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower
that is subordinated to the debt owing by Borrower to Bank on terms acceptable
to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than 50% of the stock of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the consolidated total assets of Borrower
and its Subsidiaries minus, without duplication, (i) the sum of any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) all reserves
not already deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in accordance
with GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make Advances to Borrower in an aggregate
amount not to exceed the lesser of (i) the Committed Line minus the face amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit) minus the Exchange Reserve or (ii) the Borrowing Base minus the face
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit minus the Exchange Reserve. For purposes of this Agreement,
"Borrowing Base" shall mean an amount equal to seventy-five percent (75%) of
Eligible Accounts, including accounts owing by account debtors that do not have
their principal place of business in the United States but that are otherwise
Eligible Accounts in an aggregate amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000). Subject to the terms and conditions of this
Agreement amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time prior to the Maturity Date.
Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. California time, on the
Business Day that the Advance is to be
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made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer, and Borrower
shall indemnify and hold Bank harmless for any damages or loss suffered by Bank
as a result of such reliance. Bank will credit the amount of Advances made under
this Section 2.1 to Borrower's deposit account.
The Revolving Facility shall terminate on the Maturity Date, at which
time all Advances under this Section 2.1 shall be immediately due and payable.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate face amount not to exceed (i) the lesser of
the Committed Line or the Borrowing Base minus (ii) the then outstanding
principal balance of the Advances provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) shall not
in any case exceed Two Hundred Fifty Thousand Dollars ($250,000) minus the
amount of the Exchange Reserve. Each such letter of credit shall have an expiry
date no later than the Maturity Date; provided that the expiry date may be
extended up to 180 days beyond the expiry date provided Borrower secures its
reimbursement and other obligations in connection with such letter of credit
upon terms reasonably acceptable to Bank. All such letters of credit shall be,
in form and substance, acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank's form of application and letter of
credit agreement. All amounts actually paid by Bank in respect of a letter of
credit shall, when paid, constitute an Advance under this Agreement.
(b) The obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend and hold Bank
harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with any
letters of credit.
2.1.2 Letter of Credit Reimbursement; Reserve.
(a) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars, If a demand for
payment is note under any such letter of credit Bank shall treat such demand as
an advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(b) Upon the issuance of any Letter of Credit
payable in a currency other than United States Dollars, Bank shall create a
reserve under the Committed Line for Letters of Credit against fluctuations in
currency exchange rates, in an amount equal to twenty percent (20%) of the face
amount of such letter of credit. The amount of such reserve may be amended by
Bank from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Line shall be reduced by the amount of
such reserve for so long as such letter of credit remains outstanding.
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2.1.3 Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this Agreement, Borrower
may utilize up to Two Hundred Fifty Thousand Dollars ($250,000) less the amount
of outstanding Letters of Credit for foreign exchange contracts (the "Exchange
Contracts"). All Exchange Contracts must provide for delivery or settlement on
or before the Maturity Date. The amount available under the Committed Line at
any time shall be reduced by the following amounts (the "Foreign Exchange
Reserve") on each day (the "Determination Date"): (i) on all outstanding
Exchange Contracts on which delivery is to be effected or settlement allowed
more than two business days from the Determination Date, 10% of the gross amount
of the Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement allowed within two business days
after the Determination Date, 100% of the gross amount of the Exchange
Contracts. In lieu of the Exchange Reserve, Borrower may request that Bank treat
such amount as an Advance under the Committed Line.
(b) Bank may, in its discretion, terminate the
Exchange Contracts at any time (a) that an Event of Default occurs or (b) that
there is no sufficient availability under the Committed Line and Borrower does
not have available funds in its bank account to satisfy the Exchange Reserve. If
Bank terminates the Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees, costs and
expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount
of all Exchange Contracts on which delivery is to be effected and settlement
allowed in any, two business day period to be more than $250,000 nor shall
Borrower permit the total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to exceed $250,000.
(d) Borrower shall execute all standard form
applications and agreements of Bank in connection with the Exchange Contracts
and, without limiting any of the terms of such applications and agreements,
Borrower will pay all standard fees and charges of Bank in connection with the
Exchange Contracts.
2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to this Agreement is
greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section
2.3(b), any Advances shall bear interest, on the average Daily Balance, at a
rate equal to one and one-quarter (1.25%) percentage points above the Prime Raw,
until December 31, 1996, and at a rate equal to three-quarters of one percentage
point (.75%) above the Prime Rate thereafter.
(b) Default Rate. AD Obligations shall bear interest
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on the second calendar day of each month during the term hereof. Bank
shall, at its option, charge such interest, all Bank Expenses, and all Periodic
Payments against any of Borrower's deposit accounts or against the Committed
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
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(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event
of Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of art Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Five
Thousand Seven Hundred Fifty Dollars ($5,750), which fee shall be due on the
Closing Date and shall be fully earned and nonrefundable (Bank acknowledges
receipt of such fee); and
(b) Bank Expenses. All Bank Expenses incurred after
the date of an Event. of Default.
2.6 Additional Costs. In case any change in any law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law), in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United States
of America or any political subdivision thereof);
(b) imposes, modifies or deans applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement and the result of any of the
foregoing is to increase the cost to Bank, reduce the income receivable by Bank
or impose any expense upon Bank the respect to any loans, Bank shall notify
Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in
cost, reduction in income or additional expense as and when such cost, reduction
or expense is incurred or determined, upon presentation by Bank of a statement
of the amount and setting forth Bank's calculation thereof, all in reasonable
detail, which statement shall be deemed true and correct absent manifest error;
provided however that Borrower shall not be liable for any such amount
attributable to any period prior to the date one
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hundred eighty (180) days prior to the date of such certificate. Bank agrees
that it will allocate all such increased costs among its customers similarly
affected in good faith and in a manner consistent with Bank's customary
practice.
2.7 Term. This Agreement shall become effective on the
Closing Date and, subject to Section 12.7, shall continue in full force and
effect for a term ending on the Maturity Date. Notwithstanding the foregoing,
Bank shall have the right to terminate its obligation to make Advances under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation
of Bank to make the initial Advance is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) financing statement (Form UCC-1);
(d) insurance certificate;
(e) payment of me fees and Bank Expenses then due
specified in Section 2.5 hereof; and
(f) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Advance as
dough made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making of
each Advance shall be deemed to be a representation and warranty by Borrower on
the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges
to Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
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4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary corporation duly existing and in good standing under the laws of its
state of incorporation and qualified and licensed to do business in, and is in
good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery,
and performance of the Loan Documents are with Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are
bona fide existing obligations. The property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor that is included in any Borrowing Base
Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there
are no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
have a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not
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been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused
to be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, other than
those which Borrower is contesting in. good faith and for which Borrower has
made appropriate reserves in accordance with GAAP.
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of
its Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within (i)
thirty (30) days of the end of each fiscal quarter when the balance of all
outstanding Advances (including the face amount of outstanding Letter of Credit
and the Exchange Reserve) is less than $500,000 or (ii) thirty (30) days after
the end of each month when the balance of outstanding Advances (including the
face amount of outstanding Letters of Credit and the Exchange Reserve), a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, certified by a
Responsible Officer; (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days upon becoming available, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month in which any
Advances (including any Letters of Credit or the Exchange Reserve) are
outstanding, Borrower shall deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in substantially the form of Exhibit C hereto, together
with aged listings of accounts receivable and accounts payable.
Borrower shall deliver to Bank with the quarterly or monthly financial
statements, whichever is required by the terms of this section 6.3, a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts, provided that such audits will be conducted no more often than every
six (6) months unless an Event of Default has occurred and is continuing.
6.4 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions
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required of it by law, and will execute and deliver to Bank, on demand,
appropriate certificates attesting to the payment or deposit thereof; and
Borrower will make, and will cause each Subsidiary to make, timely payment or
deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if the amount or validity of
such payment is contested in good faith by appropriate proceedings and is
reserved against (to the extent required by GAAP) by Borrower.
6.5 Insurance.
6.5.1 Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral in
amounts and of a type that are customary to businesses similar to Borrower's.
6.5.2 All such policies of insurance shall be in such
form, with such companies, and in such amounts as reasonably satisfactory to
Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.6 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank, provided that quality of
service is satisfactory, which satisfaction is to be determined on a
commercially reasonable basis
6.7 Quick Ratio. Borrower shall maintain (a) as of the last
day of each fiscal quarter when the aggregate amount of all outstanding Advances
(including the face amount of outstanding Letters of Credit and the Exchange
Reserve) is less than $500,000 or, (b) as of the last day of each calendar month
when the aggregate amount of all Advances (including the face amount of
outstanding Letters of Credit and the Exchange Reserve) is equal to or greater
than $500,000, a ratio of Quick Assets to Current Liabilities, excluding
deferred revenue, of at least 1.0 to 1.0; provided however, that on and after
December 31, 1996, Borrower shall maintain a ratio of Quick Assets to Current
Liabilities, excluding deferred revenue, of at least 1.25 to 1.0.
6.8 Debt-Net Worth Ratio. Borrower shall maintain (a) as of
the last day of each fiscal quarter when the aggregate amount of all outstanding
Advances (including the face amount of outstanding Letters of Credit and the
Exchange Reserve) is less than $500,000 or (b) as of the last day of each
calendar month when the aggregate amount of all outstanding Advances (including
the face amount of outstanding Letters of Credit and the Exchange Reserve) is
equal to or greater than $500,000, a ratio of Total Liabilities less
Subordinated Debt, excluding deferred revenue, to Tangible Net Worth plus
Subordinated Debt of not more than 2.25 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain (a) as of
the last day of each fiscal quarter when the aggregate amount of all Advances
(including the face amount of outstanding Letters of Credit and the Exchange
Reserve) is less than $500,000 or (b) as of the last day of each calendar month
when the aggregate amount of all Advances (including the face amount of
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<PAGE> 18
Outstanding Letters of Credit and the Exchange Reserve) is equal to or greater
than $500,000, a Tangible Net Worth of not less than Six Hundred Twenty-Five
Thousand Dollars ($625,000); provided, however, that on and after December 31,
1996, Borrower shall maintain a Tangible Net Worth of not less than One Million
Dollars ($1,000,000).
6.10 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment, or (iv)
Transfers of Equipment in connection with sale-leasebacks entered into in the
ordinary course of Borrower's business.
7.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a change in more than 49% of
Borrower's ownership, as of the Closing Date. Borrower will not, without thirty
(30) days prior written notification to Bank, relocate its chief executive
office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person;
notwithstanding the foregoing, Borrower may complete such merger, acquisition or
consolidation provided that (i) Borrower is the surviving entity following such
transaction, (ii) an Event of Default is not continuing at the time of such
transaction, and would not exist after giving effect thereto, and (iii) the
consideration paid in a transaction entered into before Borrower's initial
public offering does not exceed the lesser of One Hundred Thousand Dollars
($100,000) or twenty-five percent (25%) of Borrower's Tangible Net Worth, and
the consideration paid in a transaction entered into after Borrower's initial
public offering does not exceed ten percent (10%) of Borrower's Tangible Net
Worth.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
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7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business, (ii) Inventory located with contract manufacturers,
and (iii) except for such other locations as Bank may (i) approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled by
an "investment company" with the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal
of, or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 6.7, 6.8 or 6.9 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of
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repayment of any portion of the Obligations or a material impairment of the
value or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against borrower and is not dismissed or stayed within ten (10)
days (provided that no Advances with be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement
to which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
9.1.1 Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
9.1.2 Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
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9.1.3 Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
9.1.4 Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
9.1.5 Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
is security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
9.1.6 Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
9.1.7 Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. In connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
9.1.8 Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate;
9.1.9 Bank may credit bid and purchase at any public
sale; and
9.1.10 Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
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9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof: or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency; or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and for
the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment;
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: First Virtual Corporation
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Attn: Jim Mitchell
FAX: (___) ________________
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If to Bank: Silicon Valley Bank
3003 Tasman Dive
Santa Clara, CA 95054-1191
Attn: Jeff Huhn
FAX: (408) 748-9478
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severabitity of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
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12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentially. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FIRST VIRTUAL CORPORATION
By: /s/ James O. Mitchell
Title: COO/CEO
SILICON VALLEY BANK
By: /s/ Jeffrey Huhn
Title: VP
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EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing way of the above, and
Borrower's Books relating to any of the foregoing;
(c) All general intangibles now owned or hereafter acquired,
including, without limitation, leases, license agreements, franchise agreements,
purchase orders, income tax refunds, payments of insurance and rights to payment
of any kind, but excluding Borrower's rights in patents, copyrights, trademarks
and other forms of intellectual property.
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing;
(e) All cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________
FAX#: (408) 496-2426 TIME: _______________
FROM:___________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT #_______________ TO ACCOUNT #_______________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $__________________________
PRINCIPAL PAYMENT (ONLY) $__________________________
INTEREST PAYMENT (ONLY) $__________________________
PRINCIPAL AND INTEREST (PAYMENT) $__________________________
OTHER INSTRUCTIONS:_____________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- -------------------------- -----------------------------
Authorized Requester Phone #
- -------------------------- -----------------------------
Received By (Bank) Phone #
--------------------------------------------
Authorized Signature (Bank)
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EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: First Virtual Corporation Lender: Silicon Valley Bank
Commitment Amount: $1,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
5. Balance of 50% over 90 day accounts $_____________
6. Concentration Limits $_____________
A Foreign Account in excess of
$250,000 of Eligible Foreign Accounts $_____________
8. Governmental Accounts $_____________
9. Contra Accounts $_____________
10. Promotion or Demo Accounts $_____________
11. Intercompany/Employee Accounts $_____________
12. Other (please explain on reverse) $_____________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____________
14. Eligible Accounts (#3 minus #13) $_____________
15 LOAN VALUE OF ACCOUNTS (75% of #14) $_____________
BALANCES
16. Maximum Loan Amount $__________
17. Total Funds Available (Lesser of #15 or #16) $__________
18. Present balance owing on Line of Credit $__________
19. Outstanding under Sublimits ( ) $__________
20. RESERVE POSITION (#17 minus #18 and #19) $__________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
FIRST VIRTUAL CORPORATION BANK USE ONLY
Rec'd By:__________
Auth. Signer
Date:______________
Verified:__________
Auth. Signer
Date:______________
By:_____________________ ___________________
Authorized Signer
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EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: First Virtual Corporation
The undersigned authorized officer of First Virtual Corporation hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending____________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof Attached herewith are the required documents supporting
the above certification. The Officer further certifies that, to the best of his
knowledge, these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
<TABLE>
REPORTING COVENANT REQUIRED COMPLIES
------------------ ------- --------
<S> <C> <C>
Financial statements Monthly within 30 days (1) Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R & A/P Agings Monthly within 15 days (2) Yes No
A/R Audit Initial and Semi-Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.0:1.0/1.25:1.0 (3) ____:1.0 Yes No
Minimum Tangible Net Worth $625,000/$1,000,000 (3) $_______ Yes No
Maximum Debt/Tangible Net Worth 2.25:1.0 _____:1.0 Yes No
</TABLE>
(1) Quarterly when outstandings <$500,000
(2) When Advances are outstanding
(3) On and after 12/31/96
COMMENT REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by:__________________
AUTHORIZED SIGNER
Sincerely,
Date:_________________________
_______________________
SIGNATURE Verified:_____________________
AUTHORIZED SIGNER
_______________________
TITLE Date:_________________________
_______________________ Compliance Status: Yes No
DATE
25
<PAGE> 29
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into as of
April 11, 1997, by and between SILICON VALLEY BANK ("Bank") and FIRST VIRTUAL
CORPORATION ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of July 3, 1996, as amended (the "Agreement"). The parties
desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The definition of "Committed Line" under Section 1.1 is amended
to read "Three Million Dollars ($3,000,000)." The definition of "Maturity Date"
under Section 1.1 is amended to read "April 10, 2001". A new defined term is
added to Section 1.1, as follows: "Revolving Maturity Date" means "April 10,
1998".
2. The first paragraph of Section 2.1 is amended to read as
follows:
2.1 Advances. Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make Advances to Borrower in an aggregate
amount not to exceed the lesser of (i) the Committed Line minus the face amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit) minus the Exchange Reserve minus the aggregate outstanding Equipment
Advances or (ii) the Borrowing Base minus the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) minus the
Exchange Reserve minus the aggregate outstanding Equipment Advances. For
purposes of this Agreement, "Borrowing Base" shall mean an amount equal to (i)
eighty percent (80%) of Eligible Accounts, including accounts owing by account
debtors that do not have their principal place of business in the United States
but that are otherwise Eligible Accounts in an aggregate amount not to exceed
the lesser of Five Hundred Thousand Dollars ($500,000) or twenty-five percent
(25%) of the Borrowing Base plus (ii) fifty percent (50%) of the book value of
Borrower's Inventory that is approved by Bank (not to exceed $250,000 or
twenty-five percent (25%) of "Backlog", as defined below.) "Backlog" means the
backlog reported by Borrower and accepted by Bank from time to time. Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time prior to the Revolving
Maturity Date.
3. The last paragraph of Section 2.1 is amended to read as follows:
The Revolving Facility shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 shall be
immediately due and payable.
4. Section 2.1.4 is added to the Agreement, as follows:
2.1.4 Equipment Advances
(a) At any time from April 11, 1997 through April
10, 1998 (the "Equipment Availability Date"), Borrower may from time to
time request advances (each an "Equipment Advance" and, collectively,
the "Equipment Advances") from Bank in an aggregate principal amount not
to exceed the lesser of be Committed Line or the Borrowing Base, in
1
<PAGE> 30
each case minus the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) minus the Exchange
Reserve minus the aggregate outstanding Advances; provided the aggregate
Equipment Advances shall not exceed $1,000,000. The Equipment Advances
shall be used to purchase Equipment approved from time to time by Bank
(which shall in any case have been purchased not less than 120 days
prior to the date of this Amendment) and shall not exceed One Hundred
Percent (100%) of the cost of such Equipment, excluding installation
expense, freight discounts, warranty charges, taxes and other soft
costs. Not more than twenty percent (20%) of any Equipment Advance may
be used to finance software licenses.
(b) Interest shall accrue from the date of each
Equipment Advance at a floating rate equal to the Prime Rate plus
One-half Percent (0.50%) per annum, and shall be payable an the last day
of each month from the date of such Equipment Advance through the
Equipment Availability Date. Subject to compliance with Sections 6.8 and
6.11, the Equipment Advance or Equipment Advances that are outstanding
on the Equipment Availability Date will be payable in thirty-six (36)
equal monthly installments of principal, plus accrued interest, on the
third day of each month beginning on May 10, 1998. The entire principal
balance and all accrued but unpaid interest shall be due and payable on
the Maturity Date.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable)
by facsimile transmission received no later than 3:00 p.m. California
time one (1) Business Day before the day on which the Equipment Advance
is to be made. Such notice shall be in substantially the form of Exhibit
B. The notice shall be signed by a Responsible Officer and include a
copy of the invoice for the Equipment to be financed.
5. Section 2.3(a) is amended to read as follows:
(a) Interest Rate. Except as set forth in Section
2.3(b), any Advances or Equipment Advances shall bear interest, on the
average Daily Balance, at a rate equal to one-half (0.5) percentage
point above the Prime Rate.
6. Sections 6.7, 6.8 and 6.9 are amended, and Sections 6.10 and
6.11 are added, to read as follows:
6.7 Quick Ratio. Borrower shall maintain as of the last day
of each month a ratio of Quick Assets to Current Liabilities, excluding deferred
revenue, of at least 1.0 to 1.0.
6.8 Debt-Tangible Net Worth. Borrower shall maintain as of
the last day of each month a ratio of Total Liabilities, excluding deferred
revenue, to Tangible Net Worth of not more than 2.0 to 1.0; provided that, as a
condition to requesting an Equipment Advance and at all times when an Equipment
Advance is outstanding, Borrower shall maintain, as of the last day of each
month, a ratio of Total Liabilities, excluding deferred revenue, to Tangible Net
Worth of not more than 1.5 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain as of the
last day of each month a Tangible Net Worth of not less than One Million Five
Hundred Thousand Dollars ($1,500,000).
6.10 Profitability. Borrower shall not suffer a loss in
excess of $500,000 for the fiscal quarter ending March 31, 1997 or a loss in
excess of $150,000 for the fiscal quarter ending June 30, 1997. Borrower shall
be profitable for each fiscal quarter thereafter.
2
<PAGE> 31
6.11 Minimum Liquidity/Debt Service Coverage. Subject to the
remainder of this Section, Borrower shall maintain, as of the last day of each
calendar month, a ratio of (a) the sum of (i) cash and cash equivalents plus
(ii) the amount then available to be borrowed (and not yet borrowed) under the
Revolving Facility to (b) outstanding Equipment Advances of at least 2.0 to 1.0.
Notwithstanding the foregoing, from and after the time Borrower achieves a
Debt-Service Coverage for three consecutive calendar months of at least 1.5 to
1.0, Borrower shall not be subject to the minimum Liquidity set forth above.
"Debt Service Coverage" means a ratio of (a) the sum of earnings after tax plus
interest and non-cash expenses (i.e., depreciation and amortization) divided by
(b) the sum of (i) current portion of long term debt and capitalized leases plus
(ii) interest, measured on a rolling three month basis. Notwithstanding the
foregoing, Borrower's failure to comply with this Section 6.11 or with the
second clause of Section 6.8 shall not be an Event of Default, but shall cause
the Equipment Advances that would otherwise be due on the amortized basis set
forth in Section 2.1.4 to be deemed "Advances" under Section 2.1 subject to the
Borrowing Base and to Section 2.2.
7. The Borrowing Base Certificate and Compliance Certificate to be
delivered after the date of this Amendment shall be in substantially the form of
Exhibit C and Exhibit D, respectively.
8. Unless otherwise defined, all capitalized terms in this
Amendment shall be as defined in the Agreement. Except as amended, the Agreement
remains in full force and effect.
9. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
10. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one instrument.
11. As a condition to the effectiveness of this Amendment, Borrower
shall pay a Facility Fee in an amount equal to Seven Thousand Five Hundred
Dollars ($7,500), payable upon the date hereof, plus all Bank Expenses incurred
in connection with the preparation of this Amendment, and shall deliver to Bank
a warrant to purchase stock in a form reasonably acceptable to Bank.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
FIRST VIRTUAL CORPORATION
By: /s/ James O. Mitchell
Title: COO/CFO
SILICON VALLEY BANK
By: /s/ T. Vertin
Title: SVP
3
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: First Virtual Corporation Lender: Silicon Valley Bank
Commitment Amount: $3,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _____ $ ________
2. Additions (please explain on reverse) $ ________
3. TOTAL ACCOUNTS RECEIVABLE $ ________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $ ________
5. Balance of 50% over 90 day accounts $ ________
6. Concentration Limits $ ________
7. Foreign Accounts $ ________
8. Governmental Accounts $ ________
9. Contra Accounts $ ________
10. Promotion or Demo Accounts $ ________
11. Intercompany/Employee Accounts $ ________
12. Other (please explain on reverse) $ ________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $ ________
14. Eligible Accounts (#3 minus #13) $ ________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $ ________
INVENTORY
16. Inventory Book Value as of ___________ $ ________
17. Loan Value Of Inventory (lesser of 25% of #16 or $250,000) $ ________
18. Backlog $ ________
19. Loan Value of Backlog (25% of #18) $ ________
20. LOAN VALUE OF INVENTORY AND BACKLOG (lesser of #17 or #19) $ ________
BALANCES
21. Maximum Loan Amount $3,000,000
22. Total Funds Available [Lesser of #21 or (#15 plus #20)] $ ________
23. Present balance owing on Line of Credit $ ________
24. Outstanding under Sublimits ( ) $ ________
25. RESERVE POSITION (#22 minus #23 and #24) $ ________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: BANK USE ONLY
Rec'd By: ____________
Auth. Signer
FIRST VIRTUAL CORPORATION
Date: ________________
Verified: ____________
Auth. Signer
By: _____________________________ Date: ________________
Authorized Signer ______________________
</TABLE>
4
<PAGE> 33
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: FIRST VIRTUAL CORPORATION
The undersigned authorized officer of FIRST VIRTUAL CORPORATION hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _____________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 150 days Yes No
A/R & A/P Agings Monthly within 15 days (1) Yes No
A/R Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain and on a Monthly Basis:
Minimum Quick Ratio 1.0:1.0 ____:1.0 Yes No
Liquidity (2) 2.0:1.0 ____:1.0 Yes No
Tangible Net Worth $1,500,000 $ ______ Yes No
Debt/Tangible Net Worth 2.0:1.0 (4) ____:1.0 Yes No
Maintain on a Quarterly Basis:
Profitability $1 (3) Yes No
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
(1) Only when Obligations outstanding Received by: ___________
(2) Converts to Debt Service Coverage Ratio of AUTHORIZED SIGNER
1.5 to 1.0 upon terms specified in Loan Agreement
(3) Loss at 3/31/97 < $500,000; loss at 6/30/97 < $150,000 Date: __________________
(4) Reduces to 1.5:1.0 when Equipment Advance(s) outstanding Verified: ______________
AUTHORIZED SIGNER
Sincerely, Date: _________________
______________________ Compliance Status: Yes No
SIGNATURE
______________________
TITLE
______________________
DATE
</TABLE>
5
<PAGE> 1
EXHIBIT 10.11
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated April 30, 1997 by and between
COMDISCO, INC. ("Lessor") and FIRST VIRTUAL CORPORATION ("Lessee"),
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
<PAGE> 2
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessors rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
<PAGE> 3
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturers maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
- 1 -
<PAGE> 4
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 the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial and liabilities and
obligations which have occurred in the ordinary course of business, and which
have not been, in any case or in the aggregate, materially adverse to Lessee's
ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and
<PAGE> 5
hold Lessor, any Assignee and any Secured Party harmless from and against any
and all claims, costs, expenses, damages and liabilities, including reasonable
attorneys' fees, arising out of the ownership (for strict liability in tort
only), selection, possession, leasing, operation, control, use, maintenance,
delivery, return or other disposition of the Equipment during the term of this
Master Lease or until Lessee's obligations under the Master Lease terminate.
However, Lessee is not responsible to a party indemnified hereunder for any
claims, costs, expenses, damages and liabilities occasioned by the negligent
acts of such indemnified party. Lessee agrees to carry bodily injury and
property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
<PAGE> 6
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
- 2 -
<PAGE> 7
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the
<PAGE> 8
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS, NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or enforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
<PAGE> 9
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/ Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
- 3 -
<PAGE> 10
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in a
arm's- length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
ail of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase
<PAGE> 11
documents and/or evidence of delivery during a calendar quarter which will
incorporate all of the terms and conditions of the related Schedule and this
Master Lease and will constitute a separate lease for the equipment leased
thereunder.
IN WITNESS WHEREOF the parties hereto have executed this Master Lease on or as
of the day and year first above written.
FIRST VIRTUAL CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ J.O. Mitchell By: /s/ James P. Labe
Title: COO/CFO Title: JAMES P. LABE, PRESIDENT
COMDISCO VENTURES DIVISION
-4-
<PAGE> 12
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF APRIL 30,1997
BETWEEN FIRST VIRTUAL CORPORATION AS LESSEE
AND COMDISCO, INC. AS LESSOR
The undersigned hereby agree that the terms and conditions of the above
referenced Master Lease are hereby modified and amended as follows:
1) Section 14.1., "BOARD ATTENDANCE"
Delete this section in its entirety.
2) Section 14.2., "FINANCIAL STATEMENTS"
Delete this section in its entirety and replace it with:
As soon as practicable at the end of each month (and in any event within thirty
(30) days, Lessee will provide to Lessor the monthly income statement, balance
sheet and statement of cash flows prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements"). As
soon as practicable at the end of each fiscal year, Lessee will provide to
Lessor audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within one hundred
twenty (120) days), and accompanied by an audit report and opinion of the
independent certified public accountants selected by Lessee. After the effective
date of the initial registration statement covering a public offering of
Lessee's securities, the term "Financial Statements" will be deemed to refer to
only those statements required by the Securities and Exchange Commission.
3) Section 14.4., "MERGER AND SALE PROVISIONS".
In line 8 delete the words "(discounted at 6%)" and replace with
"(discounted at 12%)".
FIRST VIRTUAL CORPORATION COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ J.O. Mitchell By: /s/ James P. Labe
Title: COO/CFO Title: JAMES P. LABE, PRESIDENT
COMDISCO VENTURES DIVISION
Date: 4/30/97 Date: 5/8/97
<PAGE> 13
EQUIPMENT SCHEDULE VL-1
DATED AS OF APRIL 30, 1997
TO MASTER LEASE AGREEMENT
DATED AS OF APRIL 30,1997 THE "MASTER LEASE")
<TABLE>
<S> <C>
LESSEE: FIRST VIRTUAL CORPORATION LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ----------------------- -----------------------
James 0. Mitchell
(408) 567-7204 (phone) 6111 North River Road
(408) 988-7077 (fax) Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- -------------------
3393 Octavius Drive
Suite 102
Santa Clara, CA 95054
Central Billing Location: Rent Interval: Monthly
- ------------------------ -------------
same as above
Attn.:
Lessee Reference No.: ______________
(24 digits maximum)
Location of Equipment: Initial Term: 42 months
- --------------------- ------------
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.698%
-----------------
Attn.:
EQUIPMENT (as defined below): Advance: $6,745.00
--------
</TABLE>
Equipment (including software) specifically approved by Lessor, which shall be
delivered to and accepted by Lessee during the period April 30, 1997 through
June 30, 1997 ("Equipment Delivery Period"), for which Lessor receives vendor
invoices approved for payment, up to an aggregate purchase price of $250,000
("Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling, hand held
items, molds and fungible items. In no event shall software costs hereunder
exceed 35% of the Commitment Amount.
<PAGE> 14
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessors acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is obtained from a vendor by Lessee for its use subject to
Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership
may be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership
satisfactory to Lessor for all Equipment submitted) no later than
May 30, 1997*. Lessor will not perform a Sale-Leaseback
Transaction for any request or accompanying Equipment ownership
documents which arrive after the date marked above by an asterisk
(*). Further, any sale-leaseback Equipment will be placed on
lease subject to: (1) Lessor prior approval of the Equipment; and
(2) if approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
---- ----------------------------------
<S> <C>
Between 02/29/97-05/30/97 100%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment from a
third party or Lessor will supply new or used Equipment from its
inventory for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
<PAGE> 15
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 5% of Lessor's original Equipment cost and upon
terms and conditions to be mutually agreed upon by the parties following
Lessee's written notice, plus any taxes applicable at time of purchase. Said
purchase price shall be paid to Lessor at least thirty (30) days before the
expiration date of the Initial Term or extended term. Title to the Equipment
shall automatically pass to Lessee upon payment in full of the purchase price
but, in no event, earlier than the expiration of the fixed Initial Term or
extended term, if applicable. If the parties are unable to agree on the purchase
price or the terms and conditions with respect to said purchase, then the
Summary Equipment Schedule with respect to this Equipment shall remain in full
force and effect. Notwithstanding the exercise by Lessee of this option and
payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
<PAGE> 16
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
FIRST VIRTUAL CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ J.O. Mitchell By: /s/ James P. Labe
Title: COO/CFO Title: JAMES P. LABE, PRESIDENT
COMDISCO VENTURES DIVISION
Date: 4/30/97 Date: 5/8/97
<PAGE> 17
EXHIBIT I
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
<TABLE>
<S> <C> <C>
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent.
----
6. Acceptance Doc Type:
-------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.12
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of April 30, 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 TWO HUNDRED FIFTY THOUSAND
AND 00/100 DOLLARS ($1,250,000.00) (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 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
1
<PAGE> 2
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
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).
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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 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
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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 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
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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 _____.
1.25 "Subordination Agreement" means 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 1
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.
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SECTION 2. THE LOAN
2.1 The outstanding principal amount of the Loan, together with interest
thereon precomputed at the rate of twelve (12%) percent per annum, shall be due
and payable in thirty six (36) 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 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
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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
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,
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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 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
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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 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
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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 (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.
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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.
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
September 1, 1997.
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;
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(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 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.
7.5 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,
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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 shy 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
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.
13
<PAGE> 14
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;
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.
14
<PAGE> 15
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
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.
15
<PAGE> 16
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, 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.
16
<PAGE> 17
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.
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: /s/ J.O. Mitchell
Print Name: James O. Mitchell
Title: COO/CFO
17
<PAGE> 18
Accepted in Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature: /s/ James P. Labe
Print Name: JAMES P. LABE, PRESIDENT
COMDISCO VENTURES DIVISION
Title:
18
<PAGE> 19
Exhibit A
SUBORDINATED PROMISSORY NOTE
$1,250,000 Date: May 2, 1997
Due: May 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 Two Hundred Fifty
Thousand and 00/100 Dollars ($1,250,000.00) 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) equal
monthly installments of principal and interest in the amount of $41,106.82 each,
commencing June 1, 1997 and on the same day of each month thereafter to and
including May 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 April 30, 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> 20
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
CERTAIN CONFIDENTIAL TREATMENT CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.13
[COMPANY LETTERHEAD]
BAY NETWORKS COMMUNICATIONS, INC.,
and
FIRST VIRTUAL CORPORATION.
ORIGINAL EQUIPMENT MANUFACTURING AGREEMENT
This Agreement is entered into as of this 3rd day of November, 1995, ("Effective
Date") by and between Bay Networks, Inc., a Delaware corporation having its
principal place of business at 4401 Great America Parkway, P.O. Box 58185, Santa
Clara, California, 95052-8185 ("Bay Networks"), and First Virtual Corporation
("First Virtual") having its principal place of business at 3393 Octavius Drive,
Suite 102, Santa Clara, CA 95054.
BACKGROUND
A. Bay Networks is engaged in the design, manufacture and sale of a wide
range of networking products including hubs, routers, switches and ATM
equipment.
B. First Virtual is engaged in the design, manufacture and sale of
multimedia networking products, including 25 Mb/s ATM switches, 25 Mb/s
ATM network interface cards and a multimedia operating system known as
'MOS'.
C. The parties wish to provide for the right and option of Bay Networks
to purchase private labeled versions of products, manufactured by First
Virtual, for resale by Bay Networks, as described in this Agreement.
AGREEMENT
Accordingly, in consideration of the mutual promises, rights and obligations
described in this Agreement, the parties agree as follows:
1. SCOPE OF WORK TO BE PERFORMED BY FIRST VIRTUAL.
1.1 PRIVATE LABELED PRODUCTS. First Virtual will design, test,
manufacture and support private labeled versions of the 25Mb/s modular ATM Media
Switch 11 models, the 25Mb/s ATM PCI and ISA Media Adapter Card models and
Multimedia Operating System models as described in Schedule A to this Agreement,
which have been modified to meet the requirements of the specifications attached
as Schedules B, C and D to this Agreement. The products are collectively
referred to in this Agreement as the "Private Labeled Products". Specifications
for private labeling is set forth in Schedule E. First Virtual shall deliver 2
working prototype units for use in Alpha, Beta and other testing. The price for
these units to Bay Networks will be equal to First Virtual cost of goods sold
("COGS").
<PAGE> 2
1.2 DOCUMENTATION. First Virtual will provide a complete set of the
applicable technical publications and illustrations which First Virtual ships
with the corresponding First Virtual products, as well as user documentation to
Bay Networks in an agreed upon format. Bay Networks will modify such
publications and will deliver master copies of this documentation to Bay
Networks standard printer or other printer designated by First Virtual. First
Virtual will purchase this documentation at a rate agreed upon between the
printer and First Virtual. First Virtual will acquire, pack and ship this
documentation with the applicable OEM product when such product is delivered to
Bay Networks. The complete documentation list is set forth in Schedule E.
1.3 PROJECT MANAGEMENT. First Virtual designates Douglas Tsui as the
First Virtual Project Manager and Bay Networks designates Jim Nielsen as the Bay
Networks Project Manager for this Agreement . The Project Managers, or their
representatives, shall meet on a regular basis throughout the development phase
of this Agreement for the purpose of joint progress reporting and
relationship/program management.
2. PURCHASE AND SALE OF PRIVATE LABELED PRODUCTS.
2.1 OPTION TO PURCHASE PRIVATE LABELED PRODUCTS; OBLIGATION TO SELL
PRIVATE LABELED PRODUCTS; EXCLUSIVE PURCHASE RIGHTS. Bay Networks may, at its
option, purchase Private Labeled Products, including products with the options
described in Schedules A, B, C and D from First Virtual for resale by Bay
Networks, directly and indirectly through its sales channels, by placing written
orders under this Agreement. Bay Networks has no obligation to order a minimum
amount of any type of Private Labeled Product. First Virtual agrees to
manufacture and deliver to Bay Networks Private Labeled Products in response to
all orders placed under this Agreement, provided that such orders comply with
the terms of this Agreement. First Virtual agrees not to sell Private Labeled
Products manufactured under this agreement to any other party without Bay
Networks' prior written consent.
2.2 LICENSE OF UPDATES TO MOS SOFTWARE FOR USE IN CONNECTION WITH SALE
OF MEDIA SWITCH EQUIPMENT. The parties acknowledge that the Private Labeled
Products encompass hardware and software. First Virtual grants Bay Networks the
right to reproduce as required, and distribute (directly and through its
distributors and resellers worldwide) all "bug fixes" to the Private Labeled
Products software provided under this Agreement, for use solely in connection
with the operation of the Private Labeled Products for the term of this
Agreement.
2.3 ORDERS FOR PRIVATE LABELED PRODUCTS. Each order placed by Bay
Networks for First Virtual equipment shall be governed by the terms of this
Agreement; conflicting or additional terms provided in any order by Bay Networks
or acknowledgment by First Virtual shall be of no effect unless specifically
accepted in writing by an authorized representative of Bay Networks and First
Virtual. Each order shall specify:
- Description of Private Labeled Products models and any options
(including applicable item numbers and part numbers)
- Purchase price
- Required Ship date
- Specified delivery schedule
- Addresses: "ship-to" and "invoice-to".
