<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYBERSOURCE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 7374 77-0472961
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
550 S. Winchester Blvd., Suite 301
San Jose, California 95128
(408) 556-9100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
William S. McKiernan
President and Chief Executive Officer
550 S. Winchester Blvd., Suite 301
San Jose, California 95128
(408) 556-9100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
Richard Scudellari, Esq. Jeffrey D. Saper, Esq.
Justin L. Bastian, Esq. J. Robert Suffoletta, Esq.
Heike E. Fischer, Esq. Robert G. Day, Esq.
David B. Tom, Esq. Jack Helfand, Esq.
Morrison & Foerster LLP Allison Berry, Esq.
755 Page Mill Road Wilson Sonsini Goodrich & Rosati
Palo Alto, CA 94304 Professional Corporation
(650) 813-5600 650 Page Mill Road
Palo Alto, CA 94304
(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 in 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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title Of Each Class Of Aggregate Offering Amount of
Securities To Be Registered Price(1) Registration Fee
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Common Stock, $.001 par value.................. $46,000,000 $12,800
</TABLE>
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) 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 which 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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated , 1999
PROSPECTUS
Shares
[Logo]
Common Stock
-----------
This is CyberSource Corporation's initial public offering of common stock.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "CYBS."
Investing in the common stock involves risks which are described in the "Risk
Factors" section beginning on page of this prospectus.
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Per Share Total
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<S> <C> <C>
Public Offering Price........................................ $ $
Underwriting Discount........................................ $ $
Proceeds, before expenses, to CyberSource.................... $ $
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The underwriters may also purchase up to an additional shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
Merrill Lynch & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
C.E. Unterberg, Towbin
-----------
The date of this prospectus is , 1999
<PAGE>
The graphic depicts our logo with the words "the power behind the buy button"
above a graphical representation of our tagline including the buy button,
currency sign and credit card numbers. Below are the words "CyberSource
provides e-commerce transaction procession services that power the buy button
of over 400 online merchants worldwide. Our services are comprehensive,
scalable, highly reliable, can be controlled by the merchant and enable
real-time processing of transactions. We provide a suite of services
including: global payment processing, fraud prevention, tax calculation,
distribution control and fulfillment management."
<PAGE>
The graphic depicts the CyberSource logo with tagline above a box with a
screenshot of the Beyond.com web site. Below the box is a seated figure at a
computer with a package to the right. To the right of the box containing the
screenshot of the Beyond.com web site is a larger box with the title
"CyberSource Internet Commerce Suite" above it, containing the words "Tax
Services" under are numbers in columns. Below the numbers in columns is a
picture of an airplane, the words "Distribution Control." Running across the
page are colored lines demonstrating various data streams.
<PAGE>
The graphic depicts a continuation of the box on the left-hand side which
contains the words "Risk Management" below which is a picture of a credit card
swipe, below which are the words "Payment Services" to the left of a picture
of credit cards and cash. Below the picture of credit cards and cash are the
words "Fulfillment Management" to the right of a picture of the inside of a
warehouse. At the top right of the page is a picture of reports with the words
"Merchant Data Analysis" below which is a picture of a grid of numbers with the
word "Bank" at the top and the words "merchant status: cleared" at the bottom.
At the bottom right of the page is a picture of boxes and a dolly.
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 1
Risk Factors............................................................. 4
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 26
Management............................................................... 40
Principal Stockholders................................................... 48
Transactions between CyberSource and its Officers, Directors and
Significant Stockholders................................................ 50
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 62
Experts.................................................................. 62
Where You Can Find More Information...................................... 62
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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Unless otherwise indicated, the information in this prospectus
. reflects the conversion of all outstanding shares of preferred stock into
10,489,809 shares of common stock effective automatically upon the
closing of this offering;
. assumes a one-for-two reverse split of our outstanding common stock;
. assumes the issuance of an aggregate of 1,527,048 shares of common stock
pursuant to the exercise of warrants and the conversion of a convertible
promissory note; and
. assumes no exercise of the underwriters' over-allotment option.
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
CyberSource(R) is a registered trademark of CyberSource Corporation. This
prospectus contains product names and trade names and trademarks of CyberSource
and of other organizations.
<PAGE>
PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision.
CyberSource Corporation
We are a leading developer and provider of real-time e-commerce transaction
processing services. Through our Internet Commerce Suite, we offer solutions to
online merchants for global payment processing, fraud prevention, tax
calculation, export compliance, territory management, delivery address
verification and fulfillment management. Our services enable online merchants
to focus their resources on areas where they can most effectively differentiate
themselves, such as marketing, Web site content, merchandising and support. By
outsourcing their e-commerce transaction processing needs to us, online
merchants can speed their time to market, reduce their overall operating costs
and process orders from around the world in local currencies. Our services are
comprehensive, scalable, highly reliable and performed via a secure messaging
protocol. Our merchants have used our services to process more than 14 million
transactions since January 1998, of which approximately 5.8 million were
processed in the first quarter of 1999.
As the Internet has become an increasingly important communications medium,
merchants and consumers have embraced using the Internet to buy and sell goods
and services. International Data Corporation, or IDC, forecasts that the actual
number of Web buyers worldwide will expand from 28 million in 1998 to
approximately 128 million in 2002 and that the amount of commerce conducted
over the Web will increase from approximately $50 billion in 1998 to
approximately $734 billion in 2002 worldwide. To succeed online, a merchant
must attract customers to its Web site and provide an appealing and easy-to-use
environment that encourages customers to place an order by clicking on the
"buy" button. Once the customer places an order, the merchant must then process
the order by executing numerous transactions, such as credit card
authorization, calculation of sales tax and fulfillment of the order, often
while the customer is waiting.
While early adopters of e-commerce business models often developed custom
transaction processing systems, today many online merchants are seeking to
outsource their transaction processing requirements. Our services offer online
merchants a solution to the challenges of e-commerce transaction processing.
Key benefits of our services include:
. Faster time-to-market;
. Access to a comprehensive suite of services;
. Enhanced merchant flexibility and control;
. Global reach; and
. Reduced overall costs.
More than 400 merchants have chosen to use our services. Our merchants
include Beyond.com, BUY.COM, Compaq Computer, Egghead.com, Fawcette
Publications, MarketWatch.com, Remedy and Shopping.com. We target merchants
worldwide through a direct sales force as well as through an indirect sales
channel. Our indirect channel partners include payment services providers (such
as First Data Corp., Paymentech and Vital Processing Services), systems
integrators (such as Fort Point Partners, iXL and USWeb/CKS), commerce server
providers (such as BroadVision, IBM, Intershop, Interworld, Mercantec and
Microsoft) and merchant aggregators (such as TicketMaster Online-CitySearch and
Verio). We have also entered into strategic relationships with GE Capital's
Equity Capital Group and Visa International to penetrate new e-commerce
markets.
1
<PAGE>
CyberSource Corporation was incorporated by Beyond.com in Delaware in
December 1997 under the name Internet Commerce Services Corporation. Beyond.com
contributed all the assets and liabilities comprising its Internet commerce
services business to Internet Commerce Services Corporation and spun off
Internet Commerce Services Corporation to Beyond.com's stockholders in December
1997. In October 1998 we changed our name to CyberSource Corporation. Our
headquarters are located at 550 S. Winchester Blvd., Suite 301, San Jose,
California 95128, and our telephone number is (408) 556-9100. Information
contained on our Web site at www.cybersource.com does not constitute part of
this prospectus.
The Offering
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Common stock offered.................. shares
Common stock to be outstanding after
this offering........................ shares(1)
Use of proceeds....................... For general corporate purposes,
including sales and marketing, product
development and other corporate
expenses.
Proposed Nasdaq National Market
symbol............................... CYBS
</TABLE>
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(1) Excludes 2,035,575 shares of common stock issuable upon exercise of options
outstanding and 1,389,934 shares available for grant as of March 31, 1999
under our 1998 Stock Option Plan and our 1999 Stock Option Plan. See
"Description of Capital Stock--Authorized and Outstanding Capital Stock"
and Note 5 of Notes to Consolidated Financial Statements.
2
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Summary Consolidated Financial Data
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Period From
March 20, 1996 Years Ended Three Months
(Inception) to December 31, Ended March 31,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
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(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues................... $ 144 $ 968 $ 3,384 $ 639 $ 1,713
Gross profit (loss)........ 7 644 (87) (8) 208
Total operating expenses... 1,150 4,969 9,950 1,823 4,406
Loss from operations....... (1,143) (4,325) (10,037) (1,831) (4,198)
Net loss................... $(1,143) $(4,338) $(10,085) $(1,824) $(4,190)
Basic and diluted net loss
per share................. $ (2.05) $ (0.40) $ (0.77)
Shares used in computing
basic and diluted net loss
per share................. 4,918 4,535 5,465
Pro forma basic and diluted
net loss per share........ $ (0.86) $ (0.26)
Shares used in computing
pro forma basic and
diluted net loss per
share(1).................. 11,740 15,955
Selected Non-Financial
Operating Data:
Number of transactions
processed................. 8,560 870 5,800
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March 31, 1999
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Pro As
Actual Forma(1) Adjusted(2)
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Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $ 7,423 $ 7,423 $
Working capital................................ 3,222 3,222
Total assets................................... 12,150 12,150
Redeemable convertible preferred stock......... 18,911 --
Total stockholders' equity (net capital
deficiency)................................... (13,056) 12,789
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(1) Adjusted to reflect the conversion of all shares of preferred stock into
10,489,809 common stock and the issuance of 1,527,048 shares of common
stock pursuant to the exercise of warrants and the conversion of a
convertible promissory note.
(2) Adjusted to reflect the sale of shares in this offering hereby,
based on an assumed initial public offering price of $ per share.
3
<PAGE>
RISK FACTORS
You should carefully consider the following factors as well as other
information contained in this prospectus before deciding to invest in shares of
our common stock.
We Have a Limited Operating History and Are Subject to the Risks Encountered by
Early-Stage Companies
We commenced operations in March 1996. From March 1996 until December 1997,
we operated as a division of Beyond.com. In December 1997, we were incorporated
as a separate legal entity and our company was spun off from Beyond.com.
Accordingly, we have a very limited operating history, and our business and
prospects must be considered in light of the risks and uncertainties
encountered by early-stage companies in rapidly evolving markets such as e-
commerce. These risks include:
. risks that competition and technological change could adversely affect
market acceptance of our services;
. challenges we encounter in expanding and managing our services and
operations;
. reliance on the success of strategic relationships and indirect sales
channels;
. significant dependence on key personnel; and
. significant fluctuations in quarterly operating results and expected
future losses.
We cannot assure you that our business strategy will be successful or that
we will successfully address these risks and the risks detailed below.
We Have a History of Losses, Expect Future Losses and Cannot Assure You that We
Will Achieve Profitability
Although our revenues have increased on a quarterly basis since 1997, we
have not achieved profitability and cannot be certain that we will realize
sufficient revenue to achieve profitability. We have incurred significant net
losses since our inception. We incurred net losses of $4.3 million in 1997,
$10.1 million in 1998 and $4.2 million in the first quarter of 1999. As of
March 31, 1999, we had incurred cumulative losses of $19.8 million. You should
not consider recent quarterly revenue growth as indicative of our future
performance. We do not expect to sustain similar levels of growth in future
periods. We anticipate that we will increase our sales and marketing, network
infrastructure, product development and general and administrative expenses in
1999 and, as a result, we will need to generate significantly higher revenues
in order to achieve profitability. If we do achieve profitability, we may not
be able to sustain it.
4
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The Expected Fluctuations of Our Quarterly Results Could Cause Our Stock Price
to Fluctuate or Decline
We expect that our quarterly operating results will fluctuate significantly
in the future based upon a number of factors, many of which are not within our
control. We plan to significantly increase our operating expenses in order to
expand our sales and marketing activities, build our network infrastructure and
broaden our service capabilities. We base our operating expenses on anticipated
market growth and our operating expenses are relatively fixed in the short
term. As a result, if our revenues are lower than we expect, our quarterly
operating results may not meet the expectations of public market analysts or
investors, which could cause the market price of our common stock to decline.
Our quarterly results may fluctuate in the future as a result of many
factors, including:
. changes in the number of transactions effected by our merchants,
especially as a result of seasonality or general economic conditions;
. our ability to attract new merchants and to retain our existing
merchants;
. merchant acceptance of our pricing model;
. changes in our or our competitors' pricing policies that may impact our
margins;
. our success in expanding our sales and marketing programs;
. our ability to develop, introduce and market new services on a timely
basis;
. intermittent failures of the Internet infrastructure;
. technical difficulties or unanticipated system downtime;
. introduction or enhancement of our competitors' services; and
. U.S. and foreign regulations relating to our business.
As a result of the above factors, our revenues are not predictable with any
significant degree of certainty.
Due to the uncertainty surrounding our revenues and expenses, we believe
that quarter-to-quarter comparisons of our historical operating results should
not be relied upon as an indicator of our future performance.
We Depend on Beyond.com for a Significant Percentage of Our Revenues
Revenues from services provided to Beyond.com accounted for 23.7% of our
revenues in 1998 and 21.9% of our revenues in the first quarter of 1999. No
other customer accounted for more than 10% of our revenues in 1998 or the first
quarter of 1999. Any significant decrease in revenues from Beyond.com could
materially adversely affect our operating results. We have no long-term
contract with Beyond.com that requires it to continue to use any of our
services. Accordingly, Beyond.com could cease using all or part of our services
on short notice without penalty.
We Depend on Continued Growth in E-commerce and Internet Infrastructure
Development
Sales of goods and services over the Internet do not currently represent a
significant portion of overall sales of goods and services. We depend on the
growing use and acceptance of the Internet as
5
<PAGE>
an effective medium of commerce by merchants and customers. Rapid growth in the
use of and interest in the Internet is a relatively recent development. We
cannot be certain that acceptance and use of the Internet will continue to
develop or that a sufficiently broad base of merchants and consumers will
adopt, and continue to use, the Internet as a medium of commerce.
The emergence of the Internet as a commercial marketplace may occur more
slowly than anticipated for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. If the
number of Internet users or their use of Internet resources continues to grow,
it may overwhelm the existing Internet infrastructure. Delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity could also have a detrimental effect.
These factors could result in slower response times or adversely affect usage
of the Internet, resulting in lower numbers of e-commerce transactions and
lower demand for our services.
Potential System Failures and Lack of Capacity Issues Could Negatively Affect
Demand for Our Services
Our ability to deliver services to our merchants depends on the
uninterrupted operation of our e-commerce transaction processing systems. Our
systems and operations are vulnerable to damage or interruption from:
. earthquake, fire, flood and other natural disasters;
. power loss, telecommunications or data network failure, operator
negligence, improper operation by employees, physical and electronic
break-ins and similar events; and
. computer viruses.
Despite the fact that we have implemented redundant servers in a third-party
hosting center, we may still experience service interruptions for the reasons
listed above and a variety of other reasons. If our redundant servers are not
available, our business may not have sufficient business interruption insurance
to compensate us for resulting losses. We have experienced periodic
interruptions, affecting all or a portion of our systems, which we believe will
continue to occur from time to time. In addition, any interruption in our
systems that impairs our ability to provide services could damage our
reputation and reduce demand for our services.
Our success also depends on our ability to scale our e-commerce transaction
processing systems to accommodate increases in the volume of traffic on our
system, especially during peak periods of demand. We may not be able to
anticipate increases in the use of our systems and successfully expand the
capacity of our network infrastructure. Our inability to expand our systems to
handle increased traffic could result in system disruptions, slower response
times and other difficulties in providing services to our merchant customers,
which could materially harm our business.
We are Exposed to E-commerce Security Risks
A requirement of the continued growth of e-commerce is the secure
transmission of confidential information over public networks. We rely on
public key cryptography and digital certificate technology to provide the
security and authentication necessary for secure transmission of confidential
information. Various regulatory and export restrictions may prohibit us from
using the strongest and most secure cryptographic protection available and
thereby expose us to a risk of data
6
<PAGE>
interception. A party who is able to circumvent our security measures could
misappropriate proprietary information or interrupt our operations. Any such
compromise or elimination of our security could reduce demand for our services.
We may be required to expend significant capital and other resources to
protect against such security breaches or to address problems caused by such
breaches. Concerns over the security of the Internet and other online
transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally, and the Web in particular,
especially as a means of conducting commercial transactions. Because our
activities involve the storage and transmission of proprietary information,
such as credit card numbers, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. Our security
measures may not prevent security breaches and failure to prevent such security
breaches may disrupt our operations.
We Face Intense Competition
The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop custom solutions may be less likely to adopt an outsourced transaction
processing strategy. We also face competition from developers of other
solutions for e-commerce transaction processing such as Clear Commerce,
CyberCash, Digital River, Open Market and Hewlett-Packard (VeriFone). In the
future, we may compete with large Internet-centric companies that derive a
significant portion of their revenues from e-commerce and may offer, or provide
a means for others to offer, e-commerce transaction services.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other solution providers, thereby
increasing the ability of their services to address the needs of our
prospective customers. Our current and potential competitors may establish or
strengthen cooperative relationships with our current or future channel
partners, thereby limiting our ability to sell services through these channels.
Competitive pressures could reduce our market share or require the reduction of
the prices of our services, either of which could materially and adversely
affect our business, results of operations or financial condition.
If We Lose Key Personnel or Are Unable to Attract and Retain Additional
Qualified Personnel We May Not be Able to Successfully Manage Our Business and
Achieve Our Objectives
We believe our future success will depend upon our ability to retain our key
management personnel, including William S. McKiernan, our President and Chief
Executive Officer, and other key members of management. None of our key
employees is subject to an employment contract. We may not be successful in
attracting and retaining key employees in the future.
Our future success and our ability to expand our operations will also depend
in large part on our ability to attract and retain additional qualified
marketing, sales and technical personnel. Competition
7
<PAGE>
for these types of employees is intense due to the limited number of qualified
professionals. We have in the past experienced difficulty in recruiting
qualified marketing, sales, engineering and support personnel. Failure to
attract and retain personnel, particularly marketing, sales and technical
personnel, could make it difficult for us to manage our business and meet our
objectives.
Difficulties We May Encounter Managing Our Growth Could Adversely Affect Our
Results of Operations
We have experienced a period of rapid and substantial growth that has placed
and, if such growth continues, will continue to place a strain on our
administrative infrastructure. We have increased the number of our employees
from 50 employees at December 31, 1997 to 132 employees at December 31, 1998
and 146 employees at March 31, 1999. This expansion is placing a significant
strain on our managerial and financial resources. To manage the expected growth
of our operations and personnel, we will be required to:
. improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
. enhance our management information systems; and
. train, motivate and manage our employees.
We may not be able to enhance our management information and control systems
in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. In addition, we may not be able to hire, train, retain, motivate
and manage required personnel or to successfully identify, manage and exploit
existing and potential market opportunities. If we are unable to manage growth
effectively, our business, results of operations and financial condition would
be materially adversely affected.
If We Are Not Able to Leverage Relationships With Our Channel Partners, We May
Experience Lower Revenue Growth and Higher Operating Costs
Our future growth will depend in part on the success of our relationships
with existing and future channel partners that will market our services to
their merchant accounts. If these relationships are not successful or do not
develop as quickly as we anticipate, our revenue growth may be adversely
affected. Accordingly, we may have to increase our sales and marketing expenses
in an attempt to secure additional merchant accounts.
Our Management Team Must Work Together Effectively in Order to Expand Our
Business, Increase Our Revenues and Improve Our Operating Results
Several members of our existing senior management personnel joined us
recently, including our Vice President of North American Sales, who joined us
in April 1999, our Vice President of Operations, who joined us in March 1999,
and our Vice President of Marketing, who joined us in December 1998. Because
these members of our management team are new, there is an increased risk that
management will not be able to work together effectively as a team, especially
in the short term, to address the challenges to our business. In addition, our
new employees include a number of key managerial, technical and operations
personnel who have been with us for a limited period of time. We expect to add
additional key personnel in the near future that will also need to be
integrated into our management team.
8
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Our Market is Subject to Rapid Technological Change and to Compete, We Must
Continually Enhance Our Systems to Comply with Evolving Standards
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our services and the underlying
network infrastructure. The Internet and the e-commerce industry are
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render our technology and systems obsolete. Our success will depend, in
part, on our ability to both internally develop and license leading
technologies to enhance our existing services and develop new services. We must
continue to address the increasingly sophisticated and varied needs of our
merchants, and respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. The development
of proprietary technology involves significant technical and business risks. We
may fail to develop new technologies effectively or to adapt our proprietary
technology and systems to merchant requirements or emerging industry standards.
If we are unable to adapt to changing market conditions, merchant requirements
or emerging industry standards, our business would be materially harmed.
We May Have Potential Conflicts of Interest with Beyond.com
In connection with our spin off from Beyond.com in December 1997, we entered
into agreements with Beyond.com to define the ongoing relationship between the
two companies. At the time these agreements were negotiated, all of our
directors were also directors of Beyond.com, and other members of our
management team were also executive officers of Beyond.com. As a result, these
agreements were not the result of arms' length negotiations between CyberSource
and Beyond.com. Further, although we and Beyond.com are engaged in different
businesses, the two companies currently have no policies to govern the pursuit
or allocation of corporate opportunities, in the event they arise. Our business
could be adversely affected if the overlapping board members of the two
companies, of which there are currently two, William S. McKiernan and Bert
Kolde, pursue Beyond.com's interests over ours either in the course of
transactions between the companies or where the same corporate opportunities
are available to both companies.
We May Not Be Able to Adequately Protect Our Proprietary Technology
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.
As part of our confidentiality procedures, we enter into non-disclosure
agreements with our employees. Despite these precautions, third parties could
copy or otherwise obtain and use our technology without authorization, or
develop similar technology independently. Effective protection of intellectual
property rights is unavailable or limited in certain foreign countries. We
cannot assure you that the protection of our proprietary rights will be
adequate or that our competitors will not independently develop similar
technology, duplicate our services or design around any patents or other
intellectual property rights we hold.
We also cannot assure you that third parties will not claim our current or
future services infringe upon their rights. As the number of services in our
market increases and functionalities increasingly overlap, companies such as
ours may become increasingly subject to infringement claims. In addition, these
claims also might require us to enter into royalty or license agreements. Any
such
9
<PAGE>
claims, with or without merit, could cause costly litigation that could absorb
significant management time. If required to do so, we may not be able to obtain
such royalty or license agreements, or obtain them on terms acceptable to us.
See "Business--Intellectual Property" for more information relating to
protecting our intellectual property rights and risks relating to claims of
infringement upon the intellectual property rights of others.
We May Not Be Able to Secure Necessary Funding in the Future
We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use the net proceeds of this offering primarily to continue investments in
service development, to expand sales and marketing activities, to fund product
development, to fund continued operations and potentially to make future
acquisitions. We believe that these proceeds, together with our existing
capital resources, will be sufficient to meet our capital requirements for the
next twelve months. However, our capital requirements depend on several
factors, including the rate of market acceptance of our services, the ability
to expand our merchant base, the growth of sales and marketing and other
factors. If capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, and these equity securities may
have rights, preferences or privileges senior to those of the holders of our
common stock. Additional financing may not be available when needed on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures.
We May Become Subject to Government Regulation and Legal Uncertainties
We are not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally,
export control laws and laws or regulations directly applicable to e-commerce.
However, due to the increasing usage of the Internet, it is possible that a
number of laws and regulations may be applicable or may be adopted in the
future with respect to conducting business over the Internet covering issues
such as:
. taxes;
. user privacy;
. pricing;
. content;
. right to access personal data;
. copyrights;
. distribution; and
. characteristics and quality of services.
For example, we believe that some of our services may require us to comply
with the Federal Credit Reporting Act. Complying with this act requires us to
provide information about personal data stored by us or our merchants. Failure
to comply with this act could result in claims being made against us.
10
<PAGE>
Furthermore, the growth and development of the market for e-commerce may
prompt more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for our services and
increase our cost of doing business.
The applicability of existing laws governing issues such as property
ownership, copyrights, encryption and other intellectual property issues,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. This uncertainty could reduce demand for our services or increase
the cost of doing business due to increased costs of litigation or increased
service delivery costs.
Our International Business Exposes Us to Additional Foreign Risks
Services provided to merchants outside the United States accounted for 9% of
our revenues in 1998 and 17% of our revenues in the first quarter of 1999. We
intend to expand our international presence in the future. Conducting business
outside of the United States is subject to additional risks, including:
. changes in regulatory requirements;
. reduced protection of intellectual property rights;
. evolving privacy laws in Europe;
. the burden of complying with a variety of foreign laws; and
. political or economic instability or constraints on international trade.
In addition, some software exports from the United States are subject to
export restrictions as a result of the encryption technology in that software
and we may become liable to the extent we violate these restrictions. We might
not successfully market, sell and distribute our services in local markets and
we cannot be certain that one or more of these factors will not materially
adversely affect our future international operations, and consequently, our
business, financial condition and operating results.
We Face Year 2000 Risks
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Year 2000 compliance efforts may involve significant time and
expense, and uncorrected problems could materially adversely affect our
business, financial condition or operating results.
We have completed audits of our internal systems and are working closely
with suppliers of these systems to ensure that all systems are Year 2000
compliant. We have commenced modification or replacement of non-compliant
systems as necessary. In addition, we are highly dependent on a few
11
<PAGE>
personal computer manufacturing companies for our supply of desktop hardware
and peripherals. These suppliers may not be able to deliver on schedule due to
Year 2000 issues which could result in serious disruptions of employee
productivity and materially adversely affect our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Readiness Disclosure."
Certain Existing Stockholders Can Exert Control Over CyberSource
After this offering, our officers, directors and principal stockholders
(i.e., greater than 5% stockholders) will together control approximately %
of our outstanding common stock. As a result, these stockholders, if they act
together, will be able to control the management and affairs of CyberSource and
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing a change in control of
CyberSource and might affect the market price of our common stock.
Our Stock Price May Fluctuate Substantially and You May Not Be Able to Resell
Your Shares Above the Offering Price
Prior to this offering, there has been no public market for shares of our
common stock. The initial public offering price of the shares of common stock
will be determined by negotiation between representatives of the underwriters
and us. This price will not necessarily reflect the market price of the common
stock following this offering and you may not be able to resell your shares at
or above the initial public offering price.
The market price for the common stock following this offering will be
affected by a number of factors, including the following:
. the announcement of new services or service enhancements by us or our
competitors;
. quarterly variations in our or our competitors' results of operations;
. changes in earnings estimates or recommendations by securities analysts;
. developments in our industry; and
. general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been
unrelated to the operating performance of such companies. Such factors and
fluctuations, as well as general economic, political and market conditions, may
materially adversely affect the market price of our common stock.
Sales of Shares Eligible For Future Sale After This Offering Could Cause Our
Stock Price to Decline
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
shares of common stock
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<PAGE>
(based upon shares outstanding as of March 31, 1999), assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or warrants after March 31, 1999. Of these shares, the shares sold in
this offering will be freely tradable. The remaining shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ----------
<S> <C>
, 1999 (120 days after the date of this prospectus).......... 2,570,945
, 1999 (180 days after the date of this prospectus).......... 13,428,356
At various times thereafter upon the expiration of one-year holding
periods........................................................... 1,549,547
</TABLE>
The Anti-Takeover Provisions in Our Certificate of Incorporation Could
Adversely Affect the Rights of the Holders of Our Common Stock
Anti-takeover provisions of Delaware law and our Certificate of
Incorporation may make a change in control of CyberSource more difficult, even
if a change in control would be beneficial to the stockholders. These
provisions may allow the Board of Directors to prevent changes in the
management and control of CyberSource. Under Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the future.
One anti-takeover provision that we have is the ability of our Board of
Directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 25,000,000 shares of preferred
stock. At the time of the offering, there are no shares of preferred stock
outstanding. However, because the rights and preferences of any series of
preferred stock may be set by the Board of Directors in its sole discretion
without approval of the holders of the common stock, the rights and preferences
of this preferred stock may be superior to those of the common stock.
Accordingly, the rights of the holders of common stock may be adversely
affected.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about CyberSource, including, among other
things:
. risks and uncertainties encountered by early-stage companies;
. continued growth in e-commerce and Internet infrastructure development;
. our ability to retain our existing merchants and attract new merchants;
. technical difficulties and unanticipated system downtime; and
. our relationship with Beyond.com.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur.
14
<PAGE>
USE OF PROCEEDS
Net proceeds from the sale of our shares of common stock at an assumed
initial offering price of $ per share are estimated to be approximately
$ . If the underwriters' over-allotment option is exercised in full,
our net proceeds will be approximately $ .
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate
future access by CyberSource to public equity markets. We expect to use the net
proceeds for general corporate purposes, including sales and marketing, product
development and other corporate expenses. Pending such uses, the net proceeds
of this offering will be invested in short-term, investment grade, interest-
bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
Board of Directors after taking into account various factors, including our
financial condition, operating results and current and anticipated cash needs.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of CyberSource as of March
31, 1999:
. on an actual basis;
. on a pro forma basis to give effect to the conversion into 10,489,809
shares of common stock of all outstanding shares of preferred stock; the
issuance of 1,527,048 shares of common stock pursuant to the exercise of
warrants and the conversion of a convertible promissory note; and
. as further adjusted to give effect to the sale by CyberSource of
shares of common stock offered by CyberSource hereby at an
assumed initial public offering price of $ per share and the
receipt of estimated net proceeds.
This table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------
Pro Forma
Pro As
Actual Forma Adjusted
-------- ------- ---------
(in thousands)
<S> <C> <C> <C>
Long term debt, including current portion......... $ 3,744 $ 744 $ 744
======== ======= =======
Redeemable convertible preferred stock, 24,037,372
shares designated, 16,957,061 shares issued and
outstanding actual, none pro forma or pro forma
as adjusted...................................... 18,911 -- --
Stockholders' equity:
Preferred stock, $.001 par value; 25,000,000
shares authorized, no shares issued and
outstanding -- actual, pro forma and pro forma
as adjusted..................................... -- -- --
Common stock, $.001 par value; 50,000,000 shares
authorized, 5,531,991 shares issued and
outstanding, -- actual; 17,548,848 shares issued
and outstanding -- pro forma; shares
issued and outstanding -- pro forma as
adjusted(1)..................................... 6 18
Additional paid in capital....................... 1,884 27,717
Deferred compensation related to stock options... (671) (671) (671)
Accumulated deficit.............................. (14,275) (14,275) (14,275)
-------- ------- -------
Total stockholders' equity (net capital
deficiency)..................................... $(13,056) 12,789
-------- ------- -------
Total capitalization.......................... $ 9,599 $13,533 $
======== ======= =======
</TABLE>
- ----------------
(1) Excludes 2,035,575 shares of common stock issuable upon exercise of options
outstanding and 1,389,934 shares available for grant as of March 31, 1999
under our 1998 Stock Option Plan and our 1999 Stock Option Plan. See
"Management -- Stock Plans" and "Executive Compensation" and Note 5 of
Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
At March 31, 1999, our pro forma net tangible book value was $12.5 million
or approximately $0.71 per share. Pro forma net tangible book value per share
represents the amount of our stockholders' equity divided by 17,548,848 shares
of common stock (on a pro forma basis to give effect to the conversion upon
completion of this offering of all shares of preferred stock into 10,489,809
shares of common stock and the issuance of 1,527,048 shares of common stock
pursuant to the exercise of warrants and a conversion of the convertible
promissory note). After giving effect to the sale by us of shares of
our common stock hereby at an assumed initial public offering price of
$ per share, and the application of the estimated net proceeds
therefrom, our pro forma net tangible book value as of March 31, 1999 would
have been $ or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to the purchasers of common stock in this offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share as of March 31, 1999... $0.71
Increase attributable to new investors.............................
Pro forma net tangible book value per share after this offering....
-----
Dilution per share to new investors................................ $
=====
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
the differences between the existing stockholders (on a pro forma basis to give
effect to the conversion upon completion of this offering of all shares of
preferred stock into 10,489,809 shares of common stock and the issuance of
1,527,048 shares of common stock pursuant to the exercise of warrants and the
conversion of the convertible promissory note) and the purchasers of shares in
this offering (at an assumed initial public offering price of $ per share)
with respect to the number of shares purchased from us, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 17,548,848 $19,780,000 $1.13
New investors..........
---------- ----- ----------- ------
Total................ 100.0% $ $100.0%
========== ===== =========== ======
</TABLE>
The above computations assume no exercise of options after March 31, 1999.