2.4 CANCELLATION OR POSTPONEMENT OF ORDERS. Bay Networks may cancel or
reduce the quantity of any order without liability on or before 60 days in
advance of the ship date specified in Bay Networks' order without cancellation
charge. Bay Networks may cancel, or
2
<PAGE> 3
reduce the quantity of any order on or before 30 to 59 days in advance of the
ship date specified in Bay Networks' order by paying First Virtual a
cancellation charge equal to 10% of the purchase price of the order canceled.
Bay Networks may postpone the delivery of any portion of an order one time for
up to 180 days without any liability by delivering written notice to First
Virtual on or before 60 days in advance of the ship date specified in Bay
Networks' order.
2.5 DELIVERY OF PRIVATE LABELED PRODUCTS IN RESPONSE TO ORDERS. In
general, orders shall be placed at least 90 days prior to the requested shipment
date. First Virtual will use all commercially reasonable efforts to deliver
Private Labeled Products to Bay Networks in the quantities ordered by Bay
Networks by the shipment date specified in Bay Networks' order and acknowledged
by First Virtual. The parties acknowledge that time is the essence of this
Agreement. For any order placed at least 90 days prior to the requested shipment
date, in the event that First Virtual fails to deliver Private Labeled Products
within the time period described in this subsection, Bay Networks shall be
entitled to a credit against the corresponding order in the amount calculated
from the table below applied against the quantity of Private Labeled Products
which was not delivered within the specified time period, subject to adjustment
as provided below:
<TABLE>
<CAPTION>
Actual delivery date Percentage of price credited
- ------------------- ----------------------------
<S> <C>
[*] days from shipment date No discount
specified in Bay Networks' order
[*] days from shipment date [*]
specified in Bay Networks' order
[*] or more days from shipment date [*]
specified in Bay Networks' order
</TABLE>
Bay Networks may choose to cancel at any time any order which remains
unfulfilled by First Virtual after 29 days from the shipment date specified in
Bay Networks' order. Private Labeled Product which is delivered but which does
not conform to the warranties and specifications described in this Agreement,
and which the non-conformance is not cured within five days after notice thereof
from Bay Networks, shall not be deemed to have been delivered for purposes of
this Section 2. First Virtual's obligations under this section shall be subject
to the provisions of Section 14.2 entitled "Failure and Delay".
2.6 PRICES; PAYMENT. Subject to adjustment as provided by this Section,
prices for the Private Labeled Products shall be those set forth in Schedule F,
less all applicable discounts. Prices include all costs of freight and insurance
as provided by this Agreement. All prices are exclusive of any tax levied or
based on the equipment, (collectively "Taxes"). Bay Networks shall pay such
Taxes (other than income and franchise taxes of First Virtual), or provide First
Virtual with a certificate of exemption acceptable to the appropriate taxing
authority. Payment for the Private Labeled Products shall be due within 30 days
of shipment, subject to acceptance of the products by Bay Networks as provided
for in this Agreement. For payment purposes, products will be deemed accepted
unless rejected within 30 days. Payment for all other charges shall be due
within 30 days of receipt of invoice, unless otherwise specified in this
Agreement.
2.7 SHIPMENT; CHANGES; TITLE; RISK OF LOSS. Private Labeled Products
shipped in response to Bay Networks' orders will be shipped F.O.B. Bay Networks'
manufacturing facility, Santa Clara County California. Title to the Acceptance
Tests and Procedures shall pass to Bay Networks upon acceptance of the
respective shipment of products. First Virtual shall bear risk of all loss,
damage and theft of products until delivered to Bay Networks' manufacturing
facility.
3
- ----------------------------
* CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 4
2.8 NON-BINDING ROLLING FORECAST. To assist First Virtual in delivering
Private Labeled Products, Bay Networks agrees to provide First Virtual monthly
with 6 month rolling forecasts for its projected orders for Private Labeled
Product. The provision of such forecast shall in no way bind Bay Networks to
actually place orders for any such quantities nor otherwise expose Bay Networks
to liability.
2.9 MINIMUM ORDERS FOR PRIVATE LABELED PRODUCTS. Nothing in this
Agreement shall be construed as requiring that Bay Networks order any specific
minimum amount of Private Labeled Product.
3. ACCEPTANCE.
3.1 TESTING AT FIRST VIRTUAL. The parties acknowledge the requirement
that the Private Labeled Products be supplied with as close to a "zero defect
rate" as is practically possible. Each Private Labeled Product is subject to
final inspection and acceptance at Bay Networks' facility within 30 days after
delivery. First Virtual will follow good manufacturing practices (equivalent to
IPC Class II for electrical assembly) utilizing materials, techniques, and
procedures which conform to industry standards. First Virtual will make
available to Bay Networks, upon request, information regarding First Virtual's
quality assurance procedures. Bay Networks may conduct and observe tests and
inspections at First Virtual' manufacturing plant if Bay Networks notifies First
Virtual one day in advance.
3.2 TESTING AT BAY NETWORKS. Bay Networks shall have the right to
perform the acceptance tests and procedures described in Schedule G
(collectively the "Acceptance Tests") to confirm that the Private Labeled
Product conforms to all criteria, specifications and warranties described in
this Agreement. First Virtual will provide Bay Networks with a complete set of
toplevel assembly drawings of the Bay Networks Private Labeled Product, which
Bay Networks may use in incoming inspection. If one or more pieces of Private
Labeled Product in a shipment fails to successfully pass the Acceptance Tests,
Bay Networks shall deliver a deficiency report to First Virtual promptly
following the completion of the acceptance period. First Virtual shall, in
response to such report immediately accept the return of and then repair or
replace the non-conforming Private Labeled Product so that it successfully
passes all Acceptance Tests, all at First Virtual's sole expense.
3.3 PAYMENT PRIOR TO ACCEPTANCE. Payment shall be made in accordance
with paragraph 2.6, however, payment prior to acceptance shall not constitute
acceptance. In the event that Bay Networks does not notify First Virtual in
writing of deficiencies in the Private Labeled Product within 30 days of receipt
thereof, the Private Labeled Product shall be deemed accepted. Exercise by Bay
Networks of its right to inspect and test any products shall not preclude or
limit Bay Networks' ability to assert any claim for breach of warranty.
4. WARRANTIES; REMEDIES.
4.1 FREE FROM DEFECTS. For the hardware components of this Agreement,
First Virtual warrants that each Private Labeled Product delivered to Bay
Networks shall be free from defects in material and workmanship for one year
after shipment to the corresponding end-user customer, but in no event later
than 18 months from delivery to Bay Networks (the "Warranty Period"), and shall
conform to the designs and specifications described in the Schedules to this
Agreement. For the software components of this Agreement the warranty is 90 days
on the media only.
4
<PAGE> 5
4.2 TESTING. First Virtual warrants that it will test each and every
Private Labeled Product to ensure conformance to the design and specifications
referenced in the Schedules before delivery to Bay Networks. First Virtual
warrants that during the Warranty Period the Private Labeled Products delivered
under this Agreement will successfully pass the diagnostic tests devised by Bay
Networks, and meet all quality standards described in Schedule G, Quality
Standards.
4.3 FREE FROM LIENS, POWER TO PERFORM. First Virtual warrants that the
Private Labeled Products delivered under this Agreement shall be free from all
liens, encumbrances and restrictions or will advise Bay Networks of restrictions
under First Virtual's license agreements with other third parties. First Virtual
warrants that it has all rights and powers necessary to performs its obligations
under this Agreement and to grant the licenses and other rights provided to Bay
Networks by this Agreement.
4.4 SERVICES. First Virtual warrants that all services performed under
this Agreement will be performed in a professional manner and in accordance with
the applicable specifications under this Agreement.
4.5 REMEDIES. If Bay Networks discovers a defect or non-conformance
during the Warranty Period, Bay Networks shall promptly notify First Virtual of
any non-conforming material to obtain a Return Material's Authorization number
("RMA"). First Virtual agrees to accept the return of Private Labeled Products
that Bay Networks determines does not meet the warranties described in this
Section. Upon Bay Networks' receipt of the RMA, Bay Networks shall cause the
return of the non-conforming Private Labeled Product to First Virtual. Upon its
receipt, First Virtual shall promptly either repair or replace it, at First
Virtual's option and cost. Properly repaired or replaced Private Labeled Product
shall promptly be delivered to Bay Networks and the Warranty Period therefor
shall continue for 90 days following delivery of the returned Private Labeled
Product to Bay Networks or the balance of the Warranty Period, whichever is
longer. First Virtual shall bear the cost for shipment of products for warranty
repair from and to Bay Networks' Santa Clara County manufacturing facilities. If
the defect is attributable to a problem with software, First Virtual shall
promptly provide Bay Networks with a suitable patch, fix or work-around
sufficient to enable the Private Labeled Product to operate in accordance with
this Agreement. These remedies are in addition to any others which may be
provided by this Agreement or by law.
4.6 LIMITATIONS. This warranty does not include damages due to
inadequate operating environment, accident, disaster, neglect, abuse, misuse, or
alterations made without approval by First Virtual. THE FOREGOING WARRANTIES ARE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE.
4.7 AFTER WARRANTY REPAIRS. First Virtual shall provide repairs of
Private Label Products returned outside of the warranty period for a unit cost
of 30% of the current Bay Networks US list purchase price of the relevant piece
of equipment.
5. TECHNICAL ASSISTANCE, SUPPORT AND TRAINING.
5.1 TECHNICAL ASSISTANCE. First Virtual shall provide Bay Networks with
the technical assistance and maintenance support as is more specifically
described in Schedules H. The parties anticipate that Bay Networks or its
resellers and maintenance co-providers will perform "first call" maintenance for
Private Labeled Products delivered to end-users in accordance with this
Agreement, and that First Virtual will provide "factory level" support to Bay
Networks to enable it to perform satisfactory maintenance of the Private Labeled
Product for Bay Networks' customers.
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Bay Networks shall have the right to return to First Virtual Private Labeled
Product which is out of the Warranty Period and which has failed for repair or
replacement by First Virtual at the rates described in Section 4.7. In addition,
Bay Networks shall have the right to obtain consulting services from First
Virtual to generally assist in the enhancement of the Private Labeled Products
and in the development of technology intended to operate in conjunction with the
Private Labeled Products, at the rates described in Schedule F.
5.2 TRAINING. First Virtual shall provide Bay Networks with training as
is more specifically described in Schedules I, including a general introduction
to the First Virtual products and detailed training on the Private Labeled
Products and updates, sales and support training.
6. REFERENCE SELLING OF PRODUCTS.
6.1 FIRST VIRTUAL REFERENCE SELLING. First Virtual will reference sell
the products of Bay Networks. This will allow First Virtual to position a
complete solution including both Bay Networks and First Virtual equipment with
end user customers. First Virtual will acquire Bay Networks product through the
existing Bay Networks distribution channel.
6.2 BAY NETWORKS REFERENCE SELLING. Bay Networks will reference sell the
products of First Virtual other than the Private Labeled Products. This is
intended to allow the Bay Networks direct sales force and channel access to a
complete solution for our end user customers. First Virtual or its resellers
will provide sales support to Bay Networks as available to enable Bay Networks
to be effective in this process.
7. LIMITED EXCLUSIVITY; INDEMNIFICATION; PROPRIETARY RIGHTS.
7.1 LIMITED EXCLUSIVITY. First Virtual agrees to refrain from making
disclosure to any party or any public announcement regarding joint sales,
marketing, OEM or private label agreements with the following networking vendors
for the 90 days following the execution of this Agreement: Cabletron Systems,
Inc., Cisco Systems, Inc., Hewlett Packard Company, International Business
Machines Corporation, 3Com Corporation and Fore Systems, Inc.
7.2 INDEMNIFICATION BY FIRST VIRTUAL. First Virtual will defend at its
own expense any action brought against Bay Networks, to the extent that it is
based on a claim by a third party (i) that the Private Labeled Products
infringes a patent or copyright, or contains misappropriated trade secrets, or
(ii) which is based upon the use, operation or performance of the Private
Labeled Products, anywhere in the world, and will pay any costs and damages
finally awarded against Bay Networks in any such action which are attributable
to any such claim. First Virtual's obligations under the preceding are subject
to the conditions that: (i) Bay Networks promptly notifies First Virtual in
writing of any such claim, and (ii) First Virtual will have sole control of such
defense and all negotiations for any settlement or compromise, although Bay
Networks may participate in the same at its expense. If First Virtual receives
notice of an alleged infringement or if use of any product shall be prevented by
an injunction based on alleged infringement, First Virtual shall have the right,
at its option to (i) obtain the rights to continue use of such product or
technology, (ii) substitute other suitable Private Labeled Product, software
and/or technology or (iii) modify such product so that it is no longer
infringing. First Virtual shall have no liability to Bay Networks, or its
distributors or end-user customers with respect to any claim of patent,
copyright, or any other intellectual property right infringement which (i)
arises solely from the combination or utilization of the product with any item
of hardware with any machine, device, computer or software not furnished or
approved by First Virtual Corporation, (ii) based upon a product which has been
used in a manner for which it was not designed, (iii) use of a superseded or
altered release of a product if such infringement would have been avoided by the
use of current unaltered
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releases of the product that First Virtual provides to distributor or its
end-user customers or dealers, or (iv) components or software which are licensed
to First Virtual Corporation.
7.3 INDEMNIFICATION BY BAY NETWORKS. Bay Networks will defend at its own
expense any action brought against First Virtual by a third party, to the extent
that it is based on promises or assertions made by Bay Networks to a third party
in excess of its authority under this Agreement or to the extent that Bay
Networks expands the liability of First Virtual beyond that provided in First
Virtual's standard terms and conditions provide by First Virtual to Bay Networks
to provide to customers or to the extent the claim is based on specifications
provided by Bay Networks to First Virtual. Bay Networks' obligations under the
preceding are subject to the conditions that: (i) First Virtual promptly
notifies Bay Networks in writing of any such claim, and (ii) Bay Networks will
have sole control of such defense and all negotiations for any settlement or
compromise, although First Virtual may participate in the same at its expense.
7.4 PROPRIETARY RIGHTS OF BAY NETWORKS. Bay Networks reserves all
proprietary rights in all original works, computer programs, discoveries,
inventions, patents, know-how, techniques, designs, maskworks, engineering
details and other data developed by Bay Networks, including all information
relating to the network management interface circuitry and technology disclosed
to First Virtual by Bay Networks.
7.5 PROPRIETARY RIGHTS OF FIRST VIRTUAL. First Virtual reserves all
proprietary rights in all original works, computer programs, discoveries,
inventions, patents, know-how, techniques, designs, maskworks, engineering
details and other data developed by First Virtual Corporation, including all
information relating to the network management interface circuitry and
technology disclosed to Bay Networks by First Virtual Corporation.
8. ENGINEERING CHANGES.
8.1 REQUIRED CHANGES. First Virtual reserves the right to make
engineering changes at any time to the Private Label Products (i) which do not
adversely impact the operation of the Private Label Products with Bay Networks
systems, (ii) which are necessary to comply with changed safety or environmental
standards and other governmental regulations, (iii) which are necessary to make
the product non-infringing with respect to any patent, copyright or other
proprietary interest, or (iv) which are for the purpose of improving the
quality, reliability or manufacturability of the Private Label Products,
provided that all such changes reflect changes being made by First Virtual
simultaneously to the corresponding First Virtual standard products.
8.2 NOTICE OF CHANGES. First Virtual will notify Bay Networks' project
manager by electronic mail or facsimile of all planned permanent or temporary
changes to the Private Label Products which impact form, fit or function, or
safety, environmental or other governmental compliance of the Private Label
Products. The notice will include a summary of the expected impact of any such
planned change on the above listed characteristics of the Private Label
Products.
8.3 ACCEPTANCE OF CHANGE. Within 10 business days after receipt by Bay Networks
of notification of a planned change, Bay Networks shall either accept the
proposed change or request additional information regarding the same. Within 5
business days after receipt by First Virtual of a request by Bay Networks for
additional information, First Virtual will provide additional documentation
and/or direct consultation to Bay Networks regarding the planned change. Should
Bay Networks fail to either accept the proposed change or request additional
information from First Virtual regarding the same within such ten day period
after notification, the proposed change will be deemed to have been accepted by
Bay Networks as of the end of such ten
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day period. Bay Networks shall not unreasonably withhold its acceptance of any
changes planned by First Virtual.
8.4 EFFECTIVE DATE OF CHANGE. If the change is accepted by Bay Networks,
the effective date thereof will be established by First Virtual but in no event
shall such effective date be earlier than 10 days after the date of acceptance
of the change by Bay Networks. If the proposed change is not acceptable to Bay
Networks, the parties will meet within 5 working days after receipt by Bay
Networks of the additional information and/or consultation provided pursuant to
Section 8.3 above, to attempt to reach a resolution through good faith
negotiations. It should be noted that the intent of this agreement is to produce
Private Label Product that is as far as practicable identical to First Virtual
product except as provided for in Schedules B, C and D.
9. UPGRADE OF TECHNOLOGY
9.1 NOTICE. First Virtual will notify Bay Networks of upgrades of
technology for corresponding First Virtual standard products not otherwise
included as engineering changes in accordance with Section 8. If requested by
Bay Networks, subject to this Section 9, such upgrades will be incorporated in
Private Label Products available for shipment within 90 days of when such
upgrades are incorporated in corresponding First Virtual standard products.
9.2 MATERIAL MODIFICATIONS. The above 90 day period shall not apply if
Bay Networks requests material modifications to an upgrade other than to the
extent necessary to enable the upgrade to be incorporated in the Private Label
Products. Pricing of any material modifications to the Private Label Products
will be agreed to by First Virtual and Bay Networks.
9.3 CHARGES FOR UPGRADES. If such upgrades or enhancements are provided
to other customers at no additional charge, there will be no increase in the
unit price for products under this Agreement. If First Virtual charges its other
customers for such upgrades, First Virtual shall only be required to provide
such upgrades to Bay Networks upon agreement with Bay Networks regarding an
increased unit price. It should be noted that the intent of this agreement is to
produce Private Label Product that is as far as practicable identical to First
Virtual product except as provided for in Schedules B, C and D.
10. SUPPLY OF PRODUCT AND SPARES
10.1 END-OF-LIFE PURCHASES. In the event of termination or expiration of
this Agreement, Bay Networks will be entitled, at its option, to place a
non-cancelable order for a "life cycle purchase" of the Private Label Products
at least 15 days prior to the effective date of such termination or expiration,
for delivery within 180 days after the effective date of Agreement termination
or expiration.
10.2 AVAILABILITY OF PRODUCT AND SPARES. First Virtual will make
available to Bay Networks spare, replacement, and maintenance parts necessary to
enable Bay Networks to support the Private Label Products for a period of at
least five years after the date of the last delivery of the product to Bay
Networks. First Virtual will make these parts available to Bay Networks at
prices that are at least as low as the prices being charged to First Virtual's
other customers with similar terms and conditions.
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11. BACK-UP MANUFACTURING LICENSE
11.1 MANUFACTURING LICENSE. First Virtual grants to Bay Networks a
non-exclusive license to manufacture or have manufactured for Bay Networks the
Private Label Products for the term of this Agreement; provided that such
license shall be exercisable only in the event that First Virtual becomes
bankrupt or insolvent, makes a general assignment for the benefit of creditors,
or if a receiver is appointed to take possession of any part of First Virtual's
assets. As further conditions to the exercise of the license under this
paragraph, Bay Networks (1) shall pay to First Virtual an appropriate license
fee and/or royalty, to be negotiated in good faith, for the license pursuant to
this paragraph, and (2) shall purchase from First Virtual all quantities of
Private Label Products then ordered.
11.2 DELIVERY OF DOCUMENTATION. Within 60 days after the license granted
pursuant to Section 11.1 becomes exercisable, First Virtual shall deliver to Bay
Networks all documentation and other information necessary, desirable or
appropriate to enable a reasonably skilled party to manufacture Private Label
Products complying with the specifications. These materials shall include the
particular items in use at that time, without limitation:
1. Bill of materials and vendor listing
2. Assembly drawing(s)
3. Schematics
4. Printed circuit fabrication drawing
5. Printed circuit mechanical layout
6. Printed circuit film
7. CAD Tape
8. Functional description
9. Engineering test report
10. Engineering design specification
11. Manufacturing procedures, work instructions and test procedure
Thereafter, but only during the term of this Agreement, in response to
requests from Bay Networks, First Virtual shall deliver to Bay Networks
revisions and updates to the foregoing information in order to permit Bay
Networks to manufacture or have manufactured Private Label Products which are as
current as the most current versions of the First Virtual standard products. All
information delivered by First Virtual to Bay Networks under this Section 11
shall be deemed to be Proprietary Information belonging to First Virtual for
purposes of Sections 12 and 7.5.
11.3 SCOPE OF LICENSE. The license granted under Section 11.1 shall be
deemed to be a license of all of First Virtual's proprietary rights in the
Private Label Products and in the materials described in Section 11.2, whether
such rights arise under patents, issued or which may issue, copyrights, maskwork
rights or trade secrets. Bay Networks' license rights are limited to, and may be
exercised solely for the purpose of, manufacturing the Private Label Products,
but such rights shall include the right to grant sub-licenses to Bay Networks'
manufacturing affiliates. The license granted under this Section 11 shall
terminate upon termination of this Agreement.
12. CONFIDENTIAL INFORMATION.
12.1 CONFIDENTIAL AND PROPRIETARY INFORMATION. The parties understand
that each will disclose to the other in connection with this Agreement, certain
of its proprietary or confidential information which is to be protected in
accordance with the terms of this Agreement.
12.2 DEFINITION. The term "Confidential Information" as used herein shall mean
any and all information disclosed by a party in written or other tangible form
which is clearly marked as
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being confidential or proprietary information of the party; oral information
designated as confidential by the disclosing party at the time of disclosure and
summarized and identified as being confidential in writing within 30 days after
disclosure; or any other information of the kind which is commonly considered to
be confidential in nature. In addition First Virtual and Bay Networks anticipate
that they may exchange information about their respective marketing and sales
plans and strategies, and about specific, potential business opportunities, all
of which shall be deemed confidential information and subject to the obligations
described in this Section.
12.3 OBLIGATIONS. The party receiving Confidential Information shall (i)
maintain it in confidence and shall not disclose it to anyone other than its
employees or others acting under its control, (ii) use at least the same degree
of care to maintain its secrecy as the party uses in maintaining the secrecy of
its own proprietary, confidential and trade secret information, (iii) always use
at least a reasonable degree of care in maintaining its secrecy, (iv) use it
only for the purpose of performing its obligations under this Agreement, and (v)
deliver to the other party, upon request, all copies, notes, diagrams, computer
memory, media or other materials containing any portion of the other party's
Confidential Information.
12.4 LIMITATIONS. Neither party shall have any obligation concerning
that part of the other's Confidential Information which (i) was known to it
before its receipt from the other party without an obligation of
confidentiality, (ii) is lawfully obtained from a third party under no
obligation of confidentiality, (iii) becomes publicly available other than as a
result of an act or failure to act of the receiving party, (iv) is independently
developed by the receiving party, (v) is required to be disclosed pursuant to a
legal, judicial or administrative proceeding, or (vi) is disclosed by the
receiving party with the other party's written permission. Neither party will
disclose any part of the other party's Confidential Information to anyone except
those of its employees or contractors having a need to know the same in order to
accomplish the purposes of this Agreement and who have, before receiving access
to the information, acknowledged its confidential, proprietary and/or trade
secret nature and have agreed to be bound by the terms of this Section.
12.5 REMEDIES. If any part of a party's Confidential Information is
wrongfully disclosed or used then, in addition to the remedies provided by this
Agreement or by law, the party which provided the Confidential Information will
be entitled to an injunction preventing further disclosure or use of the
information by the other party or by any third parties to whom the Confidential
Information has been wrongfully disseminated.
13. TERM AND TERMINATION.
13.1 TERM. Unless earlier terminated in accordance with its terms, this
Agreement shall commence upon the Effective Date and continue for a period of 2
years.
13.2 TERMINATION. Should either party: (a) cease conducting business in
the normal course, become insolvent or bankrupt, make a general assignment for
the benefit of creditors, become generally unable to pay its debts as they
become due, suffer or permit the appointment of a receiver for its business or
assets, become subject to any levy, seizure, attachment or execution against it
or become subject to any proceeding under any statute of any governing authority
relating to insolvency or the protection of rights of creditors; or (b) fail to
perform any obligation required to be performed under this Agreement for a
period of 30 days after receipt of notice from the other party of such failure;
then such other party shall have the right to terminate this Agreement
immediately by giving written notice to the other of its election to do so. The
foregoing rights of termination are in addition to all other rights and remedies
provided in this Agreement or by law Should Bay Networks fail to pay any sum
when due under this Agreement, then if such failure continues for a period of
fifteen days after receipt of notice from First Virtual of such failure, First
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Virtual shall have the right to terminate this Agreement immediately by giving
written notice to Bay Networks of its election to do so. The foregoing rights of
termination are in addition to all other rights and remedies which may be
provided under this Agreement or by law.
13.3 TERMINATION ON FAILURE OF PRODUCT OR SYSTEM. Bay Networks will
conduct testing of the First Virtual products and of the behavior of the First
Virtual products as a component of a larger system involving Bay Networks
products. If the First Virtual products fails to operate in the manner desired
by Bay Networks, as a stand alone product or part of a system, then Bay Networks
may terminate this contract by providing 30 days notice of such intention to
terminate to First Virtual.
14. GENERAL PROVISIONS.
14.1 NOTICES. Any notices required to be given under this Agreement
shall be in writing and sent to the address of the appropriate party indicated
on the first page of this Agreement or to such other address as may have been
substituted by written notice. All such notices sent to Bay Networks shall be
addressed "Attention: Director, ATM Business Unit" with a copy to "General
Counsel".
14.2 FAILURE AND DELAY. Except as expressly provided in this Agreement
neither party shall be liable for its failure or delay in performance of its
obligations under this Agreement due to strikes, wars, revolutions, fires,
floods, explosions, earthquakes, government regulations, or other causes beyond
its control.
14.3 FOREIGN RESHIPMENT. This Agreement is made subject to all laws,
regulations, orders or other restrictions on the export from the U.S.A. of
products, documentation, or of other information about products, which may be
imposed from time to time. Neither party shall export, directly or indirectly,
any such products or information to any country for which an export license or
other governmental approval is required at the time of export without first
obtaining such license or approval.
14.4 ASSIGNMENT. This Agreement may not be assigned by either party
without prior written permission from the other. Any attempt by a party to
assign any right, or delegate any duty or obligation which arises under this
Agreement, without such permission, will be voidable.
14.5 WAIVER, AMENDMENT OR MODIFICATION. Any waiver, amendment or
modification of any right, remedy or other term under this Agreement will not be
effective unless in writing and signed by the party against whom enforcement is
sought.
14.6 LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE
FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES OR LOST PROFITS
OR COSTS OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY ARISING OUT OF THIS
AGREEMENT OR ANY PROVISION HEREOF, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
14.7 RELATIONSHIP OF THE PARTIES; COSTS. The parties are each
independent contractors. No agency relationship between Bay Networks and First
Virtual is created by this Agreement. Neither party shall have any right or
authority to act on behalf of the other and neither party will represent that it
has such right or authority. Except as expressly provided in this Agreement,
each party shall bear its own costs in connection with the performance of it
obligations.
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14.8 PUBLICITY; MUTUAL APPROVAL. The parties acknowledge the importance
of maintaining as confidential the existence and terms of this Agreement, and
the business relationship it reflects. Neither party shall disclose the
existence or terms of this Agreement to any third party without the written
consent of the other party. All publicly distributed materials prepared by
either party that mention the other party, the products of the other party, or
this Agreement, shall be approved by both parties in writing before publication.
14.9 ENTIRE AGREEMENT; GOVERNING LAW. This Agreement, including its
schedules, constitutes the entire agreement between parties with respect to its
subject matter and shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
BAY NETWORKS, INC. FIRST VIRTUAL CORPORATION
By: /s/ Ronald V. Schmidt By: /s/ Ralph Ungermann
Name: Ronald V. Schmidt Name: Ralph Ungermann
Title: Chief Technical Officer Title: CEO
Date: November 3, 1995 Date 11/3/95
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INDEX TO SCHEDULES
Schedule A: Complete list of product that is the subject of this OEM agreement
Schedule B: Specifications of the Bay Networks Private Label Media Switch II
Schedule C: Specifications of the Bay Networks Private Label Media Adapter
Schedule D: Specifications of the Bay Networks Private Label 'MOS'
Schedule E: Private Labeling Specification
Schedule F: Pricing
Schedule G: Quality Standards
Schedule H: Support Services
Schedule I: Training
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Schedule A
COMPLETE LIST OF FIRST VIRTUAL PRODUCT THAT BAY NETWORKS INTENDS TO OEM
(I) Media Switch II
MS-BASE-FLEX Modular 8 x 25 Ports, 2 x 155 Ports,
I x Ethernet Port & Console Port
SDC-4A25 Daughter Card 4 x ATM 25 Mb/s Ports
MS-SNMP SNMP Agent for MS-BASE-FLEX
(II) Media Adapters
MA-PCI-BA25 PCI bus Modular Adapter
MA-ISA-BA25 ISA bus Modular Adapter
(III) Multimedia Operating System
MOS-1 Single User MOS
MOS-10 10 User MOS
MOS-30 30 User MOS
MOS-100 100 User MOS
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Schedule B
SPECIFICATION FOR THE BAY NETWORKS PRIVATE LABEL
MEDIA SWITCH II
1. The specific model Media Switch II that forms the 'base' of this Bay Networks
specific version is the First Virtual part # MS-BASE-FLEX. It consists of a
double height enclosure with various empty slots. The bottom slot row shall
contain two 4 x 25Mb/s ATM modules, one 2 x OC-3 ATM module, one Ethernet module
(also supporting management and console connection). The top slot row shall be
empty and covered by the appropriate face plates.
2. Also available to complete the above system shall be a separate 4 x 25Mb/s
ATM module (First Virtual part #SDC-4A25). A fully populated Media Switch II
shall be able to support a total of 20 25Mb/s ATM ports in five discreet
modules.
3. The Bay Networks OEM version of the First Virtual Media Switch II shall be
identical in all respects to standard product shipped by First Virtual, and from
time to time modified or enhanced by First Virtual in the normal course of
business except that:
a. The Media Switch II shall be painted in the standard Bay Networks corporate
colors.
b. The Media switch II shall bear the standard Bay Networks corporate logo in
standard corporate logo colors
C. The Media Switch II shall bear the Bay Networks name for the Media Switch II
on the front panel.
d. The Media Switch II will be packaged in the standard packaging of Bay
Networks.
e. The Media Switch II will be supplied with complete standard documentation
reformatted for Bay Networks use. The documentation will not be changed except
that all references to First Virtual shall be changed to Bay Networks as
appropriate, covers and design to be standard Bay Networks layout.
f. The Media Switch shall be equipped with MAC address chips that conform to the
standard Bay Networks MAC addressing range to facilitate simple identification
and management.
4. The Media Switch II shall support:
a. UNI 3.0 signaling from FCS until August 1996
b. UNI 3.1 signaling from June 1996 until August 1997
c. UNI 4.0 signaling from June 1997 until product EOL.
d. IISP from March 1996 until product EOL
e. PNNI from March 1997 until product EOL.
5. First Virtual will undertake to provide a complete SNMP graphical management
application to support all aspects of management and configuration of the First
Virtual switch. This application will support operation on all three of the
following platforms: SunNet Manager, HP OpenView and IBM Netview 6000. First
Virtual understands that this management application is required as a part of
its general access to the marketplace, and is not developed specifically for
this Bay Networks Agreement. The general purpose SNMP graphical application is
agreed to be available on all three platforms no later that June 30, 1996.
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6. First Virtual will undertake to incorporate Bay Networks MIB information into
the 'Private Label Manufactured' versions of the Media switch II's that will
allow the automatic discovery of the First Virtual switches and subsequent
placement on a topology map for the purpose of launching the above application
with respect to a particular switch (Bay Networks Sphere Topology). First
Virtual understands that this development will be a key aspect of the value
added solution that Bay Networks will provide to the marketplace. The
incorporation of software into the First Virtual switch to allow the automatic
discovery as outlined above shall be fully implemented no later that June 30,
1996. Bay Networks will provide all information required for First Virtual to
commence this development no later than October 31st, 1995. For each day after
October 31st. 1995 that Bay Networks fails to provide the required information,
First Virtual will have an additional day after June 30th, 1996 to complete the
development process.
7. First Virtual will work with Bay Networks to ensure that the LEC client
software on all supplied ATM NIC cards interoperates fully with the LAN
Emulation software produced by Bay Networks. Bay Networks will make all
reasonable attempts to ensure that its LANE software complies with the relevant
specifications of the ATM Forum.
8. First Virtual will ship the Bay Networks version of the Media Switch II with
the MS-SNMP (SNMP agent for the Media Switch II) packaged with each supplied
Media switch II.
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Schedule C
SPECIFICATION FOR THE BAY NETWORKS PRIVATE LABEL
MEDIA ADAPTER
1. The Bay Networks OEM version of the First Virtual 25Mb/s ATM Media Adapter
shall be identical in all respects to standard product shipped by First Virtual,
and from time to time modified or enhanced by First Virtual in the normal course
of business except that:
a. The First Virtual 25Mb/s ATM Media Adapter will be packaged in the standard
packaging of Bay Networks Private Labeled Product
b. The First Virtual 25Mb/s ATM Media Adapter will be supplied with complete
standard documentation reformatted for Bay Networks use. The documentation will
not be changed except that all references to First Virtual shall be changed to
Bay Networks as appropriate, covers and design to be standard Bay Networks
layout.
c. The First Virtual 25Mb/s ATM Media Adapter driver software will be supplied
on diskettes bearing the standard Bay Networks diskette labeling.
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Schedule D
SPECIFICATION FOR THE BAY NETWORKS PRIVATE LABEL
MOS: MULTIMEDIA OPERATING SYSTEM
The Bay Networks OEM version of the First Virtual MOS shall be identical in all
respects to standard product shipped by First Virtual, and from time to time
modified or enhanced by First Virtual in the normal course of business except
that:
a. The First Virtual MOS will be packaged in the standard packaging of Bay
Networks Private Labeled Product
b. The First Virtual MOS will be supplied with complete standard documentation
reformatted for Bay Networks use. The documentation will not be changed except
that all references to First Virtual shall be changed to Bay Networks as
appropriate, covers and design to be standard Bay Networks layout.
c. The First Virtual MOS software will be supplied on diskettes bearing the
standard Bay Networks diskette labeling.
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Schedule E
PRIVATE LABELING SPECIFICATION
Bay Networks shall provide engineering drawings, camera-ready artwork
film, and all other materials and instructions necessary to manufacture,
product labels and shipping boxes without supplemental documentation.
All Bay Networks Private Labeled Products delivered by First Virtual
shall comply with the following specifications regarding the private
labeling by First Virtual:
a) Bay Networks Private Labeled Product labels will bear the logos, trade
names and trademarks of Bay Networks as specified by Bay Networks. No
First Virtual logos, trademarks and trade names will be externally
visible on installed Bay Networks Private Labeled Products. Bay Networks
agrees not to affix any labels containing First Virtual logos,
trademarks or trade names to the Bay Networks Private Labeled Products.
b) Preprinted boxes with Bay Networks logos will be provided by First
Virtual and used for packaging the Bay Networks Private Labeled Product.
These individual product boxes must be placed within larger protective
shipping boxes for transit from First Virtual to Bay Networks.
c) Boxes containing the Bay Networks Private Labeled Product will include
Bay Networks versions of the appropriate Bay Networks Private Labeled
Product hardware installation manuals and documentation provided by
First Virtual as described in the Agreement and this Schedule, and
end-user warranty cards provided by Bay Networks.
d) The following documentation will be included with the Private Labeled
Products.
Media Switch: Installation and Configuration Guide
MOS: Installation and Configuration Guide
NIC Cards: Installation and Configuration Guide
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Schedule F
PRICING
PRODUCT PRICING
PRICING FOR OEM VERSION OF THE MEDIA SWITCH II AND OTHER ATM 25MB/S SWITCHES:
First [ * ] Units: [ * ] off the prevailing First Virtual List (Units [ * ])
Next [ * ] Units: [ * ] off the prevailing First Virtual List (Units [ * ])
Next [ * ] Units: [ * ] off the prevailing First Virtual List (Units [ * ])
Over [ * ] Units: [ * ] off the prevailing First Virtual List (Units [ * ])
PRICING FOR THE OEM VERSION OF THE OPTIONAL 25Mb/S MODULES:
This shall be at the discount level in effect for the above switches when the
order for the Optional 25Mb/s modules is placed.
PRICING FOR THE SNMP AGENT FOR THE SWITCH:
This shall be at the discount level in effect for the above switches when the
order for the SNMP agent is placed.
PRICING FOR OEM VERSION OF THE 25Mb/S ATM NETWORK INTERFACE CARDS: [ * ] off
the prevailing First Virtual List
PRICING FOR OEM VERSION OF THE MULTIMEDIA OPERATING SYSTEM: [ * ] off the
prevailing First Virtual List
PRICING FOR ALL OTHER FIRST VIRTUAL PRODUCT FOR RESALE TO OTHERS: [ * ] off the
prevailing First Virtual List
PRICING FOR BAY NETWORKS DEMONSTRATION SYSTEMS FOR TESTING, TRAINING AND SUPPORT
REQUIREMENTS: [ * ] for up to 100 switch units in the first year following the
execution of this Agreement. These units will not be used in calculating
discounts set forth above.
PRICING FOR ALL OTHER FIRST VIRTUAL CONSULTING SERVICES IF REQUIRED BY BAY
NETWORKS FOR THE PURPOSES OF SECTION 5.1: Engineer: [ * ], Lead Engineer [ * ],
Manager [ * ].
NON RECURRING ENGINEERING
GENERAL CUSTOM WORK AS DESCRIBED IN THESE SCHEDULES: [ * ] - Payable 30
days after signing this Agreement.
IMPLEMENTATION OF THE BAY NETWORKS SPHERE TOPOLOGY MIB FOR THE PURPOSES OF
`AUTODISCOVERING' THE FIRST VIRTUAL SWITCH: [ * ] - Payable [ * ] on delivery
of the [ * ] and [ * ] on acceptance of the [ * ]
GRAPHICAL USER INTERFACE DEVELOPMENT: [ * ] - Payable [ * ] on acceptance of
[ * ] on acceptance of the [ * ]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
20
<PAGE> 21
Schedule G
BAY NETWORKS QUALITY WORKMANSHIP STANDARDS
1. Color, texture and workmanship of any sheet metal shall meet the requirements
of Bay Networks Procedure QAI-001-D. If the First Virtual procures sheet metal
from a supplier not listed on Bay Networks AVL, paint chips will be provided to
First Virtual by Bay Networks and shall be used as minimum acceptable, maximum
acceptable and preferred criteria for paint shade and texture.
2. Bare printed wiring boards shall meet the workmanship requirements of
ANSI/IPC-A- 600D, Class 2.
3. Printed circuit assemblies shall meet the requirements of ANSI/IPC-A-610A,
Class 2 for plated through hole technology. Printed circuit assemblies with
surface mount devices shall meet the requirements of SMT/Fine Pitch Technology
Workmanship Guidelines, Class 2, published by Phil P. Marcoux (PPM Associates).
The SMT Workmanship Guidelines will be provided to First Virtual by Bay
Networks.
4. First Virtual Corporation's product shall be subject to Bay Networks Quality
Assurance Procedure (QAP-019-A), which outlines the sample inspection plan and
qualification requirements for First Virtual Corporation's product to meet
"Dock-to-Stock" status
5. First Virtual must document and execute testing strategy that achieves a 95%
confidence level of no greater than 0.5% infant mortality of the finished
product. The test strategy shall include stress testing to validate the
functional design requirements as well as demonstrating the infant mortality
rate.
6. Bay Networks reserves the right to audit the First Virtual Corporation's
production or subcontract facilities to observe the manufacturing processes and
inspect product designated for use as specified in this agreement.
7. It is preferred (but not required) that the First Virtual be in compliance
with ISO 9002 (International Quality Assurance Management System Standard for
Production and Installation).
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<PAGE> 22
SCHEDULE H
SERVICE AND SUPPORT SERVICES
GENERAL
The availability of support for the Bay Networks Private Label 25Mb/s ATM
products from First Virtual shall continue for at least the lesser of:
(i) Five years after a product is removed from the Bay Networks price list.
(ii) Five years after a base product is removed from the First Virtual
Corporations price list.
TECHNICAL SUPPORT
Bay Networks Customer Service Organization shall have direct access to technical
support from First Virtual Corporation. Bay Networks shall define up to four
people who shall have this direct technical support access. The Director of Bay
Networks Technical Operations will modify the personnel list as is time to time
required.
ESCALATION PROCESS
First Virtual will provide access to the technical support resources sufficient
to effect their support responsibilities under this agreement for a minimum of
five days a week 8 hours a day (5 X 8). Technical information requests from Bay
Networks must be responded to within two (2) hours. Escalations shall generally
follow this path:
FIRST EVENT: The end-use customer or Bay Networks business partner calls
Bay Networks to report a problem with the First Virtual Private Label
equipment.
SECOND EVENT: Bay Networks attempts to solve the problem using its
internal support resources.
THIRD EVENT: Bay Networks escalates the problem if unsolved at Second
Event to higher level internal technical support
FOURTH EVENT: Bay Networks escalates the problem if unsolved at Third
Event to First Virtual technical support.
In the event of failure of the general escalation process to resolve the
technical problems with the Bay Networks Private Label Product, First Virtual
shall provide on-site technical support capable of identifying/isolating any
design deficiency of First Virtual product or interoperability problem with Bay
Networks products or other third party products. If requested by Bay Networks
following the failure to resolve a technical problem, First Virtual shall
provide technical support to a location determined by Bay Networks (but within
the USA) within two business days.
MTBF
First Virtual will provide actual field MTBF numbers for the Private Label
25Mb/s product set assembly and subassembly modules.
MTTR
First Virtual will provide restoral times and demonstrate the capability to
perform fault isolation to the field replaceable parts of the Private Label
Products. First Virtual shall demonstrate the ability to satisfactorily use
applicable product, technology, tools and test equipment to maintain the
22
<PAGE> 23
equipment. For equipment which Bay Networks will install and maintain First
Virtual must demonstrate that MTTR objectives can be met.
MTTI
First Virtual must be able to define the installation times for each component
of the purchased equipment. Hardware and Software installation includes
unpacking, inspection, rack mount or table top installation, and installation
and configuration of operational software including any SNMP agent software,
device driver, operating system or the like. First Virtual shall demonstrate the
ability to satisfactorily use applicable product, documentation, tools and test
equipment to install the equipment. For equipment which Bay Networks will
install and maintain First Virtual must demonstrate that MTTI objectives can be
met.
TEST EQUIPMENT REQUIREMENTS / AVAILABILITY
First Virtual shall make available to Bay Networks for a reasonable and agreed
price any test equipment to include diagnostics, test fixtures, test devices so
as to ensure that Bay Networks may adequately provide services to Bay Network's
customers. Bay Networks shall have the right to purchase or reproduce and
distribute diagnostic tools for internal and Third Party Service use only.
TOOLS REQUIREMENTS / AVAILABILITY
First Virtual shall make available to Bay Networks for a reasonable and agreed
price any special tools necessary to install and maintain First Virtual
equipment should Bay Networks agree to install and maintain First Virtual
equipment. Tools may include but are not limited to special physical tools,
software debug utilities, special diagnostics, etc. Bay Networks shall have the
right to purchase or reproduce and distribute diagnostic tools for internal and
Third Party Service use only.
DOCUMENTATION
Documentation may be but is not limited to: User documentation, Application
documentation, performance tests, test procedures, white papers, notes,
technical bulletins, functional specifications, design specifications,
schematics, parts lists, source code, field service documentation etc. Bay
Networks may use and reproduce First Virtual's documentation in the interest of
First Virtual.
23
<PAGE> 24
SCHEDULE I
TRAINING
TRAINING DOCUMENTATION
First Virtual will provide three sets of its standard training material
including where appropriate, handouts, overheads, outlines,syllabus, labs,
manuals etc. Additional material should be available for an agreed price. If the
training course is updated three copies of updated training materials will be
provided to Bay Networks 60 days prior to product release.
COURSE AVAILABILITY
First Virtual will provide training courses for the Technical Response Centers
and internal training developers within 30 days prior to product availability at
Bay Network's facility of choice. First Virtual will make training courses
available for U.S. Field Operations & Third Party Service Providers prior to
product availability at Bay Network's facility of choice. Details regarding type
of class, content, audience, location and size will be negotiated. Training for
future options, functional enhancements and upgrades must be offered by First
Virtual and participation is solely at Bay Networks option.
PRICING
Pricing for the courses provided by First Virtual at Bay Networks will be as
follows:
[ * ] Per instructor (including travel time), plus [ * ], Bay Networks to
provide [ * ].
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
24
<PAGE> 25
Amendment to
BAY NETWORKS COMMUNICATIONS, INC.
and
FIRST VIRTUAL CORPORATION,
ORIGINAL EQUIPMENT MANUFACTURING AGREEMENT
Bay Networks, Inc. and First Virtual Corporation have entered into an Original
Equipment Manufacturing Agreement (the "Agreement") dated November 3,1995. This
Amendment, upon execution by both parties, is made effective and deemed part of
the Agreement. The parties hereby agreed to modify the Agreement as follows.
1. The following is inserted as paragraph 7.6
7.6 OWNERSHIP OF JOINT TECHNOLOGY. The parties shall be joint owners respecting
all intellectual property embodied in or related to jointly developed technology
without right of accounting for royalties to the other party.
2. The parties agree that the SNMP graphical management application as described
in Schedule B, Item 5 of the Agreement will be Joint Technology and will be
jointly owned as set forth in paragraph 7.6. The parties further agree that Bay
Networks will bundle and market the SNMP graphical management application as
part of its Optivity management offering and First Virtual will market it as a
standalone network management application.
Except as explicitly stated in this Amendment, the terms and conditions of the
Agreement shall remain in full force and effect.
Bay Networks, Inc. First Virtual Corporation
By: /s/ Rob Newman By: /s/ J.O. Mitchell
Name: Robert Newman Name: J.O. Mitchell
Title: VP Switch Products Title: COO
Date: June 14, 1996 Date: 6/14/96
<PAGE> 26
Amendment 2 to
Original Equipment Manufacturing Agreement
Bay Networks, Inc. and First Virtual Corporation have entered into an Original
Equipment Manufacturing Agreement (the "Agreement") dated November 3,1995 and
amended on June 14,1996. This Amendment 2, upon execution by both parties, is
made effective and deemed part of the Agreement. The parties hereby agreed to
modify the Agreement as follows. Paragraph and Schedule references below
correspond to the Paragraph and Schedule numbers in the Agreement.
1. Paragraph 1.1 Private Labeled Products, is modified to delete "the 25Mb/s ATM
PCI and ISA Media Adapter Card models and Multimedia Operating System models",
resulting in the 25Mb/s modular ATM Media Switch II models, as the only Private
Label Product.
2. Beginning with the effective date of this Amendment 2, and upon placement of
purchase orders for demonstration systems, and product as provided for in this
Amendment 2, pricing for all First Virtual products purchased by Bay Networks
under the Agreement, as amended, shall be [ * ] off the prevailing First Virtual
List Price and the Schedule F, Product Pricing is no longer in effect.
3. Bay Networks will place an order for [ * ] Demonstration Systems, as
described in Attachment 1 to this Amendment 2 not later than [ * ]; and [ * ]
will be scheduled for delivery in [ * ] and [ * ]. The remaining [ * ]
Demonstration Systems will be scheduled for future delivery, at Bay's option.
The price of these Demonstration Systems so described in Attachment 1 will be
[ * ]. Such Demonstration Systems may be resold by Bay Networks.
4. Not later than October 15, 1996, Bay Networks will place two Purchase Orders:
(1) for [ * ] BRI gateways, [ * ] PRI gateways, [ * ] V Casters, [ * ] 50hr
cache, to be received [ * ] and (2) for [ * ] switches, for delivery as
follows: [ * ] to be received [ * ] and [ * ] in [ * ].
5. Paragraph 2.4 is deleted and the following is substituted:
"2.4 CANCELLATION OR POSTPONEMENT OF ORDERS. Bay Networks may cancel or
reduce the quantity of any order without liability on or before 30 days
in advance of the ship date specified in Bay Networks' order without
cancellation charge. Bay Networks may postpone the delivery of any
portion of an order one time for up to 180 days without any liability by
delivering written notice to First Virtual on or before 30 days in
advance of the ship date specified in Bay Networks' order."
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 27
6. The parties agree to make a commitment to market the First Virtual products
and their use with Bay Networks products, including participation in trade
shows, publication of white papers, advertisement and other such activities, as
each party may determine is appropriate in its own discretion. Bay Networks
agrees that it will budget and it intends to expend approximately [ * ] for such
in marketing and First Virtual agrees that it will budget and it intends to
expend approximately [ * ] for such in marketing.
7. Bay Networks and First Virtual will collaborate on video for distribution for
internal and external marketing and sales. The video will include an appropriate
business leader from Bay Networks and will be distributed to all Bay Networks
and First Virtual sales personnel. The video be completed on a best effort
basis, targeted to be completed within 60 days of this signing this Amendment 2.
Each party will be responsible for its own expenses in the production of the
video and such expenses will be considered part of the joint marketing described
in paragraph 6 of this Amendment 2.
8. On or before October 15,1996, Bay Networks will make a public announcement
that it is now carrying the entire First Virtual product line and will include
in that announcement the reason for selecting First Virtual, in accordance with
the terms of Paragraph 14.8.
9. Bay Networks' resellers outside of the United States may purchase First
Virtual products directly from Bay Networks. To compensate First Virtual for
providing [ * ] support for such international sales of First Virtual products
by Bay Networks resellers, Bay Networks will pay First Virtual an amount equal
to [ * ] of the actual [ * ] paid to Bay Networks (in U.S. dollars). Bay
Networks will disburse payments to First Virtual, on a quarterly basis, within
30 days following quarter-end of March 31, June 30, September 30 and December
31, based on [ * ] for First Virtual products during the preceding quarter.
Except as explicitly stated in this Amendment 2, the terms and conditions of the
Agreement, as amended, shall remain in full force and effect.
Bay Networks, Inc. First Virtual Corporation
By: /s/ Rob Newman By: /s/ J.O. Mitchell
Name: Robert M. Newman Name: J.O. Mitchell
Title: VP LAN BACKBONE Title: COO
Date: September 30TH, 1996 Date: 9/30/96
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 28
Amendment 3 to Original Equipment Manufacturing Agreement
Bay Networks, Inc. and First Virtual Corporation have entered into an Original
Equipment Manufacturing Agreement (the "Agreement") dated November 3rd, 1995 and
amended on June 14th, 1996 and further amended September 30th, 1996. This
Amendment 3, upon execution by both parties is made effective and deemed part of
the agreement. The parties hereby agree to modify the agreement as follows.
Paragraph and Schedule references below correspond to the Paragraph and Schedule
numbers in the Agreement.
1. Beginning on the effective date of this amendment pricing for new
orders for First Virtual product placed under this agreement shall be.
(a) [ * ] off the prevailing First Virtual list price for
[ * ] products except that
(b) Products falling under the [ * ] subsection of the First
Virtual price list shall be at [ * ] off the prevailing First
Virtual list price.
(c) Any current or future [ * ] products priced at [ * ] or less,
[ * ] shall be at [ * ] off the prevailing First Virtual list
price.
Bay Networks, Inc.
By: /s/ John Jaeger By: /s/ J.O. Mitchell
Name: John Jaeger Name: James O. Mitchell
Title: Director, Switched Internetworking Title: COO/CFO
Date: 4/7/97 Date: 4/9/97
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 1
CERTAIN CONFIDENTIAL TREATMENT CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.14
OEM RESELLER AGREEMENT
between
NORTHERN TELECOM INC.
and
FVC CORPORATION
1
<PAGE> 2
TABLE OF CONTENTS
ARTICLE TITLE PAGE
- ------- ----- ----
I DEFINITIONS 3
II GRANT OF RIGHTS 4
III PURCHASE AND SALE OF PRODUCTS 5
IV ACCEPTANCE 6
V WARRANTIES 7
VI SUPPORT SERVICES 8
VII INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY 9
VIII ENGINEERING CHANGES 10
IX REVISIONS 10
X CONFIDENTIAL 10
XI DEFAULT AND TERMINATION 11
XII INDEPENDENT CONTRACTORS 13
XIII NOTICES AND REQUESTS 13
XIV GENERAL13
Schedule A AUTHORIZED TERRITORY 16
Schedule B PRODUCTS AND PRICING 17
Schedule C SUPPORT SERVICES 19
Schedule D TRAINING 24
2
<PAGE> 3
OEM RESELLER AGREEMENT
This OEM Reseller AGREEMENT is entered into as of this 1st day of May, 1997,
("EFFECTIVE DATE") by and between Northern Telecom Inc.,, a Delaware corporation
having an office at 2305 Mission College Blvd. Santa Clara, California
95052-8173 ("NTI") on its behalf and on behalf of all of the Northern Telecom
Companies (collectively referred to herein as "NORTEL"), and First Virtual
Corporation, a California corporation having its principal place of business at
3393 Octavius Drive, Suite 102, Santa Clara, California 95054 ("FVC).
RECITALS
WHEREAS, NORTEL is engaged in the design, manufacture and sale of a wide range
of telecommunications equipment and has a desire to further expand in the
LAN-based video applications market,
AND WHEREAS, FVC is engaged in the design, manufacture and sale of multimedia
networking products, including 25 Mb/s ATM switches, 25 Mb/s ATM network
interface cards, multimedia operating software known as 'MOS', and other
multimedia server products,
AND WHEREAS, the parties wish to provide for the right and option of NORTEL to
purchase versions of products, manufactured by FVC, for resale by NORTEL, as
described in this AGREEMENT,
NOW THEREFORE, in consideration of the mutual promises, rights and obligations
herein contained, the receipt and sufficiency of which is hereby acknowledged,
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I - DEFINITIONS
Terms in this AGREEMENT other than names of parties and Article headings which
are in capital letters shall have the meanings set forth in this Article I for
all purposes in connection with this AGREEMENT.
1.1 "AGREEMENT" as used herein shall mean this OEM Reseller AGREEMENT, as
amended, modified, supplemented or otherwise altered from time to time.
1.2 "AUTHORIZED DISTRIBUTORS" as used herein shall mean any company which
has been authorized by NORTEL to distribute one or more of the Northern
Telecom product lines.
1.3 "AUTHORIZED TERRITORY" as used herein shall mean the countries listed in
Schedule A, which is attached hereto and is by this reference made a
part of the AGREEMENT.
1.4 "DOCUMENTATION" as used herein shall mean FVC's sales and marketing
literature, or FVC's product specifications that may be used to either
market, describe, analyze or test the PRODUCTS.
1.5 "HARDWARE" as used herein shall mean the items of hardware identified in
Schedule B, which is attached hereto and is by this reference made a
part of the AGREEMENT.
3
<PAGE> 4
1.6 "MANUFACTURING LICENSEES" as used herein shall mean those third parties
properly authorized and empowered by NORTEL to manufacture and market
products under its or their own corporate name(s), under a private
brand, or under a Northern Telecom name and, as a result, require
certain rights to software which are substantially similar in scope to
those granted directly to NORTEL by the AGREEMENT. The parties agree
that MANUFACTURING LICENSEES shall not have any rights to copy or
manufacture any of the PRODUCTS, except as noted in Section 2.3 of the
AGREEMENT.
1.7 "NORTHERN TELECOM COMPANIES" means Northern Telecom Limited and those
legal entities which are owned or controlled fifty (50%) percent or more
by it. Each Northern Telecom company shall become bound by this
Agreement when it elects to exercise any rights hereunder.
1.8 "PRODUCT(S)" as used herein shall mean either or both of the items of
HARDWARE and SOFTWARE as described and referred to in the AGREEMENT.
1.9 "Revision"s used herein shall mean an upgrade of the SOFTWARE in which
new functionality and/or bug fixes, inclusive of any new DOCUMENTATION,
are supplied.
1.10 "SOFTWARE" as used herein shall mean the standard product offering from
FVC's or FVC's suppliers' copyrighted computer programs (or any subset
thereof) which may be identified in Schedule B.
1.11 "TERM" as used herein shall mean the period beginning upon the EFFECTIVE
DATE and continuing until December 31, 1998, during which time PRODUCT
may be purchased by NORTEL hereunder.
1.12 "WARRANTY PERIOD" as used herein shall mean; three (3) years for
HARDWARE, one (1) year for SOFTWARE, ninety (90) days for media, in each
case calculated from the date of delivery to NORTEL.
ARTICLE II - GRANT OF RIGHTS
2.1 In accordance with and subject to the terms and conditions of the
AGREEMENT, FVC agrees to license and NORTEL shall have the right to
receive PRODUCTS from FVC at the prices set forth in Schedule C during
the TERM of the AGREEMENT.
2.2 FVC hereby grants to NORTEL the non-exclusive, non-transferable rights
to market, distribute and, in the case of SOFTWARE or REVISIONS,
sublicense PRODUCTS under the FVC trademark respectively applicable, if
any, either directly, or through MANUFACTURING LICENSEES, or through
AUTHORIZED DISTRIBUTORS, to end user customers in the AUTHORIZED
TERRITORY. Distribution of REVISIONS provided under this AGREEMENT are
for use solely in connection with the operation of the PRODUCTS acquired
by NORTEL during the TERM.
FVC further grants the following limited reproduction rights:
4
<PAGE> 5
NORTEL, MANUFACTURING LICENSEES, AUTHORIZED DISTRIBUTORS and end user
customers shall use each copy of SOFTWARE only on a single CPU at a time
(single CPU shall include systems with redundant processing units, but
only one user) and shall limit reproduction of SOFTWARE to such limited
number of copies as may be reasonably necessary for execution or
archival purposes only.
2.2.1 If NORTEL, or any MANUFACTURING LICENSEE, or AUTHORIZED
DISTRIBUTOR desires to distribute copies of the SOFTWARE in
countries outside of the AUTHORIZED TERRITORY, NORTEL, shall
first submit the name of such country or countries to FVC for
FVC's prior written approval, which approval shall not be
unreasonably withheld if FVC is afforded a minimum of ten (10)
days in which to make decision with respect to a particular
country and such country provides adequate copyright, trade
secret or similar legal and/or statutory protection to the
rights of FVC, the parties shall arrange to discuss the merits
of proceeding with the proposed distribution in such country and
the reservation and/or objections of FVC in an effort to reach a
mutually satisfactory resolution.
2.2.2 NORTEL understands and agrees that the SOFTWARE, and any copies
thereof acquired or reproduced hereunder, and any direct product
thereof, are subject to the export control laws and regulations
of the United States, and any amendments thereof and agrees that
it shall not export the SOFTWARE to any country unless it has
received all necessary export permits and licenses.
2.3 FVC hereby grants to NORTEL the non-exclusive rights to use, translate,
reproduce in conjunction with translations only, and distribute, either
directly, or through MANUFACTURING LICENSEES, or through AUTHORIZED
DISTRIBUTORS to end user customers in the AUTHORIZED TERRITORY, the
DOCUMENTATION. The right to reproduce copies of DOCUMENTATION shall
include the right to have such reproduction performed by another party
on NORTEL's behalf, subject to reasonable obligations relating to
confidentiality and protection of FVC's proprietary rights.
2.4 All SOFTWARE shall be distributed under the then current software
license agreement (or an agreement in which similar language is
contained) that NTI uses in distribution of either proprietary or
non-proprietary software applications.
2.5 FVC hereby grants to NORTEL the right to distribute copies of REVISIONS,
either directly or indirectly through MANUFACTURING LICENSEES and
AUTHORIZED DISTRIBUTORS to end user customers.
ARTICLE III - PURCHASE AND SALE OF PRODUCTS
3.1 NORTEL may, at its option, purchase PRODUCTS from FVC by placing written
orders under this AGREEMENT. N0RTEL has no obligation to order a minimum
amount of any type of PRODUCT. FVC agrees to manufacture and deliver
PRODUCTS to NORTEL in response to all orders placed under this
AGREEMENT, provided that such orders comply with the terms of this
AGREEMENT.
5
<PAGE> 6
3.2 Each order placed by NORTEL for PRODUCTS shall be governed by the terms
of this AGREEMENT; conflicting or additional terms provided in any order
by NORTEL or acknowledgment by FVC shall be of no effect unless
specifically accepted in writing by an authorized representative of
NORTEL and FVC. Each order shall specify:
(a) Description of PRODUCT models and any options (including
applicable item numbers and part numbers)
(b) Purchase price
(c) Specified delivery schedule
3.3 Orders placed at least ninety (90) days prior to the requested shipment
date shall be shipped within five (5) days of such requested ship date.
Where the requested shipment date is less than ninety (90) days from the
date on which NORTEL placed the order, FVC shall within five (5) days of
receipt of such order either confirm the shipment date or propose an
alternate shipment date which shall be a date not more than ninety (90)
days from the date on which NORTEL placed the order, and FVC shall ship
the order within five (5) days of the confirmed shipment date or
alternate shipment date as the case may be. In the event that FVC fails
to either confirm the shipment date or propose an alternate shipment
date within such five (5) day period, FVC agrees that it shall ship the
order within five (5) days of the requested shipment date. All shipment
dates will be postponed as necessary during the existence of a force
majeure event. FVC agrees that, as a genuine estimate of liquidated
damages and not as a penalty, in the event that FVC fails to ship any
order within [ * ] days of the requested shipment date (or alternate
shipment date as the case may be) then for each week thereafter until
such order is shipped, the [ * ] purchase price payable by NORTEL in
respect of such order shall be reduced by [ * ].
3.4 NORTEL may cancel or reduce the quantity of any order without liability
on or before 30 days in advance of the ship date specified in NORTEL's
order without cancellation charge. NORTEL may cancel, or reduce the
quantity of any order 15 to 29 days in advance of the ship date
specified in NORTEL's order by paying FVC [ * ]of the canceled
PRODUCT(S). NORTEL may postpone the delivery of any portion of an order
one time for up to 180 days without any liability by delivering written
notice to FVC on or before 30 days in advance of the ship date specified
in NORTEL's order.
3.5 Prices for the PRODUCTS shall be those set forth in Schedule B, less all
applicable discounts. Prices exclude all freight-in and insurance as
provided by this AGREEMENT. All prices are exclusive of any tax levied
or based on the equipment, (collectively "Taxes"). NORTEL shall pay such
Taxes (other than income and franchise taxes of FVC), or provide FVC
with a certificate of exemption acceptable to the appropriate taxing
authority. Payment for the PRODUCTS shall be due within 30 days of
shipment, subject to acceptance of the products by NORTEL as provided
for in this AGREEMENT. For payment purposes, products will be deemed
accepted unless rejected within ten (10) business days. Payment for all
charges shall be due within 30 days of date of invoice, unless otherwise
specified in this AGREEMENT. NORTEL shall withhold any applicable
withholding tax from payments made to FVC pursuant to this AGREEMENT.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
6
<PAGE> 7
3.6 PRODUCTS shipped in response to NORTEL's orders will be shipped F.O.B.
origin. Title shall pass to NORTEL upon shipment of the respective
PRODUCTS.
3.7 To assist FVC in delivering PRODUCTS, NORTEL's Product Line Manager
agrees to provide FVC with quarterly six (6) month rolling forecasts for
its projected orders for PRODUCTS. The provision of such forecast shall
in no way bind NORTEL to actually place orders for any such quantities
nor otherwise expose NORTEL to any liability.
3.8 Nothing in this AGREEMENT shall be construed as requiring that NORTEL
order any specific minimum amount of PRODUCT.
3.9 In the event of termination or expiration of this AGREEMENT, NORTEL,
will be entitled, at its option, to place a non-cancelable order for a
"life cycle purchase" of any combination of PRODUCTS at least 15 days
prior to the effective date of such termination or expiration, for
delivery within 180 days after the effective date of AGREEMENT
termination or expiration.
3.10 FVC will make available to NORTEL spare, replacement, and maintenance
parts necessary to enable NORTEL to support the PRODUCTS for a period of
at least five years after the date of the last delivery of the product
to NORTEL. FVC will make these parts available to NORTEL in accordance
with the discounts described in Schedule B.
ARTICLE IV - ACCEPTANCE
4.1 The parties acknowledge the requirement that the PRODUCTS be supplied
with as close to a "zero defect rate" as is practically possible. Each
PRODUCT is subject to final inspection and acceptance at NORTEL's
facility within 10 business days after delivery. FVC will follow good
manufacturing practices (equivalent to IPC Class II for electrical
assembly) utilizing materials, techniques, and procedures which conform
to industry standards. FVC will make available to NORTEL, upon request,
information regarding FVC's quality assurance procedures. NORTEL may
conduct and observe tests and inspections at FVC's manufacturing plant
following one days' advance notice to FVC.
4.2 NORTEL shall have the right to conduct inspection testing to confirm
that the PRODUCT conforms to all DOCUMENTATION or other criteria,
specifications and warranties described in this AGREEMENT. FVC will
provide NORTEL with a complete set of top level assembly drawings of the
PRODUCT, which NORTEL may use in incoming inspection. If one or more
pieces of PRODUCT in a shipment fails to successfully pass the
Acceptance Tests, NORTEL shall deliver a deficiency report to FVC
promptly following the completion of the acceptance period. FVC shall,
in response to such report, immediately accept the return of and then
repair or replace the nonconforming PRODUCT within ten (10) days so that
it successfully passes all Acceptance Tests, all at FVC's sole expense,
or provide NORTEL with a refund of the amount paid for such
nonconforming PRODUCT.
4.3 In the event that NORTEL fails to provide FVC with written notification
of a non-conforming PRODUCT within ten (10) business days of receipt
thereof, the PRODUCT shall be deemed
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accepted. Exercise by NORTEL of its right to inspect and test PRODUCTS
shall not preclude or limit NORTEL's ability to assert any claim for
breach of warranty.
ARTICLE V - WARRANTIES
5.1 FVC warrants that FVC has full right, power and authority to enter into
the AGREEMENT and to grant all of the right, title and interest in the
intellectual property in the PRODUCTS herein granted, and that neither
the grant of such rights nor the exercise of such rights by NORTEL,
AUTHORIZED DISTRIBUTORS, MANUFACTURING LICENSEES, or any end user
customers shall constitute an infringement of any right of any third
person, nor are there are any claims, judgments or settlements to be
paid by FVC or pending claims or litigation relating to the intellectual
property in the PRODUCTS.
5.2 FVC warrants that HARDWARE delivered to NORTEL under this AGREEMENT
shall be materially free from defects in material and workmanship during
the applicable WARRANTY PERIOD and shall conform to the designs,
specifications and other criteria described in the DOCUMENTATION or in
this AGREEMENT.
5.3 FVC warrants that it will test each and every PRODUCT to ensure
conformance to the design, specifications and DOCUMENTATION before
delivery to NORTEL.
5.4 FVC warrants that all services performed under this AGREEMENT will be
performed in a professional manner and in accordance with the applicable
specifications under this AGREEMENT.
5.5 FVC represents and warrants during the WARRANTY PERIOD and thereafter
for so long as NORTEL is entitled to receive support services hereunder:
(a) that the SOFTWARE shall comply with all applicable
specifications;
(b) that the SOFTWARE, as supplied by FVC, contains no viruses, time
limiting codes or authorization strings except as identified in
writing to NORTEL prior to the date of this AGREEMENT.
5.6 FVC represents and warrants during the WARRANTY PERIOD and thereafter
for so long as NORTEL is entitled to receive support services hereunder:
(a) that if FVC is responsible for providing the media on which the
SOFTWARE is to be supplied, such media shall be free from
defects in materials and workmanship.
(c) that the DOCUMENTATION shall completely and accurately describe
the operation and functionality of the SOFTWARE in a reasonably
organized and coherent manner;
(d) that any services provided by FVC under the AGREEMENT, shall be
provided in a timely manner by qualified and competent personnel
knowledgeable in the technology.
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5.7 FVC represents and warrants that by January 1, 1998, all PRODUCTS
provided pursuant to this AGREEMENT, when used in accordance with
DOCUMENTATION, shall (i) process date and time related data without
causing any processing interruptions, abnormal terminations, or changes
in performance characteristics, and (ii) shall process and manipulate
all date and time related functions correctly. Without limiting the
generality of the foregoing, all PRODUCTS shall:
(a) correctly handle date and time related data before, during and
after January 1, 2000, including but not limited to accepting
date input, providing date output, and performing ongoing
operations on dates and portions of dates including, but not
limited to, calculating, comparing and sequencing of dates (in
both forward and backward operations spanning century
boundaries);
(b) correctly handle leap year calculations (including but not
limited to identification of leap years, interval calculations,
day-in-year calculations, day-of-the-week calculations, and
week-of-the-year calculations);
(c) correctly handle all two digit date and time related input in a
manner that resolves ambiguity as to century in a disclosed,
defined and predetermined manner; and
(d) correctly store and provide output of all date and time data in
a manner that is unambiguous as to century.
5.8 FVC shall immediately notify NORTEL of any and all date-related bugs,
errors or deficiencies in the PRODUCTS. For the purpose of problem
resolution, any such date related bugs, errors or deficiencies shall be
deemed to be bugs, errors or deficiencies of the highest priority level,
and shall be resolved according to the procedures provided for such
priority level.
5.9 During the WARRANTY PERIOD;
(a) If NORTEL discovers any defect or non-conformance in HARDWARE,
NORTEL shall promptly notify FVC of such nonconforming HARDWARE
and FVC shall provide NORTEL with a Return Material's
Authorization number ("RMA"). FVC agrees to accept the return of
HARDWARE that NORTEL determines does not meet the warranties
described in this Article VI. Upon NORTEL's receipt of the RMA,
NORTEL shall cause the return of the nonconforming HARDWARE to
FVC. Upon its receipt and at FVC's option and cost, FVC shall
promptly either repair or replace the non-conforming HARDWARE.
Properly repaired or replaced HARDWARE shall promptly be
delivered to NORTEL and the WARRANTY PERIOD therefor shall
continue for ninety (90) days following delivery of the returned
PRODUCT to NORTEL or the balance of the original WARRANTY PERIOD
for that PRODUCT, whichever is longer. FVC shall bear the cost
for shipment of PRODUCTS for warranty repair to NORTEL's North
American facilities.
(b) If NORTEL discovers any errors, bugs or defects in SOFTWARE, FVC
shall promptly provide NORTEL with a suitable patch, fix or
work-around sufficient to enable the PRODUCT to operate in
accordance with this AGREEMENT. At its option, NORTEL may
download REVISIONS from FVC's Internet Web site if the
non-conforming SOFTWARE can be repaired
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by such REVISION. These remedies and in addition to any others
which may be provided by this AGREEMENT or by law.
5.10 The warranty provisions contained in this Article V do not include
damages due to inadequate operating environment, accident, disaster,
neglect, abuse, misuse, or alterations made without approval by FVC. THE
FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF
FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VI - SUPPORT SERVICES
6.1 Following expiration of the applicable WARRANTY PERIOD and subject to
NORTEL'S purchase of the services referenced herein, FVC shall provide
NORTEL with the technical assistance and maintenance support described
in Schedule D. NORTEL, MANUFACTURING LICENSEES, AUTHORIZED DISTRIBUTORS
or NORTEL'S contracted maintenance co-providers will perform first and
second level maintenance for PRODUCTS delivered to end-users in
accordance with this AGREEMENT, and FVC will provide factory level
support to NORTEL to enable it to perform satisfactory maintenance of
the PRODUCT for NORTEL's customers. Technical support escalations shall
generally proceed as follows:
First Event: End-user customer calls NORTEL, MANUFACTURING LICENSEE,
AUTHORIZED DISTRIBUTOR or maintenance co-provider to report a problem
with PRODUCT.
Second Event: NORTEL entity attempts to solve the problem using its
internal support resources.
Third Event: NORTEL escalates the problem if unsolved after Second Event
to higher level NORTEL technical support.
Fourth Event: NORTEL escalates the problem if unsolved after Third Event
to FVC technical support.
6.2 Upon request by NORTEL, FVC shall provide NORTEL with training and/or
consulting services, subject to NORTEL'S purchase of such services at
pricing described in Schedule D. Such training shall include detailed
training on the PRODUCTS, REVISIONS, and sales and support training.
Consulting services will generally assist in the enhancement of the
PRODUCTS and in the development of technology intended to operate in
conjunction with the PRODUCTS.
ARTICLE VII - INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY
7.1 FVC shall defend, indemnify and hold NORTEL, MANUFACTURING LICENSEES,
AUTHORIZED DISTRIBUTORS and all end user customers harmless from any and
all claims, costs, expenses, damages or other liability, including
reasonable attorneys' fees, which arise out of any patent, trademark,
moral right or copyright infringement claims or claims based on
misappropriation of trade secret rights arising out of or relating to
the use, copying or distribution of the PRODUCT in the AUTHORIZED
TERRITORY. NORTEL shall notify FVC promptly, in writing, in the event of
any such claim, and grant to FVC the right, at FVC's expense, to control
the
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defense thereof, including the sole right to settle any such claim or
suit on such terms as FVC shall deem desirable. If the use, copying or
distribution of the PRODUCT or use of the FVC tradename or trademarks
under which the PRODUCT is distributed are held to constitute an
infringement and enjoined in one or more countries within the AUTHORIZED
TERRITORY, FVC shall, at its own expense and option, (i) procure for
NORTEL, MANUFACTURING LICENSEES, AUTHORIZED DISTRIBUTORS and end user
customers the right to continue using and distributing the PRODUCT, or
(ii) modify the PRODUCT so that it becomes non infringing, while
maintaining to the extent possible the same form and function, or (iii)
replace the PRODUCT with a non infringing substitute, while maintaining
to the extent possible the same form and function.
7.1.1 FVC shall not have any liability to NORTEL under Section 7.1 for
infringement and/or misappropriation, or claims thereof, that
are based upon (i) the use of PRODUCT in combination with
hardware and/or software furnished by a third party if such
infringement and/or misappropriation, or claim thereof, would
have been avoided by the use of such PRODUCT in combination with
different hardware and/or software or to the extent such use is
possible, use of such PRODUCT without any combination.
7.2 NORTEL will defend at its own expense any action brought against FVC by
a third party, to the extent that it is based on any warranties made by
NORTEL to a third party in excess of the warranties given by FVC under
this AGREEMENT. NORTEL's obligations under the preceding are subject to
the conditions that: (i) FVC promptly notifies NORTEL in writing of any
such claim, and (ii) NORTEL will have sole control of such defense and
all negotiations for any settlement or compromise, although FVC may
participate in the same at its expense.
7.3 NORTEL reserves all proprietary rights in all original works, computer
programs, discoveries, inventions, patents, know-how, techniques,
designs, maskworks, engineering details and other data developed by
NORTEL, including all information relating to the network management
interface circuitry and technology disclosed to FVC by NORTEL, except
that any DOCUMENTATION created as a result of a NORTEL translation shall
be jointly owned by FVC and NORTEL.
7.4 FVC reserves all proprietary rights in all original works, computer
programs, discoveries, inventions, patents, know-how, techniques,
designs, maskworks, engineering details and other data developed by FVC,
including all information relating to the network management interface
circuitry and technology disclosed to NORTEL by FVC.
ARTICLE VIII - ENGINEERING CHANGES
8.1 FVC reserves the right to make engineering changes to the PRODUCTS at
any time which are (i) necessary to comply with changed safety or
environmental standards and other environmental regulations, (ii)
necessary to make the product non-infringing with respect to any patent,
copyright or other proprietary interest, or (iii) for the purpose of
improving the quality, reliability or manufacturability of the PRODUCTS,
provided that all such changes reflect changes being made by FVC
simultaneously to the corresponding FVC standard products, and such
changes do not adversely impact the operation of the PRODUCTS with
NORTEL systems
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8.2 In the event FVC chooses to make engineering changes to a PRODUCT as
Permitted pursuant to Section 8.1, FVC will notify NORTEL's Product Line
Manager by electronics mail or facsimile not less than thirty (30) days
prior to implementation of any planned permanent or temporary changes to
the PRODUCTS which impact form, fit or function, or safety,
environmental or other governmental compliance of the PRODUCTS. The
notice will include a summary of the expected impact of any such planned
change on the above listed characteristics of the PRODUCTS. NORTEL shall
have the right to cancel outstanding orders for any PRODUCTS that are
subject to such changes without incurring any penalty.