As of March 31, 1999, there were options outstanding under our 1998 Stock
Option Plan and 1999 Stock Option Plan to purchase a total of 2,035,575 shares
of common stock at a weighted average exercise price of $2.02 per share. In
addition 1,389,934 shares under our 1998 Stock Option Plan and 1999 Stock
Option Plan were reserved for future grants. To the extent that outstanding
options are exercised, or any of the reserved shares are issued, there will be
further dilution to new investors. See "Capitalization," "Management--Stock
Plans," "--Executive Compensation" and Note 5 of Notes to Consolidated
Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for the
period from March 20, 1996 (inception) through December 31, 1996, and for the
years ended December 31, 1997 and 1998 and the selected balance sheet data as
of December 31, 1997 and 1998 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus. The selected
balance sheet data as of December 31, 1996 is derived from our audited
consolidated financial statements not included in this prospectus. The
consolidated financial data as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 was derived from unaudited financial statements
included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the audited consolidated financial statements
and have included all adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of our financial
position and operating results for such periods. When you read this
consolidated financial data, you should also read the consolidated financial
statements and related notes included in this prospectus. The historical
results are not necessarily indicative of future results. The pro forma
consolidated balance sheet data as of March 31, 1999 is unaudited and reflects
the assumed conversion of all outstanding shares of preferred stock into common
stock upon the consummation of this offering.
<TABLE>
<CAPTION>
Period from Three Months
March 20 Year Ended Ended
(Inception) to December 31, March 31,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues.................. $ 144 $ 968 $ 3,384 $ 639 $ 1,713
Cost of revenues.......... 137 324 3,471 647 1,505
------- ------- -------- ------- -------
Gross profit (loss)....... 7 644 (87) (8) 208
Operating expenses:
Product development...... 338 2,300 3,802 671 1,322
Sales and marketing...... 425 1,988 4,184 822 2,079
General and
administrative.......... 387 681 1,946 330 938
Deferred compensation
amortization............ -- -- 18 -- 67
------- ------- -------- ------- -------
Total operating
expense................ 1,150 4,969 9,950 1,823 4,406
------- ------- -------- ------- -------
Loss from operations...... (1,143) (4,325) (10,037) (1,831) (4,198)
Interest income (expense),
net...................... -- (13) (48) 7 8
------- ------- -------- ------- -------
Net loss.................. $(1,143) $(4,338) $(10,085) $(1,824) $(4,190)
======= ======= ======== ======= =======
Net loss per share(1)..... $ (2.05) $ (0.40) $ (0.77)
Shares used in computing
basic and diluted net
loss per share(1)........ 4,918 4,535 5,465
Pro forma basic and
diluted net loss per
share(1)................. $ (0.86) $ (0.26)
Shares used in computing
pro forma basic and
diluted net loss per
share(1)................. 11,740 15,955
Selected Non-Financial
Operating Data:
Number of transactions
processed................ 8,560 870 5,800
</TABLE>
<TABLE>
<CAPTION>
Pro forma
December 31, as of
------------------------ March 31, March 31,
1996 1997 1998 1999 1999
------- ------- ------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........ $ -- $ 2,000 $11,111 $ 7,423 $7,423
Working capital (deficit)........ (61) 2,016 7,554 3,222 3,222
Total assets..................... 106 3,735 14,975 12,150 12,150
Noncurrent obligations under
capital leases.................. -- 33 256 426 426
Redeemable convertible preferred
stock........................... -- 2,097 18,911 18,911 --
Total stockholders' equity (net
capital deficiency) / divisional
equity (1996)................... 421 1,037 (9,023) (13,056) 5,855
</TABLE>
- ----------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share
amounts. Until December 31, 1997, the Company was operated as a division of
Beyond.com Corporation and had no outstanding common or preferred shares,
and, therefore, there are no loss per share amounts for the 1996 and 1997
periods.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
Overview
We commenced operations in March 1996 as a division of Beyond.com. From our
inception to March 1997, our operating activities related primarily to planning
and developing proprietary e-commerce transaction processing solutions,
recruiting personnel, raising capital and purchasing operating assets. On
December 31, 1997, Beyond.com transferred assets and liabilities related to its
e-commerce transaction processing services division to CyberSource. Our
financial statements for 1996 and 1997 reflect our operations as a division of
Beyond.com through December 31, 1997. Our balance sheet as of December 31, 1997
has been prepared using the historical basis of accounting and includes all the
assets and liabilities specifically identifiable to us. Our statements of
operations for 1996 and 1997 include all revenues and costs directly
attributable to us, including a corporate allocation of the costs of
facilities, salaries and employee benefits. Additionally, incremental corporate
administration, finance and management costs are allocated to us. We have
incurred significant losses since our inception, and through March 31, 1999 had
incurred cumulative losses of approximately $19.8 million. We expect to
continue to incur substantial operating losses for the foreseeable future.
We derive substantially all of our revenues from e-commerce monthly
transaction processing fees, and, to a lesser extent, support services and
digital product rights management fees. Transaction revenues and digital
product rights management fees are recognized in the period in which the
transactions occur. Our e-commerce transaction processing service revenues are
derived from contractual relationships providing revenues on a per transaction
basis, generally subject to a monthly minimum or maintenance fee. Support
service fees are recognized as the related services are provided and costs are
incurred. As our revenues grow, we expect e-commerce transaction processing
revenues to become an increasingly larger percentage of our total revenues.
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including our gross margin and operating expenses as a
percentage of total revenues, are not meaningful and should not be relied upon
as indications of future performance. We do not believe that our historical
growth rates are indicative of future results.
Results of Operations
The following discussion does not contain data from the inception period of
March 20, 1996 through December 31, 1996, because we believe that amounts from
this inception period are not comparable to those for the years ended December
31, 1997 and 1998 due to the different duration of the periods, and due to the
limited size of our operations as a division of Beyond.com in that period.
19
<PAGE>
Three Months Ended March 31, 1998 and 1999
Revenues. Revenues increased from $0.6 million for the three months ended
March 31, 1998 to $1.7 million for the three months ended March 31, 1999, an
increase of approximately $1.1 million or 168.1%. This increase is due to the
addition of merchants and transaction volume increases from existing merchants
resulting from the increased market acceptance of e-commerce. Our transactions
increased from approximately 870,000 processed during the three months ended
March 31, 1998 to approximately 5,800,000 during the three months ended March
31, 1999.
Cost of Revenues. Cost of revenues consists primarily of costs incurred in
the delivery of e-commerce transaction processing services, including personnel
costs in our operations, professional services and merchant support functions,
depreciation of capital equipment used in our network infrastructure and costs
related to the hosting of our servers at third-party hosting centers in the
United States and United Kingdom. Cost of revenues increased from $0.6 million
for the three months ended March 31, 1998 to $1.5 million for the three months
ended March 31, 1999. The increase is due primarily to additional operations
and merchant support personnel and related costs.
Product Development. Product development expenses consist primarily of
compensation and related costs of employees engaged in the research, design and
development of new services, and to a lesser extent, facility costs and related
overhead. Product development expenses increased from $0.7 million for the
quarter ended March 31, 1998 to $1.3 million for the quarter ended March 31,
1999. The increase is primarily due to higher personnel related costs resulting
from an increase in product development personnel and related costs. We expect
product development expenses to increase in absolute dollars as we hire
additional personnel and develop new services.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation of sales and marketing personnel, market research and advertising
costs, and, to a lesser extent, facility costs and related overhead. Sales and
marketing expenses increased from $0.8 million for the three months ended March
31, 1998 to $2.1 million for the three months ended March 31, 1999. The
increase is primarily due to higher personnel related costs and higher sales
commissions. We expect sales and marketing expenses to increase in absolute
dollars as we substantially increase our marketing and promotional programs.
General and Administrative. General and administrative expenses consist
primarily of compensation for administrative personnel, fees for outside
professional services and, to a lesser extent, facility costs and related
overhead. General and administrative expenses increased from $0.3 million for
the three months ended March 31, 1998 to $0.9 million for the three months
ended March 31, 1999. The increase is primarily due to higher personnel related
costs. We expect general and administrative expenses to increase in absolute
dollars to support the expected growth of our business.
Deferred Compensation Amortization. During the three months ended March 31,
1999 and in April 1999, we recorded aggregate unearned compensation in the
amount of $0.6 million and $0.4 million in connection with the grant of stock
options with exercise prices less than the deemed fair value on the respective
dates of grant. Deferred compensation amortization, related to these stock
option grants, as well as 1998 stock option grants for years 1999, 2000 and
2001 and thereafter will be approximately $0.6 million, $0.4 million and $0.2
million, respectively.
20
<PAGE>
Interest Income (Expense), Net. Interest income consists of interest
earnings on cash and cash equivalents and increased from $11,000 for the three
months ended March 31, 1998 to $0.1 million for the three months ended March
31, 1999. The increase is primarily due to an increase in cash and cash
equivalents as a result of equity financings completed during 1998. Interest
expense increased from $4,000 for the three months ended March 31, 1998 to $0.1
million for the three months ended March 31, 1999. The increase represents
interest on an unsecured convertible note issued in July 1998 and interest on
capital leases.
Years Ended December 31, 1997 and 1998
Revenues. Revenues increased from $1.0 million in 1997 to $3.4 million in
1998, an increase of approximately $2.4 million or 249.6%. The increase is a
result of the addition of merchants and increased transaction volumes from
existing customers resulting from the increased market acceptance of e-
commerce. Since we were a division of Beyond.com, no revenues were recorded
from Beyond.com transactions processed during 1997. During 1998, Beyond.com
accounted for approximately 23.7% of our revenues. Given the continued increase
in our customer base, we expect Beyond.com's percentage of total revenues to
decrease in future periods as new customers increase our transaction volumes
and revenues.
Cost of Revenues. Cost of revenues increased from $0.3 million in 1997 to
$3.5 million in 1998. The increase in 1998 is due to a significant increase in
operations, professional services and merchant support personnel, increases in
depreciation expense on capital equipment as well as costs related to the
hosting of our servers at third party hosting centers in the United States and
United Kingdom.
Product Development. Product development expenses increased from $2.3
million in 1997 to $3.8 million in 1998. The addition of product development
personnel during 1998 primarily accounted for the increase.
Sales and Marketing. Sales and marketing expenses increased from $2.0
million in 1997 to $4.2 million in 1998. The increase is primarily due to
higher personnel related costs and increased sales commissions.
General and Administrative. General and administrative expenses increased
from $0.7 million in 1997 to $1.9 million in 1998. The increase is primarily
due to higher personnel related costs.
Deferred Compensation Amortization. During the year ended December 31, 1998,
we recorded aggregate unearned compensation in the amount of $0.2 million in
connection with the grant of certain stock options during 1998 with exercise
prices less than the deemed fair value on the respective dates of grant.
Interest Income (Expense), Net. Interest income was approximately $0.1
million in 1998. Interest expense of $0.2 million in 1998 represents interest
on an unsecured convertible note and interest on capital leases.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses since inception. As of December 31, 1998,
we had federal and state net operating
21
<PAGE>
loss carryforwards of approximately $8.6 million. If we are not able to use
them, the federal and state net operating loss carryforwards will expire in
2006 through 2018. The Tax Reform Act of 1986 imposes substantial restrictions
on the utilization of net operating losses and tax credits in the event of a
corporation's ownership change, as defined in the Internal Revenue Code. Our
ability to utilize net operating loss carryforwards may be limited as a result
of such an ownership change. We do not anticipate that a material limitation on
our ability to use our carryforwards and credits will result from this
offering.
We have provided a full valuation allowance on our deferred tax assets
because of the uncertainty regarding their realization. Our accounting for
deferred taxes under Statement of Financial Accounting Standards No. 109
involves the evaluation of a number of factors concerning the realizability of
our deferred tax assets. In concluding that a full valuation allowance was
required, we considered such factors as our history of operating losses and
expected future losses and the nature of our deferred tax assets.
Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated statements
of operations data and non-financial operating data for the five quarters ended
March 31, 1999. In management's opinion, the consolidated statements of
operations data has been prepared substantially on the same basis as the
audited consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below in order to present
fairly the unaudited quarterly results. The quarterly data should be read in
conjunction with our audited consolidated financial statements and the related
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
June Sept
Mar 31, 30, 30, Dec 31, Mar 31,
1998 1998 1998 1998 1999
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues......................... $ 639 $ 699 $ 943 $ 1,103 $ 1,713
Cost of revenues................. 647 655 895 1,274 1,505
------- ------- ------- ------- -------
Gross profit (loss).............. (8) 44 48 (171) 208
Operating expenses:
Product development............. 671 808 1,055 1,268 1,322
Sales and marketing............. 822 849 1,118 1,395 2,079
General and administrative...... 330 413 571 632 938
Deferred compensation
amortization................... -- -- -- 18 67
------- ------- ------- ------- -------
Total operating expenses....... 1,823 2,070 2,744 3,313 4,406
------- ------- ------- ------- -------
Loss from operations............. (1,831) (2,026) (2,696) (3,484) (4,198)
Interest income (expense), net... 7 11 (39) (27) 8
------- ------- ------- ------- -------
Net loss......................... $(1,824) $(2,015) $(2,735) $(3,511) $(4,190)
======= ======= ======= ======= =======
Non-Financial Operating Data:
Number of transactions
processed....................... 870 1,193 2,473 4,024 5,800
</TABLE>
22
<PAGE>
Revenues increased during each quarter of 1998 and the first quarter of 1999
due to increases in transaction volumes and, to a lesser extent, increases in
merchant support services. The increase in cost of revenues during each quarter
of 1998 and the first quarter of 1999 is due to an increase in cost related to
operations, infrastructure and the hosting of our servers at third-party
hosting centers in the United States and United Kingdom, and to a lesser
extent, increases in merchant support personnel throughout the period. Product
development expense increased during each quarter of 1998 and the first quarter
of 1999 principally due to an increase in product development personnel. Sales
and marketing expense increased in the three months ended December 31, 1998 and
March 31, 1999 due to an increase in sales and marketing personnel and
increases in sales commissions. The increase in general and administrative
expense in the three months ended March 31, 1999 is due to increased recruiting
expenses, accounting and outside service expenses and additional headcount. The
deferred compensation amortization represents the amortization of unearned
compensation in connection with the grant of certain stock options during 1998
and 1999 at exercise prices less than the deemed fair value on the respective
dates of grant.
Liquidity and Capital Resources
Our cash and cash equivalents increased by approximately $5.4 million from
December 31, 1997 to March 31, 1999. This increase resulted from our receipt of
approximately $16.5 million in proceeds from the sale of equity securities and
issuance of an unsecured convertible note payable for $3.0 million to an
officer and stockholder, which was partially offset by our net losses during
1998 and the three months ended March 31, 1999. Our investment in property and
equipment was approximately $2.0 million, excluding approximately $0.9 million
of property and equipment financed under capital leases, during the period from
December 31, 1997 to March 31, 1999.
Net cash used in our operating activities was approximately $8.9 million in
1998 and approximately $3.1 million for the three months ended March 31, 1999.
Cash used in operations in 1998 and the months ended March 31, 1999 was
primarily due to our net losses and increases in current assets, offset by
depreciation and amortization and increases in accounts payable and accrued
liabilities.
Net cash used in investing activities was approximately $1.4 million during
1998 and approximately $0.5 million during the three months ended March 31,
1999 and was comprised primarily of purchases of furniture and equipment for
new employees, and leasehold improvements related to office expansions in both
periods. Our planned capital expenditures for the remainder of 1999 are
approximately $4.5 million, primarily for capital equipment used in our network
infrastructure.
Net cash provided by financing activities was approximately $19.4 million in
1998 and approximately $0.1 million for the three months ended March 31, 1999.
Net cash provided by financing activities in 1998 was due primarily to proceeds
from our issuance of a convertible note payable of $3.0 million and proceeds
from the issuance of preferred stock of $16.5 million.
We believe that the net proceeds from this offering, together with our
current cash balances, will be sufficient to meet our working capital and
capital requirements for at least the twelve months immediately following the
offering. However, our future capital requirements will depend on many factors
including the level of investment we make in new businesses, new products or
new technologies. To the extent that the funds generated by this offering,
together with existing resources
23
<PAGE>
and future earnings, are insufficient to fund our future activities, we may
need to obtain additional equity or debt financing. Additional funds may not be
available or, if available, we may not be able to obtain them on terms
favorable to our stockholders and us.
Year 2000 Readiness Disclosure
State of Readiness. We utilize a number of computer software programs and
operating systems across our entire organization, including applications used
in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming Year 2000 and beyond, some level of
modification or replacement of such applications will be necessary. We believe
that our internal Year 2000 issues are limited to information technology, or
IT, systems such as software programs and computer operating systems, and we
are working closely with the suppliers of such systems to ensure that all
systems are Year 2000 compliant. Employing a team made up of internal
personnel, we have completed our identification of IT systems that are not yet
Year 2000 compliant and have commenced modification or replacement of non-
compliant systems as necessary. We anticipate that modification or replacement
and testing of these systems will be completed by September 1999.
We are highly dependent on a few personal computer manufacturing companies
for our supply of desktop hardware and peripherals. To the extent that Year
2000 issues affect these suppliers' ability to deliver on schedule, we must
review the suppliers' plans for Year 2000 compliance and satisfy ourselves that
they have made the necessary modifications to or replacement of their affected
systems. We have requested these plans and will evaluate them as they are
received. We anticipate that this evaluation will be completed by May 1999. We
will rely primarily on the suppliers' commitments to accomplish this task but
have no contractual commitment from the suppliers regarding Year 2000 issues.
Costs of Addressing Year 2000 Issues. Given the information known at this
time about our non-compliant systems, coupled with ongoing, normal course-of-
business efforts to upgrade or replace critical systems, as necessary, we do
not expect Year 2000 compliance costs to have any material adverse impact on
our business. We estimate that total costs for the Year 2000 compliance
assessment and remediation will not exceed $100,000. The costs of this
assessment and remediation will be paid out of general and administrative
expenses.
Risks of Year 2000 Issues. In light of our assessment and remediation
efforts to date, and the planned, normal course-of-business upgrades, we
believe that any residual Year 2000 risk is limited to non-critical business
applications and support hardware. No assurance can be given, however, that all
of our systems will be Year 2000 compliant or that compliance will not have a
material adverse effect on our business. We also do not have any assurance that
the manufacturers who supply desktop hardware or software for us will be Year
2000 compliant with their internal systems; a reduction in the supply of
desktop hardware or software from these suppliers could have a material adverse
effect on our business. In this case, we will find alternate suppliers of
desktop hardware and software.
Contingency Plans. We believe that, if our suppliers are not Year 2000
compliant, the reasonably likely worst case would be that we would be unable to
receive desktop hardware and software from them on a timely basis which would
disrupt employee productivity and could materially adversely affect our
business. We plan to develop a contingency plan for all operations to
24
<PAGE>
address the most reasonably likely worst case scenarios regarding Year 2000
compliance. We expect this contingency plan to be completed by July 1999.
Qualitative and Quantitative Disclosures about Market Risk
We provide our services to customers primarily in the United States and, to
a lesser extent, in Europe and elsewhere throughout the world. As a result, our
financial results could be affected by various factors, including changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
All sales are currently made in U.S. dollars or pound sterling. A strengthening
of the dollar or the pound sterling could make our products less competitive in
foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates. Due to the nature of our short-term investments,
which are primarily money market funds, we have concluded that there is no
material market risk exposure.
25
<PAGE>
BUSINESS
Overview
We are a leading developer and provider of real-time e-commerce transaction
processing services. Through our CyberSource Internet Commerce Suite, we offer
solutions to online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, territory management, delivery address
verification and fulfillment management.
Industry Background
The Rapid Growth of Internet Commerce
As the Internet has become an increasingly important communications medium,
merchants and consumers have begun using the Internet to buy and sell goods and
services. According to International Data Corporation, or IDC, the number of
Internet users worldwide will grow from an estimated 97 million at the end of
1998 to an estimated 320 million by 2002. Increasingly, these Internet users
are becoming online consumers. IDC forecasts that the actual number of Web
buyers worldwide will expand from 28 million in 1998 to approximately 128
million in 2002 and that the amount of worldwide commerce conducted over the
Web will increase from $50 billion in 1998 to approximately $734 billion in
2002.
E-commerce offers both merchants and consumers numerous benefits:
. Merchants and consumers can interact 24 hours a day, 7 days a week,
regardless of their respective locations.
. Merchants can customize Web site content to match the needs and
preferences of individual users by transparently personalizing content
for each user.
. The online store enables merchants to readily increase the number of
products and services offered, thereby enhancing the product selection
available to customers.
. Online merchants can avoid investments in physical retail locations.
. Much of the interaction between merchants and consumers can be automated,
resulting in reduced selling costs.
These benefits allow merchants to focus on growing their customer bases and to
market and sell their products around the world in a cost-effective and
efficient manner.
The early adopters of e-commerce were often Internet-centric companies, such
as Amazon.com and Beyond.com, which were founded specifically to transact
business on the Internet. Today, many businesses consider it essential to offer
their goods and services online, and traditional retailers such as department
stores, car dealers, and toy stores have opened online stores to supplement
their traditional retail models. An increasingly broad selection of products is
now being sold online, ranging from the initial online product offerings of
books, music, computers and software to more traditional consumer goods such as
automobiles, clothes, movie tickets, vitamins and even such personal products
as prescription drugs. Accordingly, the need for online transaction processing
is affecting virtually all industries.
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Transaction Processing Demands
To succeed online, a merchant must attract customers to its Web site and
provide an appealing and easy-to-use environment that encourages customers to
place an order by clicking on the "buy" button. Once the customer places an
order, the merchant must process the order by effectively and efficiently
executing numerous transactions. With the rapid increase in the number of
online merchants and the vast array of products and services becoming available
online, competition among online merchants is increasingly intense. Due to
these competitive pressures, merchants must focus their resources on attracting
customers to their Web sites and providing compelling content to keep customers
in their online stores. However, as a merchant succeeds in these efforts, the
increased number of resulting orders creates another set of complex challenges.
These challenges include:
. Payment processing. The vast majority of online consumer purchases are
conducted using credit cards. These credit card transactions should be
processed in real-time to confirm an order while the customer is online.
Increasingly, merchants are also seeking to process transactions in local
currencies around the world.
. Fraud prevention. Because of the anonymity offered by the Internet and
the speed with which one can make purchases, the opportunity for fraud is
significant. In e-commerce transactions, because the credit card is not
present, a merchant is generally held liable by its bank for the full
value of the transaction in the event of credit card fraud even if a pre-
authorization had been obtained. Online merchants must find ways to
combat this fraud to avoid losing both the product being sold and the
related revenue.
. Sales Tax/VAT. An online merchant must comply with many different
national, state and local sales tax/value added tax (VAT) regulations
that vary depending on merchant and customer locations or product type.
. Export compliance. Online merchants must ensure that a proposed
transaction complies with complex, rapidly changing export regulations
that restrict the export of some goods to prohibited countries, persons
and entities.
. Territory management. A transaction may be subject to policies and
restrictions imposed by manufacturers that may prohibit the merchant from
selling products to customers in certain locations.
. Fulfillment management. Online orders for physical goods must be
transmitted to fulfillment centers, distributors or merchant-owned
distribution centers for shipment of the goods.
The online merchant must often address these demands while the customer is
waiting online. Information that a traditional retailer can collect during a
period of hours, such as fraud screen or export restrictions, often must be
available to the online merchant immediately. In addition, the merchant must
have an e-commerce system that scales as the business grows, provides a high
level of reliability and handles peak loads. The merchant's e-commerce system
should also integrate smoothly into its existing business and technology and
must support secure, authenticated messaging.
Evolution of E-commerce Transaction Processing Solutions
Early adopters of e-commerce business models typically developed custom
transaction processing systems. Merchants that built these solutions often
faced long development cycles, which
27
<PAGE>
delayed their time-to-market. These custom solutions often had limited
functionality and scalability and high ongoing maintenance costs.
More recently, online merchants have attempted to address their transaction
processing needs by either purchasing or outsourcing discrete solutions.
Merchants that turn to discrete solutions like payment processing are still
faced with the need to address other potentially costly and time-consuming
transaction processing issues like fraud screening or export control. In
addition, merchants that purchase discrete solutions often discover that these
solutions cannot scale as their business grows.
As the Internet becomes an essential marketplace, merchants seek e-commerce
service providers with the expertise to deliver a comprehensive solution that
shortens time-to-market and maximizes the value of their investment. This
transaction processing solution should be available at a low initial and
overall cost and, at the same time, be scalable to support the growth of the
online business. A solution should also allow the merchant to maintain control
over its online content and customer relationships and to integrate new
services easily.
The CyberSource Solution
We are a leading developer and provider of real-time e-commerce transaction
processing services. Through our CyberSource Internet Commerce Suite, we offer
online merchants a solution to the challenges of Internet transaction
processing. Key benefits of our solution include:
. Faster Time-To-Market. Our services and technical support enable online
merchants to begin processing transactions without lengthy or costly
integration efforts. Our services are invoked by a single common
interface installed on a merchant's commerce server. This interface may
be easily installed with a "plug-in" which is offered for many popular
commerce servers such as those offered by BroadVision, IBM and Microsoft.
In addition, we have developed our software libraries to run on most
operating systems including Microsoft NT, UNIX (Sun Solaris, HP UX, IBM
AIX, and others) and Linux.
. Access to Comprehensive Suite of Services. We provide merchants with on-
demand, online access to services that address a broad spectrum of e-
commerce transaction processing issues related to global payment
processing, fraud prevention, tax calculation, export compliance,
territory management, delivery address verification and fulfillment
management.
. Enhanced Merchant Flexibility and Control. Our comprehensive transaction
processing solution enables the merchant to choose transaction services a
la carte on a per order basis. The merchant has the flexibility to
purchase any or all of our offered services for each order as needed. In
addition, because our services are provided transparently to the
customer, merchants retain complete control over their customers' buying
experiences.
. Global Reach. Our services are used by merchants in many countries
throughout the world. We have established a network of virtual data
centers in 19 countries on 6 continents. In addition, our payment
gateways currently support over 100 currencies and provide sales tax/VAT
calculations for all Canadian provinces and all countries in the European
Union in addition to all United States jurisdictions.
. Reduced Overall Costs. Our services enable merchants to effectively
process online transactions without the cost of developing and
maintaining their own complex transaction processing systems and
infrastructure. Furthermore, our services lower transaction costs by
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<PAGE>
reducing fraud and avoiding the shipment of goods to undeliverable
physical addresses in the United States and Canada.
The technology underlying our e-commerce transaction processing services
provides the following benefits:
. Scalability. Our services allow merchants to deliver consistent quality
of service as transaction volumes grow, and to handle daily and seasonal
peak periods. As a result, merchants do not have to expand these areas of
their transaction processing infrastructure as their businesses grow.
. High Reliability. Our systems are engineered to provide high reliability,
and we provide transaction processing 24 hours a day, 7 days a week. In
addition, we offer our merchants support 24 hours a day, 7 days a week.
. Secure Messaging. All communications between the merchant's Web server
and our system are facilitated by our Simple Commerce Messaging Protocol,
or SCMP. This encrypted protocol allows for digital signature processing,
message integrity, and identity verification of all communications
between the merchant and us.
. Real-Time Responses. Because our services enable online merchants to
process e-commerce transactions in real-time, merchants can improve their
level of customer satisfaction and reduce their support costs by avoiding
delayed responses and minimizing the need for follow-up communications.
Strategy
Our objective is to be the leading worldwide provider of real-time e-
commerce transaction processing services. Key elements of our strategy include
the following:
Enhance and Extend Our Suite of E-commerce Services. We intend to build upon
our scalable, state-of-the-art transaction processing systems to enhance the
services we currently offer. By continuing to invest resources in our core
transaction processing engine, CyberSource Commerce Engine, we intend to
further improve availability, reliability and scalability. Based on input from
our merchants, we plan to introduce new services to solve e-commerce problems
as they emerge. For example, in response to merchant demand, in March 1999, we
introduced as part of our service suite delivery address verification, which
uses database and artificial intelligence technologies to determine whether the
merchant's customer has supplied a deliverable street address in the United
States or Canada. To supplement our internal development efforts, we will also
consider acquisitions of complementary technologies and companies.
Expand Merchant Customer Base through Improved Brand Recognition and
Increased Marketing. To date, we have made limited investments in marketing and
branding. We intend to substantially increase our marketing and promotional
programs, including brand recognition, advertising and public relations
efforts, to capitalize upon our advantage as an early leader in the e-commerce
transaction processing services market. We also intend to increase the size of
our direct sales force and enter into additional collaborative relationships to
generate new merchant customers as well as to increase the number of
transaction services used by our existing merchants.
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<PAGE>
Leverage Partnerships to Drive Transactions. We intend to leverage our
relationships with our channel partners including First Data Corp., Microsoft
and Paymentech and our strategic relationships with GE Capital's Equity Capital
Group and Visa International to increase our transaction volume and create new
markets. We intend to enter into additional relationships with other companies
that offer similar benefits.
Increase International Presence and Operations. We intend to expand the
availability and brand recognition of our services throughout the world. For
example, we plan to offer payment processing services in all major currencies
and sales tax/VAT services in all major nations. In addition, we expect to
expand our e-commerce infrastructure through new relationships outside the
United States and to increase our international direct sales force.
Build Organization Around the Merchant. We will continue to focus on the
needs of our merchants and build our services and organization accordingly. For
example, we have established a merchant advisory board which provides us with
valuable feedback on how to improve existing services and identifies potential
new services. In addition, we conduct market research utilizing focus groups
and customer surveys to learn more about our market and business opportunities.
Our merchant customers benefit from the collective experience of over 400
merchants as we improve existing services and develop new services.
CyberSource Services
CyberSource provides a suite of e-commerce transaction processing services
designed to simplify merchants' operations and allow them to focus on marketing
and merchandising tasks required for their online businesses. Our services are
transparent to the merchant's customers. We also offer digital product rights
management and professional services.
CyberSource Internet Commerce Suite
The CyberSource Internet Commerce Suite is offered to online merchants
worldwide on a remotely accessed, pay-per-transaction basis. All of our
services are accessible through a common client interface residing on the
merchant's Web server. The diagram below illustrates our Internet Commerce
Suite.
[The graphics depicts a replica of the on screen button with the word "BUY" on
the button. Next to the button are six connected circles labeled from left to
right "Calculate Tax", "Authorize Payment", "Screen For Fraud", "Verify
Delivery Address", "Check Export Compliance" and "Check Distribution Policies".
An arrow points to a box labeled "Fulfill Order or Provide Access" which has a
line connecting it to two options (1) on top "Physical Product Shipment" which
has two connected circles, the first one labeled "Message Fulfillment Center"
and the second labeled "Settle Payment" between the two circles the line is
labeled "Product Shipment"; (2) on bottom "Digital Products and Services" which
has two connected circles, the first one labeled "Issue Rights Deliver Product"
and the second labeled "Settle Payment". Below this group connected by a dotted
line is a box entitled "Digital Property Preparation, Warehousing, Rights
Management".]
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The CyberSource Internet Commerce Suite currently consists of:
Tax Services Our tax service calculates sales and use taxes
for over 7,000 taxing jurisdiction in the
United States and Canada. The service also
supports VAT calculation for all countries in
the European Union and many others outside the
European Union, enabling businesses to comply
with most international VAT regulations.
Payment Services We provide secure, real-time credit card
processing services for all major card brands
through major processing gateways in the United
States and Europe. We support transactions in
over 100 currencies, including the Euro.
Risk Management Services Our industry-leading Internet fraud screening
system uses artificial intelligence, in
conjunction with an extensive transaction
history database, to allow Internet merchants
to predict and control fraud. The service,
which typically returns a predictive score in
fewer than ten seconds, significantly reduces
our merchants' risk of fraud losses.
Distribution Control We provide a range of distribution control
Services services to help ensure merchants comply with
corporate, partner, and government policies for
product and service sales. They include:
. Export control. Through this service, we help
to ensure that online merchants comply with
United States Government export regulations,
monitoring order acceptance against a rapidly
changing list of denied countries, persons or
entities and electronically verifying the
customer's location using our geolocation
technology.
. Policy control. We offer this distribution
control service to assist merchants in
complying with internal corporate policies
and partner marketing and distribution
agreements for product sales. Specifically,
this service allows merchants to limit
product or service distribution to specific
territories requested by the business,
thereby ensuring compliance with marketing
policies or distribution agreements.
Fulfillment Management We support a number of services to help online
Services merchants manage physical and digital product
delivery in a secure, efficient fashion. These
include:
. Fulfillment messaging. We provide secure
fulfillment messaging to simplify the
transmission of online orders to fulfillment
centers, distributors, and merchant-owned
distribution centers. The service handles all
message
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routing and supports secure-mail, file
transfer protocol and electronic data
interchange formats. In addition, this service
works in conjunction with our payment services
to comply with card association rules
regarding settlement upon product shipment.
. Delivery address verification. This service
is designed to prevent merchants from
shipping goods to incorrect physical
addresses in the United States and Canada.