ARTICLE IX - REVISIONS
9.1 FVC will notify NORTEL of REVISIONS not otherwise included as
engineering changes in accordance with Article VIII.
9.2 If such REVISIONS are provided to any other customers at no additional
charge, there will be no increase in the unit price for PRODUCTS under
this AGREEMENT. If FVC charges its other customers for such REVISIONS,
FVC shall only be required to provide such REVISIONS to NORTEL upon
AGREEMENT with NORTEL regarding an increased unit price which shall not
exceed the applicable price increase for FVC's standard product
offering.
9.3 REVISIONS shall be provided to NORTEL at no charge so long as NORTEL is
under contract for support services.
ARTICLE X - CONFIDENTIALITY
10.1 Any information designated as "Confidential", "Restricted" or
"Proprietary" in writing by the disclosing party prior to disclosure
shall be considered confidential information under the AGREEMENT. In the
case of any oral disclosure of confidential information, such
information shall be treated as confidential if the disclosing party (a)
states that such information is confidential at the time of disclosure,
and (b) summarizes such information in a writing setting forth the date,
nature and extent of the oral disclosure and indicating the same to be
confidential, and delivers such written summary to the other party
within thirty (30) days after the date of such oral disclosure.
10.2 The parties shall use reasonable efforts and at least the same care that
each uses to protect its own confidential information of like
importance, to prevent unauthorized dissemination or disclosure of the
other party's confidential information during and for three (3) years
following the last day of the TERM.
10.3 The confidentiality obligations set forth in this Article X will not
apply to any information that:
(a) becomes known to the general public without fault or breach on
the part of the receiving party;
(b) either party customarily provides to others without restriction
on disclosure;
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(c) the receiving party lawfully obtains from a third party provided
that the receiving party observes the restrictions on
disclosure, if any, imposed by such third party;
(d) is furnished to a third party by the disclosing party without a
similar restriction on such third party's rights;
(e) can by written records be shown to have been known by the
receiving party at the time of disclosure;
(f) is developed independently by the receiving party without using
any information as defined in Section 10.1 which is received
from the disclosing party.
10.4 Me parties agree and acknowledge that any confidential and proprietary
information of the other party in its possession shall, upon termination
of the AGREEMENT and upon the request of the other party, be returned to
the disclosing party.
10.5 Neither party shall publicly disclose any information regarding the
terms and conditions contained herein without having received prior
approval, in writing, from the other party, unless such disclosure is
required by law or requested by potential investors (under obligation of
confidentiality) in either party.
10.6 Notwithstanding the foregoing in this Article, or any implication to the
contrary contained elsewhere in this AGREEMENT, nothing herein shall be
construed as precluding or preventing NORTEL from using, on an
incidental basis, the residuals of the Confidential Information or any
other confidential information for any purpose including use in the
development, manufacture, marketing and maintenance of its products and
services, provided that NORTEL or its Affiliates do not encourage its
employees to commit such Confidential Information to memory for later
use. In no event shall "residuals" include information or expression
protected by copyright, patent, or integrated circuit topography
legislation. Subject to the foregoing limitations, FVC hereby releases
NORTEL and its Affiliates from any claims whatsoever which it may have
with respect to its use of such residuals.
ARTICLE XI - DEFAULT AND TERMINATION
11.1 Any of the following shall constitute sufficient cause for a party to
the AGREEMENT to seek the remedies available to a non defaulting party,
as provided in Section 11.2 through 11.4:
(a) The failure of the other party to perform any material term,
condition or covenant of the AGREEMENT, unless such default has
been corrected within thirty (30) days of the date of receipt of
written notice of such default given by the non defaulting party
or where the default cannot be cured within such thirty (30) day
period, the defaulting party is taking reasonable steps to cure
the default, or where the default cannot be cured, the
defaulting party is taking reasonable steps to prevent a
reoccurrence;
(b) The other party is or becomes insolvent, or a party to any
bankruptcy or receivership proceeding or any similar action
affecting the financial condition of such other party, or
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seeks to make a compromise, arrangement or assignment F for the
benefit of its creditors, or ceases doing business in the normal
course.
11.2 In the event any act of default constituting sufficient cause pursuant
to either Section 11.1(a) or Section 11.1(b) shall occur, the party not
in default shall have the right to and may elect any or all of the
following remedies, which shall be cumulative and not exclusive:
(a) Declare the AGREEMENT to be immediately terminated.
(b) Pursue each and every remedy available at law and in equity.
11.3 In the event FVC is the defaulting party pursuant to Section 11.1 (a) or
(b) above, NORTEL shall, in lieu of terminating the AGREEMENT without
limiting any other remedies or claims it may have in law or in equity,
have the option of furnishing written notice to FVC of NORTEL's
intention to continue to perform the AGREEMENT under the following terms
and conditions:
(a) NORTEL's rights, with respect to any and all PRODUCTS or
REVISIONS distributed directly or indirectly (through
MANUFACTURING LICENSEES or AUTHORIZED DISTRIBUTORS) to end user
customers pursuant to the AGREEMENT, shall remain in full force
and effect.
(b) NORTEL shall make quarterly reports and payments of license fees
to FVC (or in the case of bankruptcy or insolvency on the part
of FVC, as instructed by the duly appointed trustee or
receiver). However, NORTEL may withhold payment of such license
fees pending settlement of any outstanding claims of NORTEL made
in good faith against FVC.
11.4 In the event the AGREEMENT is terminated by FVC for default by NORTEL,
FVC shall permit NORTEL to retain limited rights to use the SOFTWARE
thereafter for so long as necessary in order to allow NORTEL to satisfy
its then existing contractual obligations for software support of
SOFTWARE to MANUFACTURING LICENSEES, AUTHORIZED DISTRIBUTORS and end
user customers. The limited rights to use the SOFTWARE, as provided in
this Section 11.4, shall survive the termination or expiration of the
AGREEMENT.
11.5 Upon termination of the AGREEMENT, NORTEL shall, within thirty (30) days
following such termination, destroy its copies of the SOFTWARE and any
whole or partial reproductions thereof in any form, and all materials
related to the SOFTWARE which are still under the control of NORTEL, and
so certify in writing to FVC, except that NORTEL may retain a sufficient
number of copies of such SOFTWARE as is reasonably necessary for NORTEL
to fulfill its contractual obligations, as set forth in Section 11.4.
11.6 The foregoing rights of termination are in addition to all other rights
and remedies provided in this AGREEMENT or by law. Should NORTEL fail to
pay any sum when due under this AGREEMENT, other than any sum which is
the subject of a reasonable dispute, then if such failure continues for
a period of thirty (30) days after receipt of notice from FVC of such
failure, FVC shall have the right to terminate this AGREEMENT
immediately by giving written notice to NORTEL of
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its election to do so. The foregoing rights of termination are in
addition to all other rights and remedies which may be provided under
this AGREEMENT or by law.
11.7 The following provisions shall survive any termination of the AGREEMENT:
Section 3.9, Section 3.10, Article V, Article VI, Article VII, Article
X, Article XI, Article XII, Article XIII, Article XIV.
ARTICLE XII - INDEPENDENT CONTRACTORS
12.1 FVC and NORTEL, are independent contractors in all relationships and
actions under and contemplated by the AGREEMENT. The AGREEMENT is not to
be construed to create, or to authorize the creation of, any employment,
partnership, or agency relation or to authorize NORTEL or any
MANUFACTURING LICENSEES or AUTHORIZED DISTRIBUTORS to enter into any
commitment or agreement binding on FVC or to allow one party to accept
service of any legal process addressed to, or intended for, the other
party. NORTEL and the MANUFACTURING LICENSEES and AUTHORIZED
DISTRIBUTORS shall not make any warranties, guarantees or any other
commitments on behalf of FVC pursuant to the AGREEMENT.
ARTICLE XIII- NOTICES AND REQUESTS
13.1 All written notices required or otherwise provided under the AGREEMENT
shall be sent by certified or registered mail (return receipt
requested), postage prepaid, or by cable, telegram, facsimile, telex or
hand delivery to the other party at the address listed below for the
other party and addressed as follows:
NORTEL: NORTHERN TELECOM INC.
2305 Mission College Boulevard
Santa Clara, California 95052-8173
Attention: Sr. Manager, Enterprise Licensing
Dept. 0521
FVC: FIRST VIRTUAL CORPORATION
3393 Octavius Drive, Suite 102
Santa Clara, California 95054
Attention: Chief Financial Officer
or to such other address as the party to receive the notice so
designates by written notice to the other party.
13.2 Notices given pursuant to Section 13.1 shall be deemed to have been
received five (5) days after mailing if given by mail, and one (1)
business day after sending if given by cable, telegram, facsimile, telex
and upon delivery if given by hand.
ARTICLE XIV - GENERAL
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14.1 The failure of a party to enforce any provision of the AGREEMENT shall
not constitute a waiver of such provision or the right of such party to
enforce such and every other provision.
14.2 The AGREEMENT may be executed in one or more counterparts, each of which
shall constitute one and the same instrument.
14.3 The AGREEMENT shall inure to the benefit of and be binding upon the
respective successors and assigns, if any, of the parties hereto.
14.4 Neither party shall, in any advertising, sales promotion materials,
press releases or any other publicity matters use the name of the other
party, any subsidiary or affiliate of the other party or any variation
of the foregoing or language from which the connection of said names may
be implied without such other party's prior written approval.
14.5 Neither party shall assign the AGREEMENT or any rights or obligations
hereunder without the prior written consent of the other party, provided
that the assigning party remains liable for its obligations hereunder,
except in the case whereby FVC has been acquired by another party. Each
of the parties shall be entitled to use service contractors in the
performance of its obligations and exercise its rights hereunder.
14.6 No provision of the AGREEMENT shall be deemed waived, amended or
modified by either party, unless such waiver, amendment or modification
be in writing and signed by the party against whom enforcement of the
waiver, amendment or modification is sought. Any such amendment or
modification shall be binding with or without tender of any
consideration.
14.7 The headings used herein are for convenience only and shall not be
deemed to be part of the AGREEMENT or used to construe or interpret any
of the provisions hereof.
14.8 The AGREEMENT constitutes the entire agreement between the parties and
supersedes any and all prior or contemporaneous oral and written
communications, understandings or agreements relating to the PRODUCTS.
In the event any term of the AGREEMENT is or becomes or is declared to
be invalid or void by any court or tribunal of competent jurisdiction,
such term or terms shall be null and void and shall be deemed deleted
from the AGREEMENT, and all the remaining terms of the AGREEMENT shall
remain in full force and effect.
14.9 The AGREEMENT shall be construed and enforced in accordance with the
laws of the State of New York.
14.10 Except as expressly provided in this AGREEMENT neither party shall be
liable for its failure or delay in performance of its obligations under
this AGREEMENT due to strikes, wars, revolutions, fires, floods,
explosions, earthquakes, government regulations, or other causes beyond
its control.
14.11 IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES OR LOST PROFITS OR COSTS OF SUBSTITUTE
GOODS, SERVICES OR TECHNOLOGY ARISING OUT OF THIS AGREEMENT OR ANY
PROVISION HEREOF, HOWEVER CAUSED AND ON ANY
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THEORY OF LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF THE OTHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
14.12 The parties acknowledge the importance of maintaining as confidential
the existence and terms of this AGREEMENT, and the business relationship
it reflects. Neither party shall disclose the existence or terms of this
AGREEMENT to any third party without the written consent of the other
party. All publicly distributed materials prepared by either party that
mention the other party, the products of the other party, or this
AGREEMENT, shall be approved by both parties in writing before
publication.
14.13 Each party to the AGREEMENT hereby represents to the other that it has
full power and authority to enter into and perform the AGREEMENT and
that the person signing the AGREEMENT on its behalf has been properly
authorized and empowered to do so. Each party further acknowledges that
it has read the AGREEMENT that it understands the terms and conditions
hereof, and that it agrees to be bound by the AGREEMENT.
IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed by
their duly authorized representatives.
NORTHERN TELECOM INC.
FIRST VIRTUAL CORPORATION
By: /s/ E.J. Pillman By: /s/ J.O. Mitchell
Name: E.J. Pillman Name: J.O. Mitchell
(type/print) (type/print)
Title: VP MCS Title: COO/CFO
(type/print) (type/print)
Date Signed: 5/29/7 Date Signed: 5/23/97
APPROVED
NORTEL TECHNOLOGY LAW & LICENSING GROUP
/s/ Paul Knudsen
PAUL T. KNUDSEN
Counsel, Technology Law
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SCHEDULE A - AUTHORIZED TERRITORY
<TABLE>
<S> <C> <C> <C>
Algeria Georgia Netherlands Tadjikistan
Anguilla Germany Netherlands Taiwan
Antigua Greece Antilles Thailand
Argentina Grenada New Zealand Tobago
Armenia Guadeloupe Nicaragua Trinidad
Australia Guam North Yemen Turkmenistan
Austria Guatemala Norway Turks & Caicos Islands
Azerbaijan Guyana Turkey
Oman
Bahamas Honduras Ukraine
Bahrain Hong Kong Pakistan United Arab Emirates
Barbados Hungary Panama United Kingdom
Barbuda Papua New United States (U.S.)
Belgium Iceland Guinea U.S. Virgin Islands
Belize India Paraguay Uruguay
Belarus Indonesia Peoples' Republic Uzbekistan
Bolivia Iraq of China
Brazil Ireland Peru Venezuela
British Virgin Isles Israel Philippines Vietnam
Brunei Italy Poland Virgin Islands
Portugal
Canada Jamaica Puerto Rico
Chile Japan
Colombia Jordan Qatar
Costa Rica
Czech Republic Kazakhstan Russia
Kirghizia
Denmark Kuwait Saudi Arabia
Dominica Singapore
Dominican Latvia Slovakia
Republic Liechtenstein South Africa
Lithuania South Korea
Ecuador Luxembourg Spain
Egypt St. Kitts & Nevis
El Salvador Malasia St Lucia
Estonia Martinique St. Vincent
Mexico Suriname
Finland Moldava Sweden
France Montserrat Switzerland
French Guiana Morocco Syria
</TABLE>
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SCHEDULE B - PRODUCTS AND PRICING
All elements of FVC's standard product offerings are available to NORTEL as
PRODUCTS.
[ * ] PRICING
- -------------
For all orders placed in 1997, NORTEL will receive a straight [ * ] discount
off of FVC's domestic list price. If Nortel purchases more than [ * ] of FVC
product in any one quarter, the discount will increase to [ * ] off of FVC's
domestic list price for the following quarter, or if Nortel purchases more than
[ * ] of FVC product in any one quarter, the discount will increase to [ * ]
for the following quarter.
The discount will apply to all FVC product, with the exception of [ * ]. All
[ * ] will be discounted at [ * ] off of FVC's domestic list price.
[ * ]
In either case, there is no [ * ] involved. The discount off list shall apply to
all PRODUCTS purchased by NORTEL, with the exception of [ * ] which will be
discounted at [ * ].
[ * ] PRICING
- -------------
Distribution of PRODUCTS in regions outside of [ * ] shall be fulfilled through
FVC's [ * ] distribution channel, each entity of which is individually
identified as an [ * ]. In regions not supported by the [ * ] FVC shall provide
NORTEL with PRODUCTS as required.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 20
For orders between NORTEL and [ * ], such [ * ] will provide all sales and
support functions that would normally be provided by FVC in a [ * ] sale,
including but not limited to; providing localized PRODUCT that meets all local
language and regulatory compliance requirements, PRODUCT demonstrations,
installation support, warranty fulfillment, in-country inventory for PRODUCT
spares, and second-line maintenance support. FVC agrees that each [ * ] shall
agree in writing with NORTEL to be bound by the terms of this AGREEMENT and that
FVC shall be liable for any damages incurred by NORTEL as a result of a breach
of this AGREEMENT by any [ * ].
Nortel's international PRODUCT cost is dependent upon the availability of an
[ * ] in the region to fulfill the order.
No [ * ] in region: Where there is no [ * ], NORTEL will order the product
directly from FVC at the [ * ] pricing levels as stated in the previous section.
NORTEL will be responsible for all shipping and duty, as well as the services
that would normally be provided by an [ * ] with the exception of [ * ] which
shall be covered by FVC.
[ * ] in region: Where there is an [ * ] in the region, NORTEL will order FVC
products through the [ * ]. The pricing level will be the [ * ] discount price
plus a [ * ] international premium based on the [ * ] to the AUTHORIZED
DISTRIBUTOR. NORTEL will also be responsible for [ * ] costs to the region.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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SCHEDULE C - SUPPORT SERVICES
GENERAL
The availability of support for the 25 Mb/s ATM PRODUCTS from FVC shall continue
for at least the lesser of:
(i) Five years after a product is removed from the NORTEL price list.
(ii) Five years after a base product is removed from the FVC Corporations
price list.
TECHNICAL SUPPORT
NORTEL Customer Service Organization shall have direct access to technical
support from FVC Corporation. NORTEL shall define up to four people who shall
have this direct technical support access. The Director of NORTEL Technical
Operations will modify the personnel list as is reasonably required to maintain
currency.
DEFINITIONS
"Critical Problem(s)" shall mean any detected condition in the SOFTWARE
that renders the service or operation of HARDWARE, or a Specific NORTEL
Product unusable or inoperative and is due to non-conformance of the
SOFTWARE with the Specifications. Without limiting the generality of the
foregoing, Critical Problem shall include, loss of all transaction
processing capability, significant reduction in capacity or traffic
handling capability, any loss of safety or emergency capability, loss of
the ability to perform automatic system reconfiguration, inability to
restart a processor or the system, loss of billing capability,
corruption of billing or system databases that requires service
affecting collective actions, loss of access to maintenance or recovery
operations, or loss of the system's ability to provide any required
Critical Problem or Major Problem notification.
"Major Problem(s)" shall mean any detected condition in the SOFTWARE
that renders the routine service or operation of HARDWARE, or a Specific
NORTEL Product unusable or inoperative and is due to non-conformance of
the SOFTWARE with the Specifications. Without limiting the generality of
the foregoing, Major Problem shall include, any reduction in capacity or
traffic, any loss of functional visibility or diagnostic capability, any
loss of routine administrative activity, any significant degradation of
the system's ability to provide maintenance or recovery operations, any
significant degradation of the system's ability to provide any required
Critical Problem or Major Problem notification, any significant increase
in system related End User trouble reports, and any corruption of the
system billing databases that does not result in service affecting
corrective actions.
"Minor Problem(s)" shall mean any detected condition in the SOFTWARE
that is not a Critical or Major Problem, that affects the service or
operation of a Specific NORTEL Product and is due to non-conformance of
the SOFTWARE with the Specifications.
"Permanent Solution(s)" shall mean a resolution to a problem that, (i)
causes the SOFTWARE to substantially conform with the Specifications,
and (ii) restores the service and operation of HARDWARE, or a Specific
NORTEL Product without any loss of functionality.
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"Work Around(s)" shall mean a temporary resolution that restores the
service and operation of a Specific NORTEL Product without any loss of
functionality.
TECHNICAL SUPPORT SERVICES
Technical Support shall mean the services described in this Schedule.
NORTEL shall be responsible for providing the first line of support to its End
Users.
PRIORITY LEVELS FOR TECHNICAL SUPPORT
Problems shall be categorized by NORTEL according to the following priority
levels.
Critical Problems
FVC shall work continuously, and shall use all reasonable commercial
efforts, until a Work Around or a Permanent Solution is successfully
implemented. If a Permanent Solution is successfully implemented, but
such Permanent Solution cannot be deployed in HARDWARE, or a Specific
NORTEL Product operating in an End User's network without affecting
service or operation, FVC shall provide NORTEL with a Work Around. FVC
agrees to provide a Work Around or Permanent Solution (subject to the
restrictions described in the preceding sentence) within five (5)
calendar days of a Critical Problem being reported to FVC by NORTEL. If
a Work Around is successfully implemented, a Critical Problem shall be
reclassified to a Major Problem.
Major Problems
FVC shall work continuously, and shall use all reasonable commercial
efforts, until a Work Around or Permanent Solution is successfully
implemented. If a Permanent Solution is successfully implemented, but
such Permanent Solution cannot be deployed in a Specific NORTEL Product
operating in an End User's network without affecting service or
operation, FVC shall provide NORTEL with a Work Around. FVC agrees to
provide a Work Around or Permanent Solution (subject to the restrictions
described in the preceding sentence) within fourteen (14) calendar days
of a Major Problem being reported to FVC by NORTEL.
NORTEL.
Minor Problems
FVC shall use all reasonable commercial efforts to provide a Work Around
or Permanent Solution. If a Permanent Solution is successfully
implemented, but such Permanent Solution cannot be deployed in a
Specific NORTEL Product operating in an End User's network without
affecting service or operation, FVC shall provide NORTEL with a Work
Around. FVC agrees to provide a Work Around or a Permanent Solution
(subject to the restrictions described in the preceding sentence) within
thirty (30) calendar days of a Minor Problem being reported to FVC by
NORTEL.
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Failure to reproduce a problem on a FVC-specified reference machine will not
prejudice or impact the attention that FVC gives to a problem.
DELIVERY OF WORK AROUNDS, AND PERMANENT SOLUTIONS
Permanent Solutions
FVC agrees to deliver a Permanent Solution to NORTEL in FVC's next
regularly scheduled REVISION. A Permanent Solution shall include a
patch, if such patch can be deployed in a Specific NORTEL Product
operating in an End User's network without affecting service or
operation. Such a patch shall be provided within the times described in
Article 3. If such a patch cannot be provided, FVC shall provide a Work
Around within the times described in Article 3.
Work Arounds
A Work Around may consist of a patch or instructions on how to avoid the
problem. A Work Around shall be capable of being deployed, without
interruption of service or operation, in a Specific NORTEL Product
operating in an End User's network.
SERVICE-LEVEL OBJECTIVE
The Parties acknowledge the potentially idiosyncratic nature of any problem in
the SOFTWARE. While the response times set forth in Article 3 of this Schedule
constitute targeted goals of the Technical Support to be provided by FVC to
NORTEL, it is understood that FVC shall use all reasonable commercial efforts to
attempt to resolve any problems within the target times specified in Article 3
(for the relevant priority level) ninety-five percent (95%) of the time.
Sporadic failures to meet these targeted times shall not constitute a failure to
perform a material provision of this Schedule.
PROBLEM REPORTING
FVC shall provide Technical Support to ensure that (i) the SOFTWARE remain in
compliance with the Specifications, (ii) the Documentation remains substantially
complete and accurate.
FVC shall provide Technical Support to ensure the continued operation of the
SOFTWARE in accordance with the Specifications and of Critical Problems, Major
Problems 2nd Minor Problems.
For each request by NORTEL for Technical Support from FVC, NORTEL shall provide
FVC with a description ("Problem Report") of the problem encountered and, where
possible, will include a description of how to repeat the condition which
brought about the problem. NORTEL will provide such diagnostic information as is
available. A Problem Report shall include a priority level which shall be
determined by NORTEL.
FVC shall identify each outstanding issue relating to a Problem Report with a
unique "Case Number" for tracking purposes. Case Numbers shall be communicated
to the NORTEL Project Manager for that Specific NORTEL Product within
twenty-four (24) hours of the receipt of the Problem Report.
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<PAGE> 24
COMMUNICATIONS
FVC shall provide unlimited telephone support to NORTEL on issues relating to
the SOFTWARE, between the hours of 8:30 a.m. and 5:30 p.m. Pacific Standard
Time, five (5) days a week. FVC's telephone support service shall be properly
staffed by qualified technical representatives with a detailed working knowledge
of PRODUCT. The Parties may augment these communications with the use of
facsimile transmission. In addition, FVC shall provide after hours and weekend
access to FVC technical experts via pagers for support emergencies that must be
addressed outside of the standard telephone support hours.
FVC shall provide on-line "Bulletin Board" support to NORTEL on issues relating
to the SOFTWARE. FVC's on-line Bulletin Board shall be staffed as provided in
Article 7.1 of this Schedule and shall consist of a private forum in the
commercial CompuServe offering (or any other similar and comparable service)
which shall be accessible 24 hours per day, 7 days per week, 365 days per year.
FVC shall make all reasonable efforts to have each problem logged into the
Bulletin Board, subject to the provisions of Article 7.1 in this Schedule,
responded to within eight (8) working hours by a qualified technical
representative possessing the ability to discuss the details of such problem.
FVC shall be responsible for establishing and operating the Bulletin Board
except that NORTEL shall be responsible for the local service and access charges
associated with Bulletin Board use.
The Parties shall use reasonable efforts to establish security measures for the
electronic exchange of Problem Reports and other information.
INFORMATION
FVC shall provide to NORTEL, on a monthly basis, a report listing the following
information:
(a) all known bugs, errors or deficiencies in the SOFTWARE, and the
classification of each;
(b) any resolutions or fixes;
(c) any available work arounds.
Upon request by NORTEL, FVC shall provide a "Status Report" on any problem
logged for NORTEL provided that NORTEL identifies the particular problem by the
Case Number assigned to it by FVC. For problems which have been resolved, the
Status Report shall include the Case Number, the closing resolution for the
problem, the expected date that a Permanent Solution will be released, and a
description of any known Work Around. For problems that have not yet been
resolved, the Status Report shall include the Case Number, a problem resolution
plan, and a description of any known Work Around. Each problem logged for NORTEL
shall remain open until closure notification is received from FVC and accepted
by NORTEL.
If, in any REVISION, FVC introduces new software interfaces, or, modifies or
removes existing software interfaces, relative to the immediately preceding
REVISION, FVC shall notify NORTEL at least ninety (90) days prior to the initial
release of the REVISION which incorporates such changes (the "Anticipated
Changes"). Such notification shall include a description of the Anticipated
Changes. FVC shall make
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<PAGE> 25
reasonable efforts to provide documented porting tools which will facilitate the
conversion of existing SOFTWARE to the new or modified software interfaces.
VALIDATION AND PERFORMANCE SUITES
FVC shall provide, with every REVISION, validation suites of test cases which
can be used for the purpose of integration and regression testing. These
validation suites shall be the same as, or a superset of, those test cases which
are used by FVC for its own software integration and regression testing. FVC
shall maintain the validation suites as a part of the SOFTWARE.
FVC shall provide, with every REVISION, performance metrics and the associated
suites of test cases. These performance metrics and test suites shall be the
same as, or a superset of, those which are used by FVC for its own software
performance testing. FVC shall maintain the performance metrics and test suites
as a part of the SOFTWARE.
REVISIONS
FVC shall provide NORTEL with all REVISIONs for the SOFTWARE. FVC shall ship
such REVISIONS, automatically on the initial release date, to each NORTEL
Project Manager.
FVC shall provide, with every REVISION, a written description of the changes
included in that REVISION. This description shall also include a discussion of
the purpose or reason for releasing the REVISION.
Every REVISION shall be accompanied by written installation instructions.
FVC shall provide Technical Support for each REVISION for a minimum of three (3)
years after its initial release date.
ONSITE TECHNICAL SERVICE
In the event that NORTEL requests the on-site presence of a qualified FVC
technical support representative at a NORTEL or End User site to diagnose and
resolve a problem, FVC shall make reasonable efforts to have a qualified
technical representative available at such NORTEL or End User site within the
shortest time reasonably possible provided that NORTEL shall reimburse FVC for
reasonable travel and living expenses in accordance with NORTEL travel plan
guidelines. In the event that the problem is found to be no fault of FVC, NORTEL
shall further pay FVC at the rate established (by the Agreement to which this
Schedule is attached) for contractual/architectural support.
TEST EQUIPMENT REQUIREMENTS/AVAILABILITY
FVC shall make available to NORTEL for a reasonable and agreed price any test
equipment to include diagnostics, test fixtures, test devices so as to ensure
that NORTEL may adequately provide services to its end user customers. NORTEL
shall have the right v) purchase or reproduce and distribute diagnostic tools
for internal and Third Party Service use only.
TOOLS REQUIREMENTS/AVAILABILITY
FVC shall make available to NORTEL for a reasonable and agreed price any special
tools necessary to install and maintain FVC equipment should NORTEL agree to
install and maintain FVC equipment. Tools may include but are not limited to
special physical tools, software debug utilities, special diagnostics, etc.
NORTEL shall have the right to purchase or reproduce and distribute diagnostic
tools for internal and Third Party Service use only.
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DOCUMENTATION
DOCUMENTATION may be but is not limited to: User documentation, Application
documentation, performance tests, test procedures, white papers, notes,
technical bulletins, functional specifications, design specifications,
schematics, parts lists, field service documentation etc.
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SCHEDULE D - TRAINING
TRAINING DOCUMENTATION
FVC will provide three sets of its standard training material including where
appropriate, handouts, overheads, outlines, syllabus, labs, manuals etc.
Additional material should be available for an agreed price. If the training
course is updated three copies of updated training materials will be provided to
NORTEL 60 days prior to product release.
COURSE AVAILABILITY
FVC will provide training courses for the Technical Response Centers and
internal training developers within 30 days prior to product availability at
NORTEL's facility of choice. FVC will make training courses available for U.S.
Field Operations & Third Party Service Providers prior to product availability
at NORTEL's facility of choice. Details regarding type of class, content,
audience, location and size will be negotiated Training for future options,
functional enhancements and upgrades must be offered by FVC and participation is
solely at NORTEL option.
PRICING
Pricing for the courses provided by FVC at NORTEL will be as follows:
[ * ] per instructor (including travel time) plus [ * ] in accordance with
NORTEL standard allowance for such costs.
NORTEL to provide [ * ].
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
27
<PAGE> 1
CERTAIN CONFIDENTIAL TREATMENT CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.15
DEVELOPMENT AND LICENSE AGREEMENT
Between
FIRST VIRTUAL CORPORATION
And
ADVANCED TELECOMMUNICATIONS MODULES LIMITED
February 25, 1994
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS 1
1.1 "ATML's ATM Technology" 1
1.2 "Buyer" 1
1.3 "Confidential Information" 2
1.4 "Developed Products" 2
1.5 "FVC Technology" 2
1.6 "Global Office Market" 2
1.7 "Intellectual Property Rights" 2
1.8 "Joint Development Program" 2
1.9 "Jointly Developed Technology" 2
1.10 "Licensed Party" 3
1.11 "Licensing Party" 3
1.12 "Licensed Products" 3
1.13 "Net Product Revenues" 3
1.14 "OEM Purchase Agreement" 3
1.15 "Olivetti Technology" 3
1.16 "Procured Products" 3
1.17 "Products" 3
1.18 "Seller" 3
Article 2 - Joint Development Program 3
2.1 Joint Development Program 3
2.2 Term; Extension 4
2.3 Development Expenses 4
2.4 Additional Partners 4
2.5 Market Intelligence and Product Positioning 4
2.6 Reports; Inspection 4
ARTICLE 3 - OWNERSHIP AND LICENSES 4
3.1 License to ATML Technology 4
3.2 License to FVC Technology 5
3.3 Cross Licenses to Jointly Developed Technology 6
3.4 Ownership of Jointly Developed Technology. 6
3.5 Exchange of Information Outside of the Scope of
the Joint Development Program 6
3.6 Dual Exclusivity 6
3.7 Grant-Back License 7
3.8 Marketing Rights for New Products 7
3.9 Olivetti Marketing Participation 7
3.10 Delivery of Technology 7
i
<PAGE> 3
TABLE OF CONTENTS
(continued)
Page
Article 4 - Manufacturing and Technical Assistance 8
4.1 Technical Assistance 8
4.2 Manufacturing; Most Favored Nations Pricing 9
4.3 Standby Manufacturing License for Procured Products 9
4.4 Shortages of Procured Products 10
Article 5 - Royalties 10
5.1 Royalty Obligation 10
5.2 Payment 11
5.3 Records, Audit 11
Article 6 - Confidential Information 11
6.1 Obligation 11
6.2 Return of Materials 11
6.3 Injunctive Relief 12
Article 7 - Representations and Warranties 12
7.1 Warranties by ATML 12
7.2 Warranties by FVC 13
Article 8 - Indemnity And Infringement of Third-Party Rights 13
8.1 Indemnity Obligation 13
8.2 Options 13
8.3 Conditions Precedent For Indemnities 14
Article 9 - Termination 14
9.1 Termination 14
9.2 Effect of Termination 14
9.3 Survival 14
9.4 Assignments and Sublicenses 15
Article 10 - Miscellaneous 15
10.1 Assignment 15
10.2 Force Majeure 15
10.3 Entire Agreement; Amendment 15
10.4 Notices 15
10.5 Governing Law and Construction 15
10.6 Severability 16
10.7 No Waiver 16
10.8 Section Headings 16
ii
<PAGE> 4
TABLE OF CONTENTS
(continued)
Page
10.9 Independent Contractor 16
10.10 Disputes 16
iii
<PAGE> 5
DEVELOPMENT AND LICENSE AGREEMENT
This DEVELOPMENT AND LICENSE AGREEMENT ("Agreement") is entered into as
of the 25th day of February, 1994, by and between FIRST VIRTUAL CORPORATION
("FVC"), a California corporation with its principal place of business located
at 3333 Octavius Drive, Suite B, Santa Clara, CA 95054; and ADVANCED
TELECOMMUNICATIONS MODULES LIMITED ("ATML"), a corporation organized under the
laws of Great Britain with its registered office located at Home Farm, Fowlmere
Road, Heydon, Nr. Royston, Herts, SG8 8PZ England.
RECITALS
WHEREAS, ATML has entered into a License and Technical Co-Operation
Agreement with Ing. C. Olivetti & C., S.p.A. ("Olivetti") and its subsidiary
Olivetti Research Limited ("ORL") dated as of______, 1993 (the "Olivetti
Agreement") which grants to ATML certain rights to the Asynchronous Transfer
Mode Technology (as defined therein); and
WHEREAS, FVC desires to obtain from ATML certain rights to ATML's ATM
Technology, as defined hereafter; ATML desires to obtain from FVC certain rights
to the FVC Technology, as defined hereafter; and the parties desire to grant
such rights to each other; and
WHEREAS, the parties desire to make certain joint developments based
upon ATML's ATM Technology and to cross-license such joint developments; and
WHEREAS, the parties desire to purchase from each other and market
certain products;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the capitalized terms shall have the meanings
set forth below:
1.1. "ATML'S ATM TECHNOLOGY" shall mean all information, inventions,
technology, developments, processes, source and object code and other
copyrightable works and designs, including without limitation any improvements,
enhancements and modifications thereto, owned or controlled by ATML (with the
right to sublicense others) as of the Effective Date, including without
limitation, the Olivetti Technology, all as set forth, without limitation, on
Exhibit A, together with such additional technology owned or controlled by ATML
and not already licensed to FVC hereunder as ATML and FVC may mutually agree by
adding it after the Effective Date to Exhibit A hereunder.
1.2 "BUYER" shall mean the party purchasing Procured Products from
the other party pursuant hereto.
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<PAGE> 6
1.3 "CONFIDENTIAL INFORMATION" shall mean, if applicable, the
following items which are owned by either party or as to which such party has an
obligation to keep confidential: all information, computer programming language,
know-how, technical data, ideas, techniques, devices, inventions, improvements,
technology, trade secrets, developments, process, designs, methods, plans,
specifications, algorithms and other mathematical formulae, source and object
codes, plans for research and development, new products, marketing or selling,
and information about licenses, prices, costs, suppliers, customers and
compensation of such party's employees and independent contractors, whether in
oral, written, graphic or electronic form. The term Confidential Information
shall not include any item of information which (a) the receiving party can
prove was in its possession prior to disclosure thereof by the disclosing party,
(b) is or becomes generally available to the public other than as a result of
any action by the receiving party or the parties to whom the receiving party is
permitted to disclose hereunder, (c) is rightfully disclosed to the receiving
party by a third party without the imposition on the receiving party of any
confidentiality obligation or restrictions on use or (d) the disclosing party
states in writing should not be considered to be confidential.
1.4 "DEVELOPED PRODUCTS" shall mean those products, systems and
services to be developed by the parties under the Joint Development Program.
1.5 "FVC TECHNOLOGY" shall mean all information, inventions,
technology, developments, processes, source and object code and other
copyrightable works and designs, including without limitation any improvements,
enhancements and modifications thereto, owned or controlled by FVC (with the
right to sublicense others) during the term of this Agreement and not already
licensed to ATML hereunder as FVC and ATML may mutually agree by adding it to
Exhibit A hereunder.
1.6 "GLOBAL OFFICE MARKET" shall mean the worldwide market for use
in connection with commercial businesses, corporations or entities, governmental
agencies or entities and nonprofit corporations. The "Global Office Market"
shall not include uses designed primarily for home or residential purposes or
uses designed primarily for the purpose of providing telecommunications services
to a commercial business, such as services provided by PTTs and telephone
companies.
1.7 "INTELLECTUAL PROPERTY RIGHTS" shall mean trade secrets, patent,
copyright, mask work, "moral" or other similar rights under all jurisdictions
throughout the world.
1.8 "JOINT DEVELOPMENT PROGRAM" shall mean that program for the
development of the Products as set forth on Exhibit B hereto.
1.9 "JOINTLY DEVELOPED TECHNOLOGY" shall mean all information,
inventions, technology, developments, processes, source and object code and
other copyrightable works, and designs arising out of ATML's and/or FVC's
development activities hereunder (including development activities of each
party's partners under Section 2.4 hereof and to which such party has
sublicensable rights) and including any improvements, enhancements and
modifications thereto created or reduced to practice during the term of the
Joint Development Program.
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<PAGE> 7
1.10 "LICENSED PARTY" shall mean the party receiving a license to the
technology in question pursuant to Article 3 of this Agreement
1.11 "LICENSING PARTY" shall mean the party granting a license to the
technology in question pursuant to Article 3 of this Agreement.
1.12 "LICENSED PRODUCTS" shall mean any products, systems and
services incorporating any of the ATML ATM Technology developed, manufactured or
sold by or for FVC and any products, systems and services incorporating any of
the FVC Technology developed, manufactured or sold by or for ATM, pursuant to
licenses granted hereunder.