This service identifies undeliverable
addresses while the customer is still online
so that discrepancies can be resolved
immediately. This service utilizes database
and artificial intelligence technologies to
confirm in real-time that city/state/zip
combinations are correct and that streets and
street addresses are valid.
. Secure digital delivery. We use patented
technology and digital certificates to
provide simple, secure, electronic delivery
of digital content, such as software, music,
images and documents. Globally distributed
servers provide geographic distribution
efficiency.
Digital Products Rights Management
We provide online digital product registration services which allow digital
property owners to specify licensing and distribution conditions. Digital
property owners may designate agents authorized to sell or distribute their
property, and assign distribution controls by product or geographic location.
We maintain secure digital warehouses for property owned by, or authorized to
be sold by, the transacting merchant. Digital products may be archived in the
digital warehouses indefinitely to support returns and replacement.
Professional Services
Our professional services organization provides business application
expertise, technical know-how, and product knowledge to complement our products
and assist our merchants in achieving faster time-to-market. Our professional
services include planning, implementation, and training. Our planning services
include system and resource evaluation, back-office commerce system design,
order fulfillment strategies and commerce applications assessment and
recommendations. Our implementation services include project management,
merchant bank account acquisition, commerce application configuration and
activation and commerce application testing and validation. Our training
services include digital product preparation, customer service and support
training and ongoing site maintenance.
Merchants and Markets
We have a broad customer base from a variety of industry groups. Beyond.com
accounted for 23.7% of our revenues in 1998 and 21.8% during the three months
ended March 31, 1999. No other customer accounted for 10% or more of our
revenues during 1997, 1998 or the three months ended
32
<PAGE>
March 31, 1999. The following is a representative list of customers that have
chosen to use our services:
<TABLE>
<S> <C> <C>
Hardware/Electronics Media/Books Pharmaceutical
- ---------------------------- ---------------------------- ----------------------------
Compaq Computer Definitive Stock Green Tree Nutrition
Computerstore.com Fawcette Publications HealthShop.com
Cybershop Electronics.net Liquid Audio mybasics.com
Western Digital VarsityBooks.com
</TABLE>
<TABLE>
<S> <C>
Retail Merchandise Software
-------------------------------- --------------------------------
BUY.COM Adobe Systems
BuySafe International Beyond.com
CyberShop eGift.com Egghead.com
K-Tel IBM Software Group (Lotus)
Shopping.com Remedy
</TABLE>
The following examples illustrate how customers are using our real-time e-
commerce transaction processing services.
BUY.COM
BUY.COM, one of the Internet's fastest-growing superstores, uses our
Internet Commerce Suite for payment, risk management and fulfillment management
services. These services have allowed BUY.COM to keep pace with their sales
growth, cut costs, speed time-to-market and mitigate fraud. At the same time,
BUY.COM is maintaining its flexibility to integrate its transaction processing
systems with its business processes. By using our services, BUY.COM was able to
replace its existing, internally developed, e-commerce transaction processing
system that had limited payment handling capabilities, did not integrate well
with their back-office processes and was costly to maintain.
Compaq Computer
Compaq Computer, one of the world's largest personal computer manufacturers,
sought to implement a Web-based commerce system that could meet their rigorous
demands for secure, reliable, high-volume, highly scalable processing services.
Compaq Computer had been working on increasing its visibility and revenue
generating capability of its factory outlets operation. This operation had been
selling direct via retail and telesales for four years. In 1998, Compaq
Computer decided to commerce-enable the factory outlet Web site. Compaq
Computer chose to use the CyberSource Internet Commerce Suite. In particular,
they sought to leverage our tax and risk management services. As a result, the
factory outlet Web site was able to benefit from our scalable on-demand
processing power that handled their unpredictable transaction volumes and
reduced overhead and fraud.
VarsityBooks.com
VarsityBooks.com, a leading online college bookstore, uses our payment
services to overcome the limitations of its initial order processing strategy
to accomodate a higher volume of customers
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more efficiently. Our solution enables VarsityBooks.com to fully automate its
returns and credits processes, internally control the customer experience and
still outsource the back-office processing for an economical per-transaction
fee. As a result, they have reduced their overhead and administrative expenses.
Sales and Marketing
Target customers for our e-commerce transaction processing services include
Internet-centric merchants, including those who have developed custom
transaction processing systems, established retailers that have opened online
stores to supplement their traditional retail models and merchant aggregators
that host Web sites for other merchants. We reach these merchants worldwide
through a direct sales force as well as through an indirect sales channel that
leverages existing sales and marketing infrastructures developed by our
partners. In addition to our direct and indirect sales efforts, we work with
several strategic partners to promote our e-commerce transaction processing
services. As of March 31, 1999, we had a total of 49 persons in sales and
marketing.
Direct Sales. Our direct sales force is comprised of dedicated sales
professionals that target medium to large Internet commerce merchants that
focus primarily on business-to-consumer sales and typically process over 2,500
customer orders per month. In addition, these merchants typically maintain
their own online stores. Our direct sales organization consists of account
managers and territory managers. Our account managers focus on maintaining high
merchant satisfaction and selling additional services to existing merchants,
and our territory managers are responsible for attracting new merchants to our
services.
Indirect Sales Channel. Our indirect sales channel is divided into channel
partners and merchant aggregators. Our channel partners include payment service
providers, system integrators and commerce server providers.
. Our payment service providers include First Data Corp., Paymentech and
Vital Processing Services and represent coverage for a significant
majority of domestic banks issuing credit card processing accounts.
. Our systems integrators include iXL, Fort Point Partners, USWeb/CKS and
other leading systems integrators that assist merchants in the design and
development of their online stores.
. Our commerce server providers include BroadVision, IBM, Intershop,
Interworld, Mercantec and Microsoft.
These companies design, develop, and distribute pre-packaged e-commerce
platforms that allow our e-commerce transaction processing services solution to
be seemlessly integrated.
The merchant aggregators provide hosted online store solutions to their
customers and include TicketMaster Online-CitySearch and Verio. Both channels
refer and facilitate the sale of our e-commerce transaction processing services
to their customer base.
Strategic Partners. Our strategic partners include GE Capital's Equity
Capital Group and Visa International . We work together with our strategic
partners to enhance our existing suite of products, develop new services, and
drive the adoption of industry standards while further increasing the
visibility of our e-commerce solutions.
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<PAGE>
Marketing. We use a variety of marketing activities to increase market
awareness of our services and educate our target audience. In addition to
building awareness of our brand, our marketing activities focus on generating
leads for our sales efforts. To build awareness and attract new merchants we
conduct various marketing and partnership programs including, advertising,
public relations activities, referral programs, co-branded initiatives, virtual
seminars and trade shows.
Merchant Support
We provide a range of merchant support services to ensure a high level of
performance and reliability and to enable merchants to get to market more
quickly. We offer three levels of support services including account
activation, standard support and premier support. All of these services include
transaction reporting, fraud list updating and notification of scheduled and
unscheduled system downtime and various self-help merchant support tools on our
Web site.
Account activation. Our account activation level service is intended for use
by merchants that receive technical support from a technically qualified third
party or organization that resells the CyberSource Internet Commerce Services.
Account activation provides the ability to get merchants connected to the
CyberSource Internet Commerce Services, configuration of all merchant IDs and
account information, full test services, secure access to our online merchant
support center and limited e-mail support.
Standard support. Our standard support level is designed to provide support
during regular standard business hours. Standard support provides all of the
services of account activation as well as toll free technical support from 7
a.m. to 7 p.m., Pacific Time, Monday through Friday, from our merchant support
group with a guaranteed four hour response. The standard support also includes
email support with a guaranteed two hour response and an initial one hour
project orientation conference call with our support professionals.
Premier Support. Our premier support level provides the benefits of the
standard support level with the addition of a dedicated merchant support
engineer available 24 hours a day, 7 days a week, via toll-free telephone
access or email with a two hour guaranteed response. Also included are a
dedicated business account manager and a review to optimize fraud scoring and
other Internet commerce services.
Through toll-free numbers, our merchants can reach our support desk
professionals around the clock. As of March 31, 1999, 19 of our employees were
dedicated to merchant support.
Technology
Our proprietary transaction processing system employs a modular architecture
that was designed to scale rapidly and handle the transaction processing
demands of our merchants across the Internet. This system is composed of
multiple groups of servers and routers acting as a single point of contact for
our merchants' transaction processing requirements. The primary software
components of our system are the E-Transaction Databases, the Internet Commerce
Engine, or ICE, the Internet Commerce Services Applications, the Simple
Commerce Messaging Protocol, or SCMP, and the SCMP client. This system utilizes
industry standards to maximize our compatibility with our merchants' e-commerce
systems. In addition, we have implemented a global network of data centers and
access points that are designed to minimize transaction processing time and
system failures.
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<PAGE>
[The graphic depicts a main box with the words "CyberSource Data Center" above
it. Inside the main box top center are the words "Internet Commerce
Applications." Below is a row of seven boxes labeled from left to right "Tax
Calculation," Global Payment Procedures," "Fraud Prevention," "Delivery Address
Verification," "Territory Management," "Export Compliance," and "Fulfillment
Management." Below is a box labeled "Internet Commerce Engine" and below that
is a graphical representation of a disk labeled "eTransaction Databases." One
zigzag line connects the main box with a box on the left. The line is labeled
"Secure Commerce Messaging Protocol," the box is labeled "Merchant Commerce
Server (SCMP Client)." To the right of the main box are four zigzag lines
labeled from to bottom "Paymentech," "First Data Corp.," "NatWest," and "Other
External Resources."]
E-Transaction Database Architecture
Three primary databases form the core of our transaction processing system:
the transaction process database which maintains information necessary to
process each individual transaction; the decision support database, which
processes reports and provides detailed information about merchants'
transactions and the digital products rights management database, which manages
and reports on the digital property rights that customers have purchased. Our
transaction processing services rely on these databases to store the
information necessary to process transactions. For example, our fraud
prevention service relies upon a proprietary database of millions of
transactions to assess the risk of fraud.
Internet Commerce Engine
Our ICE manages work flow functions and the required communications between
CyberSource commerce servers, our database and any external resources including
First Data Corp., National Westminster Bank and Paymentech. Our Internet
Commerce Engine is designed to meet the transaction processing demands of our
merchants in a secure, fast, efficient, reliable, scalable and interoperable
manner. Our ICE was designed to scale rapidly to handle peak transaction
processing loads. Separate ICE servers share the transaction load from our
merchants and provide for immediate backup services should any ICE server fail.
Additional ICE servers can be readily added to our data centers to accommodate
increased merchant demand.
Internet Commerce Services Applications
We have developed a set of software applications that perform the services
in our Internet Commerce Suite. These services include global payment
processing, fraud prevention, tax calculation, export compliance, territory
management, delivery address verification and fulfillment management. These
applications contain the rules and logic necessary to provide our transaction
processing services to merchants. The applications share resources with the ICE
and databases which allow us to efficiently add new application services to
meet our customers needs.
Simple Commerce Messaging Protocol
We have developed the Simple Commerce Messaging Protocol, or SCMP, to enable
efficient and secure connections between our ICE and our merchants. In order to
ensure secure messaging, SCMP utilizes such industry standards as Data
Encryption Standard, RSA/public key cryptography and digital certificates. SCMP
enables our merchants to securely access our suite of commerce services. Most
importantly, SCMP can be integrated into any software product that might
require our application services.
SCMP Client
Our services are invoked by a common programming interface, the SCMP client,
residing on our merchants' commerce servers. This client may be easily
installed with a "plug-in" that is available for most popular commerce servers
including those offered by BroadVision, IBM and Microsoft. In addition, we have
developed software libraries which act as a client and run on most operating
systems including Microsoft NT, UNIX (Sun Solaris, HP UX, Linux, IBM AIX). A
merchant can access our commerce services using either the plug-in or the
software libraries that we have developed.
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<PAGE>
Industry Standards
The implementation of our architecture is based on and complies with widely
accepted industry standards. For example, the ICE utilizes industry standard
components from industry leaders such as Cisco, Harbinger, Microsoft, Retail
Logic, RSA Data Security, Sun Microsystems and Sybase. Adherence to industry
standards provides compatibility with existing applications, enables ease of
modification and reduces the need for software modules to be rewritten over
time, thus protecting our merchants' investments.
Data Centers and Network Access
Our data centers are located at leased facilities in San Jose, California
and London, England. These data centers have multiple levels of redundant
connectivity to the Internet, back-up power, fire suppression, seismic
reinforcement and security surveillance 24 hours a day, 7 days a week. In
addition we have 19 points of presence located on 6 continents that allow us to
serve merchants globally. These points of presence provide rapid access to our
suite of services and significantly reduce the number of Internet connections a
transaction must pass through to reach us.
Product Development
Our product development team is responsible for the design, development and
release of our core infrastructure and services. We have a well-defined
software development methodology that we believe enables us to deliver services
that satisfy real business needs for the global market while meeting commercial
quality expectations. We emphasize quality assurance throughout our software
development lifecycle. We believe that a strong emphasis placed on analysis,
design and rapid prototyping early in the project lifecycle reduces the number
and costs of defects that may be found in later stages. Our development
methodology focuses on delivery of product to a global market, enabling
localization into multiple languages, multi-currency payment processing, global
fraud detection, and local regulatory compliance from a single code base. As of
March 31, 1999, we employed 38 persons in our product development organization.
When appropriate, we utilize third parties to expand the capacity and
technical expertise of our internal product development organization. On
occasion, we have licensed third-party technology that we feel provides the
strongest technical alternative. We believe this approach shortens time-to-
market without compromising our competitive position or product quality.
Intellectual Property
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.
We have been issued one patent and have five applications pending. We
investigate, define and prepare applications for new patents as a part of the
standard product development cycle. Our engineering management team meets on a
routine basis to harvest new invention disclosures from the various engineering
and architecture groups. We cannot assure you that any patent application that
we file will issue as a patent, and we cannot assure you that any patent issued
to us will not be held invalid or unenforceable based on prior art or for any
other reason.
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<PAGE>
We believe that numerous patent applications relating to the Internet
commerce field have been filed or have issued as patents. From time to time, in
the ordinary course of business, we become aware of one or more patents of
third parties that we choose to evaluate for a variety of purposes. Such
purposes may include determining the general contents of such patents,
reviewing the technological developments of their assignees, and determining
whether our technology may overlap with such patents. We have not conducted any
search to determine whether any of our products, services, or technology could
be alleged to infringe upon any patent rights of any third party. We cannot
assure you that none of our products, services, and technology infringes any
patent of any third party.
As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, distributors, and corporate partners
and into license agreements with respect to our software, documentation and
other proprietary information. Despite these precautions, third parties could
reverse engineer, copy or otherwise obtain our technology without
authorization, or develop similar technology independently. While we police the
use of our services and technology through online monitoring and functions
designed into SCMP and our ICE, an unauthorized third-party may nevertheless
gain unauthorized access to our services or pirate our software. We are unable
to determine the extent to which piracy of our intellectual property or
software exists. Software piracy is a prevalent problem in our industry.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. We cannot assure you that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our services or design
around any intellectual property rights we hold.
From time to time we may receive notice of claims of infringement of other
parties' intellectual property rights. As the number of services in our market
increases and functionalities overlap, companies such as ours may become
increasingly subject to infringement claims. Any such claims, with or without
merit, could be time-consuming, result in costly litigation and diversion of
technical and management personnel or require us to develop non-infringing
technology or enter into licensing agreements. Such licensing agreements, if
required, may not be available on acceptable terms, if at all. In the event of
a successful claim of infringement and our failure or inability to develop non-
infringing technology or license the proprietary rights on a timely basis, our
business, operating results and financial condition could be materially
adversely affected.
Competition
The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop custom solutions may be less likely to adopt an outsourced transaction
processing strategy. We also face competition from developers of other
solutions for e-commerce transaction processing such as Clear Commerce,
CyberCash, Digital River, Open Market and Hewlett-Packard (VeriFone). In the
future, we may compete with large Internet-centric companies that derive a
significant portion of their revenues from e-commerce and may offer, or provide
a means for others to offer, e-commerce transaction processing services.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on
38
<PAGE>
terms favorable to us. Our current and potential competitors may develop and
market new technologies that render our existing or future services obsolete,
unmarketable or less competitive. Our current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with other solution providers, thereby increasing the ability of
their services to address the needs of our prospective customers. Our current
and potential competitors may establish or strengthen cooperative relationships
with our current or future channel partners, thereby limiting our ability to
sell services through these channels. Competitive pressures could reduce our
market share or require the reduction of the prices of our services, either of
which could materially and adversely affect our business, results of operations
or financial condition.
We compete on the basis of certain factors, including:
. system reliability;
. product performance;
. breadth of service offering;
. ease of implementation;
. time to market;
. customer support; and
. price.
We believe that we presently compete favorably with respect to each of these
factors. However, the market for our services is still rapidly evolving, and we
may not be able to compete successfully against current and potential
competitors.
Facilities
Our primary offices are located in approximately 27,782 square feet of space
in San Jose, California under a lease expiring in January 2001. We also lease
space for our sales and support offices in Weybridge, United Kingdom.
Employees
As of March 31, 1999, we had a total of 146 employees, including 38 persons
in Product Development, 49 persons in sales and marketing, 38 persons in
consulting, customer support and training, and 21 persons in general and
administrative services. None of our employees is represented by a labor union,
and we consider employee relations to be good.
Legal Proceedings
A former Vice President of Product Management filed a lawsuit against us in
the Superior Court of California in Santa Clara County on April 8, 1999 seeking
monetary and equitable relief. The plaintiff alleges several causes of action,
including wrongful termination, defamation, fraud, and unfair business
practices arising out of her three month employment with us. While we cannot
assure you as to the outcome of this litigation, we believe the lawsuit is
without merit, and we intend to vigorously defend against the claims asserted.
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<PAGE>
MANAGEMENT
Officers, Directors and Key Employees
Our officers, key employees and directors, their ages and their positions as
of April 15, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Executive Officers
William S. McKiernan.......... 42 Chairman of the Board of Directors,
President and Chief Executive Officer
Anthony V. Bates.............. 48 Executive Vice President of International
Charles E. Noreen, Jr. ....... 38 Vice President of Finance and
Administration and Chief Financial
Officer
William E. Donahoo............ 36 Vice President of Marketing
Thomas A. Arnold.............. 44 Vice President of Engineering and Chief
Technology Officer
Eric M. Wun................... 40 Vice President of Operations
L. Evan Ellis, Jr. ........... 44 Vice President of North American Sales
Key Employees
Steven W. Klebe............... 43 Vice President of Strategic Alliances
Anthony F. Quilici............ 29 Vice President of Merchant Support
Tracy Wilk.................... 40 Vice President of Product Marketing
Directors
Bert Kolde(1)(2).............. 44 Director
Linda Fayne Levinson(1)(2).... 57 Director
Steven P. Novak(1)(2)......... 51 Director
Richard Scudellari(1)(2)...... 42 Director and Secretary
</TABLE>
- ----------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
William S. McKiernan founded CyberSource and has been our President and
Chief Executive Officer since our inception in December of 1997. In 1994, Mr.
McKiernan co-founded Beyond.com and was its Chief Executive Officer from its
inception until 1998. He currently serves as Chairman of the Board of Directors
of Beyond.com. From 1992 to 1994, Mr. McKiernan held a number of positions at
McAfee Associates, Inc. (now known as Network Associates), including President
and Chief Operating Officer, the positions he held during its initial public
offering in October 1992. Prior to joining McAfee Associates in 1992, Mr.
McKiernan was Vice President of Princeton Venture Research, Inc., an investment
banking and venture consulting firm from 1990 to 1992. Mr. McKiernan has also
held management positions with IBM/ROLM and Price Waterhouse. Mr. McKiernan
holds a B.S. from Boston College and an M.B.A. from the Harvard Business
School.
Anthony V. Bates has served as our Executive Vice President of International
since joining us in February 1997. From 1996 to 1997, Mr. Bates was Vice
President of Worldwide Sales and Marketing for Serena Software International.
From 1990 to 1996, Mr. Bates was President and Chief Executive Officer of
Specialix, Inc., a leading international supplier of data communications
products. Mr. Bates received an Honors Degree in Electronics and Electrical
Engineering from Newcastle upon Tyne Polytechnic in the United Kingdom.
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<PAGE>
Charles E. Noreen, Jr. has served as our Vice President of Finance and
Administration and Chief Financial Officer since joining us in September 1998.
Mr. Noreen was employed by RockShox, Inc., first as its Vice President and
Chief Financial Officer from May 1996 to July 1998, then as its Vice President
of Business Development from July 1998 to September 1998. Mr. Noreen was
employed by Coopers & Lybrand L.L.P. from 1983 to 1996, where he was a partner
from 1994 to 1996. Mr. Noreen received a B.S. in Business Administration from
the University of Southern California.
William E. Donahoo has served as our Vice President of Marketing since
joining us in December 1998. From July 1998 to November 1998, Mr. Donahoo was
Vice President of Marketing & Business Development for DigiCash, Inc. DigiCash
filed for Chapter 11 bankruptcy protection in November 1998. From March 1997 to
March 1998, Mr. Donahoo was Vice President of Marketing for Novonyx, a company
which he co-founded. From October 1990 to March 1997, Mr. Donahoo was employed
by Novell, Inc. where he held various positions including Vice President of
Marketing for the Netware Product Group. Mr. Donahoo received a B.S. in
Computer Science and an M.B.A. from Brigham Young University.
Thomas A. Arnold has served as our Vice President of Engineering and Chief
Technology Officer since joining us in March 1996. From October 1989 to March
1996, Mr. Arnold managed applications development at Silicon Graphics, Inc. Mr.
Arnold received a B.S. in Public Administration at San Jose State University
and an M.B.A. with an emphasis in Information Technology Management from Golden
Gate University.
Eric M. Wun has served as our Vice President of Operations since joining us
in March 1999. From August 1998 to February 1999, Mr. Wun was Vice President of
Operations for Corio, Inc. From December 1996 to August 1998, Mr. Wun was Vice
President of Operations for Zip2 Corp. Mr. Wun was Vice President and Data
Center Manager for Visa International from February 1992 to October 1996. Mr.
Wun received a B.S. in Economics from the University of San Francisco.
L. Evan Ellis, Jr. has served as our Vice President of North American Sales
since joining us in April 1999. From 1990 to 1999, Mr. Ellis was with Silicon
Graphics, Inc. where he was Senior Vice President of Field Operations for the
Americas. From 1978 to 1990, Mr. Ellis was employed by International Business
Machines in various sales and sales management roles. Mr. Ellis received a B.S.
in Economics from the University of California, Los Angeles.
Steven W. Klebe has served as Vice President of Strategic Alliances for
CyberSource since January 1999. Prior to that, Mr. Klebe held several other
positions, including Vice President of Sales and Marketing and Vice President
of Business Development. From 1994 to 1997, Mr. Klebe was Vice President of
Sales for CyberCash. From 1985 to 1994, Mr. Klebe was employed by VeriFone. Mr.
Klebe received a B.S. in Marketing from Northeastern University.
Anthony F. Quilici has served as our Vice President of Merchant Support
since February 1999. From February 1998 to February 1999, Mr. Quilici served as
Vice President of Operations, and from our inception in December 1997 until
February 1998, he served as our Director of Operations. Prior to joining us,
Mr. Quilici held various technical positions at Silicon Graphics, Inc. from
1992 to 1997. Mr. Quilici received a B.S. in Management Information Systems
from California State University, Chico.
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<PAGE>
Tracy Wilk has served as our Vice President of Product Marketing since
joining us in April 1999. From 1992 to 1999, Mr. Wilk was Vice President of
Strategic Alliances and Investments at Visa International. Mr. Wilk received a
B.A. in Economics and an M.B.A. from the University of California, Berkeley.
Bert Kolde has been a director of CyberSource since our inception in
December 1997. Mr. Kole serves as a director, Vice President, Treasurer and
Secretary of Vulcan Ventures Inc., Vice Chairman of the Portland Trail Blazers,
Seattle Seahawks, Oregon Arena Corporation, and First and Goal Corporation. In
addition, Mr. Kolde serves as President of the Paul G. Allen Virtual Education
Foundation and the Paul G. Allen Forest Protection Foundation. Mr. Kolde co-
founded Asymetrix Learning Systems, Inc. in 1985, and serves as Chairman of its
Board of Directors. Mr. Kolde also serves as a director of MetaCreations
Corporation, Precision Systems, Inc. and Beyond.com. Mr. Kolde holds a B.A. in
Business Administration from Washington State University and an M.B.A. from the
University of Washington.
Linda Fayne Levinson has been a director of CyberSource since our inception
in December 1997. Ms. Levinson has served as a principal of Global Retail
Partners, L.P. since April 1997. From 1994 to 1997, she served as President of
Fayne Levinson Associates, an independent general management consulting firm
that advised major corporations and start-up entrepreneurial ventures. In 1993,
Ms. Levinson was an executive with Creative Artists Agency, Inc. From 1989 to
1992, Ms. Levinson was a partner of Wings Partners, Inc., a merchant banking
firm and was actively involved in taking Northwest Airlines private. From 1984
to 1987, Ms. Levinson was a Senior Vice President of American Express Travel
Related Services, Inc. Prior to that, Ms. Levinson was a partner at McKinsey &
Co. Ms. Levinson presently serves as a director of Administaff, Inc.,
Genentech, Inc., Jacobs Engineering Group, Inc., NCR Corporation and GoTo.com,
Inc. as well as several privately-held companies. Ms. Levinson received her
A.B. from Barnard College in Russian Studies, her M.A. from Harvard University
in Russian Literature and her M.B.A. from New York University.
Steven P. Novak has been a director of CyberSource since our inception in
December 1997. Mr. Novak is the Managing Director heading C.E. Unterberg,
Towbin's Internet Practice. From February 1993 to January 1998, Mr. Novak
served as co-founder, President, and Chief Investment Officer of C.E.
Unterberg, Towbin Advisors, a registered investment advisor. Mr. Novak also
serves as a director of several privately held companies. Mr. Novak's prior
affiliations include, among others, Forstmann Leff Associates, Sanford C.
Bernstein & Company, Inc., and Harris Bankcorp. Mr. Novak holds a B.S. from
Purdue University and an M.B.A. from the Harvard Business School.
Richard Scudellari has been a director of CyberSource since our inception in
December 1997. Mr. Scudellari has been a partner at Morrison & Foerster LLP
since February 1999. From 1990 to January 1999 Mr. Scudellari was partner at
Jackson Tufts Cole & Black, LLP. Mr. Scudellari holds a B.S. and J.D. from
Boston College.
We currently have authorized five directors. Our executive officers are
appointed by, and serve at the discretion of, our Board of Directors. Each of
our officers and directors, excluding non-employee directors, devotes
substantially full time to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees. Two
of the five members of our Board of Directors also serve as directors of
Beyond.com.
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<PAGE>
Board Committees
Our Audit Committee reviews, acts on and reports to our Board of Directors
with respect to various auditing and accounting matters, including the
selection of our independent accountants, the scope of our annual audits, fees
to be paid to the independent accountants, the performance of our independent
accountants and our accounting practices. Ms. Levinson and Messrs. Kolde,
Novak, and Scudellari are the members of our Audit Committee.
Our Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees. This Committee also
administers our incentive compensation and benefit plans. Ms. Levinson and
Messrs. Kolde, Novak, and Scudellari are the members of the Compensation
Committee.
Compensation Committee, Insider Participation and Interlocks
None of the members of our Compensation Committee is an officer or employee
of CyberSource. Two members of our Board of Directors also serve as members of
the board of directors of Beyond.com. Other than with respect to Beyond.com, no
interlocking relationship exists between our Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has such an interlocking relationship existed in the past.
Director Compensation
We do not pay directors cash compensation for their services as directors or
members of committees of the Board of Directors. We do reimburse them for their
reasonable expenses incurred in attending meetings of the Board of Directors.
In addition, each new non-employee director receives an option to purchase
5,000 shares of our common stock upon joining the Board of Directors. Each
incumbent non-employee director is granted an option to purchase an additional
5,000 shares of our common stock thereafter annually on January 1. All options
are immediately exercisable upon grant and remain subject of a right of
repurchase as determined under the 1999 Plan. See "Stock Option Plans -- 1999
Plan."
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Executive Compensation
The following table sets forth certain information concerning compensation
of our Chief Executive Officer and our other most highly compensated executive
officers whose aggregate cash compensation exceeded $100,000 during the year
ended December 31, 1998 (collectively, our "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- ------------
Other Securities
Annual Underlying
Name and Principal Position Salary Bonus(1) Compensation Options
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
William S. McKiernan
President and Chief Executive
Officer........................ $144,375(2) -- -- --
Anthony V. Bates
Executive Vice President of
International.................. 137,500 $36,500 -- 77,500
Thomas A. Arnold
Vice President of Engineering
and Chief Technology Officer... 118,688 5,700 -- 85,000
Gregory Quinn(3)
Vice President Sales........... 118,693 53,400 -- 65,000
</TABLE>
- ----------------
(1) Includes bonus amounts earned in 1998 and paid in 1999.
(2) Does not include $60,000 in deferred compensation earned by Mr. McKiernan
in 1994 as President of Beyond.com, allocated to us in connection with the
spin off and paid to Mr. McKiernan in 1998.
(3) Mr. Quinn's employment with us terminated in March 1999.
Option Grants In Fiscal Year 1998
The following table sets forth certain information for each of our Named
Executive Officers concerning stock options granted to them during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual Rates of
Stock
Price
Number of Percent of Appreciation
Securities Total for Option
Underlying Options Exercise Term(5)
Options Granted to Price Expiration ---------------
Granted(1) Employees(2) Per Share(3) Date(4) 5% 10%
---------- ------------ ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
William S. McKiernan.... -- -- -- -- -- --
Anthony V. Bates........ 50,000 4.27% $0.045 3/18/08 $13,789 $23,437
12,500 1.07 0.2000 3/18/08 1,572 3,984
15,000 1.28 0.5400 7/30/08 5,094 12,909
Thomas A. Arnold........ 75,000 6.40 0.015 3/18/08 22,933 37,406
10,000 0.85 0.5400 7/30/08 3,396 8,606
Gregory Quinn........... 50,000 4.27 0.2000 3/18/08 6,289 15,937
15,000 1.28 0.5400 7/30/08 5,094 12,909
</TABLE>
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<PAGE>
- ----------------
(1) Each of the above options was granted pursuant to our 1998 Stock Option
Plan. 25% of the options granted vest one year from the date of grant.
Thereafter the remaining 75% of the options granted vest monthly over the
next three years.
(2) In the last fiscal year, we granted options to employees to purchase an
aggregate of 1,170,998 shares.
(3) In determining the fair market value of our common stock, our board of
directors considered various factors, including our financial condition and
business prospects, our operating results, the absence of a market for our
common stock and the risks normally associated with high technology
companies. The exercise price may be paid in cash, check, promissory note,
shares of our common stock, through a cashless exercise procedure involving
same-day sale of the purchased shares or any combination of such methods.
(4) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated or upon the optionee's
death or disability.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
Aggregate Option Exercises In Last Fiscal Year and Year-End Option Values
The following table sets forth certain information concerning exercises of
stock options during the fiscal year ended December 31, 1998 by each of our
Named Executive Officers and the number and value of unexercised options held
by each of our Named Executive Officers on December 31, 1998.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998(1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William S. McKiernan.... -- -- -- -- -- --
Anthony V. Bates........ 17,187 $ 8,422 3,125 57,188 $5,500 $91,426
Thomas A. Arnold........ 42,188 21,938 7,813 35,000 13,984 57,450
Gregory Quinn........... -- -- -- 65,000 -- 217,200
</TABLE>
- ----------------
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options and the fair market value for
our common stock of $3.62 per share as of December 31, 1998, as determined
by our Board of Directors.
Stock Option Plans
In March 1998, we adopted our 1998 Stock Option Plan. We reserved 1,900,000
shares of common stock for stock option grants under the 1998 Plan.
Additionally, in January 1999, we adopted our 1999 Stock Option Plan. We
reserved 2,500,000 shares of common stock for stock option grants under the
1999 Plan. The purpose of each plan is to enhance our long-term stockholder
value by offering our employees, directors, officers, consultants, agents,
advisors and independent contractors the opportunity to promote and participate
in our growth and success, and to encourage these people to remain in our
service and acquire and maintain stock ownership in us.
45
<PAGE>
As of March 31, 1999, options to purchase 2,035,575 shares of common stock
were outstanding under the 1998 Plan and the 1999 Plan with exercise prices
ranging from $0.0066 to $3.62 per share. As of March 31, 1999, options to
purchase 1,389,934 shares were available for grant under the 1998 Plan and 1999
Plan and options for 974,491 shares had been exercised.
Our Board of Directors or a committee appointed by the Board may administer
the plans.