1.13 "NET PRODUCT REVENUES" shall mean all sums invoiced by the
Licensed Party for sales, leases, licenses, rentals or other conveyances for
value of Licensed Products, but not including amounts invoiced for taxes,
duties, insurance, shipping costs, installation, maintenance, consultation,
training, interest, finance charges, refunds, credits, rebates or allowances,
regardless of whether such amounts are separately invoiced.
1.14 "OEM PURCHASE AGREEMENT" shall mean a mutually acceptable
bilateral form of purchase agreement containing reasonable terms and conditions
under which the parties will purchase any Procured Products from each other.
1.15 "OLIVETTI TECHNOLOGY" shall mean the Licensed Technology, as
defined and licensed to ATML pursuant to the Olivetti Agreement.
1.16 "PROCURED PRODUCTS" shall mean ATML, products or FVC products
purchased by the other party from the list of such products set forth on Exhibit
C hereto, as such list shall be updated by mutual written agreement at least
quarterly.
1.17 "PRODUCTS" shall mean Developed Products, Licensed Products
and/or Procured Products, as the context requires.
1.18 "SELLER" shall mean the party selling Procured Products to the
other party pursuant hereto.
ARTICLE 2
JOINT DEVELOPMENT PROGRAM
2.1 JOINT DEVELOPMENT PROGRAM. ATML and FVC shall each use
reasonable efforts to develop the Developed Products in accordance with the
Joint Development Program and on the terms and conditions set forth herein. The
parties have agreed to an initial Joint Development Program plan, attached
hereto as Exhibit B, and they each acknowledge that such Joint Development
Program plan shall be updated on a quarterly basis by ATML and FVC, including
without limitation by establishing a mutually agreeable schedule for such
development activities.
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<PAGE> 8
2.2 TERM; EXTENSION. The Joint Development Program shall commence on
the Effective Date and shall terminate on the second anniversary thereof,
subject to extension by mutual written consent of the parties and to termination
pursuant to Section 9.1 below.
2.3 DEVELOPMENT EXPENSES. Each party shall bear its own costs and
expenses relating to the development activities performed by it in connection
with the Joint Development Program.
2.4 ADDITIONAL PARTNERS. FVC and ATML agree that one of the goals of
the Joint Development Program is to obtain appropriate partners to develop and
manufacture certain components of the Products and to manufacture directly high
value-added components of and software for the Products.
2.5 MARKET INTELLIGENCE AND PRODUCT POSITIONING. During the term of
the Joint Development Program, the parties will exchange marketing information
on the Products for the purpose of (a) giving inputs to their respective R&D
groups on market requirements, (b) optimizing product positioning and (c)
improving the respective market visibility for a better definition of product
strategy.
2.6 REPORTS; INSPECTION. ATML and FVC shall each provide to the
other party monthly written reports setting forth the status of the developments
under the Joint Development Program and shall allow the other party reasonable
access to its facilities to inspect the advancement of such developments.
ARTICLE 3
OWNERSHIP AND LICENSES
3.1 LICENSE TO ATML TECHNOLOGY.
(a) ATML hereby grants to FVC a perpetual, worldwide,
non-sublicensable (except with respect to end-user binary code software licenses
and except as permitted under Section 9.4 below) license under ATML's ATM
Technology, including a sublicense under the Olivetti Technology, to (i) develop
the Developed Products in accordance with the Joint Development Program and (ii)
make, have made, sell, lease, copy, modify, distribute or otherwise exploit
products, including without limitation the Licensed Products and the Developed
Products. The license to Licensed Products shall bear a royalty as set forth in
Article 5 below. Notwithstanding anything to the contrary provided herein, those
items of ATML's ATM Technology that are identified as Procured Products on
Exhibit C shall not be deemed included in the rights granted FVC under this
Section 3.1 (a), other than for the right to buy such items from ATML in the
form of Procured Products and for the right to incorporate them in Licensed
Products made by or for FVC.
(b) Such license to sell, lease or distribute shall be
exclusive in the Global Office Market (except as provided in the last sentence
of this Section 3.1 (b) and in Sections 3.1 (c) and 3.1 (d) below) for the
period commencing on the Effective Date and ending on the later of (a) March 31,
1995 or (b) twelve (12) months after the date on which FVC has shipped or
otherwise provided its first Licensed Products to its first commercial customer.
Thereafter
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<PAGE> 9
such license shall continue on a non-exclusive basis. Notwithstanding such
exclusivity, ATML shall retain such rights under ATML's ATM Technology and
Jointly Developed Technology for the Global Office Market after March 31, 1995
for Europe and after December 31, 1995 for all other markets (i.e., ATML and FVC
shall each have such rights).
(c) Notwithstanding such exclusive rights, FVC acknowledges
that ATML shall, have the right to grant to investors holding at least 10% of
ATML's equity (i.e., voting share capital) the right to lease, sell or
distribute any and all products based on or incorporating the ATML ATM
Technology directly or indirectly in any market under their respective
trademarks or names.
(d) FVC acknowledges that ATML's license to the Olivetti
Technology under the Olivetti Agreements is non-exclusive except that Olivetti
and its Affiliates (as defined therein) have covenanted not to exercise their
right to make or have made equipment based on the Olivetti Technology so long as
ATML fulfills the requirements of Olivetti and its Affiliates for products based
on the Olivetti Technology, in accordance with the terms and conditions of such
Olivetti Agreements. ATML covenants and agrees with FVC to use its best efforts
to fulfill such requirements and to notify FVC within thirty (30) days of ATML's
discovery of any fact that will require it to fail to met its supply obligation
to Olivetti or receipt of any notice of default with respect to such obligation.
(e) The parties recognize that in certain events, as set
forth in the Olivetti Agreement, Olivetti's license of the Olivetti Technology
to ATML may terminate. In such an event, Olivetti has agreed in the letter
agreement (the "Olivetti Letter") attached hereto as Exhibit E, to grant FVC a
direct, perpetual license to the Olivetti Technology on the same terms and
conditions as ATML's sublicense to FVC under Section 3. 1 (a) above. In such an
event, the parties hereby agree that FVC's obligations to Olivetti under such
license shall supersede FVC's obligations to ATML, with respect to the Olivetti
Technology hereunder, and that any royalty obligations of FVC to Olivetti under
such license and to ATML hereunder will be apportioned between Olivetti and ATML
in the proportion [ * ] so that FVC's combined royalty obligations to Olivetti
and ATML shall not exceed FVC's royalty obligations to ATML hereunder.
3.2 LICENSE TO FVC TECHNOLOGY. FVC hereby grants to ATML a
perpetual, worldwide, non-sublicensable (except with respect to end-user binary
code software licenses and except as permitted under Section 9.4 below) license
under the FVC Technology to (i) develop the Developed Products in accordance
with the Joint Development Agreement and (ii) make, have made, sell, lease,
copy, modify, distribute or otherwise exploit products, including without
limitation the licensed Products and the Developed Products. The license to
Licensed Products shall bear a royalty as set forth in Article 5 below.
Notwithstanding anything to the contrary provided herein, those items of FVC's
Technology that are identified as Procured Products on Exhibit C (if any) shall
not be deemed included in the rights granted ATML under this Section 3.2, other
than for the right to buy such items from FVC in the form of Procured Products
and for the right to incorporate them in Licensed Products made by or for ATML.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 10
3.3 CROSS LICENSES TO JOINTLY DEVELOPED TECHNOLOGY.
(a) FVC hereby grants to ATML a non-exclusive, perpetual
(except as provided in Section 9.1), royalty-free, non-sublicensable (except for
end-user binary code software licenses and except as permitted under Section 9.4
below) worldwide license under FVC's Jointly Developed Technology to make, have
made, sell, license, lease, copy, modify, distribute or otherwise exploit any
product and for any other purposes whatsoever.
(b) ATML hereby grants to FVC a non-exclusive, perpetual
(except as provided in Section 9.1) royalty-free, non-sublicensable (except for
end-user binary code software licenses and except as permitted under Section 9.4
below) worldwide license under ATML's Jointly Developed Technology to make, have
made, sell, license, lease, copy, modify, distribute or otherwise exploit any
product and for any other purposes whatsoever.
(c) Notwithstanding the foregoing limitation on
sublicensing, FVC agrees that ATML shall have the right to grant to investors
holding at least 10% of ATML's equity (i.e., voting share capital) the right to
lease, sell or distribute any and all products based on or incorporating the
Jointly Developed Technology directly or indirectly in any market under their
respective trademarks or names.
3.4 OWNERSHIP OF JOINTLY DEVELOPED TECHNOLOGY. All Intellectual
Property Rights, including without limitation copyrights, in the Jointly
Developed Technology shall be jointly owned by FVC and ATML. To the extent
required to confirm such joint ownership, the parties hereby agree to assign to
each other an undivided one-half interest in the Jointly Developed Technology.
The parties agree that each shall be free to use and commercially exploit the
Jointly Developed Technology (subject to all other provisions of this
Agreement), and there shall be no obligation of payment or accounting to the
other therefor; provided, however, that each party shall use best efforts to
give the other party prior written notice of any such use. The parties agree
that the Jointly Developed Technology shall not include any inventions, or other
intellectual property of any type which existed prior to the effective date of
this Agreement, or which was not created by the joint efforts of the parties in
connection with this Agreement.
3.5 EXCHANGE OF INFORMATION OUTSIDE OF THE SCOPE OF THE JOINT
DEVELOPMENT PROGRAM. During the term of the Joint Development Program, the
parties will inform each other on their respective R&D activities in fields
outside of the scope of the Joint Development Program, but related to ATM
technology, in order to evaluate the desirability for both parties to extend the
scope of the cooperation envisaged in this Agreement.
3.6 DUAL EXCLUSIVITY. In consideration of the exclusive marketing
rights granted to FVC hereunder, until March 31, 1995, for Europe and until
December 31, 1995, for all other markets, FVC agrees not to market any product
other than the Products in direct competition (i.e., with similar function,
price and performance) with the Licensed Products, ATML's ATM Technology and the
Jointly Developed Technology unless otherwise mutually agreed in writing with
ATML. In consideration of the foregoing and FVC's other obligations hereunder,
ATML agrees not to license the ATML ATM Technology or the Jointly Developed
Technology or sell (except to end-users and distributors who are not OEMs or
VARs with respect to the Products)
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<PAGE> 11
licensed Products, Developed Products or Procured Products to any company whose
stock is not traded on a nationally-recognized stock exchange or automated
national market system where the resulting products or such products would
directly compete (i.e., with similar function, price and performance) with those
of FVC.
3.7 GRANT-BACK LICENSE. Each party grants to the other party a
non-exclusive, perpetual (except as provided in Section 9.1), royalty-free,
non-transferable and nonsublicensable (except with respect to end-user binary
software licenses and except as permitted under Section 9.4), worldwide license
to make, have made, sell, license, lease, copy, modify, distribute or otherwise
exploit any enhancement, derivative or modification of a Licensed Product
created or reduced to practice by such party during the term of the Joint
Development Program.
3.8 MARKETING RIGHTS FOR NEW PRODUCTS. Subject to the exclusivity
rights granted in Section 3.1(b) (to above, and during the term of the Joint
Development Program, each party shall have non-exclusive worldwide marketing
rights for all new products of the other party not constituting Products
hereunder at the most favored nation pricing arrangement referred to in Section
4.2 below.
3.9 OLIVETTI MARKETING PARTICIPATION. FVC agrees to discuss the
terms of a possible marketing collaboration for the Products in Europe with
Olivetti on such terms and conditions as FVC and Olivetti may mutually agree in
writing.
3.10 DELIVERY OF TECHNOLOGY.
(a) To the extent not previously provided, upon execution of
this Agreement, and no less frequently than quarterly thereafter, each of the
parties shall provide the other party with all source and object code and
documentation with respect to the technology covered by the licenses granted in
this Article 3 and with respect to the Licensed Products, Developed Products and
Procured Products, including without limitation:
(i) Complete electronic design materials required to
produce any semiconductor parts, including tapes, Verilog files and similar
materials;
(ii) Engineering drawings of all assemblies and
schematics, and logic and timing diagrams;
(iii) Complete adjustment, operational and
installation specifications;
(iv) Service test procedures and a list of any
special tools and service test equipment designed by such party;
(v) Service, parts identification, service training,
maintenance and operator's manuals;
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<PAGE> 12
(vi) Software and firmware source listings and
related documentation when necessary to effect an interface or for maintenance
purposes;
(vii) Engineering drawings, logic diagrams and
documentation necessary for interfacing any Product to the remainder of any
system in which it has been designed for use; and
(viii) Any other documentation concerning the operation
and maintenance of any Product which will permit the other party to develop a
complete set of operator and service manuals.
(b) Such documentation shall be of the type which is used by
such party's personnel, shall be in a form capable of reproduction, and shall be
updated by new documentation from time-to-time as it becomes available. The
other party shall have the right to copy, modify and use, and have copied,
modified and used, the documentation provided by such party for the purposes of:
(i) each party utilizing the licenses granted in this Article 3; (ii) Buyer
utilizing the license granted under Section 4.3 of this Agreement, provided that
Buyer shall be entitled under the provisions of Section 4.3 to utilize such a
license; and (iii) each party providing manuals or the like concerning the
Products, provided that any copyrights therein are appropriately safeguarded,
and each party shall have the right to copyright any such manuals developed by
the other party in connection with its sale of the other party's Products.
(c) The foregoing to the contrary notwithstanding, Seller
shall not be required to deliver directly to Buyer the complete electronic
design materials with respect to the Procured Products specified in Section
3.10(a)(i) above, but shall instead deliver them, on a timely basis (i.e., when
related documentation is also delivered in accordance with Section 3.10), to a
mutually satisfactory escrow agent or escrow agents pursuant to a mutually
satisfactory form of escrow agreement under which the escrow agent would hold
such materials for delivery to Buyer should the license for the Procured Product
in question under Section 4.3 come into effect. ATML and FVC agree to negotiate
in good faith and enter into such an escrow agreement or escrow agreements
within 90 days of the date of this Agreement.
ARTICLE 4
MANUFACTURING AND TECHNICAL ASSISTANCE
4.1 TECHNICAL ASSISTANCE. To assist each other in its performance
hereunder, during the term of the Joint Development Program, each party agrees
to make available to the other, at the appropriate party's facilities during
normal business hours, such assistance as may be reasonably required for the
completion of the development work. The party receiving such assistance shall be
responsible for any and all expenses associated with such assistance including
without limitation reasonable travel, lodging, meal and other expenses of the
providing party's employees or agents, except the compensation of the providing
party's personnel. Except as otherwise provided in this Section 4.1, each party
will be responsible for obtaining all the intellectual property, technology,
labor, materials, tooling and facilities for the completion of the development
services to be performed by it hereunder.
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<PAGE> 13
4.2 MANUFACTURING; MOST FAVORED NATIONS PRICING. Seller shall
manufacture or have manufactured for Seller the Procured Products. Buyer shall
purchase Procured Products from Seller pursuant to the OEM Purchase Agreement.
Each party may manufacture Products other than Procured Products itself or
contract for such manufacture with any third party, including without limitation
the other party. Any manufacturing arrangement between ATML and FVC or a third
party manufacturing for either of them shall be on such terms and conditions as
the parties may hereafter agree in writing; provided, however, that any such
arrangement shall provide for the purchasing party to receive most favored
nations pricing for any products so manufactured and purchased. In the event
that either party intends to utilize a third party for manufacturing the
Developed Products, the parties shall evaluate the desirability of relying upon
a common manufacturer. In such a case, both parties will have the right to
procure the Developed Products directly from such manufacturer at a common
price.
4.3 STANDBY MANUFACTURING LICENSE FOR PROCURED PRODUCTS.
(a) In the event this Agreement is terminated by Buyer
pursuant to Section 9.1 hereof or if Seller is, for any reason, unable to supply
Buyer with Buyer's "reasonable requirements" of a Procured Product ordered by
Buyer under the terms of this Agreement, Seller hereby grants to Buyer an
irrevocable and non-exclusive worldwide right and license to all information,
inventions, technology, developments, processes, source and object code, and
other copyrightable works and designs, including without limitation any
improvements, enhancements and modifications thereto, owned or controlled by
Seller used or useful in such Procured Product and any other manufacturing
rights of Seller necessary for Buyer to manufacture or have manufactured such
Procured Product. Seller shall, under such circumstances and at such time,
furnish to Buyer without cost all necessary assistance as will permit Buyer to
commence manufacture of such Procured Product including, but not limited to,
updating documentation with respect to such Procured Product already provided
under Section 3.10 of this Agreement, along with reasonable amounts of technical
assistance. In addition, Seller agrees to sell or lease to Buyer, if Buyer
desires, and based on its then fair market value, tooling owned or controlled by
Buyer and necessary for such manufacture of such Procured Product. The license
to manufacture Procured Products, to the extent utilized by Buyer under this
Section 4.3 , shall bear a royalty as set forth in Article 5 below; provided,
however, that Buyer shall not be liable for such royalty if and to the extent
that Buyer also becomes liable for royalties under Section 3.1 or 3.2, as the
case may be, with respect to such Procured Product by reason of Buyer exercising
its rights under this Section 4.3.
(b) For purposes of this Section 4.3, Seller shall be deemed
unable to supply Buyer's "reasonable requirements" only if:
(i) Seller fails to deliver the entire quantity of
such Procured Product ordered by Buyer for any two consecutive months; and
(ii) The quantity of such Procured Product that
Seller delivers by the end of the third consecutive month does not cover the
entire quantity of such Procured Product ordered by Buyer for the three months
taken together.
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<PAGE> 14
(c) For purposes of this Section 4.3, Buyer's requirements
shall be deemed to be "reasonable" only if:
(i) On a quarterly basis, Buyer shall have provided
Seller with a rolling twelve-month forecast of its requirements for such
procured Product;
(ii) Buyer shall have issued to Seller at least
thirteen (13) weeks prior to the shipment date specified by Buyer a purchase
order covering its requirement for such Procured Product; and
(iii) Purchase Orders for Procured Products to be
shipped during the month in question shall not have exceeded 150% of those
forecast for such month in the last rolling forecast received by Seller.
(d) All forecasts delivered by Buyer under subsection 4.3(c)
above shall represent Buyer's current good faith estimate of its requirements
for Procured Products for the periods stated.
(e) No Buyer may claim its "reasonable requirements" with
respect to a Procured Product were not met hereunder to the extent that Seller
has not accepted a purchase order or has not shipped a Procured Product by
reason of the fact that Buyer, after written notice from Seller thereof and
thirty days to cure, is in material breach of the terms and conditions of its
OEM Purchase Agreement to buy Procured Products from Seller.
4.4 SHORTAGES OF PROCURED PRODUCTS. In the event there are any shortages
of Procured Products so that the available unit volume of such Procured Products
does not meet both parties' needs:
(a) the parties will work together to help solve any design,
development, manufacturing or similar problem causing such shortages; and
(b) during the term of such shortage, the Procured Products
shall be allocated half-half between the parties until at least one party's
needs are met.
ARTICLE 5
ROYALTIES
5.1 ROYALTY OBLIGATION. The Licensed Party shall pay to the
Licensing Party a royalty based on Net Product Revenues for sales by the
Licensed Party of Licensed Products that are manufactured by or for the Licensed
Party in the percentages set forth below:
10
<PAGE> 15
Year Percentage of Net Product Revenues
- ---- ----------------------------------
[ * ]
For the purposes of calculating such royalties, the first yearly period
shall commence on the date of the Licensed Party's first commercial shipment of
its first Licensed Product hereunder. No royalty shall be payable hereunder on
Products manufactured by the Licensing Play or on its behalf for sale to the
Licensed Party.
5.2 PAYMENT. Royalties payable hereunder shall be calculated on a
calendar quarter basis and shall be due and payable in U.S. dollars by FVC and
in British pounds by ATML within forty-five (45) days after the end of each
quarter, beginning with the calendar quarter in which the first commercial sale
of applicable Products occurs. Each royalty payment shall include a true and
complete accounting of Net Product Revenues of the applicable Licensed Products
during the calendar quarter.
5.3 RECORDS, AUDIT. FVC shall keep complete and accurate records
pertaining to its sale of Products for a one (1) year period following the year
in which any such payments were made hereunder. ATML will have the right to
engage, at its own expense, an independent, certified public accountant
reasonably acceptable to FVC, to examine FVC's records to determine, with
respect to any calendar year, the correctness of any report or payment made
under this Agreement. Such right shall be exercisable once during the one year
period following the date on which the relevant payments were made.
ARTICLE 6
CONFIDENTIAL INFORMATION
6.1 OBLIGATION. Each party shall make available to the other party,
and permit the other party access to, all the Confidential Information of such
disclosing party reasonably necessary to enable the receiving party to perform
its obligations under this Agreement. The receiving party agrees to keep
confidential and not to use, disclose or make available for use, except in the
proper performance of its duties and responsibilities hereunder or in the
exercise of its rights hereunder, any Confidential Information. The receiving
party agrees that any dissemination of any Confidential Information to its
employees shall be only as is necessary to carry out the purposes of this
Agreement, shall be limited to the maximum extent possible consistent with
carrying out such purposes, and shall be limited to these employees who have
agreed to be bound by the receiving party's confidentiality and non-use
obligations.
6.2 RETURN OF MATERIALS. The receiving party shall, at any time upon
the disclosing party's request, promptly deliver to the disclosing party or its
designee all tangible property which has been furnished to the receiving party
by the disclosing party or which evidences,
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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constitutes, embodies or reflects any Confidential Information. Such property
shall include, without limitation, all property in which the disclosing party
has ownership rights pursuant to Section 3.3 above at whatever stage of
completion such property may be as of such termination.
6.3 INJUNCTIVE RELIEF. Each party agrees that remedies at law are
inadequate to protect against any breach of this Article 6. Accordingly, the
disclosing party may seek or obtain injunctive relief against any such breach or
threat thereof in addition to any other legal remedies which may be available,
and the receiving party hereby consents to the granting of injunctive relief,
whether temporary, preliminary, or final, in favor of the disclosing party
without proof of actual damages and without the necessity of posting a bond or
other security.
ARTICLE 7
REPRESENTATIONS AND WARRANTS
7.1 WARRANTIES BY ATML. ATML represents and Warrants that:
(a) the ATML Technology (excluding the Olivetti Technology)
and the Jointly Developed Technology to be developed by ATML hereunder are and
shall be original works and ATML is not currently aware of any infringement of
rights of any third party by the ATML Technology;
(b) ATML owns and possesses all right, title and interest in
and to all Intellectual Property Rights related to such ATML Technology and such
ATML Jointly Developed Technology and such are subject to no liens,
encumbrances, security interests or the like of any kind whatsoever;
(c) ATML will not use any trade secrets or confidential or
proprietary information owned by any third party in performing its services and
obligations under this Agreement;
(d) ATML's entering into and performance of this Agreement
does not contravene the terms, provisions or conditions of any instrument or
contract by and between ATML and any other party, including, without limitation,
the Olivetti Agreement, a true and correct copy of which is attached as Exhibit
D;
(e) ATML is under no obligation or restriction, nor will
ATML assume any such obligation or restriction during the term of this
Agreement, which would in any way interfere or be inconsistent with or present a
conflict of interest concerning the services to be furnished by ATML under this
Agreement; and
(f) ATML has the full right, power and authority to enter
into this Agreement.
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7.2 WARRANTIES BY FVC. FVC represents and warrants that:
(a) the FVC Technology and the Jointly Developed Technology
to be developed by FVC hereunder are and shall be original works and FVC is not
currently aware of any infringement of rights of any third party by the FVC
Technology;
(b) FVC will own and possess all right, title and interest
in and to all Intellectual Property Rights related to such FVC Jointly Developed
Technology and such are subject to no liens, encumbrances, security interests or
the like of any kind whatsoever;
(c) FVC will not use any trade secrets or confidential or
proprietary information owned by any third party in performing its services and
obligations under this Agreement;
(d) FVC's entering into and performance of this Agreement
does not contravene the terms, provisions or conditions of any instrument or
contract by and between FVC and any other party;
(e) FVC is under no obligation or restriction, nor will FVC
assume any such obligation or restriction during the term of this Agreement,
which would in any way interfere or be inconsistent with or present a conflict
of interest concerning the services to be furnished by FVC under this Agreement;
and
(f) FVC has the full right, power and authority to enter
into this Agreement.
ARTICLE 8
INDEMNITY AND INFRINGEMENT OF THIRD-PARTY RIGHTS
8.1 INDEMNITY OBLIGATION.
(a) Each party agrees to indemnify and hold the other party
harmless from and against any and all damages, claims, losses or liabilities,
including without limitation attorneys' and other professional fees, resulting
from any breach by such indemnifying party of any of the representations,
warranties or covenants set forth herein.
(b) Each party agrees to indemnify and hold the other party
harmless from and against any and all damages, claims, losses or liabilities,
including without limitation attorneys' and other professional fees, resulting
from the infringement of the rights of any third party by any of the Licensed
Technology licensed by such party to the other party and by any of the Jointly
Developed Technology developed by such party hereunder; provided, however, that
such indemnification shall be limited to the offset by the other party of not
more than fifty percent (50%) of the royalties owed to such party by the other
party under the royalty provisions of Sections 3.1, 3.2, 4.3 and Article 5
hereof.
8.2 OPTIONS. Should any applicable product become or, in the
indemnifying party's opinion, be likely to become the subject of a claim of
infringement of a third party's Intellectual
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<PAGE> 18
Property Rights, the indemnifying party may, at its option and expense either
(a) procure for the indemnified party the necessary rights to make the use of
such product noninfringing or (b) replace or modify such product such that the
indemnified party may use such product without infringing upon any such third
party's rights.
8.3 CONDITIONS PRECEDENT FOR INDEMNITIES. The obligation of the
indemnifying party to indemnify the indemnified party under Section 8.1 is
conditioned upon (a) the indemnified party giving prompt notice of a claim to
the indemnifying party, (b) the indemnifying party receiving the full
cooperation of the indemnified party in connection with the defense of such
claim (at the indemnifying party's expense), and (c) the indemnifying party
having the right to control and direct the investigation, preparation, defense
and, upon the consent of the indemnified party not to be unreasonably withheld,
settlement of such claim. The indemnified party may participate in such action
at its own expense through separate legal counsel.
ARTICLE 9
TERMINATION
9.1 TERMINATION.
(a) Either party may terminate this Agreement upon sixty
(60) days' written notice for material breach by the other party of any other
term, condition, obligation or warranty under this Agreement, if said breach is
not cured during said sixty (60) day period.
(b) If a party becomes insolvent or bankrupt, makes an
assignment for the benefit of creditors, has a trustee or receiver appointed for
it, becomes the subject party of any voluntary or involuntary insolvency,
bankruptcy or reorganization proceeding, which, in the case of any involuntary
proceeding, is not dismissed within sixty (60) days after it is commenced, or
discontinues its business, then the other party may terminate this Agreement
effective immediately upon giving written notice to such party. All rights and
licenses granted to the parties under or pursuant to this Agreement are and
shall be deemed to be, for purposes of Section 365(n) of the U. S. Bankruptcy
Code, licenses of rights to intellectual property as defined under Section 101
of the U.S. Bankruptcy Code. The parties agree that each party, as a licensee of
such rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the U.S. Bankruptcy Code.
(c) In event of a dispute arising under this Agreement, both
party's rights and obligations will continue during the pendency of such
dispute.
9.2 EFFECT OF TERMINATION. In the event that a party terminates this
Agreement for breach by the other party pursuant to Section 9.2(a) above, the
licenses granted hereunder to the non-breaching party shall survive.
9.3 SURVIVAL. Section 4.3 [Standby Manufacturing License for
Procured Products] and Articles 5 [Royalties], 6 [Confidential Information]; 7
[Representations and Warranties] and 8 [Indemnity and Infringement of
Third-Party Rights] will survive any termination of this Agreement.
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9.4 ASSIGNMENTS AND SUBLICENSES. The licenses granted under Section
3 hereof may not be assigned, transferred or sublicensed in any manner without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. FVC hereby consents to the sublicense by ATML of all of
ATML's right under Section 3.3(a) to Olivetti.
ARTICLE 10
MISCELLANEOUS
10.1 ASSIGNMENT. During the term of the Joint Development Program,
neither this Agreement nor any right or obligation arising hereunder may be
assigned or subcontracted by either party in whole or in part, without the prior
written consent of the other party. This Agreement shall be binding upon any
permitted assignee and inure to the benefit of the successors and assigns of
each of the parties hereto.
10.2 FORCE MAJEURE. If performance of this Agreement or of any
obligation hereunder is prevented, restricted or interfered with by: fire or
other casualty or accident; strikes or labor disputes; war or other violence;
unavailability of or delays in procuring materials (including without limitation
semiconductor chips), power or supplies; any law, order, proclamation,
regulation, ordinance, demand or requirement of any governmental or
intergovernmental agency or body; or any other act or condition whatsoever
beyond the reasonable control of the party affected thereby, the party so
affected shall be excused from such performance during the time such prevention,
restriction or interference persists so long as such party takes all actions
available to it to limit the duration of such prevention, restriction or
interference.
10.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits hereto which are incorporated herein by reference, sets forth and
constitutes the entire, exclusive and complete agreement between the parties
hereto with respect to the subject matter hereof, and supersedes any and all
prior agreements, understandings, promises and representations, oral or written,
made by either party to the other concerning the subject matter hereof and terms
applicable hereto. This Agreement may not be released, discharged, amended or
modified in any manner except by an instrument in writing signed by duly
authorized officers of both parties hereto.
10.4 NOTICES. Unless otherwise specified herein, all notices,
approvals and other communications hereunder shall be in writing and shall be
delivered personally or by telex or telefax or mailed by registered or certified
mail, first class, postage prepaid, to the parties hereto at their addresses
specified herein, subject to the right of either party to change its address by
written notice. Any communication required or permitted hereunder shall be
deemed delivered upon personal delivery, twenty-four (24) hours after telex or
telefax transmission, or ninety-six (96) hours after deposit in any official
post box.
10.5 GOVERNING LAW AND CONSTRUCTION. This Agreement shall be governed
in all respects by the laws of the State of California, excluding choice of law
rules and the U.N. Convention on the Sale of Goods.
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10.6 SEVERABILITY. Should any provision of this Agreement be held to
contravene any law or regulation or be unenforceable, then such provision shall
be automatically terminated to the extent of such contravention or
unenforceability and performance thereof by the parties waived, and such
provision to the extent not in such contravention or unenforceable and all other
provisions of this Agreement shall continue in full force and effect.
10.7 NO WAIVER. No waiver of any right by either party under this
Agreement shall be deemed effective unless contained in a writing signed by such
party, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
10.8 SECTION HEADINGS. The titles and subtitles used in this
Agreement are for convenience only and are not a part of this Agreement and do
not in any way limit or amplify the terms and provisions of this Agreement.
10.9 INDEPENDENT CONTRACTOR. Each party is an independent contractor
and nothing herein shall be deemed to constitute the parties hereto as partners
or joint venturers or similarly related, and neither party shall have the right
to bind the other in any respect. Personnel supplied by each party will be
deemed employees of such party and will not, for any purpose, be considered
employees or agents of the other. Each party assumes full responsibility for the
actions of such personnel hereunder and shall be solely responsible for their
supervision, daily direction and control, payment of salary (including
withholding of income taxes), worker compensation, disability benefits and any
other form of compensation or benefit. Each party shall defend, indemnify and
hold the other harmless from and against any claim, demand, liability, damage or
loss (including without limitation attorney's and other professional fees) with
respect to those items described in the immediately preceding sentence or any
other item of any nature relating to any personnel of the party performing
services hereunder.
10.10 DISPUTES.
(a) In the event that any claim, dispute or controversy
("Dispute") arises between the parties regarding the performance,
interpretation, application or enforcement of this Agreement, including, but not
limited to, any action in contract or tort, at equity or at law, the chief
executive officers of the parties shall through informal, good faith
negotiations attempt to resolve the Dispute. Upon failure of the parties to so
resolve the dispute within ten (10) business days following receipt by one party
from the other of written notice of the Dispute, which notice shall refer to
this Section 10.10, the Dispute shall be referred to mediation.
(b) In the event a Dispute is referred to mediation, the
parties shall select a mediator within ten (10) business days of the termination
of their good faith negotiations. The mediator shall have the duty to submit a
possible resolution of the dispute to the parties, which will consider it in
good faith. The mediation shall be commenced within ten (10) business days of
the selection of the mediator and shall be concluded within twenty (20) business
days of such commencement.
16
<PAGE> 21
(c) Should any Dispute remain after the earlier of (i)
completion of the twostep resolution process set forth above or (ii) forty-five
(45) business days of receipt by one party from the other of the written notice
of the Dispute referred to in subsection 10.10(a) above, the Dispute may, if the
parties mutually agree in writing, be resolved by binding arbitration. Should
the parties agree to binding arbitration, such arbitration shall be conducted in
such manner, following such procedures, with such arbitrators and at such
location as the parties may mutually agree.
(d) Any litigation initiated by ATML against FVC must be
initiated by ATML in a state or a federal court in the city of San Jose, Santa
Clara County, California, USA. Amy litigation initiated by FVC against ATML must
be initiated in The High Court of Justice, Chancery Division, London, England,
UK. The parties hereby agree to the exercise of jurisdiction over them by such
tribunals.
(e) In the event either litigation and/or binding
arbitration is initiated, the prevailing party in the litigation and/or
arbitration shall be entitled to its reasonable attorney's fees and costs in
addition to any other relief to which that party may be entitled.
(f) Any deadlines in this Section 10.10 may be extended only
with the mutual written consent of the parties.
(g) The provisions of this Section 10.10 shall not preclude
either party from seeking immediate injunction relief in the event of breach of
Article 6 by the other party.
17
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FIRST VIRTUAL CORPORATION
By: /s/ RALPH UNGERMANN
Title: CEO
ADVANCED TELECOMMUNICATIONS
MODULES LIMITED
By: /s/ HERMANN HAUSER
Title: Chairman
24/2/94
Exhibits
A - Technology to be Licensed per Royalty Schedule
B - Joint Development Program
C - Procured Products
D - Olivetti Agreement
E - Olivetti Letter
18
<PAGE> 23
ATM Ltd. Exhibits for ATM and FVC Agreement
Exhibit A
EXISTING TECHNOLOGY TO BE LICENSED PER ROYALTY SCHEDULE
To be mutually updated quarterly
ATM's existing technology
1 Desk mounting 4 Port ATM switches
2 Desk or rack mounting 8 port ATM switches
3 Active switch backplanes using slotted access
4 Bidirectional co-axial cable to monomode and multimode dual fiber
converters
5 ATMOS card - general purpose computer with built-in ATM interface
6 PC compatible ATM network adapter
7 PC compatible ARM powered ATM network adapter
8 DEC TurboChannel ATM network adapter
9 ATM Camera - multiple input camera module with ATM interface
10 ATM Audio - 4 channel audio card, A/D & D/A with DSP & ATM interface
11 Disc Brick - self-contained file server with RAID, NFS and ATM interface
12 ATM Serial - 8 line serial (RS232) adapter with ATM network interface
13 ATM Ethernet and SCSI - ATM0S card adapter with Ethernet and SCSI
interfaces
14 CAP 16 UTP transceiver prototype card
15 25.6 Mbit UTP transceiver prototype card
16 DS3/E3 45/34 Mbps ATM ATMOS card adapter
17 ATOM chip design and VLSI specification incorporating ARM processor
core, memory, DMA logic, I/O ports and ATM network interfaces
18 BootROM image development environment incorporating hardware self-test
19 ATMos development system with software cross tools for UNIX
20 ATMos kernel with ATM code, library, SAR and switching
21 Basic self-routing server in network topology self determination
22 ATMos filing system software
FVC's existing technology
1 None
Page 1 of 4
<PAGE> 24
ATM Ltd. Exhibits for ATM and FVC Agreement
EXHIBIT B
JOINT DEVELOPMENT PROGRAMME
To be mutually updated quarterly
ATM will be responsible for:
1 Discrete version of ATOM Chip functionally software equivalent. Interim
solution pending ATOM Chip availability. Required to allow prototyping
and early product availability
2 ATOM chip implementation
3 Cost-reduced FPGA version of ATMOS card with DRAM
4 UTOPIA implimentations of transceivers
5 155 Mbps STP STS-3 (based on Saturn or Saturn Lite chips or similiar)
6 ATMos stand alone low-level manager code. Resides in at least one of the
switches in a system and provides booting etc services for the others
7 SSCOP protocol (stream protocol under Q93B)
8 Q93B/F signalling software implementation
9 Inband QoS software. Per-VCI loss priority and delay priority and BECN
handling
10 ILMI mangement hooks in ATMos basic ATM code
11 Specification of internal protocol between ATML-C9 and FVC-E2
12 Updates and upgrades (including cost reduction) to basic disk brick
hardware
13 NFS interface software
14 Real time transport (multimedia) protocol software API
15 Alternative API for value-add resident software
16 Office area switch based on existing ATML 4 port technology
17 Office area switch based on existing ATML 8 port technology
18 Various Hub configurations built from office area switch building blocks
and ATMos components. These switching modules should allow mixing and
matching of transceiver modules at the generic I/O ports so as to
flexibly meet customer demand.
Page 2 of 4
<PAGE> 25
ATM Ltd. Exhibits for ATM and FVC Agreement
EXHIBIT B. (continued)
FVC will be responsible for:
1 LAN Emulation protocol software (per ATM Forum) resident over signalling
layer
2 Host NDIS driver to ATM adapter
3 Host ODI driver to ATM adapter
4 Hub management software tie-in to existing LAN environments
5 Integration of management software into Synoptics and Cabletron
environments
6 Ethernet transparency module (Ethernet frames <-> ATM cells) for Adapter
7 Ethernet transparency module (Ethernet frames <-> ATM cells) for
Hub/Switch
8 ISA bus adapter based on existing ATML technology
9 EISA bus adapter based on existing ATML technology (if market need
exists)
10 PCI bus adapter based on existing ATML technology
11 Native ATM device driver to each of these adapters
12 Hub enclosures, power supply, backplane, mechanical specifications, form
factors
13 Basic 8/16/24 port switching hubs based on ATML's switching modules in
various configurations ie. mix of 25.6 Mb/s ports 100 Mb/s ports etc.
14 Interoperability with other switches eg. FORE, Synoptics etc
15 Hub management hardware module (may not be required in basic
configurations)
16 SNMP embedded agents with proxy to ILMI agents
17 Proprietary (enterprise-specific) MIB extensions
18 Interoperability with ATM management stations SNMP monitoring tools
19 Advanced "managing module" functionality as value-add module
20 SNMP 2 embedded agents (if market moves in this direction)
21 Value-add embedded agents (RMON gauges policy security)
22 UNIX management applications under HPOpenView
23 UNIX management applications under NV/6000 (if market need exists)
24 UNIX management applications under SunNet manager (if market need
exists)
25 Value-add management applications eg. integrated bandwidth management
Page 3 of 4
<PAGE> 26
ATM Ltd. Exhibits for ATM and FVC Agreement
EXHIBIT C
PROCURED PRODUCTS
To be mutually updated quarterly
1 ATOM chips
2 Transceiver chips
3 ATMos software kernel
Page 4 of 4
<PAGE> 27
Schedule 5
0093011003
LICENSE AND TECHNICAL CO-OPERATION AGREEMENT
FOR ATM TECHNOLOGY
THIS AGREEMENT is made on 3 Dec., 1993 ("Effective Date") by and between
(1) ING. C. OLIVETTI & C., S.p.A., whose registered office is at Via
Jervis 77, 10015 Ivrea, Italy ("Olivetti"), acting together with its
controlled company OLIVETTI RESEARCH LIMITED, whose registered office
is at 24A Trumpington Street, Cambridge CB2 1QA, England ("ORL"), and
(2) ADVANCED TELECOMMUNICATIONS MODULES LIMITED whose registered office is
at Home Farm, Fowlmere Road, Heydon, Nr Royston, Herts, SG8 8PZ ("the
Company")
RECITALS
(A) The Asynchronous Transfer Mode ("ATM") has recently become the
prevailing technological choice for high speed communication in
telephony and for computer local area networks.
(B) Olivetti through its controlled company ORL has developed hardware and
software for use in connecting
-1-
<PAGE> 28
computers and telephony using the ATM technology, and owns extensive
know-how and technical knowledge in the field of ATM technology.
(C) The Company has been established to develop and market a range of
products and services using the ATM technology for home and office
use.
(D) Olivetti and the Company have agreed to co-operate in the development
of ATM technology on the terms of this Agreement.
(E) Olivetti and the other subscribers of the Company are parties to the
Subscription Agreement, as hereinafter defined.
NOW IT IS AGREED as follows:
1. Definitions
In this Agreement the following expressions bear the meanings set out below:
1.1 "ATM Technology" means the technology of the Asynchronous Transfer
Mode, a description of which is provided in Exhibit A attached hereto.
1.2 "ATMos" means the real time operating software on which the Company
intends to base its ATM Technology.
-2-
<PAGE> 29
1.3 "Licensed Technology" means the technical information available to ORL
on the Effective Date which pertains to the ATM Technology and which
is either
(i) fully owned by Olivetti or its Subsidiaries, or
(ii) licensed to Olivetti or its Subsidiaries and sub-licensable to
the Company hereunder without any further payment by Olivetti
to any third party.
1.4 "Licensed IPRs" means patents and patent applications (including
utility models but excluding registered or unregistered designs),
unpatented inventions, copyrights and topography rights which underly
the Licensed Technology and are
(i) fully owned by Olivetti or its Subsidiaries, or
(ii) licensed to Olivetti or its Subsidiaries and sub-licensable to
the Company hereunder without any further payment by Olivetti
to any third party.
1.5 "Subsidiary" of any party means any corporation or other business
entity now or hereafter controlled by such party, where "to control"
an entity means to own, directly or indirectly, the majority of the
shares or ownership quotas in such entity entitled to vote for the
election of the Board of Directors or other similar
-3-
<PAGE> 30
managing body, or otherwise to own a number of shares representing
the right to nominate the majority of the members of the Board of
Directors.
1.6 "Subscription Agreement" means the agreement dated November 30, 1993
among the Company, Olivetti and the other subscribers of the Company
regarding among other things subscription of the Company's shares.
1.7 "Option Exercise Date" means the date on which Olivetti exercises the
Option defined in Section 8(1) of the Subscription Agreement.
2. Licence Grant
2.1 In consideration of the rights granted to Olivetti by Company pursuant
to the Subscription Agreement and Section 3.2 and of other
consideration the receipt of which Olivetti hereby grants to the
Company a non exclusive, worldwide licence to use, make, have made,
sell, lease and otherwise exploit without limitation (including the
grant of sub-licences) and without limit in time any hardware and/or
software product based upon the Licensed Technology and the Licensed
IPRs.
2.2 Olivetti will cause ORL to transmit, and ORL will transmit, promptly
upon execution of this Agreement, the Licensed Technology to the
Company in the form in which it is currently available to ORL.
2.3 Olivetti retains the right to make, have made, use,
-4-
<PAGE> 31
sell, lease and otherwise exploit including the grant of licenses to
Olivetti's Affiliates) equipment based on the Licensed Technology and
the Licensed IPRs as an integral part of Olivetti's products.
Notwithstanding the foregoing, Olivetti and its Affiliates shall not
exercise the right to make or have made equipment based upon the
Licensed Technology and the Licensed IPRs as long as the Company fills
the requirements of Olivetti and Olivetti's Affiliates for such
equipment in accordance with Olivetti's specifications, quality,
delivery time and other material purchasing terms and conditions and
is competitive with any other external or internal source available to
Olivetti for such equipment.
3. The Co-operation
3.1 During the term of this Agreement, Olivetti will cause ORL to
co-operate, and ORL will co-operate, with the Company by assisting it
upon the latter's request in the development of the ATM Technology.
The costs incurred by ORL for such assistance shall be charged to the
Company on a monthly basis. Reciprocally, in the event that Olivetti
requests, pursuant to a written purchase order, any support from the
Company, Olivetti will pay for the costs of such assistance on a
monthly basis.
3.2 Subject to the second sentence of Section 2.3, each party hereby
grants to the other party, for itself and
-5-
<PAGE> 32
its Subsidiaries, a non-exclusive, worldwide, royalty-free licence to
use (and to sub-licence) on the respective products without limit in
time any improvement made by such party to the Licensed Technology and
the Licensed IPRs prior to the Option Exercise Date.
4. Infringement of Rights
4.1 In the event that either Olivetti or the Company becomes aware of or
suspects any infringement problem relating to the products of the
Company, then the party so discovering or suspecting infringement
shall inform the other party and cooperate at Company's expense in
studying possible resolutions of the problem.
5. Disclaimer of Warranties
5.1 The Licensed Technology transmitted to the Company hereunder is
furnished "as is" and neither Olivetti nor ORL makes any warranties,
expressely or impliedly, written or oral, statutory or otherwise, with
respect thereto.
By way of example but not of limitation, neither Olivetti nor ORL
makes any representation or warranty as to merchantability, fitness
for purpose, absence of errors or defects, or absence of infringement
of third party intellectual property rights. The Company will
-6-
<PAGE> 33
indemnify Olivetti in connection with any claim made by any third
party alleging that any product or service of Company infringes any
IPR of a third party. In no event shall Olivetti or ORL be liable to
the Company for damages of any kind.
6. Duration
6.1 This Agreement shall continue in force until 31st December 1998 or
until the Option Exercise Date, whichever comes first. The licenses
granted by each party to the other party hereunder shall continue on a
fee-free basis after expiration hereof.
7. Termination
7.1 This agreement may be terminated by Olivetti by written notice to the
Company in case of a material default of the payment obligations
hereunder or of any other material obligations of Company hereunder,
if such breach is not cured within sixty (60) days after Olivetti's
written notice of default to the Company. Either party shall have the
right to terminate this Agreement if the other has a receiver or
administrative receiver over the whole or any part of its assets or if
an order is made or a resolution passed for winding up of the other
party or if the other party shall enter into a voluntary arrangement
with its creditors or suffer an administration order to be made
against it
-7-
<PAGE> 34
but termination shall not affect any rights granted to that other
party hereunder which are either expressly or by implication
irrevocable.
8. Notices
8.1 All notices or other communications which are required to be given
hereunder shall be in writing and shall be sent to the address of the
recipient set out in this Agreement or such other address and/or for
the attention of such other person as the recipient may designate by
notice given in accordance with the provisions of this clause. Any
such notice or communication may be delivered personally or sent by
first class prepaid registration letter or by facsimile transmission
and shall be deemed to have been served if by personal delivery when
delivered, if by first class post 48 hours after posting and if by
facsimile transmission at the time of despatch. If a notice or other
communication shall otherwise become effective on a day which is not a
business day such notice or other communication shall become effective
at 9.00am GMT upon the next following business day.
9. Law
9.1 This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties hereto irrevocably submit
to the exclusive jurisdiction
-8-
<PAGE> 35
of the English Courts.
10. Invalidity
10.1 If any term or provision in this Agreement shall in whole or in part
be held to any extent to be illegal or unenforceable under any
enactment or rule of law that term or provision or part shall to that
extent be deemed not to form part of this Agreement and the
enforceability of the remainder of this Agreement shall not be
affected.
11. Assignment
11.1 None of the rights and obligations of the parties under this Agreement
shall be capable of assignment without the prior written consent of
each of the parties hereto to such assignment and provided that if
such consent is given such assignee shall be first obliged to adhere
to the terms of this Agreement as though an original party hereto in
place of the assignor. For the avoidance of doubt any permitted
transfer as aforesaid shall not in the absence of such prior written
consent result in any transfer of rights or obligations hereunder.
Any person bound to adhere to the terms of this Agreement shall be
required by the parties hereto to execute such deed of adherence or
other deed as shall be requisite.
IN WITNESS WHEREOF the parties have executed this Agreement
-9-
<PAGE> 36
as a Deed on the date first set out above.
Executed and delivered as a deed
by ING. C. OLIVETTI & C., S.P.A
in the presence of:
_______________________________
_______________________________
Executed and delivered as a deed
by OLIVETTI RESEARCH LIMITED
in the presence of:
_______________________________
_______________________________
Executed and delivered as a deed
by ADVANCED TELECOMMUNICATIONS
MODULES LIMITED
in the presence of:
_______________________________
_______________________________
-10-
<PAGE> 37
Exhibit A
Hardware
ATMos card
ATMos RAM card
4x4 switch
8x8 switch
backplane
twin line card
AToMic extender card
AToMic to XSI bus adapter
ATMos audio card
ATMos audio backplane
ATMos camera card set
X51 5-slot backplane
Coax/fibre converter
Archimedes ATM podule
ISA bus ATM card
IPA board
X$1 ATM interface
XSI midi interface
R3DAM board
Software
ATMos source and support tools
kernel
libraries
device drivers
device handler processes
bootstrapROM code
ARM assembler
linker
system build tools
ATMos documentation
4x4 switch code
8x8 switch code
Unix-hosted boot server code
<PAGE> 38
First Virtual Corporation
3233 Octavious Drive
Suite B
Santa Clara, CA 96054
U.S.A.
Advanced Telecommunications
Modules Limited
Home Farm
Fowlmere Road
Heydon, Nr. Royston, Herts
SG8 8PZ England
February 18th, 1994
Gentlemen,
We refer to the Development and License Agreement (the "Agreement") currently
being finalized between First Virtual Corporation ("FVC") and Advanced
Telecommunications Modules Limited ("ATML").
The license granted by ATML to FVC under Section 3.1(a) of the Agreement
includes a sublicense of certain Olivetti Technology (as defined in the
Agreement) licensed by Ing. C. Olivetti & C., S.p.A. ("Olivetti") to ATML under
the Olivetti License (as defined in the Agreement). You have expressed
concerns that in the event of a termination of the Olivetti License, also the
sublicense granted by ATML to FVC would terminate.
We hereby agree that in the unlikely event of termination of the Olivetti
License, Olivetti shall, automatically and without further action necessary by
either Olivetti or FVC, grant a perpetual license to the Olivetti Technology
directly to FVC under the same terms and conditions as the sublicense to the
Olivetti Technology granted by ATML to FVC under the Agreement.
1.
<PAGE> 39
In such an event, all the parties agree that FVC's obligations to Olivetti under
such license will supersede FVC's obligations to ATML with respect to the
Olivetti Technology under the Agreement, and that any royalty obligations of FVC
to Olivetti under such license and to ATML under the Agreement will be
apportioned between Olivetti and ATML in the proportion [ * ], so that FVC's
combined royalty obligations to Olivetti and ATML shall not exceed FVC's royalty
obligations to ATML under the Agreement.
We ask you to sign and return the enclosed copy of this letter to confirm your
acceptance of the foregoing.
Very truly yours,
Ing. C. Olivetti & C., S.p.A.
/s/
--------------------------------------
Agreed:
First Virtual Corporation
/s/
- ------------------------------------
Advanced Technology Modules Limited
/s/
- -------------------------------------
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2.
<PAGE> 40
0095003003
AMENDMENT NO. 1
TO DEVELOPMENT AND LICENSE AGREEMENT
This Amendment No. 1 is entered into as of the 3rd day of March, 1995 by and
between First Virtual Corporation ("FVC"), a California corporation, and
Advanced Telecommunications Modules Limited ("ATML"), a corporation organized
under the laws of England.
RECITALS
WHEREAS, FVC and ATML are parties to a Development and License Agreement dated
25th February 1994 (the "Agreement") providing for the grant of certain licenses
by either party to the other party under the respective technologies and for the
joint development of certain products; and
WHEREAS, the parties wish to restructure their business relation with the aim to
complementing and enhancing their respective strengths, avoiding duplications
and speeding up the respective activities, while at the same time:
(a) maintaining the separate corporate image and identity of the two
parties;
(b) giving each party the full freedom to conduct its business, including
without limitation establishing marketing strategies, building up sales
channels, entering into new alliances with third parties and making
agreements with anybody; and
(c) safeguarding the right of the parties to compete on the marketplace;
NOW, THEREFORE, the parties hereby agree to amend the Agreement as follows:
1. The addresses of ATML and FVC in the Headings of the Agreement are
changed as follows:
Advanced Telecommunications Modules Limited
Mount Pleasant House
2 Mount Pleasant
Huntingdon Road
Cambridge, CB3 OBL
United Kingdom
-1-
<PAGE> 41
First Virtual Corporation
3393 Octavius Drive
Santa Clara, CA 95054, U.S.A.
2. The end date of the Joint Development Program provided in Section 2 of
the Agreement is changed from the second anniversary of the Agreement to
February 25, 1995.
There shall be no further exchange of technology beyond the technology
already received by the parties from each other as of February 25, 1995.
All technology obtained by the parties from each other prior to February
25, 1995, other than ATML's ATMos Software Kernel, as defined in
paragraph 4(b) below, shall be considered ATML's ATM Technology or
jointly Developed Technology, as appropriate, under the Agreement and
shall be subject to the licenses granted, and any restrictions thereto,
contained in Article 3 of the Agreement, as amended hereby.
3. The exclusivity granted by ATML to FVC under Section 3.1(b) of the
Agreement, as well as the provisions of Section 3.6 of the Agreement
titled "Dual Exclusivity", are hereby terminated as of February 25,
1995. All licenses granted by either party to the other party under the
Agreement shall continue after February 25, 1995 on a non-exclusive
basis, subject to the royalties set forth under Article 5 of the
Agreement.
4. (a) Each party shall make available for sale to the other party the
Procured Products listed in Exhibit C attached to the Agreement, as well
as any other products that the Parties may agree to procure from each
other. Any Procured Products, as well as any other product the parties
may agree to procure from each other, will be sold at "most favored
nation pricing" as defined in paragraph 6 hereof, and in accordance with
such reasonable and reciprocal terms and conditions as the parties may
mutually agree.
(b) ATML hereby grants to FVC a perpetual, worldwide, non-exclusive,
non-sublicensable license, for the fees specified in paragraph 4(c)
below, to use, maintain and support ATML's ATMos Software Kernel, as
described in Section 1 of ATMos Document No. IV titled "The ATMos Core"
and authored by L. J. French of Olivetti Research Ltd. in December 1993
and subsequently delivered by ATML to FVC (the "ATMos Software Kernel"),
as Procured Product under the Agreement in conjunction with FVC's
-2-
<PAGE> 42
production, sale and distribution of Licensed Products under the
Agreement.
(c) The following fees, which ATML represents is its "most favored
nation pricing" for the ATMos Software Kernel, shall apply (with fees
expressed in United States dollars and years being calendar years):
[ * ]
(d) The provisions of Sections 5.2 and 5.3 and Articles 6 through 10
of the Agreement shall apply to the license of the ATMos Software Kernel
by ATML to FVC under this paragraph 4, as if set forth in full herein.
(e) FVC will offer to ATML for distribution and resale its Media
Operating System (MOS) software product line, as commercially available
from time to time during the term of this Agreement, at "most favored
nation pricing" under paragraph 6 hereof and upon FVC's standard terms
and conditions for United States and for international distributors of
its MOS software product line, as appropriate.
5. ATML hereby waives any royalty which would be due to it by FVC pursuant
to Article 5 of the Agreement with respect to Licensed Products sold by
FVC prior to May 1st, 1996.
6. The term "most favored nation pricing" set forth under Section 4.2 of
the Agreement and paragraph 4 hereof is hereby defined to mean that the
prices charged by the selling party to the purchasing party for a
product shall be no higher than those charged by the selling party to
any third party for the same or any substantially similar product in
similar quantities and under commercially equivalent terms and
conditions.
7. The Agreement shall expire as of August 25, 1996 unless extended by
mutual agreement in writing, except that the licenses granted by each
party to the other party under Article 3 of the Agreement (as amended
hereby) shall survive such expiration perpetually and the royalty
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-3-
<PAGE> 43
obligations set forth under Article 5 of the Agreement shall survive
until January 3, 2000 (which is five years from the date of FVC's first
commercial shipment of a Licensed Product). Any transaction between the
parties after February 25, 1995 will be at arms' length.
8. This Amendment becomes effective upon execution by the parties. Except
as amended hereby, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the
date first above written.
FIRST VIRTUAL CORPORATION ADVANCED TELECOMMUNICATION
MODULES LIMITED
By: /s/ Ralph K. Ungermann By: /s/ Hermann Hauser
Name: Ralph K. Ungermann Name: Hermann Hauser
Title: Chief Executive Officer Title: Chairman
-4-
<PAGE> 1
CERTAIN CONFIDENTIAL TREATMENT CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.16
VTEL CORPORATION and FIRST VIRTUAL CORPORATION
EQUIPMENT MANUFACTURING OEM AGREEMENT
-------------------------------------
This Agreement is entered into as of this 20th day of August, 1997, ("Effective
Date") by and between VTEL Corporation, a Delaware corporation having its
principal place of business at 108 Wild Basin Rd., Austin, TX 78746 ("VTEL"),
and First Virtual Corporation ("First Virtual") having its principal place of
business at 3393 Octavius Drive, Suite 102, Santa Clara, CA 95054.
BACKGROUND
VTEL, is engaged in the design, manufacture, service, integration, and sale and
distribution of multi-media video conferencing systems and has a desire to
expand into the ATM attached video applications market.
First Virtual is engaged in the design, manufacture, and sale of multimedia
networking products, including 25 Mb/s, ATM switches, 25 Mb/s ATM network
interface cards, multimedia operating software known as 'MOS', and other
multimedia server products.
The parties wish to provide for the right and option of VTEL to purchase and
license First Virtual products for distribution and resale by VTEL, as described
in this Agreement.
AGREEMENT
Accordingly, in consideration of the mutual promises, rights and obligations
described in this Agreement, the parties agree as follows:
1. SCOPE
First Virtual will design, test, manufacture, sell, and support OEM versions of
the products described in Schedule A to this Agreement ("OEM Products").
2. LICENSE
2.1.First Virtual hereby grants to VTEL a non-exclusive, non-transferable
worldwide right to market and distribute the OEM Products, and in the case of
software, sublicense, under the VTEL trademark, either directly or indirectly
through its distributors.
2.2.In the event VTEL purchases the OEM Products for its own internal use, such
use of the software shall be pursuant to the applicable end user license
agreement delivered with the OEM Products.
2.3.First Virtual hereby grants to VTEL non-exclusive rights to use, modify,
translate, and reproduce, the documentation delivered by First Virtual with the
OEM Products for distribution. VTEL shall not modify, remove, or omit any
copyright or other proprietary notice contained in the documentation. The right
to reproduce copies of documentation shall include the right to have such
reproduction performed by another party on VTEL's behalf, subject to the
obligations relating to confidentiality and protection of First Virtual's
proprietary rights pursuant to this Agreement.
2.4.VTEL's distribution of OEM Products to end user customers shall be pursuant
to VTEL's end user license agreement. Such end user license agreement shall
contain, at a minimum and without limitation, those terms and conditions
provided in Schedule E attached hereto.
3. PURCHASE AND SALE OF OEM PRODUCTS.
<PAGE> 2
3.1.OPTION TO PURCHASE OEM PRODUCTS; OBLIGATION TO SELL OEM PRODUCTS. VTEL may,
at its option, purchase the OEM Products described in Schedule A from First
Virtual for distribution and resale by VTEL, by placing written orders under
this Agreement. VTEL has no obligation to order a minimum amount of any type of
OEM Product. First Virtual agrees to manufacture and deliver to VTEL OEM
Products in response to all orders placed under this Agreement, provided that
such orders comply with the terms of this Agreement
3.2.ORDERS FOR OEM PRODUCTS. Each order placed by VTEL for OEM Products shall be
governed by the terms of this Agreement; conflicting or additional terms
provided in any order by VTEL or acknowledgment by First Virtual shall be of no
effect unless specifically accepted in writing by an authorized representative
of VTEL and First Virtual. Each order shall specify:
o Description of OEM Products (including applicable item numbers and part
numbers)
o Purchase price
o Specified delivery schedule
3.3.CANCELLATION OR POSTPONEMENT OF ORDERS. VTEL may cancel or reduce the
quantity of any order without liability on or before sixty (60) days in advance
of the ship date specified in VTEL's order without cancellation charge. VTEL may
cancel or reduce the quantity of any order on or before [ * ] days in advance of
the ship date specified in VTEL's order by paying First Virtual a cancellation
charge equal to [ * ] of the purchase price of that portion of the order which
is canceled. VTEL may postpone the delivery of any portion of an order one time
for up to one hundred eighty (180) days without any liability by delivering
written notice to First Virtual on or before thirty (30) days in advance of the
ship date specified in VTEL's order.
3.4.DELIVERY OF OEM PRODUCTS IN RESPONSE TO ORDERS. VTEL may place orders for
delivery forty-five (45) days from First Virtual's receipt of the order. VTEL
acknowledges that First Virtual may confirm such shipments with delivery dates
which are no more than ninety (90) days from receipt of order. Notwithstanding,
First Virtual will use all commercially reasonable efforts to deliver OEM
Products to VTEL in the quantities ordered by VTEL by the shipment date
specified in VTEL's order or as soon as possible prior to the delivery date
confirmed by First Virtual.
3.5.PRICES; PAYMENT. Prices for the OEM Products shall be those set forth in
Schedule B, less all applicable discounts. Prices exclude all freight-in and
insurance as provided by this Agreement. All prices are exclusive of any tax
levied or based on the equipment, (collectively "Taxes"). VTEL shall pay such
Taxes (other than income and franchise taxes of First Virtual), or provide First
Virtual with a certificate of exemption acceptable to the appropriate taxing
authority. Payment shall be due thirty (30) days from the date of shipment
subject to VTEL's acceptance of the OEM Products pursuant to Section 4.
3.6.SHIPMENT; CHANGES; TITLE; RISK OF LOSS. OEM Products shipped in response to
VTEL's orders will be shipped F.O.B. origin. Title and risk of loss will pass to
VTEL upon shipment. VTEL's orders shall identify VTEL's preferred method of
shipment, designated carrier, and VTEL's account number with the carrier.
3.7.NON-BINDING ROLLING FORECAST. To assist First Virtual in delivering OEM
Products, VTEL agrees to provide First Virtual, on a monthly basis, with a three
(3) month rolling forecast for its projected orders for OEM Products. The
provision of such forecast shall in no way bind VTEL to actually place orders
for any such quantities nor otherwise expose VTEL to liability.
3.8.MINIMUM ORDERS FOR OEM PRODUCTS. Nothing in this Agreement shall be
construed as requiring that VTEL order any specific minimum amount of OEM
Product.
4. ACCEPTANCE.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 3
The parties acknowledge the requirement that the OEM Products be supplied with
as close to a "zero defect rate" as is practically possible. Each OEM Product is
subject to final inspection and acceptance at VTEL's facility within ten (10)
business days after delivery. First Virtual will follow good manufacturing
practices (equivalent to IPC Class II for electrical assembly and ISO9000
requirements) utilizing materials, techniques, and procedures which conform to
industry standards. First Virtual will make available to VTEL, upon request,
information regarding First Virtual's quality assurance procedures. VTEL may
conduct and observe tests and inspections at First Virtual's manufacturing plant
when VTEL notifies First Virtual one day in advance.
5. WARRANTIES; REMEDIES.
5.1.FREE FROM DEFECTS. For the hardware components of the OEM Products, First
Virtual warrants that each OEM Product delivered to VTEL shall be free from
defects in material and workmanship for one year after shipment to VTEL's end
user customer, but in no event later than fifteen (15) months from delivery to
VTEL; for the software components of the OEM Products, the media shall be free
from defects in materials and workmanship for ninety (90) days ("Warranty
Period"). First Virtual represents and warrants that the OEM Products, hardware
and software inclusive, shall conform to First Virtual's published designs and
specifications applicable at the time of shipment.
5.2.TESTING. First Virtual warrants that it will test each and every OEM Product
to ensure conformance to the design and specifications before delivery to VTEL.
5.3.FREE FROM LIENS, POWER TO PERFORM. First Virtual warrants that the OEM
Products delivered under this Agreement shall be free from all liens,
encumbrances, and restrictions. First Virtual warrants that it has all rights
and powers necessary to performs its obligations under this Agreement and to
grant the licenses and other rights provided to VTEL by this Agreement.
5.4.SERVICES. First Virtual warrants that all services performed under this
Agreement will be performed in a professional manner and in accordance with the
terms of this Agreement.
5.5.REMEDIES. If VTEL discovers a defect or non-conformance during the Warranty
Period, VTEL shall promptly notify First Virtual of any non-conforming material
to obtain a Return Materials Authorization number ("RMA"). First Virtual agrees
to accept the return of OEM Products that VTEL determines does not meet the
warranties described in this Section. Upon VTEL receipt of the RMA, VTEL shall
cause the return of the non-conforming OEM Product to First Virtual at VTEL's
cost. Upon its receipt, First Virtual shall promptly either repair or replace
it, at First Virtual's option and cost. Properly repaired or replaced OEM
Product shall promptly be delivered to VTEL and the Warranty Period therefor
shall continue for ninety (90) days following delivery of the returned OEM
Product to VTEL or the balance of the original Warranty Period, whichever is
longer. First Virtual shall bear the cost for shipment of OEM Products for
warranty repair to VTEL's designated facility. If the defect is attributable to
a problem with software, First Virtual shall promptly provide VTEL with a
suitable patch, fix, or work-around sufficient to enable the OEM Product to
operate in accordance with First Virtual's published documentation and
specifications provided with the OEM Product at the time of shipment. These
remedies are in addition to any others which may be provided by this Agreement
or by law.
5.6.LIMITATIONS. This warranty does not include damages due to inadequate
operating environment, accident, disaster, neglect, abuse, misuse, or
alterations made without approval by First Virtual. THE FOREGOING WARRANTIES ARE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE.
6. TECHNICAL ASSISTANCE, SUPPORT AND TRAINING.
<PAGE> 4
6.1.TECHNICAL ASSISTANCE. First Virtual shall provide VTEL with the technical
assistance and maintenance support as is more specifically described in Schedule
C. The parties anticipate that VTEL or its resellers, or service providers will
perform maintenance for OEM Products delivered to end user customers, and that
First Virtual will provide "factory level" support to VTEL to enable it to
perform satisfactory maintenance of the OEM Product for VTEL's customers. Such
technical assistance shall be provided to VTEL free of charge.
VTEL's support responsibilities shall be limited to the OEM Products. VTEL shall
not be responsible for supporting other First Virtual products which the end
user customer may be using in association with the OEM Products, including but
not limited switches and gateway products.
6.2.TRAINING. First Virtual shall provide VTEL with training as is more
specifically described in Schedule D, including a general introduction to the
First Virtual products and detailed training on the OEM Products and updates,
and sales and support training.
7. INDEMNIFICATION; PROPRIETARY RIGHTS.
7.1.INDEMNIFICATION BY FIRST VIRTUAL. First Virtual will, at its own expense,
defend, indemnify, and hold VTEL harmless from any and all claims, costs,
expenses, damages, or other liability, including reasonable attorneys' fees, to
the extent that any such action is based on a claim by a third party (i) that
any OEM Product infringes a patent, trademark, or copyright, or misappropriates
any trade secret, or (ii) which is based upon the use, distribution, operation,
or performance of any OEM Product, anywhere in the world. First Virtual's
obligations under the preceding are subject to the conditions that: (a) VTEL
promptly notifies First Virtual in writing of any such claim, and (b) First
Virtual will have sole control of such defense and all negotiations for any
settlement or compromise.
If First Virtual receives notice of an alleged infringement or if use or
distribution of any OEM Product shall be prevented by an injunction based on
alleged infringement, First Virtual shall have the right, at its option to (i)
obtain the rights for VTEL to continue use and distribution of such OEM Product
or technology, (ii) substitute other suitable OEM Product, software and/or
technology while maintaining the same form and function, or (iii) modify such
OEM Product so that it is no longer infringing while maintaining the same form
and function. In the event (i), (ii), and (iii) are not commercially feasible,
VTEL shall return the infringing OEM Product and First Virtual shall refund to
VTEL the price paid for such OEM Product. First Virtual shall have no liability
to VTEL with respect to any claim of patent, copyright, or any other
intellectual property right infringement which (a) arises solely from the
combination or utilization of the OEM Product with any hardware or software not
furnished or approved by First Virtual, or (b) results from the use of an
infringing OEM Product if such infringement would have been avoided by the use
of a noninfringing version of the OEM Product as provided by First Virtual to
VTEL.
7.2.INDEMNIFICATION BY VTEL. VTEL will defend at its own expense any action
brought against First Virtual by a third party, to the extent (i) that it is
based on any warranties made by VTEL to a third party in excess of the
warranties provided under this Agreement, or (ii) the claim is based on
specifications provided by VTEL to First Virtual. VTEL's obligations under the
preceding are subject to the conditions that: (i) First Virtual promptly
notifies VTEL in writing of any such claim, and (ii) VTEL will have sole control
of such defense and all negotiations for any settlement or compromise.
7.3.PROPRIETARY RIGHTS OF VTEL. VTEL reserves all proprietary rights in all
original works, computer programs, discoveries, inventions, patents, know-how,
techniques, designs, maskworks, engineering details and other data developed by
VTEL, including all information relating to the network management interface
circuitry and technology disclosed to First Virtual by VTEL.
<PAGE> 5
7.4.PROPRIETARY RIGHTS OF FIRST VIRTUAL. First Virtual reserves all proprietary
rights in all original works, computer programs, discoveries, inventions,
patents, know-how, techniques, designs, maskworks,
<PAGE> 6
engineering details and other data developed by First Virtual Corporation,
including all information relating to the network management interface circuitry
and technology disclosed to VTEL by First Virtual.
8. ENGINEERING CHANGES.
8.1.REQUIRED CHANGES. First Virtual reserves the right to make engineering
changes at any time to the OEM Products (i) which are necessary to comply with
changed safety or environmental standards and other environmental regulations,
(ii) which are necessary to make the product non-infringing with respect to any
patent, copyright or other proprietary interest, or (iii) which are for the
purpose of improving the quality, reliability or manufacturability of the OEM
Products provided that such improvement shall not affect the form, fit, or
function of the OEM Products.
8.2.OPTIONAL CHANGES. In the event First Virtual modifies its standard product
version of the OEM Product for reasons other than those specified in this
Section, the parties shall mutually agree with respect to when such modification
shall be incorporated in the OEM Products.
8.3.NOTICE OF CHANGES. First Virtual will provide at least thirty (30) days, or
as soon as known by First Virtual, written notice to VTEL's project manager of
all planned permanent or temporary changes to the OEM Products which impact
form, fit or function, as required by safety, environmental or other
governmental compliance of the OEM Products. The notice will include a summary
of the expected impact of any such planned change on the above listed
characteristics of the OEM Products. VTEL shall have the right to cancel
outstanding orders for any OEM Products that are subject to such changes without
incurring any penalty.
9. UPGRADE OF TECHNOLOGY
9.1.NOTICE. First Virtual will notify VTEL of upgrades to First Virtual's
standard products which correspond to the OEM Products. Such notice shall be
provided to VTEL, upon determination of First Virtual's standard product plans
and VTEL shall have the option to have such modifications incorporated in OEM
Products within the same timeframe of such planned upgrades or at a later date
as determined by VTEL.
9.2.CHARGES FOR UPGRADES. If such upgrades or enhancements are provided to other
customers at no additional charge, there will be no increase in the unit price
for OEM Products under this Agreement. Otherwise, such upgrades shall be
provided to VTEL in accordance with the pricing in Schedule B. It should be
noted that the intent of this Agreement is to produce OEM Products that are
similar to First Virtual's standard product.
10. SUPPLY OF PRODUCT AND SPARES
10.1.END-OF-LIFE PURCHASES. In the event of termination of this Agreement, VTEL
will be entitled, at its option, to place a final order for a "life cycle
purchase" of the OEM Products at least ten (10) days prior to the effective date
of such termination, for delivery within one hundred eighty (180) days after the
effective date of termination.
10.2.AVAILABILITY OF PRODUCT AND SPARES. First Virtual will make available to
VTEL spare, replacement, and maintenance parts necessary to enable VTEL to
support the OEM Products for a period of at least five (5) years after the date
of the last shipment to VTEL's end user customers. First Virtual will make these
parts available to VTEL at prices that are at least as low as the prices being
charged to First Virtual's other customers. with similar terms and conditions.
<PAGE> 7
11. CONFIDENTIAL INFORMATION.
11.1.CONFIDENTIAL AND PROPRIETARY INFORMATION. The parties understand that each
may disclose to the other in connection with this Agreement, certain of its
proprietary or confidential information which is to be protected in accordance
with the terms of this Agreement.
11.2.DEFINITION. The term "Confidential Information" as used herein shall mean
any and all information disclosed by a party in written or other tangible form
which is clearly marked as being confidential or proprietary information of the
party; or oral information designated as confidential by the disclosing party at
the time of disclosure and summarized and identified as being confidential in
writing within thirty (30) days after disclosure.
11.3.OBLIGATIONS. The party receiving Confidential Information shall (i)
maintain it in confidence and shall not disclose it to anyone other than its
employees or others acting under its control who are bound by a written
agreement sufficient to enable the receiving party to comply with this
Agreement, (ii) use at least the same degree of care to maintain its secrecy as
the party uses in maintaining the secrecy of its own proprietary, confidential,
and trade secret information, (iii) always use at least a reasonable degree of
care in maintaining its secrecy, (iv) use it only for the purpose of performing
its obligations under this Agreement, and (v) upon request by the disclosing
party, return or certify the destruction of all Confidential Information
delivered hereunder.
11.4.LIMITATIONS. Neither party shall have any obligation concerning that part
of the other's Confidential Information which (i) was known to it before its
receipt from the other party without an obligation of confidentiality, (ii) is
lawfully obtained from a third party under no obligation of confidentiality,
(iii) becomes publicly available other than as a result of an act or failure to
act of the receiving party, (iv) is independently developed by the receiving
party, (v) is required to be disclosed pursuant to a legal, judicial or
administrative proceeding, or (vi) is disclosed by the receiving party with the
other party's written permission. In the event disclosure is required pursuant
to a legal, judicial, or administrative proceeding, the receiving party shall
use reasonable efforts to provide prior notice to the disclosing party to allow
it to seek protective or other court orders.
Neither party will disclose any part of the other party's Confidential
Information to anyone except those of its employees or contractors having a need
to know the same in order to accomplish the purposes of this Agreement and who
have, before receiving access to the information, acknowledged its confidential
proprietary and/or trade secret nature and have agreed in writing to be bound by
the terms of this Section or similar terms in a written agreement with the
receiving party.
11.5.REMEDIES. If any part of a party's Confidential Information is wrongfully
disclosed or used, then in addition to the remedies provided by this Agreement
or by law, the party which provided the Confidential Information will be
entitled to an injunction preventing further disclosure or use of the
information by the other party or by any third parties to whom the Confidential
Information has been wrongfully disseminated.
12. TERM AND TERMINATION.
12.1.TERM. This Agreement shall commence upon the Effective Date and continue
for a period of two (2) years. Thereafter, unless earlier terminated in
accordance with the terms herein, the Agreement shall automatically renew on an
annual basis upon the anniversary date hereof.
12.2.TERMINATION. At any time during the term of the Agreement, either party may
terminate this Agreement in the event:
<PAGE> 8
a) the other party ceases to conduct business in the normal course,
becomes insolvent or bankrupt, makes a general assignment for the
benefit of creditors, becomes generally unable to pay its debts as
they become due, suffers or permits the appointment of a receiver for
its business or assets,
<PAGE> 9
becomes subject to any levy, seizure, attachment or execution against
it, or becomes subject to any proceeding under any statute of any
governing authority relating to insolvency or the protection of rights
of creditors; or
b) the other party fails to perform any obligation required to be
performed under this Agreement, including VTEL's failure to make any
payment due (unless such payment is reasonably disputed), for a period
of thirty (30) days after receipt of notice from the other party of
such failure and such failure cannot be cured within such thirty (30)
day period; then such other party shall have the right to terminate
this Agreement immediately by giving written notice to the other of
its election to do so.
The foregoing rights of termination are in addition to all other rights and
remedies provided in this Agreement or by law.
12.3.TERMINATION ON FAILURE OF PRODUCT OR SYSTEM. If the OEM Products fail to
operate in the manner desired by VTEL, as a stand alone product or part of a
system, then VTEL may terminate this Agreement by providing thirty (30) days
notice.