1999 Plan
The administrator has the authority to select individuals who are to receive
options under the 1999 Plan and to specify the terms and conditions of options
granted (including whether or not such options are incentive or nonstatutory
stock options), the vesting provisions, the option term and the exercise price.
The 1999 Plan provides that we may grant incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 to employees,
including our officers and employee directors, and we may grant nonstatutory
stock options to employees and consultants, including non-employee directors.
The exercise price of incentive stock options granted under the 1999 Plan
shall equal the fair market value of our common stock on the date of grant
(except in the case of grants to any person holding more than 10% of the total
combined voting power of all classes of our, or any of our parent's or
subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date
of grant. Option holders may pay for an exercise in cash or other
consideration, including a promissory note, as approved by the administrator.
Generally, options granted under the 1999 Plan (other than those granted to
non-employee directors) vest at a rate of 25% of the shares underlying the
option after one year and the remaining shares vest in equal portions over the
following 36 months, such that all shares are vested after four years. The form
of stock option grant under the 1999 Plan used to grant options to our
employees provides for accelerated vesting of half of all unvested shares upon
involuntary termination of employment with us without cause occurring within
one year of a change in control of CyberSource. Unless otherwise provided by
the administrator, an option granted under the 1999 Plan generally expires 10
years from the date of grant (five years in the case of an incentive stock
option granted to any person holding more than 10% of the total combined voting
power of all classes of our, or any of our parent's or subsidiary's, stock or,
if earlier, 30 days after the optionee's termination of employment or service
with us or any of our affiliates for any reason other than termination for
death or disability, or one year after termination for death or total and
permanent disability and six months in the case of other types of disability).
Options granted under our 1999 Plan are not generally transferable by the
optionee except by will or the laws of descent and distribution and generally
are exercisable during the lifetime of the optionee only by such optionee.
In the event of (i) a merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned
subsidiary or where there is no substantial change in our stockholders and the
options granted under the 1999 Plan are assumed by the successor corporation),
or (ii) the sale of all or substantially all of our assets the successor
corporation will assume or substitute the options we have granted under the
1999 Plan or shall provide substantially similar consideration to optionees as
is provided to the stockholders. In the event the successor corporation refuses
to assume or substitute outstanding options as provided
46
<PAGE>
above, or in the event of our dissolution or liquidation, outstanding options
shall expire, notwithstanding any contrary terms in the grant, on a date
specified in a written notice sent to all optionees (which date shall be at
least 20 days after the date of the notice).
The 1999 Plan also provides for automatic grants to non-employee directors.
Each non-employee director, upon initial election or appointment to the Board
of Directors, is entitled to receive options to purchase 5,000 shares of common
stock, provided that such election or appointment does not occur within the
last quarter of a given year. Thereafter, each non-employee director is
entitled to receive options to purchase 5,000 shares of common stock annually
on January 1 of each year, provided he or she is a non-employee director on the
date of grant and has continuously been an active member of the Board of
Directors for the year prior to the grant date. Options granted to non-employee
directors pursuant to the automatic grant provisions of the 1999 Plan are
immediately exercisable, nonqualified stock options with an exercise price
equal to the fair market value of our common stock as of the date of grant and
remain subject to a right of repurchase that lapses on June 30, 1999. Grants to
non-employee directors are subject to the general requirements of the 1999
Plan.
1998 Plan
The terms of options which we may grant under the 1998 Plan are generally
the same as those we may grant under the 1999 Plan. However, under the 1998
Plan, the administrator may not grant options to an individual in any one
fiscal year which would permit that individual to purchase more than 250,000
shares of common stock. The administrator may, however, grant a newly-hired
optionee a one-time grant of an option to purchase up to an additional 250,000
shares of common stock. Also, the form of stock option grant used to grant
options to our employees under the 1998 Plan does not provide for accelerated
vesting as is provided in the form of stock option grant used to grant options
to our employees under the 1999 Plan.
Stock options previously granted under the plans to the executives and
directors are described above under "Executive Compensation." At this time we
cannot determine the number of shares of common stock that may be subject to
options we grant in the future to our executive officers and other officers,
key employees and directors.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of March 31, 1999 as adjusted to
reflect the sale of shares offered hereby, by:
. each person known by us to own beneficially more than 5% of the
outstanding shares of common stock,
. each of our directors,
. each Named Executive Officer (see "Management--Executive Compensation"),
and
. all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 31, 1999 are
deemed outstanding. Percentage of beneficial ownership is based upon 17,548,848
shares of common stock outstanding prior to this offering and shares
of common stock outstanding after this offering. To our knowledge, except as
set forth in the footnotes to this table and subject to applicable community
property laws, each person named in the table has sole voting and investment
power with respect to the shares set forth opposite such person's name. Except
as otherwise indicated, the address of each of the persons in this table is as
follows: c/o CyberSource Corporation, 550 S. Winchester Blvd., Suite 301, San
Jose, California 95128.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned(1)
-----------------
5% Beneficial Owners, Directors, Named Executive Number of Before After
Officers Shares Offering Offering
- ------------------------------------------------ ---------- -------- --------
<S> <C> <C> <C>
William S. McKiernan(1).......................... 5,328,729 29.0%
Bert Kolde(2).................................... 2,490,604 14.2
Vulcan Ventures, Inc.
110 110th Avenue NE, Suite 550
Bellevue, WA 98004.............................. 2,480,604 14.1
Linda Fayne Levinson(3).......................... 1,936,639 11.0
Global Retail Partners, L.P. and its
affiliates(4)
2121 Avenue of the Stars, Suite 1630
Los Angeles, CA 90067........................... 1,931,643 11.0
General Electric Capital Corporation(5)
260 Long Ridge Road
Stamford, CT 06927.............................. 1,665,171 9.3
Steven P. Novak(6)............................... 1,565,632 8.9
Entities affiliated with C.E. Unterberg,
Towbin(7)
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, NY 10002.............................. 1,535,632 8.8
Thomas A. Arnold(8).............................. 60,313 *
Richard Scudellari(9)............................ 45,000 *
Anthony V. Bates(10)............................. 33,177 *
Gregory Quinn(11)................................ 19,375 *
All executive officers and directors as a group
(11 persons)(12)................................ 11,460,097 62.2%
</TABLE>
- ----------------
* Less than 1% of the outstanding common stock.
48
<PAGE>
(1) Includes 4,450,275 shares of common stock held my Mr. McKiernan, 49,725
shares of common stock held by members of Mr. McKiernan's immediate family
and 828,729 shares of common stock issuable pursuant to a convertible
promissory note. Mr. McKiernan disclaims beneficial ownership of the
shares held by his immediate family.
(2) Includes 2,480,604 shares held by Vulcan Ventures, Inc. Mr. Kolde is a
director, the Vice President, Secretary and Treasurer of Vulcan Ventures,
Inc. Mr. Kolde disclaims beneficial ownership of the shares owned by
Vulcan, except for his proportional interest therein, if any.
(3) Includes options to purchase 5,000 shares of common stock that vest within
60 days of March 31, 1999, held by Ms. Levinson. Also includes 1,931,639
shares held by Global Retail Partners, L.P. and its affiliates. Ms.
Levinson is a principal of Global Retail Partners, L.P. Ms. Levinson
disclaims beneficial ownership of these shares, except for her
proportional interest therein, if any.
(4) Includes 1,238,465 shares of common stock held by Global Retail Partners,
L.P., 85,265 shares held by Global Retail Partners Funding, Inc., 80,509
shares held by GRP Partners, L.P., 369,038 shares held by DLJ Diversified
Partners, L.P., 137,050 shares held by DLJ Diversified Partners-A, L.P.,
13,202 shares held by DLJ ESC II, L.P., 8,114 shares held by DLJ ESC
L.L.C. (collectively, the "Global Affiliates").
(5) Includes warrants to purchase 283,955 shares of common stock that vest
within 60 days of March 31, 1999, held by General Electric Capital
Corporation.
(6) Includes 1,535,626 shares of Common Stock held by the Unterberg Affiliates
(as defined below). Mr. Novak disclaims beneficial ownership of these
shares, except for his proportional interest therein, if any.
(7) Includes 57,582 shares of Common Stock held by UT Capital Partners
International, LDC (formerly UH Capital Partners International, LDC),
377,760 shares held by UT Technology Partners, LDC (formerly UH Technology
Partners, LDC); 841,529 shares held by C. E. Unterberg Towbin Capital
Partners I, L.P. (formerly Unterberg Harris Capital Partners I, L.P.);
176,798 shares held by Unterberg Harris Private Equity Partners, L.P.;
37,764 shares held by Unterberg Harris Private Equity Partners, CV and
44,199 shares held by C.E. Unterberg Towbin LLC (collectively, the
"Unterberg Affiliates").
(8) Includes options to purchase 18,125 shares of common stock that vest
within 60 days of March 31, 1999, held by Mr. Arnold.
(9) Includes options to purchase 5,000 shares of common stock that vest within
60 days of March 31, 1999, held by Mr. Scudellari.
(10) Includes options to purchase 15,990 shares of common stock that vest
within 60 days of March 31, 1999, held by Mr. Bates.
(11) Includes options to purchase 19,375 shares of common stock that vest
within 60 days of March 31, 1999, held by Mr. Quinn.
(12) Includes (i) options to purchase 44,115 shares of common stock that vest
within 60 days of March 31, 1999, held by all directors and executive
officers of CyberSource and (ii) 828,729 shares issuable pursuant to Mr.
McKiernan's convertible promissory note.
49
<PAGE>
TRANSACTIONS BETWEEN CYBERSOURCE AND
ITS OFFICERS, DIRECTORS OR SIGNIFICANT STOCKHOLDERS
Relationship with Beyond.com
In December 1997, we were spun-off from Beyond.com into a new Delaware
corporation, now called CyberSource Corporation. In connection with the spin-
off, Beyond.com issued our capital stock to their stockholders such that,
following consummation of the spin-off, each of Beyond.com's stockholders held
shares of common stock, Series A preferred stock, Series B preferred stock,
and Series C preferred stock of CyberSource in equal number and ownership
proportion and with the same rights as such stockholder had as a Beyond.com
stockholder. On the date of the spin-off, Beyond.com employees were granted
stock options in CyberSource based on the extent to which the employees'
original options in Beyond.com were vested. Immediately following the spin-
off, our employees maintained their outstanding vested stock options in
Beyond.com and were granted additional stock options in CyberSource to the
extent of their original options. The exercise prices of the original and
additional option grants were adjusted to reflect the allocation of the fair
market per share price between Beyond.com and our common stock, respectively,
at the time of the spin-off.
We have entered into certain agreements with Beyond.com for the purpose of
defining the ongoing relationship between the two companies. Because four out
of five of our directors were also directors of Beyond.com at the time these
agreements were negotiated and members of our management team were formerly a
part of the management team of Beyond.com, these agreements are not the result
of arm's length negotiations. We qualify the following description of these
agreements in their entirety by reference to the agreements, which have been
filed as exhibits hereto.
Under our Conveyance Agreement dated December 31, 1997, we received from
Beyond.com:
. technology (including rights to all patent applications, trademarks and
other of our intellectual property rights);
. contracts and licenses with third parties; and
. certain tangible assets in connection with credit card processing, fraud
screening, export control, territory management and electronic
fulfillment services.
In addition, we received employees engaged in the Internet commerce services
business from Beyond.com.
In connection with such transfer, we entered into an InterCompany Cross-
License Agreement with Beyond.com in April 1998, which was amended in May
1998, pursuant to which Beyond.com granted us a non-exclusive, worldwide,
perpetual, irrevocable, royalty-free license to (1) internally use technology
related to electronic software distribution, and (2) use and sublicense its
customer database for certain limited purposes in connection with fraud
detection and verification. Under this agreement, we granted Beyond.com a
worldwide, perpetual, irrevocable, royalty-free license to internally use our
Sm@rtCert technology. We also granted Beyond.com the right to modify this
technology for purposes of merging the technology into its Cache Manager
technology (either alone or in combination with other software) for subsequent
sublicense to enterprises and governmental agencies. The Cross-License
Agreement further provides that the parties shall have joint ownership of
certain utility tools made by the parties and allocates between us and
Beyond.com the ownership of improvements, enhancements and modifications made
by the parties to the Sm@rtCert and Cache Manager technology during 1999. The
Cross-License Agreement also allocates between us and
50
<PAGE>
Beyond.com the ownership of certain inventions each party made on or before
June 30, 1998. Each party has agreed to indemnify the other against any third
party claims regarding such licensee's use of the licensed technology that
results in a claim against the licensor, except to the extent that such claim
is based upon a claim that the licensed technology infringes upon any third
party's intellectual property rights.
We also entered into an Internet Commerce Services Agreement with
Beyond.com, pursuant to which we agreed to provide certain services including
credit card processing, fraud screening, export control, territory management
and electronic fulfillment. This agreement expires on April 23, 2000, and
automatically renews for an additional one-year term, unless otherwise
terminated by either party. Pursuant to the terms of this agreement, Beyond.com
agreed to indemnify us for an amount not to exceed $100,000 against any claim
based upon an allegation that the software we distributed infringes upon any
third party's intellectual property rights. We agreed to indemnify Beyond.com
for an amount not to exceed $100,000 against any claim based upon an allegation
that our services, or the use of any software we provided in connection with
our services, infringes any third party's intellectual property rights.
Stock and Warrant Issuances
Since our inception in December 1997, we have issued shares of common stock
to certain insiders and shares of preferred stock in private placement
transactions each as set forth below.
In March and April 1998, we issued shares of Series D preferred stock in
private placements to certain investors at a purchase price of $1.08 per share.
In October and December 1998, we issued shares of Series E preferred stock in
private placements to certain investors at a purchase price of $1.81 per share.
Upon the closing of this offering, each two shares of Series D and Series E
Preferred Stock convert into one share of common stock.
51
<PAGE>
The following table shows the number of shares of Series D and Series E
preferred stock purchased by the listed investors:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
of Series D of Series E
Preferred Stock Preferred Stock
Purchaser Purchased Purchased
- --------- ---------------- ----------------
<S> <C> <C>
Vulcan Ventures Incorporated................ 735,231 1,657,459
UT Technology Partners, LDC................. 276,243
UT Capital Partners International, LDC...... 55,249
UH Technology Partners, LDC................. 294,092
C.E. Unterberg, Towbin Capital Partners I,
L.P........................................ 176,796
C.E. Unterberg, Towbin LLC.................. 88,397
C.E. Unterberg, Towbin 401k Profit sharing
Plan FBO Robert Matluck.................... 13,812
C.E. Unterberg, Towbin 401k Profit Sharing
Plan FBO David Wachter..................... 5,525
Thomas I. Unterberg......................... 55,249
Unterberg Harris Private Equity Partners,
L.P........................................ 60,583 91,050
Unterberg Harris Private Equity Partners,
C.V........................................ 12,940 19,448
DLJ Diversified Partners, L.P............... 140,465 316,655
DLJ Diversified Partners-A, L..P............ 52,164 117,596
DLJ ESC II, L.P............................. 8,113 18,289
GRP Partners, L.P........................... 30,643 69,082
Global Retail Partners Funding, Inc......... 32,456 73,162
Global Retail Partners, L.P................. 471,390 1,062,674
General Electric Capital Corporation........ 2,762,431
</TABLE>
Messrs. Novak and Kolde and Ms. Levinson, directors of our company, disclaim
beneficial ownership of the shares of common stock now held by the Unterberg
Affiliates, Vulcan and GRP and certain of its affiliates, respectively, except
for any proportional interest held therein.
Concurrent with the issuance of Series E preferred stock to General Electric
Capital Corporation, we issued General Electric Capital Corporation warrants to
buy 567,910 shares of Series E preferred stock with a weighted average exercise
price of $2.64. These shares are convertible into 283,955 shares of our common
stock.
52
<PAGE>
Option Grants and Agreements with Executive Officers and Directors
We granted options to the following directors to purchase shares of common
stock on the date, for the number of shares, with an exercise price as
indicated opposite each person's name:
<TABLE>
<CAPTION>
Securities
Underlying Option
Name Grant Date(1) Options Price
---- ------------- ---------- ------
<S> <C> <C> <C>
Bert Kolde................................... 3/18/98 5,000 $0.045
3/18/98 5,000 0.200
1/18/99 5,000 3.620
Linda Fayne Levinson......................... 3/18/98 5,000 0.200
1/18/99 5,000 3.620
Steven P. Novak.............................. 3/18/98 10,000 0.003
3/18/98 10,000 0.013
3/18/98 5,000 0.045
3/18/98 5,000 0.200
1/18/99 5,000 3.620
</TABLE>
- ----------------
(1) Options with a grant date in 1998 are subject to the terms of the 1998
Plan. Options with a grant date in 1999 are subject to the terms of the
1999 Plan.
Under the terms of an oral agreement between us and William S. McKiernan,
our President, Chief Executive Officer and Chairman of our Board of Directors,
we repaid, in two installments in December 1997 and January 1998, an aggregate
of $105,000 for unpaid salary that we had accrued on Mr. McKiernan's behalf for
services Mr. McKiernan provided to our predecessor, from whom we were spun-off,
from the date of its inception through December 31, 1994.
In August 1998, Mr. McKiernan loaned us $3,000,000 pursuant to a convertible
promissory note that was amended and restated on October 21, 1998. In
accordance with the terms of the convertible promissory note, the principal
balance of $3,000,000 automatically converted into 828,729 shares of our common
stock on the day immediately prior to the consummation of this offering at a
price of $3.62 per share.
We have entered into indemnification agreements with each of our executive
officers and directors.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
We are authorized to issue up to 50,000,000 shares of common stock and
25,000,000 shares of preferred stock. The following description of our capital
stock is not complete and is qualified in its entirety by our Certificate of
Incorporation and Bylaws, both of which were included as exhibits to the
registration statement of which this prospectus forms a part, and by applicable
Delaware laws.
Common Stock
As of March 31, 1999, there were 17,548,848 shares of common stock
outstanding held of record by approximately stockholders. The Board of
Directors may declare a dividend out of funds legally available and the holders
of common stock are entitled to receive ratably any such dividends. In the
event of our liquidation, dissolution or winding up, holders of our common
stock are entitled to share ratably in all of our assets. Holders of our common
stock have no preemptive rights or other subscription rights to convert their
shares into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 25,000,000 shares of preferred stock in one or
more series and to fix the privileges and rights of each series. These
privileges and rights may be greater than those of the common stock. The Board
of Directors, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. Therefore, we could issue
preferred stock quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, if we issue preferred stock, then the market price of common
stock may decrease, and voting and other rights may be adversely affected. We
have no plans to issue any preferred stock.
Warrants
As of March 31, 1999, we had outstanding warrants to purchase an aggregate
amount of 1,396,639 shares of Series E preferred stock which will be
exercisable for an aggregate of 698,319 shares of common stock upon the closing
of this offering. The right to purchase shares subject to these warrants
terminates upon the consummation of this offering, unless the initial public
offering price is less than $8.00 per share.
Certain Charter and Bylaw Provisions
We are subject to Section 203 of the Delaware General Corporation Law which
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, such as the approval of a majority of certain members of the Board of
Directors. The term "business combination" includes mergers and stock and asset
sales. An "interested stockholder" is a person who, together with affiliates
and associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The effect of this statute could, among other
things, make it more difficult for a third party to gain control of us,
discourage bids for the common stock at a premium or otherwise adversely affect
the market price of the common stock.
54
<PAGE>
Limitation of Directors' and Officers' Liability; Indemnification
Our Certificate of Incorporation includes provisions that limit the personal
liability of our officers and directors for monetary damages for breach of
their fiduciary duties as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law. The Delaware General
Corporation Law does not permit a provision in a corporation's certificate of
incorporation that would eliminate such liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful payment of a dividend or unlawful
stock repurchase or redemption, as provided in Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation
and is acting in his or her capacity as director, and do not apply to the
officers of the corporation who are not directors.
Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we shall indemnify our directors and officers. In
addition, we anticipate that each director will enter into an indemnification
agreement pursuant to which we will indemnify such director to the fullest
extent permitted by the Delaware General Corporation Law. At present, there is
no pending litigation or proceeding involving any of our directors or officers
in which indemnification is required or permitted, and we are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
Registration Rights
After the SEC declares this registration statement effective, and assuming
we comply with various other requirements, the holders of approximately
shares of common stock will hold registration rights. These rights
are held under the terms of several agreements between us and various
stockholders. Under the terms of these agreements, if we propose to register
any of our securities under the Securities Act, either for our own account or
for other security holders, we must give the holders of registration rights
notice of such registration and include a portion of their shares of common
stock in such registration at our expense. In addition, certain holders of
registration rights may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our commercially reasonable efforts to effect such
registration. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of any
offering to limit the number of shares included in such registration and our
right not to effect a registration in certain specific situations. Under these
agreements, we have agreed to bear all registration expenses (other than
underwriting discounts and commissions and fees, and certain fees and
disbursements of counsel of the holders of registration rights subject to
certain limitations). We have agreed to indemnify the holders of registration
rights against certain liabilities under the Securities Act. We are bearing all
such costs related to the registration statement of which this prospectus is a
part.
55
<PAGE>
Listing
Application has been made for quotation of our common stock on the Nasdaq
National Market under the symbol "CYBS."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
Its address is , and its
telephone number is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding based on shares outstanding as of March 31, 1999. Of these
shares, the shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless held by "affiliates" of
CyberSource as that term is used under the Securities Act and the Regulations
promulgated thereunder.
The remaining 17,548,848 outstanding shares were sold by us in reliance on
exemptions from the registration requirements of the Securities Act and are
restricted securities within the meaning of Rule 144 under the Securities Act.
Upon the expiration of agreements not to sell entered into with us, 120 days
after the effective date approximately 2,570,945 shares will become eligible
for sale subject to compliance with Rule 144. Beginning 180 days after the date
of this prospectus, approximately 13,428,356 shares will become eligible for
sale subject the provisions of Rule 144, Rule 144(k) or Rule 701 upon the
expiration of agreements not to sell such shares entered into between the
underwriters and such stockholders of CyberSource. Beginning 180 days after the
date of this prospectus, approximately 371,868 additional shares will become
eligible for sale subject to vested options as of the Effective Date in
compliance with Rule 701 and upon the expiration of agreements not to sell such
shares entered into between the underwriters and such stockholders. Any shares
subject to lock-up agreements may be released at any time without notice by the
underwriters.
<TABLE>
<CAPTION>
Shares
First
Days After Date of This Eligible
Prospectus for Sale Comment
----------------------- ---------- -------
<C> <C> <S>
Upon Effectiveness........ Freely tradeable shares sold in offering.
120 days.................. 2,570,945 CyberSource lockup released; shares saleable under Rules 144 and 701.
180 days.................. 13,428,356 Underwriter lockup released; shares saleable under Rule 144 and 701.
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the Effective Date, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of common stock (approximately 2,570,945 shares immediately after this
offering) or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding such sale, subject to the filing of a Form
144 with respect to such sale and certain other limitations and restrictions.
In addition, a person who is not deemed to have been an affiliate of
CyberSource at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above.
Any employee, officer or director of or consultant to CyberSource who
purchased his or her shares prior to the Effective Date or who holds vested
options as of that date pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date. However, we and certain officers, directors and
our
57
<PAGE>
other stockholders have agreed not to sell or otherwise dispose of any shares
of our common stock for the 180-day period after the date of this prospectus
without the prior written consent of the underwriters. See "Underwriting."
As soon as practicable after the Effective Date, we intend to file a
registration statement on Form S-8 under the Securities Act to register shares
of common stock reserved for issuance under the 1998 Plan and the 1999 Plan,
thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. Such registration
statements will become effective immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered in this offering.
58
<PAGE>
UNDERWRITING
General
We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan & Co.,
PaineWebber Incorporated and C.E. Unterberg, Towbin are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in a purchase agreement between us and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of shares of our common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Pierce, Fenner & Smith.............................................
J.P. Morgan & Co...................................................
PaineWebber Incorporated...........................................
C.E. Unterberg, Towbin.............................................
----
Total.........................................................
====
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of the
shares of our common stock being sold under the terms of the agreement if any
of the shares of common stock are purchased. Under the purchase agreement, the
commitments of non-defaulting underwriters may be increased.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments the underwriters may be required
to make in respect of those liabilities.
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially
to offer the shares of our common stock to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers
at such price less a concession not in excess of $ per share of common
stock. The underwriters may allow, and such dealers may allow, a discount not
in excess of $ per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is
59
<PAGE>
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment options.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price...................................... $ $ $
Underwriting discount...................................... $ $ $
Proceeds, before expenses, to CyberSource.................. $ $ $
</TABLE>
Over-Allotment Option
We have granted an option to the underwriters, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of an additional
shares of our common stock at the initial public offering price set
forth on the cover of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated to
purchase a number of additional shares of our common stock proportionate to
such underwriter's initial amount reflected in the foregoing table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares offered hereby to be sold to
some of our employees, directors and other persons with relationships with us.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent that those persons purchase the reserved
shares. Any reserved shares which are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
No Sales of Similar Securities
We and our executive officers and directors have agreed not to directly or
indirectly
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act relating to any shares of our common stock or
. enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise,
without the prior written consent of Merrill Lynch on behalf of the
underwriters for a period of 180 days after the date of the prospectus.
See "Shares Eligible for Future Sale."
Nasdaq National Market Listing
Before this offering, there has been no market for our common stock. The
initial public offering price will be determined through negotiations between
us and the representatives of the underwriters.
60
<PAGE>
The factors to be considered in determining the initial public offering price,
in addition to prevailing market conditions, include the valuation multiples of
publicly traded companies that the representatives believe to be comparable to
us, some of our financial information, the history of, and the prospects for,
us and the industry in which we compete, and an assessment of our management,
its past and present operations, the prospects for, and timing of, future
revenues of CyberSource, the present state of our development, the percentage
interest of CyberSource being sold as compared to the valuation for CyberSource
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours. There can be
no assurance that an active trading market will develop for our common stock or
that our common stock will trade in the public market subsequent to the
offering at or above the initial public offering price.
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "CYBS."
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under the prospectus.
Price Stabilization and Short Positions
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
underwriters are permitted to engage in transactions that stabilize the price
of our common stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing our common stock in the open
market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
Penalty Bids
The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase shares of
our common stock in the open market to reduce their short position or to
stabilize the price of our common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that
it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. As of March 31, 1999, a
partner of Morrison & Foerster LLP owned 40,000 shares of our common stock and
held an option to purchase an additional 5,000 shares of our common stock.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule and the financial statements and schedule of
our predecessor division of Beyond.com corporation at December 31, 1997 and
1998 and for the period from March 20, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, as set forth in their
report. We have included our consolidated financial statements and schedule in
this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a Registration Statement on Form S-1 under the Securities Act of 1933,
as amended, with respect to the Common Stock offered hereby. This prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Certain items are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to CyberSource and our common stock offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, if such contract or document is filed as an exhibit,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge
at the public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the North Western Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, NY 10048, and copies of all or any part thereof may be
obtained from such office after payment of fees prescribed by the Commission.
The Commission maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
62
<PAGE>
CYBERSOURCE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1998
and for the period from March 20, 1996 (inception)
to December 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP Independent Auditors........................... F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statement of Redeemable Convertible Preferred Stock, Division
Equity and Stockholders' Equity (Net Capital Deficiency).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CyberSource Corporation
We have audited the accompanying consolidated balance sheets of CyberSource
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable convertible preferred stock, division
equity and stockholders' equity (net capital deficiency), and cash flows of
CyberSource Corporation and its predecessor division of Beyond.com Corporation
for the period from March 20, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CyberSource
Corporation at December 31, 1997 and 1998, and the consolidated results of
operations and cash flows of CyberSource Corporation and its predecessor
division of Beyond.com Corporation for the period from March 20, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, in conformity with generally accepted accounting principles.
San Jose, California
February 18, 1999, except as
to the first paragraph of
Note 9, as to which the
date is April 30, 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the approval by
the Company's shareholders of the 1 for 2 reverse stock split as described in
Note 9 of the Notes to the Financial Statements.