12.4.EFFECTS OF TERMINATION.
12.4.1.In the event First Virtual is the defaulting party, VTEL, without
limiting any other remedies or claims it may have at law or in equity, shall
have (i) the option to place a final order for the OEM Products with delivery
dates not to exceed six (6) months from the date of termination, and (ii) the
right to continue to distribute the OEM Products held in inventory, such
distribution to be pursuant to the terms of this Agreement.
12.4.2.In the event this Agreement is terminated by First Virtual for default by
VTEL, First Virtual shall permit VTEL to retain limited rights to use the OEM
Products thereafter for so long as necessary in order to allow VTEL to satisfy
its then existing contractual obligations to support its end user customers. The
licenses granted to end user customers with respect to the software component of
any OEM Product, shall survive any termination or expiration of this Agreement.
12.4.3.Any termination of this Agreement shall not relieve VTEL of its
obligation to pay any sum due hereunder or to provide warranty support to its
end user customers.
12.4.4.The following provisions shall survive any termination of this Agreement:
Sections 2.1, 2.2, 2.4, 3.5, 4, 5, 6, 7, 10, 11, 12.4, 13, and any other
provision which would naturally survive in fulfillment of either party's
obligations hereunder.
13. GENERAL PROVISIONS.
13.1.NOTICES. Any notices required to be given under this Agreement shall be in
writing and sent to the address of the appropriate party indicated on the first
page of this Agreement or to such other address as may have been substituted by
written notice. All such notices sent to VTEL shall be addressed "Attention:
Contracts Administration".
Notices given pursuant to this Agreement shall be deemed to have been received
five (5) business days after mailing if given by mail, and one (1) business day
after sending if delivered by cable, telegram, facsimile, telex, or electronic
mail, and upon delivery if delivered by hand.
13.2.FAILURE AND DELAY. Except as expressly provided in this Agreement, neither
party shall be liable for its failure or delay in performance of its obligations
under this Agreement due to strikes, wars, revolutions, fires, floods,
explosions, earthquakes, government regulations, or other causes beyond its
control.
<PAGE> 10
13.3.FOREIGN RESHIPMENT. This Agreement is made subject to all laws,
regulations, orders, or other restrictions on the export from the U.S.A. of
products, documentation, or of other information about products, which may be
imposed from time to time. Neither party shall export any such products or
information to any country for which an export license or other governmental
approval is required at the time of export without first obtaining such license
or approval.
13.4.ASSIGNMENT. This Agreement may not be assigned by either party without
prior written permission from the other, which shall not be unreasonably
withheld. Any attempt by a party to assign any right, or delegate any duty or
obligation which arises under this Agreement, without such permission, will be
voidable. This Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns, if any, of the parties hereto.
13.5.WAIVER, AMENDMENT, OR MODIFICATION. Any waiver, amendment or modification
of any right, remedy or other term under this Agreement will not be effective
unless in writing and signed by the party against whom enforcement is sought.
The waiver or failure of either party to exercise in any respect any right
provided for in this Agreement shall not be deemed a waiver of any further right
under this Agreement.
13.6.LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES OR LOST PROFITS ARISING
OUT OF THE USE OR PROVISION OF OEM PRODUCTS OR SERVICES PROVIDED HEREUNDER. THIS
LIMITATION SHALL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
13.7.RELATIONSHIP OF THE PARTIES; COSTS. The parties are each independent
contractors. No agency relationship between VTEL and First Virtual is made by
this Agreement. Neither party shall have any right or authority to act on behalf
of the other and neither party will represent that it has such right or
authority. Except as expressly provided in this Agreement, each party shall bear
its own costs in connection with the performance of its obligations.
13.8.PUBLICITY; MUTUAL APPROVAL. The parties acknowledge the importance of
maintaining as confidential the existence and terms of this Agreement, and the
business relationship it reflects. Neither party shall disclose the existence or
terms of this Agreement to any third party without the written consent of the
other party. All publicly distributed materials prepared by either party that
mention the other party, the products of the other party, or this Agreement,
shall be approved by both parties in writing before publication.
13.9.ENTIRE AGREEMENT; GOVERNING LAW. This Agreement, including its schedules,
constitutes the entire agreement between parties with respect to its subject
matter and shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
VTEL Corporation FIRST VIRTUAL CORPORATION
By: By: /s/ J.O. Mitchell
Name: Name: J.O. Mitchell
Title: Title: COO/CFO
Date: Date: 8/20/97
<PAGE> 11
SCHEDULE A
OEM PRODUCTS
The following First Virtual products shall be available to VTEL hereunder
subject to the terms of this Agreement. In addition, VTEL shall have the option
to purchase individual components of the OEM Products in stand alone form. Such
OEM Products shall include any updates and upgrades thereto.
VSA-6000 25Mbps ATM Interface System to connect VTEL TC1000 & LC5000 at 512kb/s
or less
VSA-6001 25Mbps ATM Interface System to connect VTEL TC1000 & LC5000 at above
512kb/s
<PAGE> 12
SCHEDULE B
PRICING
VTEL shall receive the pricing specified herein for the OEM products in Schedule
A.
PRODUCT PRICING
[ * ] from First Virtual domestic list price.
SERVICE PRICING
[ * ] from First Virtual domestic list price.
NON-RECURRING ENGINEERING
Shall be determined based on VTEL's requested customization, subject to
additional terms and conditions as mutually agreed.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 13
Schedule C
----------
MAINTENANCE AND SUPPORT SERVICES
GENERAL
During the term of this Agreement and one year thereafter, notwithstanding First
Virtual's obligations to provide spares and warranty services hereunder, First
Virtual shall provide to VTEL maintenance and support services for the OEM
Products. Such support services shall include all bug fixes, error corrections,
and updates, and telephone factory level;support to VTEL's Service Organization.
TECHNICAL SUPPORT
VTEL's Customer Service Organization shall have direct access to factory level
technical support from First Virtual.
ESCALATION PROCESS
First Virtual will provide access to the factory level technical support
resources sufficient to effect their support responsibilities under this
Agreement for a minimum of five days a week eight hours a day (5 X 8). Technical
information requests from VTEL must be acknowledged within two hours.
Escalations shall generally follow this path:
First Event: The end user customer or VTEL's reseller calls VTEL to report a
problem with the OEM Product.
Second Event: VTEL attempts to solve the problem using its internal support
resources.
Third Event: VTEL escalates the problem if unsolved at Second Event to higher
level internal technical support.
Fourth Event: VTEL escalates the problem if unsolved at Third Event to First
Virtual technical support.
In the event of failure of the general escalation process to resolve the
technical problems with the OEM Product, First Virtual shall provide on-site
technical support capable of identifying/isolating any design deficiency of the
OEM Product or interoperability problem of the OEM Product with VTEL products or
other third party products. If requested by VTEL following the failure to
resolve a technical problem, First Virtual shall provide technical support to a
location determined by VTEL (but within the USA) within two business day. VTEL
shall pay First Virtual $1000 per day plus reasonable expenses for this on site
support.
PRIORITY LEVELS and RESOLUTIONS
The parties agree that errors shall be classified as follows:
o FATAL ERRORS prevent all useful work from being done;
o SEVERE IMPACT ERRORS disable major functions and prevents them from being
performed;
o DEGRADED OPERATIONS ERRORS disable only certain nonessential functions; and
o MINIMAL IMPACT ERRORS are all others errors which do no substantially
affect business operations.
All fatal and severe impact errors reported by VTEL shall be acknowledged with
written confirmation on the day reported to First Virtual. Such problems shall
be fixed or workarounds provided within two (2) business days. Such fix or
workaround shall be incorporated in an update within one (1) month thereafter.
All degraded operations errors reported by VTEL shall be acknowledged with
written confirmation no later than the next business day. Such problems shall be
fixed or workarounds provided within five (5) business days. Such fix or
workaround shall be incorporated in an update or major release within two (2)
months thereafter.
<PAGE> 14
All minimal impact errors reported by VTEL shall be acknowledged with written
confirmation no later than five (5) business days. Such problems shall be
provided with the earlier of the next update or major release, including any
applicable documentation changes.
The parties acknowledge that in the event these obligations cannot be met within
the specified timeframe, the parties shall discuss and mutually agree on the
correct course of action.
TEST EQUIPMENT REQUIREMENTS/AVAILABILITY
First Virtual shall provide to VTEL for a reasonable and agreed price necessary
test equipment to include diagnostic tools, test fixtures, and test devices so
as to ensure that VTEL may adequately provide services to VTEL's customers. VTEL
shall have the right to reproduce and distribute diagnostic tools only for use
internally and by VTEL's third party service providers. Notwithstanding the
foregoing, First Virtual shall provide diagnostic software to VTEL at no charge.
TOOLS REQUIREMENTS/AVAILABILITY
First Virtual shall provide to VTEL for a reasonable and agreed price any
special tools necessary to install and maintain the OEM Products. Tools may
include but are not limited to special physical tools, software debug utilities,
special diagnostics, etc. VTEL shall have the right to reproduce and distribute
diagnostic tools only for use internally and by VTEL's third party service
providers. Notwithstanding the foregoing, First Virtual shall provide diagnostic
software to VTEL at no charge.
DOCUMENTATION
First Virtual shall provide to VTEL any documentation which may be necessary to
provide services to VTEL's customers. Such documentation includes, but is not
limited to: User documentation, Application documentation, performance tests,
test procedures, white papers, notes, technical bulletins, functional
specifications, design specifications, schematics, parts lists, source code,
field service documentation etc.
<PAGE> 15
SCHEDULE D
TRAINING
TRAINING DOCUMENTATION
First Virtual will provide three sets of its standard training material
including, where appropriate, handouts, overheads, outlines, syllabus, labs,
manuals etc. Additional material shall be available for an agreed price. If the
training course is updated, three copies of updated training materials will be
provided to VTEL ten (10) days prior to product release.
COURSE AVAILABILITY
First Virtual will provide training courses, at VTEL's facility of choice, for
the VTEL's Service Organization, VTEL's third party service providers, and
VTEL's internal training developers within ten (10) days prior to product
availability. Details regarding type of class, content, audience, location and
size will be mutually agreed. Training for future options, functional
enhancements, and upgrades shall be offered by First Virtual and participation
is solely at VTEL's option.
PRICING
Pricing for the courses provided by First Virtual at VTEL's location will be as
follows:
[ * ] per instructor (including travel time), plus all reasonable [ * ]. VTEL
will provide [ * ]. [ * ] training shall be provided at [ * ] to VTEL, which
shall be limited to [ * ] training session.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 16
SCHEDULE E
----------
END USER LICENSE AGREEMENT
The end user license agreement distributed with the OEM Products by VTEL shall
include terms and conditions substantially similar to the following. First
Virtual shall advise VTEL of any additional third party license requirements as
soon as known by First Virtual.
a) The end user shall be granted only a personal, nontransferable,
non-exclusive right to use the SOFTWARE only on a single CPU at a time
(a single CPU shall include for this purpose systems with redundant
processing units, but only one user);
b) The end user may not copy the software, except for one (1) copy for
backup or archival purposes only and only as necessary to use the
software;
c) The software shall be used solely with the OEM Products as provided
hereunder;
d) The end user shall agree not to reverse-assemble, decompile, or
otherwise attempt to derive source code from the SOFTWARE;
e) First Virtual and its third party licensors shall retain all title to
the software, and all copies thereof, and no title to the software
shall be transferred to the end user;
f) The end user shall agree to comply with all export and re-export
restrictions and regulations of the Department of Commerce or other
United States agency or authority, and not to transfer, or authorize
the transfer, of the SOFTWARE to a prohibited country or otherwise in
violation of any such restrictions or regulations.
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.17
Page 1
TECHNOLOGY LICENSING AGREEMENT
This Agreement dated October 16, 1997 is made by and between International
Business Machines Corporation, a New York Corporation with an office for doing
business in Research Triangle Park North Carolina, (hereinafter IBM) and First
Virtual Corporation a California corporation with an office for doing business
at 3393 Octavius Drive, Santa Clara, California (hereinafter FVC).
WHEREAS, IBM has developed certain technology and products relating to the
coding, decoding, transmission and networking of video signals and images and;
WHEREAS, FVC desires to license such technology from IBM for the purpose of
developing and marketing its own video products;
NOW, THEREFORE, for good and valuable consideration IBM and FVC agree as
follows:
SECTION 1 - DEFINITIONS
1.1 "Code" shall mean computer program code, in source, object, and load
executable form, more fully identified in Attachment A. Code identified in
section A.2 is only provided in object code form.
"VAN Code" shall mean Code identified in sections A.1.1. and A.2.1 of Attachment
A which relates to IBM's VAN 8300 Video Access Node release 1.0 product.
"VDM Code" shall mean Code identified in sections A.1.2. and A.2.2 of Attachment
A which relates to IBM's Video Distribution Module release 1.0 product.
1.2 "Licensed Technology " shall mean the trade secrets, concepts, knowledge,
technical information and data, including engineering, scientific and practical
information and formulas, equipment designs, information or materials and
commercial sources thereof, technical information recorded in reports,
schematics, design documents on drawings and in specifications, related to IBM's
8300 Video Access Node release 1.0 and Video Distribution Module release 1.0
products which are contained or revealed in full in the items identified in
Attachment B.
"VAN Licensed Technology" shall mean Licensed Technology described in sections
B.1 and B.3 of Attachment B and which relate to IBM's 8300 Video Access Node
release 1.0 product.
"VDM Licensed Technology" shall mean Licensed Technology described in section
B.2 of Attachment B and which relates to IBM's Video Distribution Module release
1.0 product.
1.3 "Licensed Documentation" shall mean documentation described in Attachment C
and which is intended to be provided to end user customers in support of their
use of Products such as user guides.
1.4 "Inventory" shall mean the development assets and manufacturing assets
identified in Attachment E as well as any finished goods, works in process and
manufacturing parts inventory which FVC may purchase in accordance with Section
4.
1.5 "Product" shall mean a software and/or hardware product or feature which
performs MPEG2 video compression and/or decompression for transmission and
reception from an ATM network.
1.6 "Subsidiary" shall mean a corporation, company, or other entity:
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
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a. more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors
or other managing authority) are now or hereafter, owned or controlled,
directly or indirectly, by a party hereto, but such corporation,
company, or other entity shall be deemed to be a Subsidiary only so long
as such ownership or control exists; or
b. which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association, but
more than fifty percent (50%) of whose ownership interest representing
the right to make decisions for such corporation, company or entity is
now or hereafter, owned or controlled, directly or indirectly, by a
party hereto, but such corporation, company, or other entity shall be
deemed to be a Subsidiary only so long as such ownership exists.
SECTION 2 - RIGHTS IN CODE AND LICENSED TECHNOLOGY
2.1 Subject to the terms and conditions of this Agreement, including the
obligation to pay ongoing royalties, IBM grants to FVC a worldwide, perpetual,
non-exclusive, license under copyrights to use, execute, reproduce, display,
prepare or have prepared derivative works based upon and sell, lease or
sublicense or otherwise transfer copies of the object form of the Code for the
purposes of designing, developing, manufacturing, marketing, selling and
maintaining Products.
2.2 Subject to the terms and conditions of this Agreement, including the
obligation to pay ongoing royalties and also including the obligation of
confidentiality set forth in Section 2.7 below, IBM grants to FVC a
non-exclusive license under copyrights to use, reproduce, display, prepare or
have prepared derivative works based upon, the source form of the Code (as
identified in section A.1 of Attachment A) for the purposes of designing,
developing, and maintaining Products.
2.3 Subject to the terms and conditions of this Agreement, including the
obligation to pay ongoing royalties and also including the obligation of
confidentiality set forth in Section 2.7 below, IBM grants to FVC a worldwide,
perpetual, non-exclusive license to use Licensed Technology for the purposes of
designing, developing, manufacturing, marketing and maintaining Product.
2.4 Subject to the terms and conditions of this Agreement, including the
obligation to pay ongoing royalties, IBM grants to FVC a worldwide, perpetual,
non-exclusive license under copyrights to use, reproduce, display, prepare or
have prepared derivative works based upon and sell, lease or sublicense or
otherwise transfer copies of the Licensed Documentation in support of the
marketing, sale and use of Product.
2.5 Except for those IBM patents which are necessarily infringed by the Code and
Licensed Technology as delivered by IBM and in the exercise of the licenses
granted hereunder, no license is granted herein, directly or by implication,
estoppel or otherwise, with respect to any IBM patents. Nothing in this
Agreement shall be deemed or construed to grant an assignment or exclusive
license under any patent.
2.6 Nothing contained in this Agreement shall be construed as implying any grant
of any license or immunity by IBM under any patent owned or controlled by a
third party.
2.7 FVC agrees that :
a) Any copy of Code or Licensed Technology shall include any IBM notices of
proprietary rights appearing in the original copy of that item provided
hereunder by IBM.
b) The Licensed Technology and Code provided hereunder in source code form are
IBM Confidential and will be treated in accordance with the terms of the CDA
referenced in Section 11 "Confidential Information", except that the
confidentiality period shall be a period of 5 years from the date of execution
of this Agreement. No Licensed Technology or Code in source form shall be made
available to anyone other than FVC employees or contractors
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
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who have a need to know in connection with rights granted under this Agreement,
and who have agreed to observe all obligations and restrictions set forth in
this Agreement.
c) Except for the requirement in Section 2.7(a) to include IBM notices of
proprietary rights FVC will assure that any Product sold, marketed, transferred
or distributed by FVC including any associated packaging, publications or user
documentation will not include the IBM name, trademark or logo or otherwise
contain any references to IBM. FVC also agrees that it will not sell, market,
transfer or distribute Product to any third parties in any manner that would
indicate or imply that IBM has any obligation to such third parties or their
customers with respect to the Product being sold or licensed by FVC.
d) FVC will indemnify IBM for any third party claims associated with FVC's
failure to comply with this Section 2.7.
2.8 Nothing contained in this Agreement shall be construed as conferring any
right to use any name, trade name, trademark, or other designation of either
party hereto (including any contraction, abbreviation or simulation of the
foregoing).
2.9 FVC understands and agrees that IBM is not granting any licenses of any kind
to the code and/or technology described in Attachment D and that, in order to
fully utilize the Code and Licensed Technology being licensed under this
Agreement, FVC may need to obtain other licenses from IBM and/or from third
parties. IBM MAKES NO REPRESENTATIONS OR WARRANTIES CONCERNING FVC'S ABILITY TO
OBTAIN SUCH LICENSES. FVC acknowledges and agrees that code and technology in
addition to that code and technology set forth in Attachment D may be required
in order to fully utilize the Code and Licensed Technology provided hereunder.
SECTION 3 - IBM'S OPTION RIGHTS TO ACQUIRE LICENSES TO FVC DERIVATIVE PRODUCTS
3.1 For a period of [*] beginning with the date of execution of this Agreement
and subject to the conditions set forth in 3.2 below, IBM has the right to
acquire all intellectual property rights and licenses on a non-exclusive,
perpetual basis related to any Product developed by or for FVC based upon or
utilizing the Code and Licensed Technology, including associated source and
object code, patents, designs, drawings, specifications, manufacturing documents
and other associated documentation including all enhancements and or
improvements to any of the foregoing (Derivative Products), for the purposes of
developing, manufacturing, marketing, using, selling, licensing, and preparing
or having prepared derivative works based upon such Derivative Products.
3.2 IBM shall have the right to exercise the option in Section 3.1 upon the
occurrence of one or more of the following events.
a) if, at anytime prior to the expiration of [*] from the date of
execution of this Agreement FVC withdraws from marketing any FVC
Derivative Product and does not make available to IBM for resale, under
terms, conditions and prices similar to those offered to other FVC
distributors or dealers, a replacement Derivative Product or FVC
discontinues making Derivative Products available to IBM for resale
under terms, conditions and prices similar to those offered to other FVC
distributors or dealers or FVC fails to offer Derivative Products to IBM
under terms, conditions and prices similar to those offered to other FVC
distributors or dealers, or
b) if this Agreement is terminated by IBM as the result of a material
breach by FVC, or
c) if, at anytime prior to the expiration of [*] from the date of
execution of this Agreement either;
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
[*]--CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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i) a controlling interest in the outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) of FVC is acquired by a
third party, or
ii) a majority of the assets of FVC are spun-off or otherwise
acquired by a third party, or
iii) the Code and Licensed Technology licensed under this
Agreement or the intellectual property rights related to the
Product comes under the control of a third party,
and Derivative Product, including Derivative Product developed after the
occurrence of any of the events set forth in Section 3.2 c), are no
longer made available to IBM for resale under the same or similar terms
and conditions that Derivative Products were being made available to IBM
prior to such event.
3.3 In the event IBM exercises the rights granted under this Section 3 IBM shall
pay to FVC a sum equal to [*] under this Agreement up to the time IBM exercises
these rights.
3.4 The option granted hereunder shall not limit any other remedies IBM may have
for breach of this agreement.
SECTION 4 - SALE OF INVENTORY
4.1 IBM agrees to make available for purchase by FVC the development assets
listed in section E.1 of Attachment E. At the conclusion of the Transition
Period described in Section 5 IBM also agrees to make available for purchase by
FVC the manufacturing assets listed in section E.2 of Attachment E as well as
any remaining finished goods, works in process, and manufacturing parts
inventory. The purchase price for the Inventory shall be [*] purchased. Upon
payment of the associated purchase price, title and risk of loss to the
Inventory shall pass to FVC. IT IS UNDERSTOOD AND AGREED THAT THE INVENTORY IS
BEING SOLD BY IBM ON AN "AS IS" BASIS WITHOUT WARRANTY OF ANY KIND AND SUBJECT
TO THE LIMITATIONS SET FORTH IN SECTION 8.2.
4.2 FVC shall remove all tags, labels, packaging, or markings existing on or
with the Inventory which include the IBM name or logo or otherwise identify IBM
as the source of the Inventory. FVC also agrees that it will not sell the
Inventory or allow it to be sold to any third parties in any manner that would
indicate or suggest that IBM is the source of manufacture of the Inventory or
that IBM has any obligation to such third parties or their customers with
respect to the Inventory. FVC will indemnify IBM for any third party claims
associated with FVC's failure to comply with this Section 4.
4.3 The terms of shipment of the Inventory shall be FOB IBM's Research Triangle
Park facility.
4.4 IBM will invoice FVC for the Inventory purchased and FVC will pay the
invoice within thirty days of receipt by mailing payment to the address stated
in the invoice.
SECTION 5 - MANUFACTURING TRANSITION ASSISTANCE
5.1 For a period not to exceed [*] months from the time of the execution of this
Agreement (Transition Period) IBM will provide FVC with Manufacturing Transition
Assistance as set forth in Attachment F. This assistance shall be in the form of
consulting assistance to be provided by up to [*] people familiar with the
manufacture of IBM's current VAN product. FVC will pay IBM a fee of [*] per
person per month for these services. This fee is for the provision of services,
indirect overhead (i.e. office space occupied by the IBM personnel) and
administrative support only and does not include any additional expenses such as
travel, materials, tools, subcontract activity or other costs related to the
services provided. FVC shall be responsible for these additional costs. IBM will
not incur such costs without first obtaining the approval of the FVC contract
representative named in Section 12.1. FVC will reimburse IBM for any FVC
approved expenditures which are
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
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billed to IBM. THESE SKILLS AND SERVICES ARE PROVIDED ON AN AS IS BASIS WITHOUT
REPRESENTATION OR WARRANTY OF ANY KIND INCLUDING RESULTS.
IBM does not make any representations or warranties, concerning the results of
this consulting or FVC's ability to manufacture Products or to procure
components, parts, code or other materials from IBM or IBM's current suppliers.
FVC assumes full risk and responsibility for procuring needed components, parts,
code or other materials and for its ability to manufacture Products. At the
expiration of the Transition Period FVC may purchase any remaining, finished
goods, works in process and manufacturing parts Inventory as set forth in
Section 4.
IBM will invoice FVC monthly for the services and reimbursable expenses and FVC
shall pay such invoices within 30 days of receipt by mailing payment to the
address stated in the invoice.
SECTION 6 SKILLS TRANSITION AND DEVELOPMENT SUPPORT
6.1 - For the purposes of this Section 6 the following terms shall have the
following meanings:
6.1.1 The term "Materials" means literary works or other works of authorship
including programs, program listings, programming tools, documentation, reports
and drawings, developed by the personnel provided by IBM in the performance of
the services provided under this Section 6. Materials shall not include any
preexisting literary works or works of authorship.
6.1.2 The term "Invention" means any idea, concept, know-how or technique that
either party first conceives or reduces to practice in connection with the
performance of the services provided under this Section 6 and for which a patent
application is filed.
6.2 Beginning on October 15th, 1997 (notwithstanding the later execution of this
Agreement), IBM will make available to FVC up to [*] people for a period not to
exceed [*] from the date of the execution of this Agreement to provide education
and training to FVC development personnel and to assist FVC with the further
development and enhancement of the Code and Licensed Technology. IBM will also
make available to FVC, for a period not to exceed [*] from the date of execution
of this agreement, the consulting services of a product line manager familiar
with the marketing and sales strategy of IBM's current VAN 8300 product. These
individuals will remain resident in their current offices and lab space at IBM.
FVC will pay IBM for these services a fee of [*] per month per person. This fee
is for the provision of services, indirect overhead (i.e. office space occupied
by the IBM personnel) and administrative support only and does not include any
additional expenses such as travel, materials, tools, subcontract activity or
other costs related to the services provided. FVC shall be responsible for these
additional costs. IBM will not incur such costs without first obtaining the
approval of the FVC contract representative named in Section 12.1. FVC will
reimburse IBM for any FVC approved expenditures which are billed to IBM. THESE
SKILLS AND SERVICES ARE PROVIDED ON AN AS IS BASIS WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND INCLUDING THE RESULTS.
FVC may terminate the services of any of the individuals being provided under
this Section 6.2 by providing 30 days written notice to the IBM contract
representative in Section 12.1.
In the event FVC hires any of the individuals providing services under this
Section 6 then IBM's obligation to make people available to FVC hereunder shall
be reduced by the number of people corresponding to the number hired by FVC.
This includes any individuals hired before the execution of this contract
provided such individuals would have been utilized by IBM to provide these
services had they not been hired by FVC.
6.3 Beginning on October 15th, 1997 (notwithstanding the later execution of this
agreement) FVC will fund IBM's ongoing product engineering support for IBM's
current VAN 8300 product by paying IBM [*] per month to reimburse IBM for [*]
engineering personnel. FVC will continue this funding until the earlier of April
1, 1998 or the date on which FVC announces and starts shipment of a compatible
replacement product for the VAN 8300 at which time FVC will assume full
responsibility for level 3 product engineering field support of the installed
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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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customer inventory of the VAN 8300 Video Access Node product. This support
includes correction of design errors, and performance and release of engineering
changes and software fixes.
6.4 IBM will invoice FVC monthly for the services and reimbursable expenses and
FVC shall pay such invoices within 30 days of receipt by mailing payment to the
address stated in the invoice.
6.5. Ownership and License of Copyright
a) IBM hereby assigns to FVC ownership of copyright, in the Materials.
b) FVC hereby grants to IBM an irrevocable, nonexclusive, worldwide,
perpetual, paid-up license to use, execute, reproduce, display, perform,
distribute copies of and prepare and have prepared derivative works
based upon, the Materials and the right to authorize others to do any or
all of the foregoing.
6.5 Inventions
An Invention shall be treated as follows:
a. if made by personnel of one of the parties it shall be the property
of that party (Inventing Party). The Inventing Party hereby grants to
the other party an irrevocable, nonexclusive, worldwide, paid up license
under such Invention, all patent applications filed therefor, and all
patents issued thereon;
b. if made by personnel of both parties, it and all patent applications
filed therefor and all patents issued thereon shall be jointly owned by
the parties. Each party shall have the right to grant licenses to third
parties or assign its rights therein without accounting to the other
party.
All licenses granted to either party under this Section 6 include the
unrestricted right to make, have made, use, lease, sell or otherwise transfer
any apparatus, and to practice any method covered by the Invention. Such license
shall include the right of the licensee to grant sublicenses of comparable scope
to its Subsidiaries.
Nothing contained in this Agreement shall be deemed to grant any license under
any patent or patent applications arising out of any other inventions of either
party.
SECTION 7 - ROYALTIES
7.1 Definitions.
7.1.1 "Royalty Bearing Product" shall mean any Product that contains Code or a
derivative work thereof, or has any functionality described by or embodying any
of the Licensed Technology not known to FVC prior to disclosure of the Licensed
Technology by IBM. In the case of software Products each copy licensed or
distributed by FVC to an end user or other party shall be deemed to be a Royalty
Bearing Product. Royalty Bearing Products shall include the following:
VAN Royalty Bearing Product shall mean a Royalty Bearing Product based
upon, derived from or containing VAN Code or VAN Licensed Technology.
VDM Royalty Bearing Product shall mean a Royalty Bearing Product based
upon, derived from or containing VDM Code or VDM Licensed Technology.
7.1.2 "Royalty Revenue" shall mean FVC's [*]
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FVC may sell or license a Royalty Bearing Product as a standalone system or as a
component of a larger product or system. In the event that a Royalty Bearing
Product is sold or licensed as a component of a larger product or system then
the Royalty Revenue shall be calculated based on the Royalty Revenue that would
have been received had the Royalty Bearing Product been sold or licensed on a
standalone basis. If there is no standalone price associated with the component
which contains the Royalty Bearing Product then the Royalty Revenue shall be the
revenue that would have been received for the next level component, product, or
system that is separately sold or licensed. The parties agree that it is their
intent that FVC have flexibility in the method in which it packages, licenses
and sells it products while at the same time assuring that IBM receives royalty
for the Code and Licensed Technology based on the fair market value of the
functions it enables a Product to perform
7.2 Accrual of Royalties for Products
For each Royalty Bearing Product sold, licensed, or otherwise transferred by FVC
to its customers, distributors, dealers or remarketers prior to the 5th
anniversary of the date of the execution of this Agreement FVC shall pay IBM as
follows:
a) for each VAN Royalty Bearing Product FVC shall pay [*] of Royalty Revenue;
b) for each VDM Royalty Bearing Product FVC shall pay [*] of Royalty Revenue.
A Royalty Bearing Product is considered "sold" or "licensed" when billed or
invoiced by FVC.
A Royalty Bearing Product is considered "otherwise transferred" when not sold or
licensed but delivered by FVC to its customers, distributors, dealers, or
remarketers to others, regardless of the basis for compensation.
7.3 Payment of Royalty for Products
Royalty payments shall be made in US dollars and shall be due within 30 days
after the end of each calendar quarter. Any required currency conversion shall
be made at the official rate of exchange of the currency as quoted by the Wall
Street Journal for the last business day of the period for which payment is due.
No taxes paid by FVC or its distributors, dealers or remarketers (including but
not limited to, sales, property, and value added taxes) imposed by any
governmental entity shall be deducted from or credited against royalties due
IBM.
FVC shall wire or mail all payments due under this Section 7 to the IBM account
at the following address:
Director of Licensing- IBM
Bank of New York
48 Wall Street
New York, New York 10286
U.S.A.
Credit Account # 890-0209-674
ABA Routing # 0210-0001-8
FVC shall include the following information with the payment:
First Virtual Corporation
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Technology Transfer Agreement
IBM Contact: Alan Hoal 919-543-4465.
7.4 Royalty Reporting.
FVC shall provide to IBM, within 45 days after the conclusion of each calendar
quarter, a written report of all royalties due IBM during the previous calendar
quarter. The report shall include the type, quantity, and total Royalty Revenue
of Products sold, licensed or otherwise transferred by FVC. The written report
shall be signed by an officer of FVC or his designee.
Reports shall be sent by mail or facsimile to:
IBM Director of Licensing
International Business Machines Corporation
500 Columbus Avenue
Thornwood, NY 10594
Facsimile Number (914) 742-6737
FVC shall keep records in sufficient detail to permit the determination of
royalties payable hereunder. Upon IBM's request, but no more frequently than
annually (unless in response to a dispute), FVC shall permit independent
auditors chosen by IBM, to have access during ordinary business hours, to such
FVC records and information as may be reasonably necessary to determine the
correctness of any royalty report or payment due under this agreement.
If an audit should disclose any underpayment of royalties due IBM, FVC shall,
within 30 days after notice of such underpayment, pay IBM such amount, together
with simple interest at the rate of 18% per annum beginning with the date such
payment was originally due.
SECTION 8 - WARRANTIES AND REPRESENTATIONS
8.1 IBM represents and warrants to FVC that, as of the date of this Agreement,
IBM owns or otherwise has all rights necessary in the Code, Licensed Technology
and Licensed Documentation as delivered by IBM to make the grants and licenses
set forth herein and that there is no pending litigation or claims of
infringement of any copyright, patent, or other intellectual property right
against IBM relating to the Code, Licensed Technology, Licensed Documentation or
Inventory. IBM represents and warrants that it has full title to the Inventory.
8.2 THE CODE, LICENSED TECHNOLOGY, LICENSED DOCUMENTATION AND INVENTORY ARE
PROVIDED ON AN "AS IS" BASIS WITHOUT WARRANTY OF ANY KIND EXCEPT FOR THE
WARRANTIES IN 8.1. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT ARE SPECIFICALLY DISCLAIMED WITH RESPECT TO THE
CODE, LICENSED TECHNOLOGY, LICENSED DOCUMENTATION, AND INVENTORY.
IT IS UNDERSTOOD AND AGREED THAT IBM DOES NOT WARRANT THAT THE CODE, LICENSED
TECHNOLOGY, LICENSED DOCUMENTATION OR INVENTORY WILL MEET THE REQUIREMENTS OF
FVC OR FVC'S CUSTOMERS, OR THAT THEIR OPERATION WILL BE UNINTERRUPTED OR ERROR
FREE.
NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES TO THE OTHER CONCERNING
THE SUCCESS OF THE MARKETING OF PRODUCTS RELATED TO THE CODE, LICENSED
TECHNOLOGY, LICENSED DOCUMENTATION OR INVENTORY THAT ARE THE SUBJECT OF THIS
AGREEMENT. TO THE EXTENT THAT THE PARTIES HAVE DISCUSSED OR SHARED INFORMATION
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
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RELATING TO FORECASTS, PLANS OR EXPECTATIONS CONCERNING POSSIBLE FUTURE SALES OF
PRODUCTS IT IS UNDERSTOOD AND AGREED BY BOTH PARTIES THAT SUCH INFORMATION DOES
NOT SERVE AS A WARRANTY OR REPRESENTATION THAT SUCH FORECASTS, PLANS OR
EXPECTATIONS WILL BE REALIZED. FVC, THROUGH ITS MANAGEMENT AND ADVISORS HAS
FULLY AND INDEPENDENTLY FAMILIARIZED ITSELF WITH THE FACTORS NECESSARY TO
EVALUATE THE RISKS INVOLVED WITH THE LICENSING OF THIS TECHNOLOGY, AND THE
MANUFACTURE AND SALE OF PRODUCTS BASED ON THE TECHNOLOGY AND IS NOT RELYING ON
ANY REPRESENTATIONS OF IBM BEYOND THOSE SET FORTH IN THIS AGREEMENT.
8.3 FVC warrants and acknowledges that it has conducted, to its satisfaction, an
inspection of the Code, Licensed Technology, Licensed Documentation and
Inventory and agrees that they comply with the terms of this Agreement and FVC
accepts them in their present condition.
SECTION 9 - INDEMNIFICATION
9.1 IBM will, at its expense, indemnify FVC against any suit or claim against
FVC to the extent that such a suit or claim is based upon any breach of the
warranties set forth in Section 8.1 of this Agreement and provided such suit or
claim is not attributable to any enhancements or modifications made to the Code,
Licensed Technology or Licensed Documentation by or for FVC. IBM will pay the
amount of any settlement or the costs, damages, expenses and attorney's fees
finally awarded by a court in any such suit or claim.
9.2 FVC, at its expense, will indemnify IBM against any suit or claim against
IBM based upon a claim of infringement of third party rights or any other suit
or claim resulting from any enhancement or modification made by or for FVC to
the Code, Licensed Technology, Licensed Documentation or Inventory and any
product liability suits or claims relating to products developed or sold by FVC
based upon the Code, Licensed Technology, Licensed Documentation or Inventory.
FVC will pay the amount of any settlement or the costs, damages, expenses and
attorney's fees finally awarded by a court in any such suit or claim.
9.3 Each parties' obligation to indemnify the other as set forth in this Section
9 shall be contingent upon the other party's:
a. providing prompt written notice of any claim or threatened or actual
suit to the indemnifying party and,
b. allowing the indemnifying party to have sole control of the defense
of such suit or claim and any related settlement negotiations and,
c. cooperating fully with the indemnifying party in the defense and
settlement of such suit or claim.
9.4 This Section 9 shall represent the entire and exclusive obligation of one
party to the other regarding any claim of infringement and any claims under
Section 8.1.
SECTION 10 - LIMITATION OF REMEDIES AND DAMAGES
10.1 Except for FVC's obligation to pay the royalties, service fees, and
purchase prices set forth in this Agreement either parties' total liability for
damages to the other for any and all causes whatsoever arising under or in
connection with this Agreement or the Code, Licensed Technology, Licensed
Documentation or Inventory which are the subject of this Agreement, shall be
limited to a total of [*].
10.2 IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR INDIRECT DAMAGES, INCLUDING LOST PROFITS OR LOST SAVINGS. EXCEPT AS
SET FORTH IN SECTIONS 9, 2.7 and 4.2, NEITHER PARTY WILL BE LIABLE FOR ANY
CLAIMS OR DAMAGES BASED UPON ANY THIRD PARTY CLAIM.
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
- ----------------------------
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 10
Page 10
SECTION 11 - CONFIDENTIAL INFORMATION
11.1 The parties shall make disclosures of information under the terms of
Confidential Disclosure Agreement number 94-069 between IBM and FVC (the CDA).
FVC agrees that any Code in source code form provided to FVC by IBM under this
Agreement as well as the Licensed Technology and information relating to the
Inventory shall be treated as IBM confidential information in accordance with
the CDA as modified by this Agreement. The parties also agree that all drafts
and executed copies of this Agreement shall be treated by each party as
confidential information of the other party under the CDA.