/s/ Ernst & Young LLP
San Jose, California
April 30, 1999
F-2
<PAGE>
CYBERSOURCE CORPORATION
AND ITS PREDECESSOR DIVISION OF BEYOND.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders
December 31, Equity at
--------------- March 31, March 31,
1997 1998 1999 1999
------ -------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $2,000 $ 11,111 $ 7,423
Accounts receivable, net of
allowances of $332, $229, and $163
at December 31, 1997 and 1998, and
March 31, 1999.................... 466 863 1,022
Prepaid expenses and other current
assets............................ 118 411 646
------ -------- --------
Total current assets............. 2,584 12,385 9,091
Property and equipment, net.......... 1,151 2,300 2,795
Other noncurrent assets.............. -- 290 264
------ -------- --------
Total assets..................... $3,735 $ 14,975 $ 12,150
====== ======== ========
Liabilities and stockholders' equity
(net capital deficiency)
Current liabilities:
Accounts payable................... $ 269 $ 531 $ 972
Other accrued liabilities.......... 128 969 1,348
Deferred revenue................... 150 120 231
Current obligations under capital
leases............................ 21 211 318
Convertible note payable to an
officer and stockholder........... -- 3,000 3,000
------ -------- --------
Total current liabilities........ 568 4,831 5,869
Noncurrent obligations under capital
leases.............................. 33 256 426
Commitments
Redeemable convertible preferred
stock:
Designated shares--24,037,372
Issued and outstanding shares--
7,022,558 in 1997, 16,957,061 in
1998 and 1999, and none pro forma
(liquidation preference of $18,616
at December 31, 1998 and March 31,
1999, respectively)............... 2,097 18,911 18,911 $ --
Stockholders' equity (net capital
deficiency):
Convertible preferred stock, $0.001
par value:
Authorized shares--25,000,000
Issuable in series; see above as
to series designated as
redeemable and shares issued
Common stock, $0.001 par value:
Authorized shares--50,000,000
Issued and outstanding shares--
4,535,000 in 1997, 5,406,536 in
1998, 5,531,991 in 1999, and
16,021,800 pro forma............ 5 5 6 16
Additional paid-in capital......... 1,032 1,199 1,884 20,785
Deferred compensation.............. -- (142) (671) (671)
Accumulated deficit................ -- (10,085) (14,275) (14,275)
------ -------- -------- -------
Total stockholders' equity (net
capital deficiency)............. 1,037 (9,023) (13,056) $ 5,855
------ -------- -------- =======
Total liabilities and
stockholders' equity (net
capital deficiency)............. $3,735 $ 14,975 $ 12,150
====== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CYBERSOURCE CORPORATION
AND ITS PREDECESSOR DIVISION OF BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period From
March 20,
1996 Three Months Ended
(Inception) to Years Ended December 31, March 31,
December 31, ------------------------ --------------------
1996 1997 1998 1998 1999
-------------- ------------ ------------ --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 144 $ 968 $ 3,384 $ 639 $ 1,713
Cost of revenues........ 137 324 3,471 647 1,505
------- ----------- ------------ --------- ---------
Gross profit (loss)..... 7 644 (87) (8) 208
Operating expenses:
Product development... 338 2,300 3,802 671 1,322
Sales and marketing... 425 1,988 4,184 822 2,079
General and
administrative....... 387 681 1,946 330 938
Deferred compensation
amortization......... -- -- 18 -- 67
------- ----------- ------------ --------- ---------
Total operating
expenses............... 1,150 4,969 9,950 1,823 4,406
------- ----------- ------------ --------- ---------
Loss from operations.... (1,143) (4,325) (10,037) (1,831) (4,198)
Interest income......... -- -- 108 11 103
Interest expense........ -- (13) (156) (4) (95)
------- ----------- ------------ --------- ---------
Net loss................ $(1,143) $ (4,338) $ (10,085) $ (1,824) $ (4,190)
======= =========== ============ ========= =========
Basic and diluted net
loss per share......... $ (2.05) $ (0.40) $ (0.77)
============ ========= =========
Shares used in computing
basic and diluted net
loss per share......... 4,918 4,535 5,465
============ ========= =========
Pro forma basic and
diluted net loss per
share.................. $ (0.86) $ (0.26)
============ =========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 11,740 15,955
============ =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CYBERSOURCE CORPORATION
AND ITS PREDECESSOR DIVISION OF BEYOND.COM CORPORATION
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, DIVISION
EQUITY AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(In thousands, except share and per share amounts)
Period from March 20, 1996 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Redeemable
Convertible Division
Preferred Stock Equity
------------------ --------
Shares Amount Amount
---------- ------- --------
<S> <C> <C> <C>
Funding provided by Beyond.com
Corporation.................. -- $ -- $ 1,564
Net loss and comprehensive
loss......................... -- -- (1,143)
---------- ------- -------
Balance at December 31, 1996.. -- -- 421
Funding provided by Beyond.com
Corporation.................. -- -- 7,051
Net loss and comprehensive
loss......................... -- -- (4,338)
Incorporation of CyberSource
and issuance of redeemable
convertible preferred stock
and common stock in December
1997 upon capital stock
dividend from Beyond.com
Corporation.................. 7,022,558 2,097 (3,134)
---------- ------- -------
Balance at December 31, 1997.. 7,022,558 2,097 --
Issuance of common stock under
stock option plan............ -- -- --
Issuance of Series D
redeemable convertible
preferred stock, net of
issuance costs of $20........ 1,851,850 1,980 --
Issuance of Series E
redeemable convertible
preferred stock, net of
issuance costs of $114....... 8,082,653 14,516 --
Issuance of warrants to Visa
and GE Capital............... -- 318 --
Deferred compensation related
to stock option grants....... -- -- --
Amortization of deferred compensation.. -- -- --
Net loss and comprehensive
loss......................... -- -- --
---------- ------- -------
Balance at December 31, 1998.. 16,957,061 18,911 --
Common shares issued for
services (unaudited)......... -- -- --
Issuance of common stock under
stock option plan
(unaudited).................. -- -- --
Deferred compensation related
to stock option grants
(unaudited).................. -- -- --
Amortization of deferred
compensation (unaudited)..... -- -- --
Net loss and comprehensive
loss (unaudited)............. -- -- --
---------- ------- -------
Balance at March 31, 1999
(unaudited).................. 16,957,061 $18,911 $ --
- --------------------------------------------------
========== ======= =======
<CAPTION>
Stockholders' Equity
------------------------------------------------------------
Total
Stockholders'
Common Stock Deferred Additional Accumu- Equity
---------------- Compen- Paid-In lated (Net Capital
Shares Amount sation Capital Deficit Deficiency)
--------- ------ -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Funding provided by Beyond.com
Corporation.................. -- $-- $ -- $ -- $ -- $ --
Net loss and comprehensive
loss......................... -- -- -- -- -- --
--------- ------ -------- ---------- --------- -------------
Balance at December 31, 1996.. -- -- -- -- -- --
Funding provided by Beyond.com
Corporation.................. -- -- -- -- -- --
Net loss and comprehensive
loss......................... -- -- -- -- -- --
Incorporation of CyberSource
and issuance of redeemable
convertible preferred stock
and common stock in December
1997 upon capital stock
dividend from Beyond.com
Corporation.................. 4,535,000 5 -- 1,032 -- 1,037
--------- ------ -------- ---------- --------- -------------
Balance at December 31, 1997.. 4,535,000 5 -- 1,032 -- 1,037
Issuance of common stock under
stock option plan............ 871,536 -- -- 7 -- 7
Issuance of Series D
redeemable convertible
preferred stock, net of
issuance costs of $20........ -- -- -- -- -- --
Issuance of Series E
redeemable convertible
preferred stock, net of
issuance costs of $114....... -- -- -- -- -- --
Issuance of warrants to Visa
and GE Capital............... -- -- -- -- -- --
Deferred compensation related
to stock option grants....... -- -- (160) 160 -- --
Amortization of deferred compensation.. -- -- 18 -- -- 18
Net loss and comprehensive
loss......................... -- -- -- -- (10,085) (10,085)
--------- ------ -------- ---------- --------- -------------
Balance at December 31, 1998.. 5,406,536 5 (142) 1,199 (10,085) (9,023)
Common shares issued for
services (unaudited)......... 22,500 -- -- 81 -- 81
Issuance of common stock under
stock option plan
(unaudited).................. 102,955 1 -- 8 -- 9
Deferred compensation related
to stock option grants
(unaudited).................. -- -- (596) 596 -- --
Amortization of deferred
compensation (unaudited)..... -- -- 67 -- -- 67
Net loss and comprehensive
loss (unaudited)............. -- -- -- -- (4,190) (4,190)
--------- ------ -------- ---------- --------- -------------
Balance at March 31, 1999
(unaudited).................. 5,531,991 $ 6 $(671) $1,884 $(14,275) $(13,056)
- --------------------------------------------------
========= ====== ======== ========== ========= =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
CYBERSOURCE CORPORATION
AND ITS PREDECESSOR DIVISION OF BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Three Months
March 20, 1996 Years Ended Ended
(Inception) to December 31, March 31,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- -------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................... $(1,143) $(4,338) $(10,085) $(1,824) $(4,190)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Common stock issued to
employers for services.. -- -- -- -- 81
Depreciation and
amortization............ 73 325 778 150 351
Amortization of deferred
compensation............ -- -- 18 -- 67
Changes in assets and
liabilities:
Accounts receivable..... (35) (431) (397) (296) (159)
Prepaid expenses and
other current assets... (70) (48) (293) (120) (174)
Accounts payable........ 122 147 262 144 441
Other accrued
liabilities............ 19 109 841 227 379
Deferred revenue........ 26 124 (30) 2 111
------- ------- -------- ------- -------
Net cash used in operating
activities................ (1,008) (4,112) (8,906) (1,717) (3,093)
Investing activities
Purchases of property and
equipment................. (556) (927) (1,419) (270) (542)
------- ------- -------- ------- -------
Net cash used in investing
activities................ (556) (927) (1,419) (270) (542)
Financing activities
Proceeds from issuance of
convertible note payable
to an officer and
stockholder............... -- -- 3,000 -- --
Principal payments on
capital lease
obligations............... -- (12) (67) (21) (62)
Financing provided by
Beyond.com Corporation.... 1,564 7,051 -- -- --
Proceeds from issuance of
redeemable convertible
preferred stock, net...... -- -- 16,496 1,521 --
Proceeds from exercise of
stock options............. -- -- 7 -- 9
------- ------- -------- ------- -------
Net cash provided by (used
in) financing activities.. 1,564 7,039 19,436 1,500 (53)
------- ------- -------- ------- -------
Net increase (decrease) in
cash and cash
equivalents............... -- 2,000 9,111 (487) (3,688)
Cash and cash equivalents
at beginning of period.... -- -- 2,000 2,000 11,111
------- ------- -------- ------- -------
Cash and cash equivalents
at end of period.......... $ -- $ 2,000 $ 11,111 $ 1,513 $ 7,423
======= ======= ======== ======= =======
Supplemental schedule of
cash flow information
Interest paid.............. $ -- $ -- $ 156 $ 4 $ 96
Supplemental schedule of
noncash financing
activities
Property and equipment
acquired under capital
leases.................... $ -- $ 66 $ 480 $ -- $ 339
Issuance of warrants to
Visa and GE Capital....... $ -- $ -- $ 318 $ -- $ --
Deferred compensation
related to stock option
grants.................... $ -- $ -- $ 160 $ -- $ 596
</TABLE>
See accompanying notes.
F-6
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
1. Summary of Significant Accounting Policies
The Company
CyberSource Corporation (the Company) was incorporated in the state of
Delaware on December 30, 1997. Prior to its incorporation, the Company operated
as a division of Beyond.com Corporation (Beyond.com). The Company is a
developer and provider of real time e-commerce transaction processing services.
Basis of Presentation
The accompanying consolidated financial statements reflect the financial
position and results of operations of the Company and its wholly owned
subsidiary and the predecessor division of Beyond.com. All intercompany
transactions and balances have been eliminated.
On December 31, 1997, Beyond.com transferred assets and liabilities to its
wholly owned subsidiary, CyberSource Corporation. Upon this transfer,
Beyond.com distributed capital stock in the form of a dividend to all existing
stockholders of Beyond.com on a pro rata basis such that the stockholders of
the Company were the same as the stockholders of Beyond.com at the time of the
distribution (the Spin-off). The accompanying financial statements for fiscal
1996 and 1997 reflect the operations of the Company as a division of Beyond.com
through December 31, 1997. The balance sheet as of December 31, 1997 has been
prepared using the historical basis of accounting and include all of the assets
and liabilities specifically identifiable to the Company. Beyond.com's
corporate accounting systems were not designed to track cash receipts and
payments and liabilities on a business-specific basis.
The statements of operations for fiscal 1996 and 1997 include all revenue
and costs directly attributable to the Company, including a corporate
allocation of the costs of facilities, salaries, and employee benefits.
Additionally, incremental corporate administration, finance, and management
costs are allocated to the Company based on certain assumptions.
All of the allocations reflected in 1996 and 1997 in the financial
statements are based on assumptions that management believes are reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if the Company had
been operated on a stand-alone basis in fiscal 1996 and 1997 nor are they
necessarily indicative of future costs to support the operations of the
Company.
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements at March 31, 1999 and for the three months ended March 31, 1998 and
1999 include all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the Company's financial position at March 31, 1999,
and results of operations and cash flows for the three months ended March 31,
1998 and 1999. Results for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
F-7
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
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 as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues primarily from e-commerce service monthly
transaction processing fees, and, to a lesser extent, support service fees and
digital product rights management fees. Individual transactions, monthly
transaction revenues, and digital product rights management fees are recognized
in the period in which the transactions occur. Support service fees are
recognized when the services are provided and the related costs are incurred.
In fiscal 1998, Beyond.com, a related party, accounted for 24% of revenues. In
fiscal 1996, a different customer accounted for 26% of revenues. There were no
customers which accounted for greater than 10% of revenues in fiscal 1997. In
the three months ended March 31, 1999, one customer accounted for 22% of
revenues, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998 and March 31, 1999, cash
equivalents consist primarily of investments in money market funds. To date,
the Company has not experienced losses on any of its investments.
Accounts Receivable and Concentration of Credit Risk
At December 31, 1997, 10% of accounts receivable was due from one customer.
At December 31, 1998 and March 31, 1999, 13% and 16%, respectively, of accounts
receivable were due from Beyond.com. The Company generally does not require
collateral. The Company maintains allowances for potential credit losses.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight-
line basis over estimated useful lives of three years. Leasehold improvements
are amortized on a straight-line basis over the shorter of the lease terms or
the estimated useful lives.
F-8
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Computer equipment and software..................... $1,230 $2,916 $3,545
Furniture and fixtures.............................. 169 272 380
Office equipment.................................... 78 116 133
Leasehold improvements.............................. 72 144 210
------ ------ ------
1,549 3,448 4,268
Less accumulated depreciation and amortization...... 398 1,148 1,473
------ ------ ------
$1,151 $2,300 $2,795
====== ====== ======
</TABLE>
Product Development
Product development expenditures are charged to operations as incurred.
Advertising Expense
The cost of advertising is recorded as an expense when incurred. Advertising
costs were not significant during any of the periods presented.
Accounting Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and
related interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma Net Loss Per Share and Unaudited Pro Forma Stockholders' Equity
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. Potentially dilutive securities have been excluded from the
computation as their effect is antidilutive. Because the Company was a division
of Beyond.com through December 31, 1997 and had no outstanding common or
preferred stock, there is no earnings or loss per share presented.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of redeemable convertible preferred shares and convertible notes
payable not included above that will automatically convert upon completion of
the Company's initial offering (using the if-converted method). If the offering
contemplated by this prospectus is consummated, all of the redeemable
convertible preferred stock outstanding as of March 31, 1999 will automatically
be converted into an aggregate of 10,489,809 shares of common stock, based on
the shares of redeemable convertible preferred stock outstanding
F-9
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
at March 31, 1999. Unaudited pro forma stockholders' equity at March 31, 1999,
as adjusted for the conversion of redeemable convertible preferred stock, is
disclosed on the balance sheet.
Pro forma basic and diluted net loss per share is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
Net loss............................................. $(10,085) $(4,190)
======== =======
Weighted average shares used in computing basic and
diluted net loss per common share................... 4,918 5,465
======== =======
Pro forma:
Shares used in computing basic and diluted net loss
per share used above.............................. 4,918 5,465
Adjusted to reflect the effect of the assumed
conversion of redeemable convertible preferred
stock from the date of issuance................... 6,822 10,490
-------- -------
Weighted average shares used in computing pro forma
basic and diluted net loss per share................ 11,740 15,955
======== =======
Pro forma basic and diluted net loss per share....... $ (0.86) $ (0.26)
======== =======
</TABLE>
If the Company had reported net income, diluted earnings per share would
have included the shares used in the computation of pro forma net loss per
share as well as an additional approximately 2,528,000 and 3,564,000 common
equivalent shares related to the outstanding options, warrants, and convertible
notes payable not included above for the year ended December 31, 1998 and for
the three months ended March 31, 1999, respectively. The common equivalent
shares from options and warrants would be determined on a weighted average
basis using the treasury stock method. The common equivalent shares related to
the convertible note payable would be determined on a weighted average basis.
Income Taxes
Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, the liability method is used in accounting for income taxes, which
includes the effects of temporary differences between financial and taxable
amounts of assets and liabilities.
New Accounting Pronouncements
In January 1999, the Company adopted American Institute of Certified Public
Accountants Statement of Position, "Accounting for Computer Software Developed
For or Obtained For Internal Use" (SOP 98-1). SOP 98-1 applies to all
nongovernmental entities and provides revised guidance
F-10
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
for the accounting treatment for software which is internally developed,
acquired, or modified solely to meet the entity's internal needs. SOP 98-1 did
not have a material effect on the Company's financial statements or results of
operations for the three months ended March 31, 1999.
2. Segment Information
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (FAS 131)
in the fiscal year ended December 31, 1998. FAS 131 supersedes Statement of
Financial Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise" (FAS 14). FAS 131 changes current practice under FAS 14 by
establishing a new framework for reporting information regarding operating
segments in annual financial statements and requires selected information for
these segments in interim financial statements. FAS 131 also establishes
standards for related disclosures about products and services and geographic
areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available that is evaluated by the
chief operating decision maker or decision making group to make decisions about
how to allocate resources and assess performance. The Company's chief operating
decision maker is the Chief Executive Officer. To date, the Company has viewed
its operations as principally two segments, e-commerce transaction services
(ECTS) and digital product rights management (DPR) for software and other
digital products and manages the business based on the revenues of these
segments. Additionally, in 1996, 1997 and 1998 the Company derived less than
10% of its revenues from outside the United States. Revenues from outside the
United States were 17% of revenues in the three months ended March 31, 1999.
The following table presents revenues and operating loss by the Company's
two business units for the period from March 20, 1996 (inception) to December
31, 1996, for the year ended 1997 and 1998, and for the three months ended
March 31, 1999. There were no interbusiness unit sales or transfers. The
Company does not report operating expenses, depreciation and amortization,
interest income (expense), income taxes, capital expenditures, or identifiable
assets by industry segment to the Chief Executive Officer. Revenues are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31, Three months
---------------- ended March 31,
1996 1997 1998 1999
---- ---- ------ ---------------
<S> <C> <C> <C> <C>
ETCS........................................... $131 $770 $2,708 $1,512
DPR............................................ 13 198 676 201
---- ---- ------ ------
Total.......................................... $144 $968 $3,384 $1,713
==== ==== ====== ======
</TABLE>
F-11
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
3. Commitments
The Company leases its primary facility and certain equipment under
noncancelable operating leases expiring at various dates through 2001. Rental
expense was approximately $43,000, $144,000, $459,000, and $201,000 for the
period from March 20, 1996 (inception) to December 31, 1996 and for 1997 and
1998, and for the three months ended March 31, 1999, respectively. The Company
has the option to extend the lease term for an additional three years.
Beginning in 1997, the Company leased certain equipment under noncancelable
lease agreements that are accounted for as capital leases. Equipment under
capital lease arrangements, which is included in property and equipment,
aggregated approximately $546,000 and $885,000 at December 31, 1998 and March
31, 1999, respectively. Related accumulated amortization was approximately
$69,000 and $126,000 at December 31, 1998 and March 31, 1999, respectively.
Amortization expense related to assets under capital leases is included with
depreciation expense.
Future minimum lease payments under noncancelable operating leases and
capital leases at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1999....................................................... $1,048 $227
2000....................................................... 947 197
2001....................................................... 73 81
------ ----
Total minimum payments..................................... $2,068 505
======
Less amount representing interest.......................... 38
----
467
Less current portion....................................... 211
----
$256
====
</TABLE>
4. Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock at December 31, 1998 and March 31,
1999 is as follows:
<TABLE>
<CAPTION>
Issued and
Designated Outstanding
Shares Shares
---------- -----------
<S> <C> <C>
Series A.............................................. 1,985,520 1,985,520
Series B.............................................. 2,500,000 2,037,038
Series C.............................................. 3,000,000 3,000,000
Series D.............................................. 1,851,852 1,851,850
Series E.............................................. 14,700,000 8,082,653
---------- ----------
Total............................................... 24,037,372 16,957,061
========== ==========
</TABLE>
F-12
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The holders of Series A, B, C, D, and E redeemable convertible preferred
stock are entitled to receive annual noncumulative dividends at the rate of
$0.0064, $0.0432, $0.03264, $0.108, and $0.181 per share, respectively, plus,
with respect to the Series B, C, D, and E preferred stock, cumulative dividends
at a rate of $0.00252, $0.001904, $0.0063, and $0.0106 per share, per month,
subsequent to the respective original issuance date, respectively, when and if
declared by the Board of Directors, payable in preference to common stock
dividends. There were no dividends declared or payable by the Company at
December 31, 1998.
Each share of preferred stock is convertible at any time at the option of
the holder into shares of common stock at the then effective conversion price.
Each outstanding share of Series A and B, preferred stock is convertible into
1.00 share of common stock, and each two shares C, D, and E preferred stock are
convertible into 1 share of common stock subject to adjustment as specified in
the Certificate of Incorporation. Each series of preferred stock will
automatically convert into common stock immediately prior to the consummation
of a firm commitment underwritten public offering under the Securities Act of
1933 (IPO) in which the sale price to the public is not less than $7.00 per
share, and the aggregate offering price to the public is not less than
$15,000,000, or at such time as the Company receives the consent of not less
than two-thirds of the holders of each series of the preferred stock.
Each preferred share has voting rights equal to the number of common shares
into which it is convertible. Upon liquidation, the holders of the Series A
preferred stock are entitled to receive $0.064 per share, plus any declared but
unpaid dividends, before any distribution may be made to the holders of the
Series B, C, D, and E preferred or common shares. After the payment to the
holders of the Series A preferred stock, the holders of the Series B, C, D, and
E preferred stock are entitled to receive $0.432, $0.3264, $1.08, and $1.81 per
share, respectively, plus any declared but unpaid dividends, before any
distribution may be made to the holders of common shares.
At any time after January 5, 2000, the holders of a majority of the then
outstanding shares of Series A preferred stock may request the redemption of
all of the outstanding shares of Series A redeemable convertible preferred
stock. The Company shall redeem such shares at a price per share of $0.12, plus
accrued dividends, if any, for Series A preferred stock. At any time after July
12, 2002, the majority of the then outstanding shares of Series B preferred
stock may request the redemption of all of the outstanding shares of Series B
preferred stock at the original issuance price per share of $0.432 plus accrued
dividends, if any. At any time after July 12, 2002, the respective holders of
at least two-thirds of the then outstanding shares of Series C, D, and E
preferred stock separately may request the redemption of all of the outstanding
shares of Series C, D, and E preferred stock, respectively. The Company shall
redeem such shares at the original issuance price per share of $0.3264, $1.08,
and $1.81, respectively, plus accrued dividends, if any. All of the outstanding
preferred stock is recorded at its redemption amount.
During 1998, in connection with the issuance of Series E preferred stock and
certain strategic marketing agreements with Visa and GE Capital, the Company
issued warrants to purchase 552,486, 442,910, and 401,243 shares of the
Company's Series E preferred stock at exercise prices of $1.81,
F-13
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
$3.00, and $4.00 per share, respectively. The warrants are fully exercisable
upon the date of issuance and expire three years from the original date of the
marketing services agreements. Preferred shares issued upon exercise of the
warrants are non-forfeitable.
The Company has determined the fair value of the warrants at the time of
issuance to be $318,000 and has recorded this amount as a cost of the strategic
marketing agreements. The determined value of the warrants was credited to
redeemable convertible preferred stock and is being amortized ratably over the
three year term of the strategic marketing agreements. The Company amortized
$28,000 and $26,000 of the value of the warrants to sales and marketing expense
in 1998 and for the three months ended March 31, 1999, respectively.
5. Stockholders' Equity
Common Shares
The Company is authorized to issue 50,000,000 shares of common stock. The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors.
The Company has reserved shares of common stock for future issuance at
December 31, 1998 as follows:
<TABLE>
<S> <C>
1998 Stock Option Plan:
Options outstanding............................................. 1,000,701
Options available for future grants............................. 27,763
Convertible note payable.......................................... 828,729
Redeemable convertible preferred stock............................ 10,489,809
Outstanding warrants.............................................. 698,319
----------
13,045,321
==========
</TABLE>
Stock Options
In conjunction with the Spin-off of the Company on December 31, 1997,
employees of the Company, immediately following the Spin-off, maintained their
outstanding exercisable stock options in Beyond.com and in March 1998 were
granted additional incentive stock options in the Company. Employees of
Beyond.com were granted additional stock options in the Company in March 1998
based on the extent that the employees' original Beyond.com options were
exercisable on the date of the Spin-off. The exercise prices of the original
Beyond.com option grants and the additional Company stock option grants were
adjusted to reflect the allocation of the fair market value per share price
between the Company's and Beyond.com's common stock at December 31, 1997. The
adjustments to these options resulted in nonstapled options to the employees of
each entity and were accounted for and in compliance with the guidelines in
Emerging Issues Task Force Issue No. 90-9, and therefore, no compensation
expense has been recorded.
F-14
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
In March 1998, the Company adopted its 1998 Stock Option Plan (the 1998
Plan). There are 1,900,000 shares of common stock authorized for issuance under
the 1998 Plan. The 1998 Plan provides for the issuance of common stock and the
granting of options to employees, officers, directors, consultants, independent
contractors, and advisors of the Company. The exercise price of a nonqualifying
stock option and an incentive stock option shall not be less than 85% and 100%,
respectively, of the fair value of the underlying shares on the date of grant.
Options granted under the 1998 Plan generally become exercisable over five
years at the rate of 20% per year from the grant date.
In January 1999, the Company adopted its 1999 Stock Option Plan (the 1999
Plan). The Company has reserved 2,500,000 shares of common stock for issuance
under the 1999 Plan. The provisions of the 1999 Plan and similar to those of
the 1998 Plan.
The following table summarizes information about the Company's stock option
activity under the 1998 Plan and the 1999 Plan. Options granted prior to
December 31, 1997 were originated from options granted by Beyond.com and were
granted by the Company immediately following the adoption of the 1998 Plan.
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Number Weighted
Shares of Average Adjusted
Available Shares Exercise Price
---------- --------- ----------------
<S> <C> <C> <C>
Shares reserved....................... 1,900,000 -- $ --
Options granted based upon Beyond.com
option grants prior to Spin-off...... (1,227,183) 1,227,183 $0.160
Options granted....................... (679,575) 679,575 $0.474
Options exercised..................... -- (871,536) $0.008
Options canceled...................... 34,521 (34,521) $0.378
---------- ---------
Balance at December 31, 1998.......... 27,763 1,000,701 $0.310
Additional shares reserved
(unaudited).......................... 2,500,000 -- $ --
Options granted (unaudited)........... (1,233,350) 1,233,350 $3.620
Options exercised (unaudited)......... -- (102,955) $0.064
Options canceled (unaudited).......... 95,521 (95,521) $2.504
---------- ---------
Balance at March 31, 1999
(unaudited).......................... 1,389,934 2,035,575 $2.024
========== =========
</TABLE>
In connection with certain stock options granted in 1998, the three months
ended March 31, 1999 and April 1999, the Company recorded deferred compensation
for the estimated difference between the exercise price of the options and the
deemed fair value of $160,000, $596,000 and $424,000 which amounts are being
amortized on a graded method over the four-year vesting period of the options.
F-15
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Number of Weighted
Weighted Average Options Average
Number of Average Remaining Exercisable Adjusted
Options Adjusted Contractual Upon Exercise
Exercise Price Outstanding Exercise Price Life (Years) Issuance Price
-------------- ----------- -------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
$0.006 -- $0.04 312,384 $0.04 7.76 253,295 $ 0.03
$0.06 34,417 $0.06 8.84 25,859 $ 0.06
$0.20 163,150 $0.20 9.20 26,946 $ 0.20
$0.54 490,750 $0.54 9.71 -- $ --
--------- -------
1,000,701 $0.31 306,100 $0.048
========= =======
</TABLE>
At December 31, 1997, 828,640 options were exercisable at a weighted
average exercise price of $0.004.
Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if the Company has accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value method with the following weighted average assumptions: a risk-
free interest rate of 5.51%, 6.16%, and 5.15% for 1996, 1997, and 1998,
respectively; no dividend yield or volatility factors of the expected market
price of the Company's common stock; and a weighted average expected life of
the option of four years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost been determined using the fair value at the grant
date for options granted calculated using the minimum value method of FAS 123,
the Company's actual net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Pro forma net loss (in thousands).............. $(1,143) $(4,339) $(10,088)
Pro forma basic and diluted net loss per
share......................................... $ (2.05)
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.002, $0.02, and $0.08 per share
for options granted during 1996, 1997, and 1998, respectively.
F-16
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The pro forma impact of options on the net loss for the period from March
20, 1996 (inception) to December 31, 1996 and for the years ended December 31,
1997 and 1998 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of options vesting as
well as the impact of multiple years of stock option grants.
6. Related Party Transactions
Funding Prior to Spin-off
Through December 31, 1997, the Company utilized Beyond.com's centralized
cash management services and processes related to receivables, payables,
payroll, and other activities. Through December 31, 1997, the Company's net
cash requirements were funded by Beyond.com. Net financing provided by
Beyond.com to the Company in 1996 and 1997 was approximately $1,564,000 and
$7,051,000, respectively, including funding related to corporate services
provided, as described below.
Corporate Services
In accordance with Staff Accounting Bulletin No. 55, certain additional
allocations have been reflected in these financial statements for 1996 and
1997. These expenses have included corporate communications, management,
compensation and benefits administration, payroll, accounts payable, income tax
compliance, and other administration and finance overhead. Allocations and
charges were based on either a direct cost pass-through or a percentage
allocation for such services provided based on factors such as net sales,
headcount, and relative expenditure levels. Such allocations and corporate
charges totaled $519,000 and $688,500 for the period from March 20, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997,
respectively.
Management believes that the basis used for allocating corporate services is
reasonable. However, the terms of these transactions may differ from those that
would result from transactions among unrelated parties.
The CEO of the Company is Chairman of the Board of Beyond.com and the
companies also have one other member of their Board of Directors in common.
Pursuant to the terms of an agreement entered into in connection with the Spin-
off from Beyond.com, the Company provides services to Beyond.com on a
nonexclusive basis. During 1998 and the three months ended March 31, 1999, the
Company recorded approximately $801,000 and $375,000, respectively, of revenues
related to these services. As of December 31, 1998 and March 31, 1999, amounts
receivable from Beyond.com were approximately $147,000 and $179,000,
respectively.
Convertible Note Payable to Officer and Stockholder
In October 1998, the Company issued an unsecured convertible one-year
promissory note to an officer and stockholder from whom it had borrowed an
aggregate of $3,000,000. The note is payable in full on October 21, 1999 and
has an interest rate of 10% per annum. Interest is payable in quarterly
installments. In the event of the consummation of an IPO, private equity
financing, or an
F-17
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
acquisition of the Company prior to the due date of the note, the note will
automatically convert into Series E redeemable convertible preferred stock by
dividing the outstanding note balance and accrued interest by $3.62, which
represents 828,729 shares of Series E preferred stock as of December 31, 1998.
7. Litigation and Contingencies
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. See Note 9. The Company
believes that there are no claims or actions pending or threatened against the
Company, the ultimate disposition of which would have a material impact on the
Company's financial position or results of operations.
8. Income Taxes
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $8,600,000. As of December 31, 1998, the
Company also had federal and state research credit carryforwards of
approximately $130,000 and $70,000, respectively. The net operating loss and
credit carryforwards will expire at various dates beginning in 2006 through
2018, if not utilized.
The utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes at December 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 3,400
Research credit carryforwards..................................... 200
Other, net........................................................ 300
-------
Net deferred tax assets............................................. 3,900
Valuation allowance................................................. (3,900)
-------
Net deferred tax assets............................................. $ --
=======
</TABLE>
9. Subsequent Events
Reverse Stock Split
On April 30, 1999, the Company's Board of Directors approved a 1 for 2
reverse split of the Company's outstanding common stock, subject to stockholder
approval. The par value of the common stock and the authorized shares of common
stock were not adjusted as a result of the reverse split. The conversion ratios
of each series of preferred stock were adjusted accordingly. The
F-18
<PAGE>
CYBERSOURCE CORPORATION
and its predecessor division of Beyond.com Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
stock split is reflected in the accompanying financial statements and footnotes
on a retroactive basis in all periods presented.
Legal Matter (unaudited)
A former Vice President of Product Management filed a lawsuit against the
Company in the Superior Court of California in Santa Clara County on April 8,
1999 seeking monetary and equitable relief. The plaintiff alleges several
causes of action, including wrongful termination, defamation, fraud, and unfair
business practices arising out of her three month employment with the Company.
While there can be no assurances as to the outcome of this litigation, the
Company believes the lawsuit is without merit, and intends to vigorously defend
against the claims asserted.
F-19
<PAGE>
The graphic depicts the words "Successful Internet companies use the CyberSource
Internet Commerce Suite" above four boxes which depict screenshots from web
sites of the following of our companies: Shopping.com, CompaqWorks, BUY.com,
and Liquid Audio, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
[LOGO]
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
J.P. Morgan & Co.
PaineWebber Incorporated
C.E. Unterberg, Towbin
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Securities and Exchange Commission Filing Fee...................... $ 12,800
NASD Filing Fee.................................................... 5,100
Nasdaq National Market Listing Fee................................. 18,000
Accounting Fees and Expenses....................................... 200,000
Blue Sky Fees and Expenses.........................................
Legal Fees and Expenses............................................ 200,000
Transfer Agent and Registrar Fees and Expenses.....................
Printing Expenses.................................................. 150,000
Miscellaneous Expenses.............................................
--------
Total........................................................... $
========
</TABLE>
- ----------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
Item 14. Indemnification of Directors and Officers
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation (Exhibit
3.1 hereto) provides that the liability of its directors for monetary damages
shall be eliminated to the fullest extent permissible under Delaware law.
Pursuant to Delaware law, this includes elimination of liability for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Registrant, 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, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The 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.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to
II-1
<PAGE>
indemnify such persons against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred (including expenses of a
derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director or officer of the Registrant or any of
its affiliated enterprises, provided such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures our directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities
For the period from December 31, 1997 to March 31, 1999, the Registrant has
issued and sold the following unregistered securities:
1. During the period, the Registrant granted stock options to employees,
directors and consultants under its 1998 Stock Option Plan and its 1999 Stock
Option Plan (collectively, the "Stock Plans") covering an aggregate of
3,150,109 shares of the Registrant's common stock, at exercise prices ranging
from $0.20 to $3.62 with an average exercise price of $1.52 per share.
2. During the period, the Registrant issued and sold an aggregate of 973,524
shares of its common stock to 40 employees, directors and consultants for cash
and promissory notes in the aggregate amount of $946,049 upon exercise of stock
options granted pursuant to the Registrant's Stock Plans.
3. During the period, the Registrant issued an aggregate of 4,535,000 shares
of its common stock in connection with the spin off from Beyond.com in December
1997, and 20,000 shares of its common stock for an aggregate consideration of
$72,400.
4. During the period, the Registrant issued an aggregate of 1,985,520 shares
of its Series A Preferred Stock, convertible into 1,985,520 shares of its
common stock, in connection with its spin off from Beyond.com in December 1997.
5. During the period, the Registrant issued an aggregate of 2,037,038 shares
of its Series B Preferred Stock, convertible into 2,037,038 shares of its
common stock, in connection with its spin off from Beyond.com in December 1997.
6. During the period, the Registrant issued an aggregate of 3,000,000 shares
of its Series C Preferred Stock, convertible into 1,500,000 shares of its
common stock, in connection with its spin off from Beyond.com in December 1997.
7. During the period, the Registrant issued and sold an aggregate of
1,851,850 shares of its Series D Preferred Stock, convertible into 925,925
shares of its common stock, for an aggregate purchase price of $1,714,676.
II-2
<PAGE>
8. During the period, the Registrant issued and sold an aggregate of
8,082,653 shares of its Series E Preferred Stock, convertible into 4,041,327
shares of its common stock, for an aggregate purchase price of $14,629,602.
9. During the period, the Registrant issued and sold warrants for a total of
1,396,639 shares of its Series E Preferred Stock, convertible into 698,320
shares of its common stock, for an aggregate consideration of $3,483,702.
10. During the period, the Registrant issued a convertible note for a total
of 1,657,458 shares of its Series E Preferred Stock, convertible into 828,729
shares of its common stock, for an aggregate consideration of $3,000,000.
The sale and issuance of securities in the transactions described in
paragraphs 1, 2, 3 and 4 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 written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701 or were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) thereof.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any
of the above transactions.
Item 16. Exhibits and Consolidated Financial Statement Schedules
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Consolidated Financial Statement Schedules
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts II-7
</TABLE>
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
Item 17. Undertakings
The Registrant hereby undertakes to provide the underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 Act shall be deemed to be part of this Registration
Statement as of the time the Commission declared it effective.
(2) For purposes of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities therein, and
this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California on April 30, 1999.
CYBERSOURCE CORPORATION
/s/ William S. McKiernan
By: _________________________________
William S. McKiernan
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William S. McKiernan, Tony Bates and
Charles E. Noreen as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, 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 sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1993, and to file the same, with all exhibits
thereto, and other 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 connection therewith 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 said attorneys-in-fact and
agents, or any of them, or their or his 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>
/s/ William S. McKiernan Chairman of the Board of April 30, 1999
____________________________________ Directors, President and
William S. McKiernan Chief Executive Officer
(Principal Executive
Officer)
/s/ Charles E. Noreen Vice President of Finance April 30, 1999
____________________________________ and Administration and
Charles E. Noreen Chief Financial Officer
(Principal Financial and
Accounting Officer)
____________________________________ Director , 1999
Berte Kolde
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Linda Fayne Levinson Director April 30, 1999
____________________________________
Linda Fayne Levinson
/s/ Steven P. Novak Director April 30, 1999
____________________________________
Steven P. Novak
/s/ Richard Scudellari Director April 30, 1999
____________________________________
Richard Scudellari
</TABLE>
II-6
<PAGE>
CyberSource Corporation
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
December 31, 1997 and December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Amounts
Charged to
Balance at Revenue, Balance
beginning Costs, or Write-offs and at End
of year Expenses Recoveries of Year
---------- ---------- -------------- -------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful
Accounts............... $ -- $332 $ -- $332
1998
Allowance for Doubtful
Accounts............... $332 $193 $296 $229
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Registrant's Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2.
5.1* Opinion of Morrison & Foerster LLP.
10.1 Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.2 1998 Stock Option Plan.
10.3 1999 Stock Option Plan.
10.4 Standard Office Lease dated August 20, 1996 by and between California
State Automobile Association Inter-Insurance Bureau as Landlord and
CyberSource Corporation as Tenant.
10.5 First Amendment to Lease dated October 20, 1997 by and between
California State Association Inter-Insurance Bureau as Landlord and
CyberSource Corporation as Tenant.
10.6 Assignment of Standard Office Lease dated December 31, 1997 by and
between CyberSource Corporation as Assignor and Internet Commerce
Services Corporation as Assignee.
10.7 Sublease dated July 1, 1998 by and between MultiGen Inc. of California
as Sublessor and CyberSource of California as Sublessee.
10.8 Second Amendment to Lease dated October 30, 1998 by and between
California State Automobile Association Inter-Insurance Bureau as
Landlord and CyberSource Corporation as Tenant.
10.9 Conveyance Agreement dated December 31, 1997 by and between
CyberSource Corporation and Internet Commerce Services Corporation.
10.10+ Inter-Company Cross License Agreement dated April 23, 1998 by and
between Internet Commerce Services Corporation and software.net
Corporation.
10.11+ Internet Commerce Services Agreement dated April 23, 1998 by and
between Internet Commerce Services Corporation and software.net
Corporation.
10.12 Amended and Restated Investors' Rights Agreement dated October 21,
1998.
23.1* Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of Attorney. Reference is made to Page II-6.
27.1 Financial Data Schedule
</TABLE>
- ----------------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
<PAGE>
EXHIBIT 1.1
CYBERSOURCE CORPORATION
( a Delaware corporation)
[ ] Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: ___________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Representations and Warranties.................................. 2
(a) Representations and Warranties by the Company................... 2
(b) Officer's Certificates.......................................... 9
SECTION 2. Sale and Delivery to Underwriters; Closing...................... 9
(a) Initial Securities.............................................. 9
(b) Option Securities............................................... 9
(c) Payment......................................................... 9
(d) Denominations; Registration..................................... 10
SECTION 3. Covenants of the Company........................................ 10
(a) Compliance with Securities Regulations and Commission Requests.. 10
(b) Filing of Amendments............................................ 11
(c) Delivery of Registration Statements............................. 11
(d) Delivery of Prospectuses........................................ 11
(e) Continued Compliance with Securities Laws....................... 11
(f) Blue Sky Qualifications......................................... 12
(g) Rule 158........................................................ 12
(h) Use of Proceeds................................................. 12
(i) Listing......................................................... 12
(j) Restriction on Sale of Securities............................... 12
(k) Reporting Requirements.......................................... 13
(l) Compliance with NASD Rules...................................... 13
SECTION 4. Payment of Expenses............................................. 13
(a) Expenses........................................................ 13
(b) Termination of Agreement........................................ 14
SECTION 5. Conditions of Underwriters' Obligations......................... 14
(a) Effectiveness of Registration Statement......................... 14
(b) Opinion of Counsel for Company.................................. 14
(c) Opinion of Counsel for Subsidiary............................... 14
(d) Opinion of Counsel for Underwriters............................. 14
(e) Officers' Certificate........................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(f) Accountant's Comfort Letter..................................... 15
(g) Bring-down Comfort Letter....................................... 15
(h) Approval of Listing............................................. 15
(i) No Objection.................................................... 15
(j) Lockup Agreements............................................... 15
(k) Conditions to Purchase of Option Securities..................... 16
(l) Additional Documents............................................ 16
(m) Termination of Agreement........................................ 16
SECTION 6. Indemnification................................................. 17
(a) Indemnification of Underwriters................................. 17
(b) Indemnification of Company, Directors and Officers.............. 18
(c) Actions against Parties; Notification........................... 18
(d) Settlement without Consent if Failure to Reimburse.............. 19
(e) Indemnification for Reserved Securities......................... 19
SECTION 7. Contribution.................................................... 20
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.. 21
SECTION 9. Termination of Agreement........................................ 21
(a) Termination; General............................................ 21
(b) Liabilities..................................................... 22
SECTION 10. Default by One or More of the Underwriters...................... 22
SECTION 11. Notices......................................................... 23
SECTION 12. Parties......................................................... 23
SECTION 13. Governing Law and Time.......................................... 23
SECTION 14. Effect of Headings.............................................. 23
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
-iii-
<PAGE>
CYBERSOURCE CORPORATION
(a Delaware corporation)
[ ] Shares of Common Stock
(Par Value $0.001 Per Share)
PURCHASE AGREEMENT
------------------
_________, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan
Paine Webber Incorporated
C.E. Unterberg, Towbin
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
CyberSource Corporation, a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
- ----------
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, J.P. Morgan, Paine Webber Incorporated and C.E.
Unterberg, Towbin are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $0.001 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
----------
grant by the Company to the Underwriters, acting severally and not jointly, of
the option described in Section 2(b) hereof to purchase all or any part of [
] additional shares of Common Stock to cover over-allotments, if any. The
aforesaid [ ] shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the [ ] shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to [ ] shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by such eligible employees and persons having business
relationships with the Company (collectively, the "Reserved Securities
Purchasers") by the end of the first business day after the date of this
Agreement, such Reserved Securities may be offered to the public as part of the
public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-[ ])
covering the registration of the Securities under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the
1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations. The information included in such
prospectus that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information." Each prospectus used before such registration
statement became effective, and any prospectus that omitted the Rule 430A
Information that was used after such effectiveness and prior to the execution
and delivery of this Agreement, is herein called a "preliminary prospectus."
Such registration statement, including the exhibits thereto and schedules
thereto, at the time it became effective and including the Rule 430A Information
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final prospectus in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the
"Prospectus." For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
---------------------------------------------
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c)
-2-
<PAGE>
hereof, and as of each Date of Delivery (if any) referred to in Section 2(b)
hereof, and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with. At the
respective times the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendments thereto became effective and at
the Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), the Registration Statement, the Rule 462(b) Registration
Statement and any amendments and supplements thereto complied and will
comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by any Underwriter through Merrill Lynch expressly for
use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(ii) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiary at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
-3-
<PAGE>
consolidated subsidiary for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected financial statements and the summary
financial information included in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Registration
Statement.
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiary considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or its subsidiary, other
than those in the ordinary course of business, which are material with
respect to the Company and its subsidiary considered as one enterprise, and
(C) there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the state of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vi) Good Standing of Subsidiary. The Company's subsidiary,
---------------------------
Cybersource International, Ltd. (the "Subsidiary"), has been duly organized
and is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not be reasonably expected to
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
the Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is owned by the Company, directly, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of the Subsidiary
was issued in violation of the preemptive or similar rights of any
securityholder of
-4-
<PAGE>
the Subsidiary. The Subsidiary is the only subsidiary of the Company. The
Subsidiary is not a "significant subsidiary" of the Company as such term is
defined in Rule 1-02 of Regulation S-X.
(vii) Capitalization. The authorized, issued and outstanding
--------------
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of options referred to in the
Prospectus). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights
of any securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The Securities
-------------------------------------------
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued and fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights of
any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
---------------------------------
its subsidiary is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or its subsidiary is a party or by which either of them
may be bound, or to which any of the property or assets of the Company or
its subsidiary is subject (collectively, "Agreements and Instruments")
except for such defaults that would not be reasonably expected to result in
a Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein
and in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds") and
compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or its
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches
-5-
<PAGE>
or defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or its subsidiary,
nor will such action result in any violation of the provisions of any
applicable law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or its subsidiary or any of
their assets, properties or operations, except for such violations of any
applicable law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company that would not result in a
Material Adverse Effect. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or its subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or the Company's subsidiary exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
its subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against the Company or its
subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof taken
as a whole or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which the
Company or its subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiary own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property")
-6-
<PAGE>
necessary to carry on the business now operated by them, and neither the
Company nor its subsidiary has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or its subsidiary therein, and which infringement
or conflict (if the subject of any unfavorable decision, ruling or finding)
or invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.
(xvi) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiary possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the
failure to possess such Governmental Licenses would not have a Material
Adverse Effect; the Company and its subsidiary are in compliance with the
terms and conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except where the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and effect
would not have a Material Adverse Effect; and neither the Company nor its
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiary have good
-----------------
and marketable title to all real property owned by the Company and its
subsidiary and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company or its subsidiary; and all of the leases and subleases material to
the business of the Company and its subsidiary, considered as one
enterprise, and under which the Company or its subsidiary holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor its subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company or
its subsidiary under any of the leases or subleases mentioned above, or
affecting
-7-
<PAGE>
or questioning the rights of the Company or such subsidiary to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xviii) Compliance with Cuba Act. The Company has complied with,
------------------------
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified as
Section 517.075 of the Florida statutes, and the rules and regulations
thereunder (collectively, the "Cuba Act") or is exempt therefrom.
(xix) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor its subsidiary is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiary have all permits, authorizations
and approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or its subsidiary and (D) there are no events or circumstances that
might reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or its
subsidiary relating to Hazardous Materials or any Environmental Laws.
(xxi) Registration Rights. There are no persons with registration
-------------------
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act, except pursuant to the Registration Rights Agreement
described in the Prospectus, which rights have been waived in writing or
which are not applicable to the offering contemplated by the Registration
Statement.
-8-
<PAGE>
(b) Officer's Certificates. Any certificate signed by any officer of the
----------------------
Company or its subsidiary delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and
------------------
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
----------
Initial Securities set forth in Schedule A opposite the name of such
----------
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
-----------------
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional [ ] shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
----------
share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a
"Date of Delivery") shall be determined by the Representatives, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
----------
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
-------
certificates for, the Initial Securities shall be made at the offices of
Morrison & Foerster LLP, or at such other place as shall be agreed upon by the
Representatives and the Company, at 10:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option
-9-
<PAGE>
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Representatives and the Company, on each Date of
Delivery as specified in the notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
---------------------------
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
--------------------------------------------------------------
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
and will notify the Representatives immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
-10-
<PAGE>
(b) Filing of Amendments. The Company will give the Representatives
--------------------
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)) or any amendment, supplement
or revision to either the prospectus included in the Registration Statement at
the time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or
-----------------------------------
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies
of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
------------------------
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
-----------------------------------------
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
-11-
<PAGE>
(f) Blue Sky Qualifications. The Company will use its best efforts, in
-----------------------
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
-------- -------
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
--------
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by it
---------------
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and maintain
-------
the quotation of the Common Stock (including the Securities) on the Nasdaq
National Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180 days from
---------------------------------
the date of this Agreement, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option outstanding on the date hereof and
referred to in the Prospectus, (C) any shares of Common Stock issued or options
to purchase Common Stock granted pursuant to existing employee benefit plans of
the Company referred to in the Prospectus or (D) any shares of Common Stock
issued pursuant to any non-employee director stock plan referred to in the
Prospectus. The Company agrees not to, without the prior written consent of
Merrill Lynch on behalf of the Underwriters, release any stockholder or
optionholder from any agreement with the
-12-
<PAGE>
Company, whether by contract or by law, whereby such person or entity has agreed
not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company for a period of up to one hundred eighty 180 days
following the commencement of the public offering of the Common Stock by the
Underwriters or otherwise.
(k) Reporting Requirements. The Company, during the period when the
----------------------
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will
--------------------------
ensure that the Reserved Securities will be restricted as required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of this Agreement. The Underwriters will notify the
Company prior to the Closing Time as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct the
transfer agent to place a stop transfer restriction upon such securities for
such period of time. Should the Company release, or seek to release, from such
restrictions any of the Reserved Securities, the Company agrees to reimburse the
Underwriters for any reasonable expenses (including, without limitation, legal
expenses) they incur in connection with such release.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay all expenses incident to the
--------
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus and of the Prospectus and any amendments or supplements
thereto, (vii) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities and (ix) the
filing fees incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the NASD of the terms of the
sale of the Securities and (x) the fees and expenses incurred in connection with
the inclusion of the Securities in the Nasdaq National Market and (xi) all costs
and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, in connection with matters
-13-
<PAGE>
related to the Reserved Securities which are designated by the Company for sale
outside of the United States to employees and others having a business
relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
------------------------
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or its subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
---------------------------------------
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A).
(b) Opinion of Counsel for Company. At Closing Time, the Representatives
------------------------------
shall have received the favorable opinion, dated as of Closing Time, of Morrison
& Foerster LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, together with signed or reproduced copies of such
letter for each of the other Underwriters to the effect set forth in Exhibit A
---------
hereto and to such further effect as counsel to the Underwriters may reasonably
request. Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon certain
officers of the Company and certificates of public officials.
(c) Opinion of Counsel for Subsidiary. At Closing Time, the
---------------------------------
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Dibb Lupton Alsop, counsel for the Subsidiary, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit B hereto and to such further effect as counsel to the Underwriters
---------
may reasonably request. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certain officers of the Subsidiary and certificates of public
officials.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
-----------------------------------
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for
the Underwriters, together with signed or reproduced
-14-
<PAGE>
copies of such letter for each of the other Underwriters with respect to the
matters set forth on Exhibit A in clauses (i), (ii), (v), (vi) (solely as to
---------
preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (viii) through (x), inclusive, (xii) (solely
as to the information in the Prospectus under "Description of Capital Stock--
Common Stock") and the penultimate paragraph of Exhibit A hereto. Such counsel
---------
may also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiary and certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have been,
---------------------
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiary considered as one enterprise, whether or not arising
in the ordinary course of business, and the Representatives shall have received
a certificate of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company, dated as of Closing
Time, to the effect that (i) there has been no such material adverse change,
(ii) the representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(f) Accountant's Comfort Letter. At the time of the execution of this
---------------------------
Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the Representatives shall
-------------------------
have received from Ernst & Young LLP a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (e) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.
(h) Approval of Listing. At Closing Time, the Securities shall have been
-------------------
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(i) No Objection. The NASD has confirmed that it has not raised any
------------
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(j) Lockup Agreements. At the date of this Agreement, the Representatives
-----------------
shall have received an agreement substantially in the form of Exhibit C hereto
---------
signed by the persons listed on Schedule C hereto.
----------
-15-
<PAGE>
(k) Conditions to Purchase of Option Securities. In the event that the
-------------------------------------------
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company or its subsidiary hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the Representatives
shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Morrison & Foerster LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(b)
hereof.
(iii) Opinion of Counsel for Subsidiary. The favorable opinion of
---------------------------------
Dibb Lupton Alsop, counsel for the Subsidiary, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(c)
hereof.
(iv) Opinion of Counsel for Underwriters. The favorable opinion of
-----------------------------------
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(d) hereof.
(v) Bring-down Comfort Letter. A letter from Ernst & Young LLP, in
-------------------------
form and substance satisfactory to the Representatives and dated such Date
of Delivery, substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(l) Additional Documents. At Closing Time and at each Date of Delivery,
--------------------
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(m) Termination of Agreement. If any condition specified in this Section
------------------------
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to
-16-
<PAGE>
the purchase of Option Securities, on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase the
relevant Option Securities, may be terminated by the Representatives by notice
to the Company at any time at or prior to Closing Time or such Date of Delivery,
as the case may be, and such termination shall be without liability of any party
to any other party except as provided in Section 4 and except that Sections 1,
6, 7 and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company agrees to indemnify and
-------------------------------
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that (x) this indemnity agreement shall not apply to any
- -------- -------
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and (y) the
-17-
<PAGE>
Company will not be liable to any Underwriter with respect to any Prospectus to
the extent that the Company shall sustain the burden of proving that any such
loss, liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of a requirement of this Agreement or applicable
law, sold Securities to a person to whom such Underwriter failed to send or
give, at or prior to the Closing Time, a copy of the Prospectus, as then amended
or supplemented if: (i) the Company has previously furnished copies thereof
(sufficiently in advance of the Closing Time to allow for distribution by the
Closing Time) to the Underwriter and the loss, liability, claim, damage or
expense of such Underwriter resulted from an untrue statement or omission of a
material fact contained in or omitted from the preliminary prospectus which was
corrected in the Prospectus as, if applicable, amended or supplemented prior to
the Closing Time and such Prospectus was required by law to be delivered at or
prior the written confirmation of sale to such person and (ii) the giving or
sending of such Prospectus by the Closing Time to the party or parties asserting
such loss, liability, claim, damage or expense would have constituted a defense
of the claim asserted by such person.
(b) Indemnification of Company, Directors and Officers. Each Underwriter
--------------------------------------------------
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if applicable,
or any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
-------------------------------------
give written notice ("Notice of Indemnification") as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with the other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the
-18-
<PAGE>
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Underwriters in
this Section 6, representing the indemnified parties who are parties to such
action or actions) or (ii) the indemnifying party does not promptly retain
counsel reasonably satisfactory to the indemnified party or (iii) the
indemnifying party has authorized in writing the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such notice
from the indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying
party. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
--------------------------------------------------
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the
date of such settlement, (i) reimburses such indemnified party in accordance
with such request for the amount of such fees and expenses of counsel as the
indemnifying party believes in good faith to be reasonable, and (ii) provides
written notice to the indemnified party that the indemnifying party disputes in
good faith the reasonableness of the unpaid balance of such fees and expenses.
(e) Indemnification for Reserved Securities. In connection with the offer
---------------------------------------
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold
-19-
<PAGE>
harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and expenses incurred by them as a result of the failure of any
of the Reserved Securities Purchasers to pay for and accept delivery of Reserved
Securities which, by the end of the first business day following the date of
this Agreement, were subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Underwriters.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any
-20-
<PAGE>
damages which such Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that it will give written notice
as promptly as reasonably practicable to the party or parties from whom
contribution may be sought of any action commenced against it in respect of
which contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under Section 6 or Section 7
hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
----------
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements in this Agreement or
- --------
in certificates of officers of the Company or its subsidiary submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
--------------------
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of
-21-
<PAGE>
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiary considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
-----------
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-
defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of
the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
-22-
<PAGE>
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at 3300 Hillview Avenue,
Suite 150, Palo Alto, California 94304, attention of Robert Quist; and notices
to the Company shall be directed to Cybersource Corporation at 550 S. Winchester
Blvd., Suite 301, San Jose, California 95128, attention of the Chief Executive
Officer.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
[Remainder of page intentionally left blank]
-23-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
CYBERSOURCE CORPORATION
By: ___________________________________
William S. McKiernan, Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
J.P. MORGAN
PAINE WEBBER INCORPORATED
C.E. UNTERBERG, TOWBIN
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ___________________________________
Authorized Signatory
Name: __________________________
Title: ___________________________
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
- ----------
<PAGE>
SCHEDULE A
----------
Number of
Name of Underwriter Initial Securities
-------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................
J.P. Morgan...............................
Paine Webber Incorporated.................
C.E. Unterberg, Towbin....................
-------
Total..................................... -------
Sch A-1
<PAGE>
SCHEDULE B
----------
CyberSource Corporation
[ ] Shares of Common Stock
(Par Value $0.001 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be [$ ].
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be [$ ] being an amount equal to the initial
public offering price set forth above less [$ ] per share; provided
that the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Sch B-1
<PAGE>
SCHEDULE C
----------
List of Persons and Entities
Subject to Lockup
Sch C-1
<PAGE>
EXHIBIT A
---------
Form of Opinion of Company's Counsel
To Be Delivered Pursuant to Section 5(b)
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual" under
the caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
options referred to in the Prospectus); the shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; and, to our knowledge, none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Company pursuant to the Purchase Agreement against payment of
the consideration set forth in the Purchase Agreement, will be validly issued
and fully paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.
(vi) To our knowledge, the issuance of the Securities is not subject
to preemptive or other similar rights of any securityholder of the Company.
(vii) The Subsidiary is not a "significant subsidiary" of the
Company as such term is defined in Rule 1-02 of Regulation S-X.
(viii) The Purchase Agreement has been duly authorized, executed
and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule
A-1
<PAGE>
424(b) has been made in the manner and within the time period required by Rule
424(b); and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement has been issued
under the 1933 Act and no proceedings for that purpose have been instituted or
are pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information, as applicable, the Prospectus
and each amendment or supplement to the Registration Statement and Prospectus as
of their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted therefrom, as to
which we need express no opinion) complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations.
(xi) To our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, not otherwise disclosed
under the heading "Legal Matters" in the Registration Statement, to which the
Company or its subsidiary is a party, or to which the property of the Company or
its subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xii) The information in the Prospectus under "Description of Capital
Stock," in the third and fourth paragraphs of "Shares Eligible" and in the
Registration Statement under Item 14, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein in all material respects.
(xiii) To our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto.
(xiv) To our knowledge, the Company is not in violation of its
charter or by-laws and no default by the Company or its subsidiary exists in the
due performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed as an exhibit to the
Registration Statement (a "Material Contract").
(xv) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no
A-2
<PAGE>
opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance
or sale of the Securities.
(xvi) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to us which is a material contract, to which the
Company or its subsidiary is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or its subsidiary is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company, or any applicable law, statute, rule, regulation, judgment, order,
writ or decree, known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties, assets or operations (except for such violations of any applicable
law, statute, rule, regulation, judgment, order, writ or decree that would not
result in a Material Adverse Effect).
(xvii) To our knowledge, there are no persons with registration
rights or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933 Act
other than those rights which are mentioned in writing in the Registration
Statement, all of which have been waived.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information (except for financial statements and schedules and other financial
data included therein or omitted therefrom, as to which we need make no
statement), at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included therein or omitted therefrom, as to which we need make
no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
A-3
<PAGE>
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall
not state that it is to be governed or qualified by, or that it is otherwise
subject to the Legal Opinion Accord of the ABA Section of Business Law (1991).
A-4
<PAGE>
EXHIBIT B
---------
Form of Opinion of the Subsidiary's Counsel
To Be Delivered Pursuant to Section 5(c)
(i) The Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the United Kingdom.
(ii) The Subsidiary has corporate power and authority to own, lease
and operate its properties and to conduct its business as currently conducted.
(iii) The Subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Subsidiary is _________ shares of Common Stock; all of the shares of issued and
outstanding capital stock of the Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable and are held of record and
beneficially owned by the Company; and, to our knowledge, none of the
outstanding shares of capital stock of the Subsidiary was issued in violation of
the preemptive or other similar rights of any securityholder of the Subsidiary.
(v) To our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation to which the Subsidiary is a
party, or to which the property of the Subsidiary is subject, before or brought
by any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof.
(vi) To our knowledge, the Subsidiary is not in violation of its
charter or by-laws and no default by the Subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument (a "Material Contract").
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Subsidiary and public officials.
A-5
<PAGE>
EXHIBIT C
---------
Form of Lockup from Directors, Officers or Other Stockholders Pursuant to
Section 5(j)
E-1
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF INTERNET COMMERCE SERVICES CORPORATION
ARTICLE I
The name of this corporation is CyberSource Corporation (hereafter the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Service Company, 1013 Centre Road, City of Wilmington, County of
New Castle, State of Delaware 19805. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware and to possess
and exercise all of the powers and privileges granted by such law.
ARTICLE IV
This Corporation is authorized to issue two classes of shares of stock,
designated "Common Stock" and "Preferred Stock." The total number of shares
that this Corporation is authorized to issue is Seventy-Five Million
(75,000,000) shares. The number of shares of Common Stock authorized is Fifty
Million (50,000,000) shares, $0.001 par value per share. The number of shares
of Preferred Stock authorized is Twenty-Five Million (25,000,000) shares, $0.001
par value per share. The holders of Common Stock shall be entitled to one vote
for each share in all matters required or permitted to be voted on by
stockholders of the Corporation.
The shares of Preferred Stock authorized by this Second Amended and
Restated Certificate of Incorporation may be issued from time to time in one or
more series. For any wholly unissued series of Preferred Stock, subject to
compliance with Section 6 of this Article IV, the Board of Directors is hereby
authorized to fix and alter the dividend rights, dividend rates, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption prices, and liquidation preferences, the number of
shares constituting any such series and the designation thereof, or any of them.
For any series of Preferred Stock having issued and outstanding shares, the
Board of Directors is hereby authorized to increase or decrease the number of
shares of such series when the number of shares of such series was originally
fixed by the Board of Directors, but such increase or decrease shall be subject
to the limitations and restrictions stated in the resolution of the Board of
Directors originally fixing the number of shares of such series. If the number
of shares of any series is so decreased. then the shares constituting such
decrease shall resume the
1
<PAGE>
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series. In no event may the number of shares of any
series be decreased to a number that is less than the number of shares of such
series then outstanding.
Section 1. Designation and Definitions:
---------------------------
(a) "Board of Directors" shall mean the Board of Directors of
this Corporation.
(b) The "Common Shares" shall mean shares of the Common
Stock.
(c) "Common Stock" shall mean this Corporation's common
stock.
(d) The "Corporation" shall mean CyberSource Corporation
(formerly known as Internet Commerce Services Corporation).
(e) There shall be five series of Preferred Stock, designated
and known as Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. The
number of shares constituting the Series A Preferred Stock (the "Series A
Preferred") shall be 1,985,520 shares. The number of shares constituting the
Series B Preferred Stock (the "Series B Preferred") shall be 2,500,000 shares.
The number of shares constituting the Series C Preferred Stock (the "Series C
Preferred") shall be 3,000,000 shares. The number of shares constituting the
Series D Preferred Stock (the "Series D Preferred") shall be 1,851,852 shares.
The number of shares constituting the Series E Preferred Stock (the "Series E
Preferred") shall be 14,700,000. Subject to compliance with Section 6 of this
Article IV, the Board of Directors may issue the remaining undesignated
Preferred Stock in one or more series as permitted by this Second Amended and
Restated Certificate of Incorporation. The Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred are
referred to herein from time to time collectively as the "Preferred Stock."
Section 2. Dividends.
---------
(a) The holders of outstanding Series A Preferred shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of $0.0064 per share of Series A Preferred per annum (the "Series A
Dividend"), which shall be payable pari passu with the Series B Dividend (as
defined in subsection (b) below), the Series C Dividend (as defined in
subsection (c) below), the Series D Dividend (as defined in subsection (d)
below) and the Series E Dividend (as defined in subsection (e) below) before any
dividend or distribution (other than pursuant to Section 5) is paid on Common
Stock. The Series A Dividend may be payable annually or otherwise as the Board
of Directors may from time to time determine provided that the Series B
Dividend, Series C Dividend, Series D Dividend and Series E Dividend are also
paid at such time.
2
<PAGE>
(b) The holders of outstanding Series B Preferred shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.0432 per share of Series B Preferred per annum
(the "Noncumulative Series B Dividend"), plus (ii) for each month since the
Series B Original Issue Date (as defined in Section 4(d)), $0.00252 (as adjusted
for any stock dividends, combinations or splits with respect to such shares) per
share of Series B Preferred (the "Cumulative Series B Dividend" and together
with the Noncumulative Series B Dividend, the "Series B Dividend"), which shall
be payable pari passu with the Series A Dividend, Series C Dividend, Series D
Dividend and Series E Dividend before any dividend or distribution (other than
pursuant to Section 5) is paid on Common Stock. The Series B Dividend may be
payable annually or otherwise as the Board of Directors may from time to time
determine provided that the Series A Dividend, Series C Dividend, Series D
Dividend and Series E Dividend are also paid at such time. Any amounts paid with
respect to the Series B Dividend in any fiscal year shall be applied first to
the Noncumulative Series B Dividend due for that fiscal year, second to any
Cumulative Series B Dividends due for any previous fiscal year or period, and
third to the most recently accumulated Cumulative Series B Dividend.
(c) The holders of outstanding Series C Preferred shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.03264 per share of Series C Preferred per annum
(the "Noncumulative Series C Dividend"), plus (ii) for each month since the
Series C Original Issue Date (as defined in Section 4(d)), $0.001904 (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per share of Series C Preferred (the "Cumulative Series C Dividend" and
together with the Noncumulative Series C Dividend, the "Series C Dividend"),
which shall be payable pari passu with the Series A Dividend, Series B Dividend,
Series D Dividend and Series E Dividend before any dividend or distribution
(other than pursuant to Section 5) is paid on Common Stock. The Series C
Dividend may be payable annually or otherwise as the Board of Directors may from
time to time determine provided that the Series A Dividend, Series B Dividend,
Series D Dividend and Series E Dividend are also paid at such time. Any amounts
paid with respect to the Series C Dividend in any fiscal year shall be applied
first to the Noncumulative Series C Dividend due for that fiscal year, second to
any Cumulative Series C Dividend due for any previous fiscal year or period, and
third to the most recently accumulated Cumulative Series C Dividend.
(d) The holders of outstanding Series D Preferred shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $.108 per share of Series D Preferred per annum
(the "Noncumulative Series D Dividend"), plus (ii) for each month since the
Series D Original Issue Date (as defined in Section 4(d)), $.0063 (as adjusted
for any stock dividends, combinations or splits with respect to such shares) per
share of Series D Preferred (the "Cumulative Series D Dividend" and together
with the Noncumulative Series D Dividend, the "Series D Dividend"), which shall
be payable pari passu with the Series A Dividend, Series B Dividend, Series C
Dividend and Series E Dividend before any dividend or distribution (other than
pursuant to Section 5) is paid on Common Stock. The Series D Dividend may be
payable
3
<PAGE>
annually or otherwise as the Board of Directors may from time to time determine
provided that the Series A Dividend, Series B Dividend, Series C Dividend and
Series E Dividend are also paid at such time. Any amounts paid with respect to
the Series D Dividend in any fiscal year shall be applied first to the
Noncumulative Series D Dividend due for that fiscal year, second to any
Cumulative Series D Dividend due for any previous fiscal year or period, and
third to the most recently accumulated Cumulative Series D Dividend.
(e) The holders of outstanding Series E Preferred shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.181 per share of Series E Preferred per annum
(the "Noncumulative Series E Dividend"), plus (ii) for each month since the
Series E Original Issue Date (as defined in Section 4(d)), $0.0106 (as adjusted
for any stock dividends, combinations or splits with respect to such shares) per
share of Series E Preferred (the "Cumulative Series E Dividend" and together
with the Noncumulative Series E Dividend, the "Series E Dividend"), which shall
be payable pari passu with the Series A Dividend, Series B Dividend, Series C
Dividend and Series D Dividend before any dividend or distribution (other than
pursuant to Section 5) is paid on Common Stock. The Series E Dividend may be
payable annually or otherwise as the Board of Directors may from time to time
determine provided that the Series A Dividend, Series B Dividend, Series C
Dividend and Series D Dividend are also paid at such time. Any amounts paid with
respect to the Series E Dividend in any fiscal year shall be applied first to
the Noncumulative Series E Dividend due for that fiscal year, second to any
Cumulative Series E Dividend due for any previous fiscal year or period, and
third to the most recently accumulated Cumulative Series E Dividend.