11.2 The parties agree not to disclose either the existence of or the terms and
conditions of this Agreement to any third parties without the prior written
consent of the other party. Neither party will make any public statements
relating to the subject matter of this Agreement without the prior written
consent of the other party.
SECTION 12 - GENERAL
12.1 Each party shall name a contract representative to coordinate activities
under this Agreement. If a party changes its representative, it shall notify the
other party of the change in writing. The current representatives of each party
are:
For IBM: Jack Lucas
3039 Cornwallis Road
PO Box 12195
Dept. EK7A
Research Triangle Park, NC 27709.
For FVC: James O. Mitchell
Chief Operating Officer
3393 Octavius Drive
Santa Clara, California
12.2 All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be mailed to each party's representative
at the addresses above.
12.3 This Agreement shall be governed in all respects by the laws of the State
of New York as they apply to contracts executed and fully performed in New York.
IBM and FVC each waive the right to a jury trial in any proceeding arising under
or in connection with this Agreement.
12.4 This Agreement, including its Attachments, embodies the entire agreement
and understanding between the parties, and supersedes all prior agreements,
written or oral, relating to the subject matter hereof. Neither party, in
entering into this agreement, has relied on any inducements, promises or
expectations beyond those contained in this Agreement. No amendments or
modifications hereof will be valid or binding upon the parties, unless made in
writing and signed by authorized representatives of each party .
12.5 No forbearance on the part of either party in enforcing its rights under
the terms of this Agreement shall constitute a waiver of any such term or a
forfeiture of any other right.
12.6 Except for IBM's right to assign the payments to be made by FVC hereunder,
neither party shall sell, transfer or assign any right or obligation hereunder
without the prior written consent of the other party.
Any attempted act in derogation of the foregoing shall be null and void.
12.7 If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, the remaining provisions shall not be affected.
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
<PAGE> 11
Page 11
12.8 Except as expressly noted elsewhere, each party shall bear its owns
expenses associated with the performance of this Agreement.
12.9 FVC shall be responsible for the payment of any and all taxes imposed as
the result of or in connection with the sales and licenses made under this
Agreement (including but not limited to, sales, property, and value added taxes)
with the exception of taxes based on IBM's net income.
IN WITNESS OF THE FOREGOING, IBM AND FVC HAVE CAUSED THIS TECHNOLOGY LICENSING
AGREEMENT TO BE EXECUTED BY THEIR AUTHORIZED REPRESENTATIVES AS OF THE DAY AND
YEAR LAST WRITTEN BELOW.
Accepted and agreed to:
INTERNATIONAL BUSINESS FIRST VIRTUAL CORPORATION
MACHINES CORPORATION
By: /s/ Stephen W. Fitgerald By: /s/ James O. Mitchell
-------------------------- -------------------------
Name: Stephen W. Fitgerald Name: James O. Mitchell
Title: V.P. Operating Networking Title: Chief Financial Officer
Printing & Storage Group
Date: 10/15/97 Date:
IBM/FVC CONFIDENTIAL OCTOBER 16,1997
<PAGE> 12
Page 12
ATTACHMENT A - CODE
A.1 SOURCE CODE
A.1.1 VIDEO ACCESS NODE SOURCE CODE
Source code used to build the following functional units is provided
(executable units are listed rather than individual source files for
brevity). Note that for .cmd files, the source and object code are the
same (because they are an interpreted rather than a compiled language).
A.1.1.1 PRIMARY EXECUTABLE MODULES
AVS.EXE Server process executable.
avsfplay.exe File player virtual device
avsfrecd.exe File recorder virtual device
avskill.exe kill command for AVS Server
avsprogram.exe command line user interface for AVS
avsquery.exe command line user interface for queries
avsstart.exe AVS Server process front-end
avstermmap.exe application to order AVS to re-read AVSTERM.MAP
avstrace.exe application for setting AVS trace points
loopvenc.exe MVT test file player virtual device, loops forever
parsets.exe Transport Stream file parser/analyzer
A.1.1.2 DYNAMIC LINK LIBRARIES, FOR DEVICE DRIVER ACCESS AND FOR FUNCTIONAL
ENCAPSULATION AND SERVICEABILITY.
vsconn.dll Connection Driver DLL
DECAPI.DLL DLL for decoder functions under device manager
m2e_rtic.dll DLL for encoder functions under device manager
vddll.dll DLL for virtual device applications
VirtDev.dll Virtual Device DLL under device manager
AVSATM.DLL AVS ATM Null Protocol Driver DLL interface
avsdll.dll AVS application interface DLL
AVSH245.DLL AVS Server H.245 implementation
avsShM.dll AVS Server RAS shared memory DLL
avstrace.dll AVS Server RAS tracing DLL
cclatm.dll ATM Support for our communications class libraries
A.1.1.3 COMMAND FILES, MOSTLY PART OF THE MAKE PROCEDURE
Command utilities that are part of the MAKE procedure:
BUILDSRC.CMD
JUSTLINK.CMD
makeatm.cmd
makeclnt.cmd
makecmds.cmd
makesamp.cmd
makesnmp.cmd
<PAGE> 13
Page 13
makesrvr.cmd
maketree.cmd
makevdd.cmd
MIBMAVS.CMD
makeit.cmd \avs\devmgr\encoder\virtdd
makeit.cmd \avs\devmgr\encoder\virtdevdll
AVSBAKUP.CMD avs\LLATMI\TCPIP
AVSBLDLK.CMD avs\LLATMI\TCPIP
AVSLOCK1.CMD avs\LLATMI\TCPIP
AVSLOCK2.CMD avs\LLATMI\TCPIP
AVSCHECK.CMD avs\SIAVS
avsnews.cmd avs\SIAVS
CDROMPKG.CMD avs\SIAVS
DECINSTL.CMD avs\SIAVS
fixprot.cmd avs\SIAVS
MAKETERM.CMD
The following commands are not part of the make procedure, but are used as
indicated:
AVSPDP.CMD Problem Determination set-up command
AVSICON.CMD Create desktop folder with AVS icons
avsinst.cmd installation front-end command
TSMUX.CMD Loads ARTIC960 microcode onto encoder
AVSPKG.CMD Creates AVS installation package
A.1.1.4 DEVICE DRIVERS
avsconn.sys Connection Device Driver
mpr_dd.sys Decoder adapter device driver
m2e_rtic.sys Encoder adapter device driver
virtdev.sys Virtual Device device driver
AVSATMDD.OS2 AVS Null Protocol Driver for LLATMI
A.1.1.5 OTHER EXECUTABLE PROGRAMS NOT LISTED ABOVE
VANCFG.EXE Configuration utility
connmon.exe Connection monitor
decinventory.exe Decoder utilities
decupgrade.exe Decoder utilities
download.exe Decoder utilities
testdec.exe Decoder utilities
encdiag.exe Encoder diagnostics utility
avsstub.exe Stub for including IBM binary copyright in executable image
avsnamex.exe AVS Sample application
avsuser.exe AVS Sample application
avsuserv.exe AVS Sample application
avsvdec.exe AVS Sample application
avsvenc.exe AVS Sample application
avsvencx.exe AVS Sample application
CHGLEVEL.EXE More installation programs, from \avs\siavs
DECINSTL.EXE More installation programs, from \avs\siavs
INSTALL.EXE More installation programs, from \avs\siavs
queryatm.EXE More installation programs, from \avs\siavs
<PAGE> 14
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avsagent.exe SNMP subagent for AVS
A.1.1.6 ENCODER MICROCODE
This is the Transport Stream Multiplex code
VIDDMA.REL Special version for new ASPI audio encoder module, postaspi13
auddma2.rel "Regular" encoder microcode
aveccntl.rel "Regular" encoder microcode
mcadma.rel "Regular" encoder microcode
viddma.rel "Regular" encoder microcode
A.1.1.7 DECODER MICROCODE
bootf.abs Boot load for decoder, avs\mpr\dboot\obj
app.abs Application load for decoder, avs\mpr\decc\obj
A.1.1.8 MAKE FILES FOR AVS COMPONENTS
The specific make files are not listed here, but all files necessary to make
the Audio-Visual Services functionality, whether on the OS/2 system unit or
the encoder or decoder adapters, are part of this license agreement. These
files will have extensions of ".mak" or ".inc".
A.1.1.9 AVS TEST CASE SOURCE CODE
Source code for the test case applications will be included in this license
agreement. These are applications written to the AVS API to test the correct
operation of the API and the underlying server support, as well as various
error scenarios. In many cases, the execution of particular test scenarios
requires manual intervention and operation, for example the termination of
the server on a receiving Video Access Node while an audiovisual transmission
is in progress.
A.1.1.10 MISCELLANEOUS
avstrace.tsf AVS OS/2 Trace formatting template file
avsmsg.txt compiled message repository (English)
ccl*.cfg, ccl*.msg configuration and message source files for the
communications class libraries
A.1.2 VIDEO DISTRIBUTION MODULE SOURCE CODE
Code for boot image All source code and make files which
are used to build the Video Distribution Module boot
image.
Operational microcode Source and make files for the Video
Distribution Module operational microcode which
perform the functions of initialization, port
diagnostics, adapter control, video port control, and
service interface.
A.2 OBJECT CODE
<PAGE> 15
Page 15
A.2.1 VIDEO ACCESS NODE CODE PROVIDED IN OBJECT FORM ONLY
No source form for this object code identified below will be provided.
Furthermore, reverse-engineering, reverse-compiling, or reverse translating
these object modules is prohibited.
The AVS TCP/IP protocol stack, which includes RFC 1577 support:
AFINET.SYS TCP/IP OS/2 device driver
IFNDIS.SYS TCP/IP OS/2 device driver
ATMARP.EXE Configure/Query RFC 1577 ARP Client/Server info
CNTRL.EXE TCP/IP OS/2 run time module
IPATMCFG.EXE Configure RFC 1577 ARP ATM addresses
The following installation DLLs:
EPFIPII.DLL
EPFIEXTS.DLL
EPFIRSBK.DLL
Installation programs from \avs\si:
DISKGEN.EXE
EPFIDLDS.EXE
EPFINSTS.EXE
EPFIPAK2.EXE
EPFIPRCS.EXE
EPFIUPK2.EXE
The LLATMI device drivers:
LLATMOSX.OS2 25 Mbit adapter device driver
API155.OS2 155 Mbit adapter device driver
The following DLLs:
cclbase.dll
ccltcp.dll
A.2.2 VIDEO DISTRIBUTION MODULE CODE PROVIDE IN OBJECT FORM ONLY
No source form for this object code identified below will be provided.
Furthermore, reverse-engineering, reverse-compiling, or reverse translating
these object modules is prohibited.
The object files for ATM Forum 3.1 Signaling and ILMI support:
atm_objaddrLib.a
atm_configLib.a
atm_cmgrLib.a
atm_ilmiLib.a
atm_memmgrLib.a
atm_saalLib.a
atm_svcfLib.a
atm_timerLib.a
vdmWrap.a
<PAGE> 16
Page 16
ATTACHMENT B - LICENSED TECHNOLOGY
B.1 VIDEO ACCESS NODE LICENSED TECHNOLOGY
B.1.1 VIDEO ACCESS NODE ENCODER
Licensed Technology for the Encoder Adapter includes:
o Encoder Adapter schematics and bill-of-material data in the form of Concept
files.
o Encoder Adapter physical design information in the form of Allegro files,
which includes the board outline drawings, component placement, wiring
layers, and netlist.
o Manufacturing data for raw card in the form of Gerber data for the board
vendor.
o Bill-of-Material and Approved Vendor List in the form of Microsoft Excel 5.0
spreadsheet.
o Field-Programmable Gate Array (FPGA) source files and image files for each of
the four FPGA components: Altera FPGA ("HPAL, FPAL, APAL") in Max+Plus II,
AMD Mach FPGA ("VPAL") in MACH XL 3.0.
Licensed Technology for the AIB Adapter includes:
o AIB Adapter schematics and bill-of-material data in the form of Concept
files.
o AIB Adapter physical design information in the form of Allegro files, which
includes the board outline drawings, component placement, wiring layers, and
netlist.
o Manufacturing data for raw card in the form of Gerber data for the board
vendor.
o Bill-of-Material and Approved Vendor List in the form of Microsoft Excel 5.0
spreadsheet.
o Programmable Device source files and image files for each of the two
components: AMD 22V10 ("U506") in Abel, FLASH ROM from Artic960 microcode)
o Top card connector cable assembly drawing
B.1.2 VIDEO ACCESS NODE DECODER
Licensed Technology for the Decoder Adapter includes:
o Decoder Adapter schematics and bill-of-material data in the form of Concept
files.
o Decoder Adapter physical design information in the form of PADS files, which
includes the board outline drawings, component placement, wiring layers, and
netlist.
Note: The physical design for the Decoder Adapter was modified in the PADS
physical design tool. However, the modifications were not back-annotated into
the original Orcad schematics. Representative schematics were created and
maintained by hand in Concept.
o Manufacturing data for raw card in the form of Gerber data for the board
vendor.
o Bill-of-Material and Approved Vendor List in the form of Microsoft Excel
spreadsheet.
o Programmable Device source files and image files for each of the four Lattice
FPGA components.
B.2 VIDEO DISTRIBUTION MODULE DECODER BLADE LICENSED TECHNOLOGY
Licensed Technology for the 2-port Video Distribution Module Base Card includes:
o Video Distribution Module Base Card Adapter schematics and bill-of-material
data in the form of Concept files.
o Video Distribution Module Base Card Adapter physical design information in
the form of Allegro files, which includes the board outline drawings,
component placement, wiring layers, and netlist.
o Bill-of-Material and Approved Vendor List in the form of a flat text file.
o Programmable Device source files and JEDEC files for each of the components:
XILINX FPGA ("Buzz") in VHDL, Altera CPLD ("DARB") in MAX+Plus II, XILINX
FPGA ("Infinity") in Concept, AMD 26V12 in Abel.
o Binary load image for LSI Logic ATMizer module.
<PAGE> 17
Page 17
o XILINX binary image included in 403 FLASH module for loading two XILINX
devices.
Licensed Technology for the 6-port Video Distribution Module Port Card includes:
o 6-port Video Distribution Module Port Card Adapter schematics and
bill-of-material data in the form of Concept files.
o 6-port Video Distribution Module Port Card Adapter physical design
information in the form of Allegro files, which includes the board outline
drawings, component placement, wiring layers, and netlist.
o Bill-of-Material and Approved Vendor List in the form of a flat text file.
o Programmable Device source files and image files for each of the components:
XILINX FPGA ("Woody") in VHDL, and AMD 26V12 in Abel.
B.3 VIDEO ACCESS NODE MANUFACTURING INFORMATION LICENSED TECHNOLOGY
B.3.1 VIDEO ACCESS NODE MANUFACTURING DOCUMENTATION
a. Parts list for the IBM 8300-300 which identifies the following:
o Manufacturing Feature Index (MFI)
o Field Feature Index (FFI)
o Build of Material (B/M) Part Number Listing
o Final Assembly and Features (MFI & FFI)
o Final Assembly 8300-300 B/M
o Power Cords: selection by country code and/or feature code
o Pub Ship Groups
o MFI B/M Contents
o Modems; selection by country code and/or feature code
o FFI B/M Contents
b. Engineering Level Routing (P/N 85H6566)
o Manufacturing Process/Build Documentation
o Detailed assembly instructions (final assembly, video adapters,
features)
o Listing of reference drawings (final assembly, video
adapters, features)
c. Manufacturing drawings including:
o Final Assembly/Components, Decoder, Encoder, AIB
o Part numbers contained in 8300-300 Parts Lists and Engineering Level
Routing (85H6566)
d. Manufacturing Test Procedures for the IBM 8300 (Document # RA.35.2339)
o assembly verify and BIOS update
o writing a test diskette
o initial test and code load
o burn-in
o final test
e. IBM Video Access Node card MFT Procedure (Document # RA.35.2220)
<PAGE> 18
Page 18
o Functional test procedure for Video Access Node decoder and encoder
cards
f. Hardware Service Cost Estimate: IBM 8300 (Document # IBM8300)
B.3.2 VIDEO ACCESS NODE SUPPLIERS
IBM will provide information identifying IBM's sources for parts, components,
and supplies used by IBM to manufacture the Video Access Node procured within
IBM or from third parties.
<PAGE> 19
Page 19
ATTACHMENT C - LICENSED DOCUMENTATION
The following end user documentation will be provided in soft copy form as
bookmaster files and in hard copy form.
8300 Video Access Node Model 300 Planning Guide GA27-4175-00
8300 Video Access Node Customer Setup and User's Guide GA27-4174-00
8300 Video Access Node Maintenance Information GY27-0358-00
8300 Video Access Node Programming Reference and Guide SC30-3881-01
Video Distribution Module User's Guide GA27-4173-00
<PAGE> 20
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ATTACHMENT D - CODE, TECHNOLOGY, AND TOOLS SPECIFICALLY NOT LICENSED
D.1 UNLICENSED CODE PERTAINING TO THE VIDEO ACCESS NODE
o Source code for object-code-only modules listed in Attachment A Section A.2.1
o Software from the IBM Artic Developer's Program for the Artic960 adapter from
IBM Boca Raton. This includes system software on the host processor,
Arctic960 Run-Time environment, as well as the kernel modules for the i960 on
the Artic adapter.
o All "parts" for adapter manufacture including any required binaries for any
chip sets (for example, picocode loads for the IBM MPEG-2 encoder chips are
included in the purchase of the chips, C-Cube Microsystems picocode for
CL-9100 and CL-9110, Crystal Semiconductor picocode for CS4920A, etc.)
o Development toolkit including compiler and runtime environment including an
operating system VRTx kernel, for the decoder adapter, from Microtec
Research.
o OS/2 Warp 4.0 (including the required interpreter, OS/2 Procedures Language
(REXX) interpreter and software services)
o TCP/IP (shipped with OS/2 Warp 4.0, replaced by the AVS code)
o Visual Age C++ for OS/2 (for run-time DLLs)
o Bookmanager reader for OS/2
o TCP/IP applications and client/server suite for OS/2 (ie telnet, NFS,
servers/daemons, etc)
o Netfinity for OS/2
o IBM WebExplorer Web Server
D.2 UNLICENSED CODE PERTAINING TO THE VIDEO DISTRIBUTION MODULE
o IBM OS/Open operating system and development tools for the Power PC 403. The
Video Distribution Module operational microcode image contains the OS/Open
embedded kernel and libraries. A license for development and/or distribution
of OS/ Open may be obtained from IBM Microelectronics.
o The High C/C++ compiler/linker for PowerPC. A license for these tools, used
to build the Video Distribution Module operational and boot images, may be
obtained from MetaWare.
o BSO/Tasking compiler and debugger for development and testing of the LSI
Logic ATMizer on-chip microcode. A license for the compiler and debugger may
be obtained from BSO/Tasking.
D.3 UNLICENSED TOOLS
D.3.1 UNLICENSED SOFTWARE TOOLS AND ASSOCIATED DEVICES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Vendor Software Version Cables Devices
Needed?
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cadence Concept 8.x No VaN Encoder
Allegro No VaN AIB
No VaN Decoder (Schematics Only)
No VDM Base Card
No VDM Base Card (1 device)
No VDM Port Card
-----------------------------------------------------------------------------------------------
PADS No VaN Decoder Physical Design
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
Page 21
<TABLE>
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Altera Max+Plus II Yes VaN Encoder (3 devices)
No VDM Base Card (1 device)
-----------------------------------------------------------------------------------------------
AMD MACH XL 3 Yes VaN Encoder (1 devices)
-----------------------------------------------------------------------------------------------
AMD Palasm x No VaN AIB (1 device)
No VDM Base Card (2 devices)
No VDM Port Card (6 devices)
-----------------------------------------------------------------------------------------------
XILINX XACT 5.1 Yes VDM Base Card (2 devices)
No VDM Port Card (1 device)
-----------------------------------------------------------------------------------------------
Synopsys Design Compiler No VDM Base Card (1 device)
FPGA Compiler No VDM Port Card (1 device)
Logic Modeling No
-----------------------------------------------------------------------------------------------
MTI VSIM Simulator 4.4 No VDM Base Card (1 device)
No VDM Port Card (1 device)
-----------------------------------------------------------------------------------------------
Lattice isp Synario Yes VaN Decoder (5 devices)
-----------------------------------------------------------------------------------------------
Motorola BDM Yes VaN Decoder (1 device)
-----------------------------------------------------------------------------------------------
</TABLE>
D.3.1 UNLICENSED HARDWARE TOOLS
<TABLE>
<CAPTION>
Vendor Tool Comments
------ ---- --------
<S> <C> <C>
XILINX Serial PROM Burner XILINX PROMs
IBM Microelectronics PowerPC 403 RiscWatch
Division, RTP NC
IBM NHD MMF ATM switch bypass Prototypes (5x) based on
interface to VDM Base Applied Telecom Inc.,
Card ATM OC-3 NIC with Utopia
interface plus
breadboard ckts.
Data I/O Unisite 22V10, 26V12, Altera
</TABLE>
D.4 UNLICENSED TECHNOLOGY
D4.1 UNLICENSED TECHNOLOGY PERTAINING TO THE VIDEO ACCESS NODE PLATFORM
o IBM PC Server 325 platform (planar, processor card, hard drive, etc.) and
BIOS
o Adaptec SCSI BIOS
o IBM ATM adapters
o IBM PC Server 325 Diagnostics
o All parts required for platform manufacture
D4.2 UNLICENSED TECHNOLOGY PERTAINING TO THE VIDEO ACCESS NODE ENCODER
o ASPI, Inc. microcode for A1023 MPEG-1 Audio Encoder Module (Rev. 9 or higher)
o IBM Artic960 kernel for Intel i960 processor
o IBM MPEG Encoder chipset and core loads
o IBM Artic960 coprocessor adapter and Vero DMA controller module (on Video
Access Node AIB)
o All parts required for Encoder Adapter and AIB Adapter manufacture
<PAGE> 22
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D4.3 UNLICENSED TECHNOLOGY PERTAINING TO THE VIDEO ACCESS NODE DECODER
o Tools for Motorola 68340 processor
o All parts required for Decoder Adapter manufacture
D4.4 UNLICENSED TECHNOLOGY PERTAINING TO THE VIDEO DISTRIBUTION MODULE BASE AND
PORT CARDS
o All parts required for Video Distribution Module Base and Port Card
manufacture
<PAGE> 23
Page 23
ATTACHMENT E - ASSETS AVAILABLE FOR PURCHASE
E.1 DEVELOPMENT ASSETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Item Long Description Manuf / Model Qty
----------------------------------------------------------------------------------
<S> <C> <C> <C>
MONITOR - Professional Studio Monitor (NTSC/PAL) Sony PVM-2950Q 4
29" Inputs: Composite / S-Video / Stereo with Speakers
Audio with loopthru, auto-termination, 3/95
VTR input
----------------------------------------------------------------------------------
MONITOR - Professional Studio Monitor (NTSC only) Sony PVM-2030 8
20" Inputs: Composite / S-Video / Stereo with Speakers
Audio with loopthru, auto-termination, 3/95
VTR input
----------------------------------------------------------------------------------
MONITOR - Broadcast quality monitor (NTSC/PAL) Sony PVM-1354Q 1
19" Inputs: Composite, S-Video, mono monaural speaker
audio, S/N 2008489, 3/95
RGB/component, Ext Sync, underscan
----------------------------------------------------------------------------------
LASERDISK Industrial LD (CLV) with front-panel Sony LDP-2000 2
controls and RS-232 interface, hour
meter, NTSC
----------------------------------------------------------------------------------
LASERDISK Industrial LD (CLV) with front-panel Sony LDP-1500 1
controls and RS-232 interface, NTSC
only
----------------------------------------------------------------------------------
LASERDISK Prosumer CD/CDV/LD (CLV/CAV) NTSC Sony MDP-650 1
2x Composite / S-Video / stereo audio, 5/97
dig out
----------------------------------------------------------------------------------
LASERDISK Video Essentials, Speed, Jurassic Park, Clean Slate, Raising 9
CONTENT Arizona,
Circle of Friends, Leap of Faith, Mighty Ducks, Bon Jovi
----------------------------------------------------------------------------------
CAMERA - Consumer, NTSC, color viewfinder Sony TR-700 8/95 2
HI-8 stereo audio, soft case Sony TR-600 8/95
----------------------------------------------------------------------------------
CAMERA - Desktop conferencing w. microphone Videolabs Flexcam 1
PAL PAL format, 220V adapter S/N P110468, 5/97
----------------------------------------------------------------------------------
VCR Professional, Portable (NTSC) Panasonic AG-5700 1
S-VHS Composite / S-Video / Stereo Audio S/N J3TB00707
----------------------------------------------------------------------------------
VCR Prosumer, multiformat (NTSC/PAL/SECAM) Panasonic AG-W1 1
VHS 2x Composite / Stereo Audio S/N 16TC00135
----------------------------------------------------------------------------------
VTR Professional, BetacamSP, NTSC, Sony UV-1400A, 3/95 1
BETACAMSP RGB/Comp, Composite / S-video / BT.768608B SN.10001
Stereo Audio (Balanced)
----------------------------------------------------------------------------------
MONITOR - Consumer (black), NTSC only Mitsubishi CS-35303 1
35" RF / Composite / S-Video / stereo audio S/N 431478, 3/95
----------------------------------------------------------------------------------
MONITOR - Consumer, NTSC only JVC (white), 3
13" RF / Composite / mono audio Hitachi, Magnavox
----------------------------------------------------------------------------------
NTSC TEST Baseband video test pattern generator, Tektronix TSG-170A 1
PATTERN GEN black burst Tektronix 1910 1
----------------------------------------------------------------------------------
PAL TEST Baseband video test pattern generator, Tektronix 1411 1
PATTERN GEN black burst
----------------------------------------------------------------------------------
WAVEFORM/ NTSC/PAL combination waveform monitor, Tektronix 1765 1
VECTORSCOPE vectorscope, monochrome TV display
----------------------------------------------------------------------------------
WAVEFORM/ NTSC combination waveform monitor and Tektronix 1740 1
VECTORSCOPE vectorscope
----------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
Page 24
<TABLE>
----------------------------------------------------------------------------------
<S> <C> <C> <C>
A/V SWITCH Routing Switcher for A/V sources Knox 12x2 2
Composite, Stereo Audio (unbalanced Knox 8x8 1
RCA)
----------------------------------------------------------------------------------
A/V A/V mixer/switcher: audio mix/fade, Kramer SEG-1000 2
EFFECTS video effects gen / fade (no A/B wipes)
BOARD
----------------------------------------------------------------------------------
S-VIDEO Converts composite to S-Video and Kramer SVC-100 2
CONVERTER performs color correction and filtering
----------------------------------------------------------------------------------
PC SERVER IBM PC Server 325: IBM 8639-RS0 16
325 (8639) 200MHz P6 Pro, 32MB, 2GB, 5 PCI/EISA
----------------------------------------------------------------------------------
ATM HUBS Intelligent Hub - 17 slots, 4 power IBM 8260-A17 1
supplies Workgroup Switch IBM 8285+EXP 2
(12x 25Mb, 1x 155Mb)
----------------------------------------------------------------------------------
VIDEO IBM AIX Media Streamer with RS/6K, 7015-R30 (8w) 1
SERVER Serial SCSI Array (16x 2.2GB) with 7133-010 SSA
----------------------------------------------------------------------------------
AIX SYSTEM IBM RS/6000 for ATM ARP Server 7013-530H, s/n 1
IBM RS/6000 for Lab Print Server 2623548 1
IBM RS/6000 for Cadence Allegro design 7012-320H, s/n
2638757
7012-350, s/n 2648305
----------------------------------------------------------------------------------
PPC 403 PowerPC 403 processor debugger which IBM RiscWatch 2
DEBUGGER attaches to an IBM RS/6000 system
----------------------------------------------------------------------------------
AUDIO A/D Digital Audio Converter (AES/EBU, Spectral ADDA 2218 1
analog)
----------------------------------------------------------------------------------
CATV Cable TV (RF/Composite) Signal HP 8591C 1
ANALYZER Spectrum Analyzer (never opened)
----------------------------------------------------------------------------------
</TABLE>
E.2 MANUFACTURING ASSETS
<TABLE>
<CAPTION>
Manufacturing Assets Book Value
- -------------------- ----------
<S> <C>
In Circuit Testers
Encoder (1) [*]
AIB (1) [*]
Decoder (1) [*]
Injection Molding Equipment (1) [*]
Manufacturing Test Stations (3) [*]
</TABLE>
[*]--CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE> 25
Page 25
ATTACHMENT F - MANUFACTURING TRANSITION ASSISTANCE
F.1 DOCUMENTATION
During the Transition Period set forth in Section 5.1 of the Agreement IBM will
provide FVC with copies of the documents listed in Attachment B.3.1.
F.2 TRAINING AND CONSULTATION
During the Transition Period set forth in Section 5.1 of the Agreement IBM will
provide training and consultation to FVC personnel concerning the manufacturing
process related to the IBM 8300. IBM will also provide reasonable assistance to
FVC on sourcing information described in Attachment B.3.2 by introducing FVC
personnel to the IBM and third party supplier representatives and explaining to
the representatives IBM's desire to enable FVC to assume manufacture of the FVC
version 8300.
<PAGE> 1
EXHIBIT 10.18
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: FIRST VIRTUAL CORPORATION
Number of Shares: 18,750
Class of Stock: Series D Preferred
Initial Exercise Price: $8.00 per share
Issue Date: April 11, 1997
Expiration Date: April 10, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.
1.3 Intentionally Deleted.
1.4 Fair Market Value. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares of
the end of the business day (or the closing price of the Company's stock into
which the Shares are convertible at the end of the business day) reported for
the business day on which Holder delivers its Notice of Exercise to the Company.
If the Shares are not traded in a public market, the Board of Directors of the
Company shall determine fair market value in its reasonable good faith judgment.
<PAGE> 2
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder
2
<PAGE> 3
a new Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit
A).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder the amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
3
<PAGE> 4
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page
of this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws and under the Amended and Restated Investor
Rights Agreement referred to in Exhibit B hereto and in the Company's Bylaws in
the form presented to Bank.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 10 days prior written notice of the date on which a
record will be taken for such dividend, distribution or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder the
information required pursuant to the Restated Investor Rights Agreement referred
to in Exhibit B hereto in the form presented to Bank.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company,
4
<PAGE> 5
such common stock, shall be subject to the registration rights set forth on
Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date. If the notice is
not so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or three days after having been mailed by first-class registered or
certified mail, postage prepaid,
5
<PAGE> 6
at such address as may have been furnished to the Company or the Holder, as the
case may be, in writing by the Company or such holder from time to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
4.9 No Voting or Dividend Rights. Nothing contained in this Warrant
shall be construed as conferring upon the Holder hereof the rights of a
shareholder of the Company, either at law or equity and the rights of Holder are
limited to those expressed in this Warrant. Nothing contained in this Warrant
shall be construed as conferring upon Holder hereof the right to vote or to
consent or to receive notice as a shareholder of the Company on any matters or
with respect to any rights whatsoever as a shareholder of the Company, other
than as set forth herein. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the Shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised in accordance with its terms.
"COMPANY"
FIRST VIRTUAL CORPORATION
By /s/ J.O. Mitchell
Name James O. Mitchell-CFO
(Print)
Title: Chairman of the Board, President,
or Vice President
By /s/ T. Vertin
Name T. Vertin
(Print)
Title: Chief Financial Officer, Secretary
Assistant Treasurer, or Assistant
Secretary
6
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of
the Common/Series ________ Preferred [strike one] Stock of _____________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to __________________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
-------------------
(Name)
-------------------
-------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
-----------------------------------------
(Signature)
- -----------------
(Date)
7
<PAGE> 1
EXHIBIT 10.19
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 April 30, 1997 (the "Effective Date")
WHEREAS, First Virtual Corporation, a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of April 30, 1997,
Equipment Schedule No. VL-1 dated as of April 30, 1997, and related Summary
Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases 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, 1,562 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 (1)
seven (7) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is longer.
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 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.
- 1 -
<PAGE> 2
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.
- 2 -
<PAGE> 3
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. 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 fractonal 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.
(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.
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<PAGE> 4
(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 Warrantholder's
total cost of equipment leased pursuant to the Leases exceeds $250,000,
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 amount
by which the Warrantholder's total equipment cost exceeds $250,000 by 5%, and
(ii) dividing the product thereof by the Exercise Price per share referenced
above.
(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
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
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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
note 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, 1,320,606 of which are issued and outstanding and
187,500 shares of Series D Preferred Stock, of which ______ 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 4,781,636 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 1,249,642 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) a warrant to purchase 18,750 shares
of Series D Preferred Stock. The Company has reserved an aggregate of
1,380,000 shares of its Common Stock for issuance under the Option
Plans. The Company has also reserved 3,295,000 shares of its Common
Stock for purchases under the Purchase Plan, of which 3,294,857 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 87,572
shares have been issued on the date hereof.
(iv) Within 30 days of the date of execution of this Warrant
Agreement the Company will amend the Restated Articles to increase the
number of designated shares of Series D Preferred Stock to not less than
687,500 shares.
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<PAGE> 6
(v) 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.
(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.
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<PAGE> 7
(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 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.
II. 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 D. 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.
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<PAGE> 8
(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) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parries underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
(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), (f) and (g) 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:/s/ J.O. Mitchell
Title: COO/CFO
Warrantholder COMDISCO, INC.
By: /s/ James P. Labe
Title: JAMES P. LABE PRESIDENT
COMDISCO VENTURES DIVISION
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<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
To:
(1) The undersigned Warrantholder hereby elects to purchase _______ shares
of the Series D Preferred Stock of First Virtual Corporation, pursuant
to the terms of the Warrant Agreement dated the 30th day of April, 1997
(the "Warrant Agreement") between First Virtual Corporation 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 First Virtual
Corporation, 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:
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> 12
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 April 30, 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 April 30, 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 longer.
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 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.
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<PAGE> 13
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> 14
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.
- 3 -
<PAGE> 15
(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 denominator 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
- 4 -
<PAGE> 16
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 shams 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, 1,320,606 of which are issued and outstanding and
187,500 shares of Series D Preferred Stock, of which_________ 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 shams of Common Stock no par
value, of which 4,933,153 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 544,998 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) a grant of 333 shares of the
Company's Common Stock which the Company's Board of Directors has
approved for issuance, under the Company's 1993 Employee, Consultant and
Director Stock Purchase Plan (the "Purchase Plan"), to a consultant to
the Company upon the performance of services which have not yet been
performed, and (d) a warrant to purchase 18,750 shares of Series D
Preferred Stock. The Company has reserved an aggregate of 1,175,000
shares of its Common Stock for issuance under the Option Plans. The
Company has also reserved 3,500,000 shares of its Common Stock for
purchases under the Purchase Plan, of which 3,433,153 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 70,606 shares have been
issued on the date hereof.
[Note - outstanding share numbers need to be updated]
- 5 -
<PAGE> 17
(iv) Within 30 days of the date of execution of this Warrant
Agreement the Company will amend the Restated Articles to increase the
number of designated shares of Series D Preferred Stock to not less
than________ shares.
(v) In accordance with the Restated Article's 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.
(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 application late 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 forgoing, 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.
- 6 -
<PAGE> 18
(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 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 0. 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.
- 7 -
<PAGE> 19
(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.
(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: /s/ J.O. Mitchell
Title: COO/CFO
Warrantholder: COMDISCO, INC.
By: /s/ James P. Labe
Title: JAMES P. LABE, PRESIDENT
COMDISCO VENTURES DIVISION
- 8 -
<PAGE> 20
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:__________________
- 9 -
<PAGE> 21
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:
By:___________________
Title:________________
Date:_________________
- 10 -
<PAGE> 22
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.
-11-
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTH PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -----------------------
1996 1996 1997
---------- ---------- -----------
(in thousands, except
per share data)
-----------------------
<S> <C> <C> <C>
Net Loss................................................. $(2,243) $(2,000) $(4,228)
======= ======= =======
Weighted average common shares outstanding............... 4,626 4,567 4,804
Dilutive effect of stock options and warrants
issued subsequent to September 30, 1996................ 877 877 877
Weighted average preferred stock shares.................. 7,818 7,768 7,966
-------- ------ ------
Pro forma weighted average shares used to compute
loss per share......................................... 13,321 13,212 13,647
======== ====== ======
Pro forma net loss per share............................. $ (0.17) $ (0.15) $ (0.31)
======== ====== ======
</TABLE>
<PAGE> 1
Exhibit 16.1
October 23, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
Re: First Virtual Corporation
We have read the Change of Accountants section in the Prospectus
constituting part of this Registration Statement on Form S-1 dated October 23,
1997 and are in agreement with the statements contained therein relating to
KPMG Peat Marwick LLP, except that we are not in a position to agree or
disagree with the registrant's statement that the resignation of KPMG Peat
Marwick LLP was approved by the Company's Board of Directors.
Yours very truly,
/s/ KPMG PEAT MARWICK LLP
-----------------------------
KPMG Peat Marwick LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 22, 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
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 676,000 1,506,000
<SECURITIES> 0 0
<RECEIVABLES> 2,337,000 3,067,000
<ALLOWANCES> 0 (211,000)
<INVENTORY> 1,230,000 1,672,000
<CURRENT-ASSETS> 4,302,000 6,079,000
<PP&E> 1,446,000 1,934,000
<DEPRECIATION> (533,000) (912,000)
<TOTAL-ASSETS> 5,432,000 7,389,000
<CURRENT-LIABILITIES> 3,256,000 5,778,000
<BONDS> 0 0
0 0
7,000 7,000
<COMMON> 5,000 5,000
<OTHER-SE> 2,062,000 887,000
<TOTAL-LIABILITY-AND-EQUITY> 5,432,000 7,389,000
<SALES> 0 0
<TOTAL-REVENUES> 12,093,000 11,123,000
<CGS> 6,547,000 6,477,000
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,816,000 8,727,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,000 (147,000)
<INCOME-PRETAX> (2,243,000) (4,228,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,243,000) (4,228,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,243,000) (4,228,000)
<EPS-PRIMARY> (.17) (.31)
<EPS-DILUTED> 0 0
</TABLE>