(f) Dividends or distributions (other than dividends payable
solely in shares of Common Stock or distributions pursuant to Section 5) of up
to $0.03264 per share may be declared and paid upon shares of Common Stock in
any fiscal year of the Corporation only if the Series A Dividend, Series B
Dividend, Series C Dividend, Series D Dividend and Series E Dividend has been
declared and paid in such year. After dividends or distributions of $0.03264 per
share have been declared and paid on the Common Stock in any fiscal year, all
further dividends and distributions during such fiscal year shall be distributed
among the holders of the Common Stock, the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E 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 Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, then held by them.
(g) The right to the Series A Dividend, Noncumulative Series
B Dividend, Noncumulative Series C Dividend, Noncumulative Series D Dividend and
Noncumulative Series E Dividend shall not be cumulative and no right shall
accrue to holders of shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred by reason of the fact that
such dividends on said shares are not declared in any prior year, nor shall any
undeclared or unpaid dividend bear or accrue interest. The Cumulative Series B
Dividend, Cumulative Series C Dividend, Cumulative Series D Dividend and
Cumulative
4
<PAGE>
Series E Dividend shall be cumulative, whether or not earned or declared, on a
daily basis from the Series B Original Issue Date, Series C Original Issue Date,
Series D Original Issue Date and Series E Original Issue Date, respectively,
provided that such Cumulative Series B Dividend, Cumulative Series C Dividend,
Cumulative Series D Dividend and Cumulative Series E Dividend shall be payable
as dividends only as declared by the Board of Directors (but will be paid upon
liquidation, dissolution or winding up of the Corporation under Section 5 below
or upon redemption under Section 9 below regardless of whether declared by the
Board of Directors); provided further that no portion of the Noncumulative
Series B Dividend, Noncumulative Series C Dividend, Noncumulative Series D
Dividend or Noncumulative Series E Dividend shall be applied to or against the
Cumulative Series B Dividend, Cumulative Series C Dividend, Cumulative Series D
Dividend or Cumulative Series E Dividend, respectively.
(h) Each holder of Preferred Stock shall be deemed to have
consented, for purposes of Sections 160 and 170-174 of the General Corporation
Law of the State of Delaware, to distributions made by this Corporation in
connection with the repurchase of shares of Common Stock issued to or held by
employees of, or consultants to, this Corporation upon termination of their
employment or services pursuant to agreements providing for such repurchase.
Section 3. Voting.
------
(a) Each holder of Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock into which such
holder's shares of Preferred Stock could be converted on the record date for the
vote or consent of stockholders and shall have voting rights and powers equal to
the voting rights and powers of the Common Stock. The holder of each share of
Preferred Stock shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation and shall vote together as a
single class with holders of the Common Stock upon any matter submitted to a
vote of stockholders, except with respect to (i) those matters required by law
to be submitted to a class or series vote and (ii) the election of directors (in
respect of which the rights of the holders of Preferred Stock are set forth in
Sections 3(b) and 3(c) hereof). Fractional votes by the holders of Preferred
Stock shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number.
(b) The number of directors shall be set as provided in the
Bylaws of the Corporation. So long as any shares of Series A Preferred remain
outstanding, the holders of the Series A Preferred outstanding, voting together
as a class, shall be entitled to elect one (1) director. So long as any shares
of Series B Preferred remain outstanding, the holders of the Series B Preferred
outstanding, voting together as a class, shall be entitled to elect one (1)
director. So long as any shares of Series C Preferred and Series D Preferred
remain outstanding, the holders of the Series C Preferred and Series D Preferred
outstanding, voting together as a class, shall be entitled to elect one (1)
director. The holders of Common Stock voting together as a class, shall be
entitled to elect three (3) directors.
5
<PAGE>
(c) In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred or Common Stock
pursuant to Section 3(b) hereof, the remaining director or directors so elected
by the holders of the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred, or Common Stock as the case may be, may, by affirmative
vote thereof (or the remaining director so elected if there is but one, or if
there is no such director remaining, by the vote of the shares of the applicable
class or series) elect a successor or successors to hold the office for the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred, or
Common Stock or any director so elected as provided in the preceding sentence
hereof, may be removed during the aforesaid term of office only by the vote of
the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, or Common Stock, as the case may be, provided that the shares voted
against removal would not be sufficient to elect the director with cumulative
voting.
(d) Sections 3 (b) and 3 (c) above shall be void and of no
effect thereafter upon the occurrence of any of the following events:
(i) the consummation of the Corporation's Initial
Registered Public Offering (as defined in Section 4(b)(i) hereof); and
(ii) upon the distribution to the stockholders pursuant
to Section 5 of the net proceeds of the sale of all or substantially all the
assets of the Corporation.
Section 4. Preferred Stock Conversion.
--------------------------
The holders of Preferred Stock shall have conversion rights as follows (the
"Conversion Rights");
(a) Right to Convert. Each share of Series A 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 $0.064 by the Series A Conversion
Price, 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 the Series A Preferred (the "Series
A Conversion Price") shall initially be $0.032 per share of Common Stock. Such
initial Series A Conversion Price shall be adjusted as hereinafter provided.
Each share of Series B 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 $0.432 by the Series B Conversion Price, 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 the Series B Preferred (the "Series B Conversion
6
<PAGE>
Price") shall initially be $0.216 of Common Stock. Such initial Series B
Conversion Price shall be adjusted as hereinafter provided. Each share of Series
C 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 $0.3264 by the
Series C Conversion Price, 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 the Series C
Preferred (the "Series C Conversion Price") shall initially be $0.3264 per share
of Common Stock. Such initial Series C Conversion Price shall be adjusted as
hereinafter provided. Each share of 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 $1.08 by the Series D Conversion Price, 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 the Series D Preferred (the "Series D Conversion Price")
shall initially be $1.08 per share of Common Stock. Such initial Series D
Conversion Price shall be adjusted as hereinafter provided. Each share of Series
E 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 $1.81 by the
Series E Conversion Price, 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 the Series E
Preferred, (the "Series E Conversion Price") shall initially be $1.81 per share
of Common Stock. Such initial Series E Conversion Price shall be adjusted as
hereinafter provided.
(b) Automatic Conversion.
--------------------
(i) Each share of Series A Preferred shall automatically
be converted without any action on the part of the Corporation or the holders of
Series A Preferred Stock into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $0.064 by the Series A Conversion
Price, determined as hereinafter provided, in effect on the date of the
occurrence of the earliest to occur of the following events:
(A) immediately prior to the consummation of the
Corporation's initial formal commitment underwritten public offering of common
stock under the Securities Act of 1933, as amended (the "Securities Act"),
provided that such offering is made at least $3.50 per share (after adjustments
for any stock splits or stock dividends) and results in $15,000,000 or more in
gross proceeds to the Corporation (the "Initial Registered Public Offering"); or
7
<PAGE>
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least two-thirds of
the Series A Preferred then outstanding.
(ii) Each share of Series B Preferred shall automatically be
converted, without any action on the part of the Corporation or the holders of
Series B Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $0.432 by the Series B
Conversion Price, determined as hereinafter provided, in effect on the date of
the occurrence of the earliest to occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least two-thirds of
the Series B Preferred then outstanding.
(iii) Each share of Series C Preferred shall automatically be
converted, without any action on the part of the Corporation or the holders of
Series C Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $0.3264 by the Series C
Conversion Price, determined as hereinafter provided, in effect on the date of
the occurrence of the earliest to occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least two-thirds of
the Series C Preferred then outstanding.
(iv) Each share of Series D Preferred shall automatically be
converted, without any action on the part of the Corporation or the holders of
Series D Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1.08 by the Series D
Conversion Price, determined as hereinafter provided, in effect on the date of
the occurrence of the earliest to occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least two-thirds of
the Series D Preferred then outstanding.
(v) Each share of Series E Preferred shall automatically be
converted, without any action on the part of the Corporation or the holders of
Series E Preferred
8
<PAGE>
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.81 by the Series E Conversion Price, determined
as hereinafter provided, in effect on the date of the occurrence of the earliest
to occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least two-thirds of
the Series E Preferred then outstanding.
(c) Mechanics of Conversion.
-----------------------
(i) Before any holder of Preferred Stock 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 Preferred Stock, or to the nominee or nominees of such
holder, 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 Preferred Stock 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 a voluntary 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 Preferred Stock
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 the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) Adjustments to Series A Conversion Price, Series B Conversion Price,
-------------------------------------------------------------------
Series C Conversion Price, Series D Conversion Price and Series E Conversion
- ----------------------------------------------------------------------------
Price for Certain Diluting Issues.
- ---------------------------------
(i) Special Definitions. For purposes of this Section 4(d), the
-------------------
following definitions apply:
(A) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible Securities
(defined below).
9
<PAGE>
(B) "Series B Original Issue Date" shall mean the first date
of issuance of a share of Series B Preferred Stock.
(C) "Series C Original Issue Date" shall mean the first date
of issuance of a share of Series C Preferred Stock.
(D) "Series D Original Issue Date" shall mean March 18, 1998.
(E) "Series E Original Issue Date" shall mean the first date
of issuance of Series E Preferred Stock.
(F) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred) or
other securities convertible into or exchangeable for Common Stock.
(G) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued)
by the Corporation after the Series E Original Issue Date, other than shares of
Common Stock issued or issuable as follows:
(1) upon conversion of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred;
(2) up to 3,800,000 shares, subject to adjustment for all
stock splits, stock dividends, subdivisions and combinations of shares of Common
Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued) to
employees, officers, directors and consultants of the Corporation pursuant to
the Corporation's stock option, purchase or similar plans in effect on the
Series E Original Issue Date or shares issued pursuant to stock options
otherwise issued to employees, officers, directors or consultants of the
Corporation as approved by the Corporation's Board of Directors;
(3) (or pursuant to Section 4(d)(iii), deemed to be
issued) to employees, officers, directors and consultants of the Corporation
after such shares have been reacquired (upon the termination or expiration of
Options or otherwise) from such persons upon the termination of their
relationship with the Corporation; provided that such reacquired and reissued
shares are not issued (or pursuant to Section 4(d)(iii), deemed to be issued)
for consideration which is less than the consideration per share for which the
shares previously issued were reacquired or at which the shares deemed to be
issued (pursuant to Section 4(d)(iii)) and reacquired (upon the termination or
expiration of Options or otherwise) were deemed to be issued;
(4) as a dividend or distribution on the Preferred Stock;
10
<PAGE>
(5) pursuant to Section 4(e) for the purpose of adjusting
the Series A Conversion Price, Series B Conversion Price, the Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price; or
(6) pursuant to warrants or other securities issued in
connection with any commercial loan, commercial lease obtained or equipment
leasing transaction or nonfinancing commercial transaction undertaken by the
Corporation with a non-affiliated third party and approved by the director
elected by the holders of the Series A Preferred, the director elected by the
holders of the Series B Preferred, and the director elected by the holders of
the Series C Preferred and the Series D Preferred.
(ii) No Adjustment of Conversion Price. Any provision herein
---------------------------------
to the contrary notwithstanding, no adjustment in the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price
or Series E 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 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, Series D
Conversion Price or Series E Conversion Price, respectively, in effect on the
date of, and immediately prior to, such issuance.
(iii) Deemed Issuance of Additional Share of Common Stock. In
---------------------------------------------------
the event the Corporation at any time or from time to time after the Series E
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, 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:
(A) no further adjustments in the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price, as the case may be, 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;
(B) 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, Series D Conversion
11
<PAGE>
Price or Series E Conversion Price, as the case may be, 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 he 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, Series D Conversion Price or Series E Conversion Price, as the
case may be, shall affect the Common Stock previously issued upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be);
(C) 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, Series B Conversion Price, Series
C Conversion Price, Series D Conversion Price or Series E Conversion Price, as
the case may be, 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:
(1) 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 which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) 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 4(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price, as the case may be, to an amount which exceeds the lower of
(1) the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price as the
case may be, on the original adjustment date, or (2) the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price or Series E
12
<PAGE>
Conversion Price, as the case may be, that would have resulted from any issuance
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date;
(E) 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, Series D Conversion Price, or Series E 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 (C) above.
(iv) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. In the event this Corporation, at any time
- ---------------------------------
after the Series E Original Issue Date, shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4(d)(iii)), without consideration or for a consideration per share
less than the Series A Conversion Price in effect on such date of and
immediately prior to such issuance, then and in such event, the Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Series A Preferred actually issued and 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 Series A Conversion
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number of shares of Series A Preferred actually issued and
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. In the event this Corporation, at any time
after the Series E Original Issue Date, shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4(d)(iii)), without consideration or for a consideration per share
less than the Series B Conversion Price in effect on such date of and
immediately prior to such issuance, then and in such event, the Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Series B Preferred actually issued and 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 Series B Conversion
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number of shares of Series B Preferred actually issued and
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. In the event this Corporation, at any time
after the Series E Original Issue Date, shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4(d)(iii)), without consideration or for a consideration per share
less than the Series C Conversion Price in effect on such date of and
immediately prior to such issuance, then and in such event, the Series C
Conversion Price shall be reduced concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price
13
<PAGE>
by a fraction, the numerator of which shall be the number of shares of Series C
Preferred actually issued and 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 Series C Conversion Price in effect immediately
prior to such issuance, and the denominator of which shall be the number of
shares of Series C Preferred actually issued and outstanding immediately prior
to such issue plus the number of such Additional Shares of Common Stock so
issued. In the event this Corporation, at any time after the Series D Original
Issue Date, shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)),
without consideration or for a consideration per share less than the Series D
Conversion Price in effect on such date of and immediately prior to such
issuance, then and in such event, the Series D Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series D Conversion Price by a fraction,
the numerator of which shall be the number of shares of Series D Preferred
actually issued and 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 Series D Conversion Price in effect immediately prior to
such issuance, and the denominator of which shall be the number of shares of
Series D Preferred actually issued and outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued. In
the event this Corporation, at any time after the Series E Original Issue Date,
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 4(d)(iii)), without
consideration or for a consideration per share less than the Series E Conversion
Price in effect on such date of and immediately prior to such issuance, then and
in such event, the Series E Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Series E Conversion Price by a fraction, the numerator of which
shall be the number of shares of Series E Preferred actually issued and
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 Series E Conversion Price in effect immediately prior to such issuance, and
the denominator of which shall be the number of shares of Series E Preferred
actually issued and outstanding immediately prior to such issue plus the number
of such Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) 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;
14
<PAGE>
(2) 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
(3) in the event Additional Shares of Common
Stock are issued together with other shares 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 (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) 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 4(d)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(1) 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
(2) 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 dilution) issuable upon
the exercise of such Options or conversion or exchange of such Convertible
Securities.
(e) Adjustments for Stock Dividends, Subdivisions, or Split-ups of
--------------------------------------------------------------
Common Stock. If the number of shares of Common Stock outstanding at any time
- ------------
after the Series E Original Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, effective at the close of business upon the record date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Series A Conversion Price, the Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price and
Series E Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred shall be increased in proportion to such increase of outstanding
shares of Common Stock.
(f) Adjustments for Combinations of Common Stock. If the number of
--------------------------------------------
shares of Common Stock outstanding at any time after the Series E Original Issue
Date is decreased by a combination of the outstanding shares of Common Stock,
then, effective at the close of business upon the record date of such
combination, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, the Series D Conversion Price and Series
15
<PAGE>
E Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(g) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4(g) with respect to the rights of the holders of the
Preferred Stock.
(h) Adjustments for Reorganizations, Reclassifications, etc. If the
-------------------------------------------------------
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock or other securities or property, whether by reclassification, a merger or
consolidation of this Corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of this
Corporation (but only if the stockholders of this Corporation hold more than 50%
of the outstanding voting equity securities of the surviving corporation in such
merger, consolidation or sale of assets reorganization), or otherwise (other
than a subdivision or combination of shares provided for above or a merger or
other transaction referred to in Section 5(f) below), the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price and Series E Conversion Price then in effect, concurrently with the
effectiveness of such reorganization or reclassification, shall be
proportionately adjusted such that the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred 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 or securities or other property equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Preferred Stock immediately before such
event; and, in any such case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of the
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price and Series E Conversion Price) shall thereafter be applicable,
as nearly as may be reasonable, In relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred Stock.
16
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(i) No Impairment. The Corporation will not, except by a
-------------
properly approved amendment of its Second Amended and Restated Certificate of
Incorporation, 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 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 the Preferred Stock against
impairment.
(j) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or the Series E
Conversion Price pursuant to this Section 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 Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred, as applicable, a certificate executed by the Corporation's President
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
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (1) such adjustments and readjustments, (2) the Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series
D Conversion Price or the Series E Conversion Price, as applicable, at the time
in effect, and (3) 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 the
Preferred Stock.
(k) Notices of Record Date. In the event that the Corporation
----------------------
shall propose at any time: (a) to declare any special dividend or distribution
upon its Common Stock, whether in cash, property, stock or other securities,
whether or not out of earnings or earned surplus; (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 its Common Stock outstanding involving a
change in the Common Stock; or (d) to merge or consolidate with or into any
other corporation (other than a mere reincorporation transaction), 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 Preferred Stock:
(i) 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 (c) and (d) above; and
(ii) in the case of the matters referred to in (c) and (d)
above at least twenty (20) days' prior written notice of the date when the same
shall take place (and
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<PAGE>
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).
(l) 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 the Preferred Stock 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.
(m) Reservation of Stock 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 then-outstanding shares of the Preferred Stock, 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 the Preferred Stock; 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 the
Preferred Stock, 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 its best efforts to obtain
the requisite stockholder and director approval of any necessary amendment to
the Second Amended and Restated Certificate of Incorporation.
(n) Fractional Shares. No fractional share shall be issued upon
-----------------
the conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining 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).
(o) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed effectively given upon personal delivery (professional courier
permissible) or three (3) business days after deposit in the United States mail,
postage prepaid, and addressed to each holder of record at his or its address
appearing on the books of the Corporation.
Section 5. Liquidation Preferences.
-----------------------
(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 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 Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred or Common Stock or any other shares of this corporation other
than
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<PAGE>
Series A Preferred by reason of their ownership thereof, the amount of
$0.064 (as adjusted for any stock dividends, combinations or splits with respect
to such shares), plus all declared or accrued but unpaid, dividends on such
share, for each share of Series A Preferred then held by them. If upon the
occurrence of such event, the assets and funds legally available for
distribution to the holders of the Series A 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 the Series A
Preferred in proportion to the preferential amount each such holder is otherwise
entitled to receive.
(b) After the payment to the holders of the Series A Preferred
of the amounts set forth in Section 5(a) above, the holders of the Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
be entitled to receive, respectively, 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 or any other shares of this corporation other than
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred by reason of their ownership thereof, the amount equal to the sum of
(i) $0.432 per share for the holders of Series B Preferred (as adjusted for any
stock dividends, combinations or splits with respect to such shares), $0.3264
per share for the holders of Series C Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares), $1.08 for the
holders of Series D Preferred (as adjusted for any stock dividends, combinations
or splits with respect to such shares) and $1.81 for the holders of Series E
Preferred (as adjusted for any stock dividends, combinations or splits with
respect to such shares); plus (ii) all declared or accrued but unpaid dividends
and all unpaid Cumulative Series B Dividends, with respect to Series B
Preferred, Cumulative Series C Dividends, with respect to Series C Preferred,
Cumulative Series D Dividends, with respect to Series D Preferred and Cumulative
Series E Dividends, with respect to Series E Preferred, on such shares. If upon
the occurrence of such event, the assets and funds legally available for
distribution to the holders of the Series B Preferred, Series C Preferred,
Series D Preferred and Series E 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
after the payment to the holders of the Series A Preferred of the amounts set
forth in Section 5(a) above shall be distributed ratably among the holders of
the Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred in proportion to the preferential amount each such holder is otherwise
entitled to receive.
(c) In the event of any liquidation or winding up of the
Corporation (as defined below), where the available assets and funds of the
Corporation upon such liquidation or winding up exceed $21.4 Million (a
"Qualifying Liquidation"), after the payment to the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred of the amounts set forth in Sections 5(a) and 5(b) respectively, the
holders of the Common Stock 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 other capital stock of the Corporation by
reason of their ownership thereof, an aggregate distribution equal to $2,030,992
with each holder of Common Stock participating on a pro rata basis based on the
number of
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<PAGE>
shares of Common Stock they own. If upon the occurrence of such event, the
assets and funds legally available for distribution to the holders of the Common
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid amount, then all assets and funds of the Corporation legally available
for distribution after the payment to the holders of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred of the amounts set forth above in Sections 5(a) and 5(b),
respectively, shall be distributed ratably among the holders of the Common Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
(d) In the event of a liquidation or winding up other than a
Qualifying Liquidation, after the payment to the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred of the amounts set forth above in Sections 5(a) and 5(b),
respectively, the holders of the Common Stock 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 other capital stock of the
Corporation by reason of their ownership thereof, an aggregate distribution
equal to $1,051,792 with each holder of Common Stock participating on a pro rata
basis based on the number of shares of Common Stock they own. If upon the
occurrence of such event, the assets and funds legally available for
distribution to the holders of the Common Stock shall be insufficient to permit
the payment to such holders of the full aforesaid amount, then all assets and
funds of the Corporation legally available for distribution after the payment to
the holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred of the amounts set forth above in
Sections 5(a) and 5(b) respectively, shall be distributed ratably among the
holders of the Common Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(e) After payments to (i) the holders of the Series A Preferred
of the amounts set forth in Section 5(a) above, and (ii) the holders of the
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred set forth in Section 5(b) above, and (iii) the holders of the Common
Stock of the amounts set forth in Section 5(c) or 5(d) above, as the case may
be, 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, the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E 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 Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred then
held by them.
(f) A merger of the Corporation with or into any other
corporation or corporations (other than a mere reincorporation transaction), a
sale of all or substantially all of the assets of the Corporation or a
transaction or series of related transactions (other than a public offering of
the Corporation's securities) in which the Corporation issues shares
representing more than 50% of the voting power of the Corporation immediately
after giving effect to such transaction, shall be treated as a liquidation,
dissolution or winding up for purposes of this Section 5; provided however, if
holders of a majority of the issued and outstanding shares of
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<PAGE>
Series A Preferred. Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, respectively, elect to waive such treatment with respect
to any transaction, such transaction shall not be treated as a liquidation,
dissolution or winding up for purposes of this Section 5 with respect to the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, as the case may be. In making distributions to the
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred and Common Stock upon any such event, the amount
of securities or other non-cash assets will be distributed pro rata based on the
amounts to be distributed to the holders of Series A Preferred, the Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Common
Stock. Any securities to be delivered to the holders of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
and Common Stock pursuant to such event shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or reported
on a national inter dealer quotation system, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the 30 day
period ending three (3) days prior to the closing;
(B) If actively traded over the counter and not
reported on a national inter dealer quotation system, the value shall be deemed
to be the average of the closing bid prices over the 30 day period ending three
(3) days prior to the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i)(A), (B)
or (C) to reflect the approximate fair market value thereof, as determined in
good faith by the Board of Directors.
(g) In the event of a transaction (or series of related
transactions) to be treated as a liquidation pursuant to this Section 5, the
Corporation shall give each holder of record of Preferred Stock written notice
of such impending transaction not later than twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such action, whichever is earlier, and shall also notify
such holders in writing of the final approval of such action. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 5, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein provided, however, that such periods
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<PAGE>
may be shortened upon the written consent of the holders of a majority of the
shares of Preferred Stock, voting together as one class for this purpose.
Section 6. Protective Provisions.
---------------------
(a) In addition to any other rights provided by law, so long as
any share of Series A Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series A Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the
rights, privileges or preferences of the Series A Preferred, including without
limitation (A) increasing or decreasing the aggregate number of authorized
shares of such series other than an increase incident to a stock split, (B)
effecting an exchange, reclassification or cancellation of all or part of the
shares of such series, other than a stock split, and (C) effecting an exchange,
or creating a right of exchange, of all or part of the shares of another class
into the shares of such class;
(ii) Take any action which creates any new class or series
of shares having any right, preference, priority or power superior to or on a
parity with any such right, preference, priority or power of the Series A
Preferred; or
(iii) Except as provided elsewhere in this Second Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as in
effect on the date hereof, redeem, purchase or otherwise acquire any of the
Preferred Stock or Common Stock; provided, however, that this restriction shall
not apply to the repurchase of shares of Common Stock in accordance with
Sections 160 and 170-174 of the General Corporation Law of the State of Delaware
from employees, officers, directors, consultants or other persons performing
services for the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase, provided that such
repurchase does not impair the redemption rights of the holders of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred set forth in Section 9 hereof.
(b) In addition to any other rights provided by law, so long as
any share of Series B Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series B Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the
rights, privileges or preferences of the Series B Preferred, including without
limitation (A) increasing or decreasing the aggregate number of authorized
shares of such series other than an increase incident to a stock split, (B)
effecting an exchange, reclassification or cancellation of all or part of the
shares of such series, other than a stock split, and (C) effecting an exchange,
or creating a right of exchange, of all or part of the shares of another class
into the shares of such class;
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<PAGE>
(ii) Take any action which creates any new class or series
of shares having any right, preference, priority or power superior to or on a
parity with any such right, preference, priority or power of the Series B
Preferred;
(iii) Except as provided elsewhere in this Second Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as in
effect on the Series B Original Issue Date, redeem, purchase or otherwise
acquire any of the Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock in
accordance with Sections 160 and 170-174 of the General Corporation Law of the
State of Delaware from employees, officers, directors, consultants or other
persons performing services for the Corporation upon termination of their
employment or services pursuant to agreements providing for such repurchase,
provided that such repurchase does not impair the redemption rights of the
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred set forth in Section 9 hereof; or
(iv) Issue any shares of Series B Preferred at any time
following the thirtieth day following the Series B Original Issue Date.
(c) In addition to any other rights provided by law, so long as
any share of Series C Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series C Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the
rights, privileges or preferences of the Series C Preferred so as to materially
and adversely affect such shares, including without limitation (A) increasing or
decreasing the aggregate number of authorized shares of Series C Preferred other
than an increase incident to a stock split, (B) effecting an exchange,
reclassification or cancellation of all or part of the shares of such series,
other than a stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares of such
class;
(ii) Take any action which creates or issues any class or
series of shares having any right, preference, priority or power superior to or
on a parity with any such right, preference, priority or power of the Series C
Preferred;
(iii) Except as provided elsewhere in this Second Amended and
Restated Certificate of Incorporation or the Corporation's Bylaws as in effect
on the Series C Original Issue Date, redeem, purchase or otherwise acquire any
of the Preferred Stock or Common Stock; provided, however, that this restriction
shall not apply to the repurchase of shares of Common Stock in accordance with
Sections 160 and 170-174 of the General Corporation Law of the State of Delaware
from employees, officers, directors, consultants or other persons performing
services for the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase, provided that such
repurchase does not impair the redemption rights of the
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<PAGE>
(iv) Pay or declare dividends on the Preferred Stock or
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock in accordance with Sections 160 and 170-174
of the General Corporation Law of the State of Delaware from employees,
officers, directors, consultants or other persons performing services for the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase, provided that such repurchase does not
impair the redemption rights of the holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred set
forth in Section 9 hereof, or
(v) Change the number of directors.
(d) In addition to any other rights provided by law, so long
as any share of Series D Preferred shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of the majority of the outstanding shares of Series D Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the
rights, privileges or preferences of the Series D Preferred so as to materially
and adversely affect such shares, including without limitation (A) increasing or
decreasing the aggregate number of authorized shares of Series D Preferred other
than an increase incident to a stock split, (B) effecting an exchange,
reclassification or cancellation of all or part of the shares of such series,
other than a stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares of such
class;
(ii) Take any action which creates or issues any class or
series of shares having any right, preference, priority or power superior to or
on a parity with any such right, preference, priority or power of the Series D
Preferred;
(iii) Except as provided elsewhere in this Second Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as in
effect on the Series D Original Issue Date, redeem, purchase or otherwise
acquire any of the Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock in
accordance with Sections 160 and 170-174 of the General Corporation Law of the
State of Delaware from employees, officers, directors, consultants or other
persons performing services for the Corporation upon termination of their
employment or services pursuant to agreements providing for such repurchase,
provided that such repurchase does not impair the redemption rights of the
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred set forth in Section 9 hereof; or
(iv) Pay or declare dividends on the Preferred Stock or
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock in accordance with Sections 160 and 170-174
of the General Corporation Law of the State of Delaware from employees,
officers, directors, consultants or other persons performing services for the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase, provided that such repurchase
24
<PAGE>
does not impair the redemption rights of the holders of Series A Preferred,
Series B Preferred, Series C Preferred , Series D Preferred or Series E
Preferred set forth in Section 9 hereof, or
(v) Change the number of directors.
(e) In addition to any other rights provided by law, so long
as any share of Series E Preferred shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of the majority of the outstanding shares of Series E Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the
rights, privileges or preferences of the Series E Preferred so as to materially
and adversely affect such shares, including without limitation (A) increasing or
decreasing the aggregate number of authorized shares of Series E Preferred other
than an increase incident to a stock split, (B) effecting an exchange,
reclassification or cancellation of all or part of the shares of such series,
other than a stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares of such
class;
(ii) Take any action which creates or issues any class
or series of shares having any right, preference, priority or power superior to
or on a parity with any such right, preference, priority or power of the Series
E Preferred;
(iii) Except as provided elsewhere in this Second Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as in
effect on the Series E Original Issue Date, redeem, purchase or otherwise
acquire any of the Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock in
accordance with Sections 160 and 170-174 of the General Corporation Law of the
State of Delaware from employees, officers, directors, consultants or other
persons performing services for the Corporation upon termination of their
employment or services pursuant to agreements providing for such repurchase,
provided that such repurchase does not impair the redemption rights of the
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred set forth in Section 9 hereof; or
(iv) Pay or declare dividends on the Preferred Stock or
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock in accordance with Sections 160 and 170-174
of the General Corporation Law of the State of Delaware from employees,
officers, directors, consultants or other persons performing services for the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase, provided that such repurchase does not
impair the redemption rights of the holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred set
forth in Section 9 hereof.
Section 7. No Reissuance of Preferred Stock.
--------------------------------
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<PAGE>
(a) No share or shares of Series A Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series A Preferred.
(b) No share or shares of Series B Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series B Preferred.
(c) No share or shares of Series C Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series C Preferred.
(d) No share or shares of Series D Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series D Preferred.
(e) No share or shares of Series E Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series E Preferred.
Section 8. Right of First Refusal.
----------------------
(a) Except as set forth in Section 8(d) below, if, at any time
after the Series E Original Issue Date, the Corporation shall propose to sell to
any persons in a transaction not registered under the Securities Act any Equity
Securities (as hereinafter defmed), it shall give the holders of the Preferred
Stock the right to purchase all such Equity Securities and each holder may
purchase his or its pro rata share (which proportion shall be equal to (x) the
number of shares of Common Stock issued or issuable upon conversion of the
Preferred Stock held by such holder of Preferred Stock divided by (y) the number
of shares of Common Stock issued or issuable upon conversion of all of the
issued and outstanding Preferred Stock) of such privately offered Equity
Securities on the same terms and conditions as the Corporation is offering such
Equity Securities to such other persons. Prior to any sale or issuance by the
Corporation of any Equity Securities subject to this right of first offer, the
Corporation shall notify the holders of the Preferred Stock, in writing, of its
intention to sell and issue such Equity Securities, setting forth the terms
under which it proposes to make such sale. Within ten (10) business days after
receipt
26
<PAGE>
of such notice, the holders of the Preferred Stock shall notify the Corporation
as to whether they desire to purchase any or all of their pro rata share of such
Equity Securities for the price and on the general terms specified in the
notice. In the event any holder of Preferred Stock elects not to purchase such
holder's pro rata share of such Equity Securities, the Company shall notify the
remaining holders within five (5) business days of such notice and the remaining
holders of Preferred Stock shall have the right to purchase their pro rata share
of such available shares on the terms described above. Within five (5) business
days following receipt of such notice, the remaining holders of the Preferred
Stock shall notify the Corporation of the number of such Equity Securities it
chooses to purchase. (In the event that such shares are over subscribed, each
holder of Preferred Stock shall be entitled to purchase on a pro-rata basis.)
All such notifications by the holders of the Preferred Stock to the Corporation
shall be irrevocable, binding commitments to purchase such Equity Securities.
(b) If, following the expiration of the notice periods set
forth above, the holders of the Preferred Stock have not notified the
Corporation that they desire to purchase all of the Equity Securities described
in such notice upon the terms and conditions set forth in such notice, the
Corporation may, during a period of one hundred twenty (120) days following the
end of such fifteen (15) business day period, sell and issue such Equity
Securities which the holders of Preferred Stock have not elected to purchase at
a price and upon terms and conditions no more favorable to such investors than
those set forth in such notice.
(c) If the holders of the Preferred Stock elect to purchase all
of the Equity Securities offered by the Corporation, the holders of the
Preferred Stock shall pay for them by check against delivery of the securities
at the executive offices of the Corporation at the time of the scheduled closing
therefor. The Corporation shall take all such action (except registration under
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as may be reasonably required by any regulatory authority in
connection with the exercise by the holders of the Preferred Stock of the right
to purchase Equity Securities as set forth herein.
(d) The right of first refusal contained in (a), above, shall
not apply to (i) securities offered to the public in an underwritten offering
pursuant to a registration statement filed under the Securities Act, (ii)
securities issued pursuant to the acquisition of another company by the
Corporation by merger, purchase of substantially all of the assets, or other
reorganization, (iii) up to 3,800,000 shares of the Common Stock (or related
options) subject to adjustment for all stock splits, stock dividends,
subdivisions and combinations of shares of Common Stock issued (or pursuant to
Section 4(d)(iii), deemed to be issued) to employees, officers, consultants or
directors of the Corporation pursuant to the Corporation's stock option,
purchase or similar plans in effect on the Series E Original Issue Date or
shares issued pursuant to stock options otherwise issued to employees, officers,
directors or consultants of the Corporation as approved by the Board of
Directors, (iv) shares issued in connection with any stock split, stock dividend
or other similar recapitalization by the Corporation, (v) shares issued upon
conversion of Preferred Stock or upon the exercise of any Convertible Security,
option or warrant which was itself an Equity Security, or (vi) any shares of
Common Stock issued pursuant
27
<PAGE>
to warrants or other securities issued in connection with any commercial loan,
commercial lease obtained or equipment leasing transaction or nonfinancing
commercial transaction undertaken by the Corporation with a non-affiliated third
party and approved by the director elected by the holders of the Series A
Preferred, the director elected by the holders of the Series B Preferred and the
director elected by the holders of the Series C Preferred and the Series D
Preferred.
(e) The term "Equity Securities" shall mean any security having
voting rights in the election of the Board of Directors not contingent upon
default and any security convertible into or exchangeable for the foregoing.
(f) The rights set forth in this Section 8 shall terminate
immediately prior to the closing of the Corporation's Initial Registered Public
Offering.
Section 9. Redemption.
----------
(a) At any time after January 5, 2000 at the election of
holders of a majority of the then outstanding shares of Series A Preferred, the
Corporation shall promptly, if it may lawfully do so, from any source of funds
legally available therefor, redeem all, but not less than all, of the Series A
Preferred by paying in cash therefor a sum equal to $0.12 for each share of
Series A Preferred (as adjusted for any stock dividends, combinations or splits
with respect to such shares)(the "Series A Redemption Price").
(b) The Corporation shall give each holder of Series A
Preferred notice of the date fixed for redemption ("Series A Redemption Date").
On or after the Series A Redemption Date, the Series A Redemption Price of
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the Series A Redemption Date,
unless there shall have been a default in payment of the Series A Redemption
Price, all rights of the holders of such shares as holders of Series A Preferred
of the Corporation (except the right to receive the applicable Series A
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) At any time after the sixth anniversary of the Series B
Original Issue Date, at the election of holders of a majority of the then
outstanding shares of Series B Preferred, the Corporation shall commencing not
less than ninety (90) days after the receipt by the Corporation of such election
in the manner set forth in subsection (d) below, if it may lawfully do so, from
any source of funds legally available therefor, redeem all, but not less than
all, of the Series B Preferred by paying in cash therefor a sum equal to the sum
of (i) $0.432 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares), plus (ii) all declared or accrued but
unpaid dividends and all unpaid Cumulative Series B Dividends on such shares
(the "Series B Redemption Price").
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<PAGE>
(d) The Series B Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series B
Preferred notice of the dates fixed for redemption ("Series B Redemption
Dates"). On or after each Series B Redemption Date, the Series B Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series B Redemption
Date, unless there shall have been a default in payment of the Series B
Redemption Price, all rights of the holders of such shares as holders of Series
B Preferred of the Corporation (except the right to receive the applicable
Series B Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
(e) At any time after the sixth anniversary of the Series B
Original Issue Date, at the election of holders of at least two-thirds (2/3) of
the then outstanding shares of Series C Preferred, the Corporation shall
commencing not less than ninety (90) days after the receipt by the Corporation
of such election in the manner set forth in subsection (f) below, if it may
lawfully do so, from any source of funds legally available therefor, redeem all,
but not less than all, of the Series C Preferred by paying in cash therefor a
sum equal to the sum of (i) $0.3264 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares), plus (ii) all
declared or accrued but unpaid dividends and all unpaid Cumulative Series C
dividends on such shares (the "Series C Redemption Price").
(f) The Series C Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series C
Preferred notice of the dates fixed for redemption ("Series C Redemption
Dates"). On or after each Series C Redemption Date, the Series C Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series C Redemption
Date, unless there shall have been a default in payment of the Series C
Redemption Price, all rights of the holders of such shares as holders of Series
C Preferred of the Corporation (except the right to receive the applicable
Series C Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
(g) At any time after the sixth anniversary of the Series B
Original Issue Date, at the election of holders of at least two-thirds (2/3) of
the then outstanding shares of Series D Preferred, the Corporation shall
commencing not less than ninety (90) days after the receipt by the Corporation
of such election in the manner set forth in subsection (h) below, if it may
lawfully do so, from any source of funds legally available therefor, redeem all,
but not less than all, of the Series D Preferred by paying in cash therefor a
sum equal to the sum of (i) $ 1.08
29
<PAGE>
per share (as adjusted for any stock dividends, combinations or splits with
respect to such shares), plus (ii) all declared or accrued but unpaid dividends
and all unpaid Cumulative Series D Dividends on such shares (the "Series D
Redemption Price").
(h) The Series D Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series D
Preferred notice of the dates fixed for redemption ("Series D Redemption
Dates"). On or after each Series D Redemption Date, the Series D Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series D Redemption
Date, unless there shall have been a default in payment of the Series D
Redemption Price, all rights of the holders of such shares as holders of Series
D Preferred of the Corporation (except the right to receive the applicable
Series D Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
(i) At any time after the sixth anniversary of the Series B
Original Issue Date, at the election of holders of at least two-thirds (2/3) of
the then outstanding shares of Series E Preferred, the Corporation shall
commencing not less than ninety (90) days after the receipt by the Corporation
of such election in the manner set forth in subsection (g) below, if it may
lawfully do so, from any source of funds legally available therefor, redeem all,
but not less than all, of the Series E Preferred by paying in cash therefor a
sum equal to the sum of (i) $1.81 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares), plus (ii) all
declared or accrued but unpaid dividends and all unpaid Cumulative Series E
Dividends on such shares (the "Series E Redemption Price").
(j) The Series E Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series E
Preferred notice of the dates fixed for redemption ("Series E Redemption
Dates"). On or after each Series E Redemption Date, the Series E Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series E Redemption
Date, unless there shall have been a default in payment of the Series E
Redemption Price, all rights of the holders of such shares as holders of Series
E Preferred of the Corporation (except the right to receive the applicable
Series E Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
ARTICLE V
The Corporation is to have perpetual existence.
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<PAGE>
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
ARTICLE IX
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment.
[Remainder of this page intentionally left blank]
31
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IN WITNESS WHEREOF, Internet Commerce Services Corporation, a Delaware
corporation (to be renamed "CyberSource Corporation" after the filing of this
Second Amended and Restated Certificate of Incorporation), has caused this
Second Amended and Restatement of Certificate of Incorporation to be signed by
its President and attested by its Secretary, this 21th day of October, 1998.
----------------------------------
William S. McKiernan
President
Attest:
----------------------------------
Richard Scudellari
Secretary
32
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
INTERNET COMMERCE SERVICES CORPORATION,
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I OFFICES............................................................................................................... 1
Section 1. Registered Office................................................................................................... 1
Section 2. Other Offices....................................................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS............................................................................................. 1
Section 1. Place of Meetings................................................................................................... 1
Section 2. Annual Meeting...................................................................................................... 1
Section 3. Special Meeting.................................................................................................... 1
Section 4. Notice of Stockholders' Meetings................................................................................... 2
Section 5. List of Stockholders Entitled to Vote.............................................................................. 2
Section 6. Quorum............................................................................................................. 3
Section 7. Adjourned Meeting; Notice.......................................................................................... 3
Section 8. Voting............................................................................................................. 3
Section 9. Waiver of Notice or Consent by Absent Stockholders................................................................. 4
Section 10. Stockholder Action by Written Consent Without a Meeting............................................................ 4
Section 11. Record Date for Stockholder Notice, Voting, and Giving Consents.................................................... 5
Section 12. Proxies............................................................................................................ 6
Section 13. Inspectors of Election............................................................................................. 6
ARTICLE III DIRECTORS........................................................................................................... 7
Section 1. Powers............................................................................................................. 7
Section 2. Number and Qualification of Directors.............................................................................. 7
Section 3. Election and Term of Office of Directors........................................................................... 7
Section 4. Vacancies.......................................................................................................... 8
Section 5. Place of Meetings.................................................................................................. 8
Section 6. Annual Meeting..................................................................................................... 8
Section 7. Other Regular Meetings............................................................................................. 8
Section 8. Special Meetings................................................................................................... 8
Section 9. Quorum............................................................................................................. 9
Section 10. Waiver of Notice................................................................................................... 9
Section 11. Action Without Meeting............................................................................................. 9
Section 12. Telephonic Meetings................................................................................................ 9
Section 13. Fees and Compensation of Directors................................................................................. 10
ARTICLE IV COMMITTEES........................................................................................................... 10
Section 1. Committees of Directors............................................................................................ 10
Section 2. Meetings and Action of Committees.................................................................................. 10
ARTICLE V OFFICERS.............................................................................................................. 11
Section 1. Officers........................................................................................................... 11
Section 2. Election of Officers............................................................................................... 11
Section 3. Subordinate Officers............................................................................................... 11
Section 4. Removal and Resignation of Officers................................................................................ 11
Section 5. Vacancies in Offices............................................................................................... 11
Section 6. Chairman of the Board.............................................................................................. 11
Section 7. President.......................................................................................................... 11
Section 8. Vice Presidents.................................................................................................... 12
Section 9. Secretary.......................................................................................................... 12
Section 10. Chief Financial Officer............................................................................................ 12
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.................................................. 13
Section 1. Right to Indemnification........................................................................................... 13
Section 2. Prepayment of Expenses............................................................................................. 13
</TABLE>
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<TABLE>
<S> <C>
Section 3. Claims............................................................................................................. 13
Section 4. Non-Exclusivity of Rights.......................................................................................... 13
Section 5. Indemnification of Employees and Agents of the Corporation......................................................... 14
Section 6. Other Indemnification.............................................................................................. 14
Section 7. Amendment or Repeal................................................................................................ 14
ARTICLE VII RECORDS AND REPORTS................................................................................................. 14
Section 1. Form of Records.................................................................................................... 14
Section 2. Inspection by Stockholders......................................................................................... 14
Section 3. Inspection by Directors............................................................................................ 14
ARTICLE VIII GENERAL CORPORATE MATTERS.......................................................................................... 15
Section 1. Certificates for Shares............................................................................................ 15
Section 2. Lost Certificates.................................................................................................. 15
Section 3. Registered Stockholders............................................................................................ 15
Section 4. Representation of Shares of Other Corporations..................................................................... 15
Section 5. Construction and Definitions....................................................................................... 16
ARTICLE IX AMENDMENTS.......................................................................................................... 16
Section 1. Amendment by Stockholders.......................................................................................... 16
Section 2. Amendment by Directors............................................................................................. 16
ARTICLE X RESTRICTIONS ON TRANSFER OF SHARES................................................................................... 16
Section 1. Restrictions on Transfer of Shares................................................................................. 16
</TABLE>
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<PAGE>
BYLAWS OF
INTERNET COMMERCE SERVICES CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The address of the registered office of the
-----------------
corporation is Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle, State of Delaware 19805. The location of the
registered office may be changed from time to time to another location within
the State of Delaware by resolution of the Board of Directors.
Section 2. Other Offices. The corporation may also have offices at such other
-------------
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at any
-----------------
place within or outside the State of Delaware designated either by the Board of
Directors or the president (if not contrary to any action taken by the Board of
Directors). In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the corporation in the City
of San Jose, State of California.
Section 2. Annual Meeting. The annual meeting of stockholders of the
--------------
corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings, shall be held on
the second Monday in March (or the next business day if such date is a holiday),
at 10:00 a.m., or at such other time and place as the Board of Directors shall
determine by resolution.
Section 3. Special Meeting. A special meeting of the stockholders may be
---------------
called for any purpose or purposes at any time by the Board of Directors, or by
the chairman of the board, or by the president, the chief executive officer or
by one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting, but such special
meetings may not be called by any other person or persons.
If a special meeting is called by any person or persons other than the Board-of
Directors, the chairman of the board, the president or the chief executive
officer, the request shall be in writing, specifying the time of such meeting
(such time to be not less than thirty-five (35) nor more than sixty (60) days
after the receipt of the request) and the general nature of the business
proposed to be transacted, and shall be delivered personally or sent by
registered
1
<PAGE>
mail or by telegraphic or other facsimile transmission to the chairman of the
board, the president, any vice president, or the secretary of the corporation.
The officer receiving the request shall cause notice to be given promptly to the
stockholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article 11, that a meeting will be held at the time requested by
the person or persons calling the meeting.
Section 4. Notice of Stockholders' Meetings. All notices of meetings of
--------------------------------
stockholders shall specify the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice. Unless otherwise provided by law,
the certificate of incorporation or these bylaws, the written notice of any
annual or special meeting of stockholders shall be given to each Stockholder of
record entitled to vote not less than ten (10) nor more than sixty (60) days
before the date of the meeting. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the corporation.
If action is proposed to be taken at any meeting for approval of an amendment of
the certificate of incorporation, pursuant to Section 242 of the Delaware
Corporation Law, the notice shall set forth such amendment in full or a brief
summary of the changes to be effected thereby, as the directors shall deem
advisable.
If action is proposed to be taken at any meeting for approval of an agreement
relating to any merger or consolidation, pursuant to Section 251 -of the
Delaware Corporation Law, the notice shall be mailed to each stockholder at
least twenty (20) days prior to the date of the meeting. The notice shall
contain a copy of the agreement or a brief summary thereof, as the directors
shall deem advisable.
An affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 5. List of Stockholders Entitled to Vote. The officer who has charge
-------------------------------------
of the stock ledger of the corporation shall prepare and make, at least ten (10)
days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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<PAGE>
Section 6. Quorum. The presence in person or by proxy of the holders of a
------
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting; Notice. Any stockholders' meeting, annual or
-------------------------
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than thirty (30) days from the date set for the original
meeting, in which case the Board of Directors shall set a new record date. When
a new record date is fixed in accordance with the preceding sentence, notice of
any such adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of Section 4
of this Article II. At any adjourned meeting at which a quorum is present or
represented the corporation may transact any business which might have been
transacted at the original meeting.
Section 8. Voting. Unless otherwise provided in the certificate of
------
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power upon the matter in question held by such stockholder, but no
proxy shall be voted on or after three years from its date, unless the proxy
provides for a longer period.
Shares of its own capital stock belonging to the corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by such
corporation, shall not be entitled to vote nor be counted for quorum purposes.
Shares of the corporation which have been called for redemption shall not be
entitled to vote and shall not be deemed to be outstanding shares for purposes
of determining the total number of shares entitled to vote on any matter on and
after the date on which written notice of redemption has been sent to holders
thereof and a sum sufficient to redeem such shares has been irrevocably
deposited or set aside to pay the redemption price to the holders of the shares
upon surrender of certificates therefor.
Any holder of shares entitled to vote on any matter may vote a part of the
shares in favor of the proposal and refrain from voting the remaining shares or,
except when the matter is the election of directors, vote them against the
proposal, but, if the stockholder fails to specify the number of shares which
the stockholder is voting affirmatively, it will be conclusively
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<PAGE>
presumed that the stockholder's approving vote is with respect to all shares
that the stockholder is entitled to vote.
At all meetings of stockholders for the election of directors a plurality of the
votes cast shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by law, the certificate of incorporation or
these bylaws, be decided by the vote of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all shares of stock
entitled to vote thereon which are present in person or represented by proxy at
the meeting.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The transaction
--------------------------------------------------
of any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid, as though transacted at a meeting
duly held after regular call and notice, if a quorum be present either in person
or by proxy, and if, either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes.
Such waiver, consent or approval need not specify either the business to be
transacted or the purpose of any annual or special meeting of stockholders,
unless so provided by the certificate of incorporation or these bylaws. All
such waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of notice of
and presence at that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by law to
be included in the notice of the meeting but not so included if that objection
is expressly made at the meeting.
Section 10. Stockholder Action by Written Consent Without a Meeting. Any
-------------------------------------------------------
action which may be taken at an annual or special meeting of stockholders may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. All such consents shall be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded.
Any stockholder giving a written consent, or the stockholder's proxy holder, or
a transferee of the shares or a personal representative of the stockholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been delivered to the
corporation. Prompt notice of the taking of the corporate action without a
4
<PAGE>
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Every written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days after the
date of the earliest dated consent delivered to the corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the corporation in the manner prescribed in the first paragraph of
this Section.
Section 11. Record Date for Stockholder Notice, Voting, and Giving Consents.
---------------------------------------------------------------
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action without a 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 stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date:
(a) In the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty (60) nor less than ten (10) days before
the date of such meeting;
(b) In the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten (10) days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors; and
(c) In the case of other action, shall not be more than sixty (60)
days prior to such other action.
If no record date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held;
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action of the Board of Directors is required by law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation in accordance with applicable law, or if
prior action by the Board of Directors is required by law, shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action; and
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(c) The record date for determining stockholders 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.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 12. Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation.
Section 13. Inspectors of Election. The corporation shall, in advance of any
----------------------
meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting and make a written report thereof. The corporation may designate one
(1) or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the chairman of the meeting may appoint one or more inspectors to
act at the meeting. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of such his or
her ability.
These inspectors shall:
(a) Ascertain the number of shares outstanding and the voting
power of each;
(b) Determine the shares represented at the meeting and the
validity of proxies and ballots;
(c) Count all votes and ballots;
(d) Determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors;
(e) Certify the determination of the number of shares represented
at the meeting, and the count of all votes and ballots; and
(f) Do any other acts that may be proper to conduct the election
or vote with fairness to all stockholders.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties.
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ARTICLE III
DIRECTORS
Section 1. Powers. The business of the corporation shall be managed by or
------
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders. Without prejudice to these general
powers, and subject to the same limitations, the directors shall have the power
to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the certificate of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office from one location to another; cause the corporation to be qualified to
do business in any state, territory, dependency, or country and conduct
business within or without the State of Delaware; and designate any place
within or without the State of Delaware for the holding of any stockholders'
meeting, or meetings, including annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, for such consideration as permitted by law.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidence of debt and securities.
Section 2. Number and Qualification of Directors. The number of directors of
-------------------------------------
the corporation shall be not less than one (1) nor more than seven (7). The
exact number of directors shall be six (6) until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by the Board
of Directors or by the stockholders. The indefinite number of directors may be
changed, or a definite number fixed without provision for an indefinite number,
by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw duly adopted by the vote or written consent of the Board
of Directors or by the holders of a majority of the outstanding shares entitled
to vote. Directors need not be stockholders.
Section 3. Election and Term of Office of Directors. Directors shall be
----------------------------------------
elected at each annual meeting of the stockholders, but if any such annual
meeting is not held, or the directors are not elected thereat, the directors may
be elected at any special meeting of the
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stockholders held for that purpose. All directors shall hold office until the
expiration of the term for which elected and until their respective successors
are elected, except in the case of death, resignation or removal of any
director.
Section 4. Vacancies. Vacancies and newly created directorships resulting from
---------
any increase in the authorized number of directors may be filled by a majority
of the remaining members of the Board of Directors, although such majority is
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the expiration of the term for which elected and until
their successors are duly elected and shall qualify, unless sooner displaced.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in the
event of the death, resignation, or removal of any director, or if the
authorized number of directors is increased, or if the stockholders fail, at any
meeting of stockholders at which any director or directors are elected, to elect
the number of directors to be voted for at that meeting. Any director may
resign at any time upon giving written notice to the corporation. Any such
resignation shall take effect on the date of receipt of that notice or at such
later date as specified in the resignation, and, unless otherwise specified in
the resignation, acceptance of the registration shall not be necessary to make
it effective. The entire Board of Directors or any individual director may be
removed from office, prior to the expiration of their or his term of office only
in the manner and within the limitations provided by the General Corporation Law
of Delaware
Section 5. Place of Meetings. Meetings of the Board of Directors may be held
-----------------
at any place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not so stated or if there is no notice, by
resolution of the board or by the chairman of the board or by the president (if
not contrary to any action taken by the Board of Directors). In the absence of
such a designation, meetings shall be held at the principal executive office of
the corporation.
Section 6. Annual Meeting. Immediately following each annual meeting of
--------------
stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. Other Regular Meetings. Other regular meetings of the Board of
----------------------
Directors shall be held without call at such time as shall from time to time be
fixed by resolution of the Board of Directors. Such regular meetings may be
held without notice.
Section 8. Special Meetings. Special meetings of the Board of Directors for
----------------
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or secretary or any two directors.
[Notice of the time and place of special meetings shall be delivered personally
or by telephone or facsimile to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of
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the meeting. In case the notice is delivered personally, or by telephone,
facsimile or telegram, it shall be delivered personally, or by telephone,
facsimile or to the telegraph company, at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director.] The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. Quorum. At all meetings of the Board of Directors a majority of the
------
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
provided by the provisions of Section 144 of the General Corporation Law of
Delaware (as to approval of contracts or transactions in which a director has a
financial interest), Section 141(c) of the General Corporation Law of Delaware
(as to appointment of committees), the certificate of incorporation, these
bylaws, or other applicable law. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
Section 10. Waiver of Notice. Notice of a meeting need not be given to any
----------------
director who signs a waiver of notice 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,
the lack of notice to said director. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the Board of Directors.
Section 11. Action Without Meeting. Unless otherwise restricted by the
----------------------
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the board or committee, as the
case may be, shall individually or collectively consent in writing to that
action. Such action by written consent shall have the same force and effect as
a unanimous vote of the Board of Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board or committee.
Section 12. Telephonic Meetings. Members of the Board of Directors, or any
-------------------
committee designated by the Board of Directors, may participate in a meeting
thereof by means of, conference telephone or similar communication equipment, so
long as all persons participating in the meeting can hear one another, and all
such persons shall be deemed to be present in person at the meeting.
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Section 13. Fees and Compensation of Directors. Directors and members of
----------------------------------
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. This Section 13 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. Committees of Directors. The Board of Directors may, by resolution
-----------------------
adopted by a majority of the whole Board of Directors, designate one or more
committees, each consisting of one or more directors, to serve at the pleasure
of the board. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any committee, to the extent provided in the resolution of the board, shall have
and may exercise all the powers and authority of the board in the management of
the business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, it shall not have the power
or authority to declare a dividend to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
Section 2. Meetings and Action of Committees. Meetings and actions of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the Board of Directors and its members, except that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
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ARTICLE V
OFFICERS
Section 1. Officers. The officers of the corporation shall be a president, a
--------
secretary and a chief financial officer. The corporation may also have, at the
discretion of the Board of Directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.
Section 2. Election of Officers. The officers of the corporation, except such
--------------------
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Directors, and each
shall serve at the pleasure of the board, subject to the rights, if any, of an
officer under any contract of employment.
Section 3. Subordinate Officers. The Board of Directors may appoint, and may
--------------------
empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
Board of Directors may from time to time determine.
Section 4. Removal and Resignation of Officers. Subject to the rights, if any,
-----------------------------------
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting of the board, or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the corporation.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to that office.
Section 6. Chairman of the Board. The chairman of the board, if such an
---------------------
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. President. Subject to such supervisory powers, if any, as may be
---------
given by the Board of Directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the Board
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of Directors, have general supervision, direction, and control of the business
and the officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence of the chairman of the board, or if there be
none, at all meetings of the Board of Directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or the bvlaws.
Section 8. Vice Presidents. In the absence or disability of the president, the
---------------
vice presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a vice president designated by the Board of
Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the bylaws, and the president, or the chairman of the
board.
Section 9. Secretary. The secretary shall keep or cause to be kept, at the
---------
principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of the directors,
committees of directors, and stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings.
The secretary shall keep, or cause to be kept, at the principal executive office
or at the office of the corporation's transfer agent or registrar, as determined
by resolution of the Board of Directors, a share register, or a duplicate share
register, showing the names of all stockholders and their addresses, the number
and classes of shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors required by the bylaws or by law to
be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the bylaws.
Section 10. Chief Financial Officer. The chief financial officer shall keep
-----------------------
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
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corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. Right to Indemnification. The corporation shall indemnify and hold
------------------------
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment) any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding") by reason of the fact
that he, or a person for whom he is the legal representative, is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the corporation.
Section 2. Prepayment of Expenses. The corporation shall pay the expenses
----------------------
incurred in defending any proceeding in advance of its final disposition,
provided, however, that the payment of expenses incurred by a director or
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise. The corporation
shall be required to pay or advance expenses in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board of
Directors of the corporation.
Section 3. Claims. If a claim for indemnification or payment of expenses under
------
this Article is not paid in full within sixty days (60) after a written claim
therefor has been received by the corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 4. Non-Exclusivity of Rights. The rights conferred on any person by
-------------------------
this Article VI shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the certificate of
incorporation, these bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
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Section 5. Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the corporation.
Section 6. Other Indemnification. The corporation's obligation, if any, to
---------------------
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise.
Section 7. Amendment or Repeal. Any repeal or modification of the foregoing
-------------------
provisions of this Article VI shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
Section 1. Form of Records. Any records maintained by the corporation in the
---------------
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
Section 2. Inspection by Stockholders. Any stockholder, in person or by
--------------------------
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of stockholders,
and its other books and records, and to make copies or extracts therefrom. A
proper purpose shall mean a purpose reasonably related to such person's interest
as a stockholder. In every instance where an attorney or other agent shall be
the person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or other such writing which authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
shall be directed to the corporation at its registered office in Delaware or at
its principal place of business.
Section 3. Inspection by Directors. Any director shall have the right to
-----------------------
examine the corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to his position as a
director.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. Certificates for Shares. Every holder of stock shall be entitled to
-----------------------
have a certificate signed by or in the name of the corporation by the chairman
or vice chairman of the Board of Directors, if any, or the president or a vice
president, and by chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary, of the corporation, certifying the number
of shares owned by such stockholder in the corporation. Any of or all the
signatures on the certificate may be a 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 such officer, transfer agent or
registrar at the date of issue.
The Board of Directors may authorize the issuance of shares as partly paid and
subject to call for the remainder of the consideration to be paid therefor;
provided that upon the face or back of each certificate issued to represent any
such partly paid shares or upon the books and records of the corporation in the
case of uncertificated partly paid shares, the total amount of the consideration
to be paid therefor and the amount paid thereon shall be stated. Upon the
declaration of any dividend on fully paid shares, the corporation shall declare
a dividend upon partly paid shares of the same class, but only upon the basis of
the percentage of the consideration actually paid thereon.
Section 2. Lost Certificates. Except as provided in this Section 2, no new
-----------------
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and canceled at the same time. The
Board of Directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 3. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Section 4. Representation of Shares of Other Corporations. The chairman of the
----------------------------------------------
board, the president, or any vice president, or any other person authorized by
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or
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domestic, standing in the name of the corporation. The authority granted to
these officers to vote or represent on behalf of the corporation any and all
shares held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by a proxy duly executed by these officers.
Section 5. Construction and Definitions. Unless the context requires
----------------------------
otherwise, the general provisions, rules of construction, and definitions in the
General Corporation Law of Delaware shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. Amendment by Stockholders. New bylaws may be adopted or these
-------------------------
bylaws may be amended or repealed by the vote or written assent of stockholders
entitled to exercise a majority of the voting power of the corporation, except
as otherwise provided by law or by the certificate of incorporation.
Section 2. Amendment by Directors. Subject to the rights of the stockholders
----------------------
as provided in Section 1 of this Article IX, to adopt, amend, or repeal bylaws,
bylaws may be adopted, amended, or repealed by the Board of Directors.
ARTICLE X
RESTRICTIONS ON TRANSFER OF SHARES
Section 1. Restrictions on Transfer of Shares. The sale or transfer of shares
----------------------------------
of the corporation by any of the holders thereof is restricted as follows:
Before there can be a valid sale or transfer, except as hereinafter provided, of
any of the shares of the corporation by any holder thereof to any person or
entity, the holder of the shares to be sold or transferred shall first give
notice (the "notice") in writing to the secretary of the corporation of his
intention to sell or transfer such shares. The notice shall specify the
proposed purchaser or purchasers, the number of shares to be sold or
transferred, the price per share, and the terms upon which the holder intends to
make such sale or transfer. In the event that the consideration to be received
by the transferor is other than cash, the notice shall fully describe such
consideration and state the fair market value thereof. The corporation, at its
option and at the transferor's expense, may require the transferor to have the
fair market value of such consideration determined by an independent appraiser
selected by the corporation. In the case of a noncash consideration, the price
per share shall be based upon the fair market value of the consideration as
stated in the notice, unless the corporation exercises its option to require the
aforementioned independent appraisal, in which case the price per share shall be
based upon such independently appraised fair market value.
16
<PAGE>
A sale or transfer shall be deemed to have occurred for the purpose of this
Article X whenever any interest in any share of stock of the corporation is
transferred voluntarily, involuntarily or by operation of law, irrespective of
whether any change in the record ownership results therefrom and without regard
to whether or not any consideration is received for such transfer. The
following are the only sales or transfers excluded from the provisions of this
Article X: transfers by bequest, intestate succession or gift to the spouse,
lineal descendants, brothers or sisters, ancestors, or adopted children, or to
the spouses or adopted children of the lineal descendants, brothers or sisters,
ancestors, or adopted children, or to the spouses or adopted children of the
lineal descendants, brothers or sisters or ancestors, of the holder of the
shares to be transferred, or to any custodian or trustee for the account of such
persons. A sale or transfer which is so excluded from the provisions of this
Article X shall not remove those shares so transferred from the restrictions
contained herein and any subsequent sale or transfer shall be subject to, and
comply in all respects with, said restrictions.
The corporation shall have the prior right to purchase the shares referred to in
the notice at the price and upon the terms and conditions stated in the notice.
The corporation may elect to purchase any portion or all of the shares referred
to in the notice at the price and upon the terms and conditions stated therein.
If none or only a portion of the shares referred to in the notice are elected to
be purchased by the corporation in the foregoing manner, the shareholders who
were holders of record of the corporation on the date the notice was received by
the secretary of the corporation shall have the right to purchase the shares
referred to in the notice which the corporation has not elected to purchase at
the price and upon the terms and conditions stated in the notice and in
accordance with the following provisions. The secretary of the corporation
shall, within ten (10) days after receiving the notice, mail or deliver a copy
thereof, and a statement of the number of shares, if any, which the corporation
has elected to purchase thereunder, to each of the other shareholders of the
corporation who were holders of record on the date the notice was received by
the secretary. The notice and statement may be delivered to such shareholders
personally or may be mailed to them at their last known address as the same may
appear on the books of the corporation. Within twenty (20) days after the
notice and statement are mailed or delivered to such shareholders, each
shareholder who desires to acquire any part or all of the shares referred to in
the notice, and which the corporation has not elected to purchase, shall deliver
by mail or otherwise to the secretary of the corporation a written offer to
purchase a specific number of such shares at the price and upon the terms and
conditions stated in the notice.
If the total number of shares specified in all such shareholder offers exceeds
the number of shares referred to in the notice and statement and available for
purchase by the shareholders, each offering shareholder shall be entitled to
purchase such proportion of the shares so referred to as the number of shares of
the corporation which he held of record on the date the notice was received by
the secretary bears to the total number of shares held of record by all offering
shareholders on the date the notice was received by the secretary.
If all of the shares referred to in the notice and statement are not disposed of
under such apportionment, each offering shareholder desiring to purchase shares
in a number in excess
17
<PAGE>
of his proportionate share, as provided above, shall be entitled to purchase
such proportion of the shares which remain thus undisposed of as the total
number of shares which he held of record on the date the notice was received by
the secretary bears to the total number of shares held of record on the date the
notice was received by the secretary by all shareholders who desire to purchase
shares in excess of those to which they are entitled under such apportionment.
After receipt of the offering shareholder(s)' notice(s), to the extent that all
of the shares referred to in the transferor's notice and statement are not
disposed of under the preceding provisions, the corporation shall have the right
to increase the number of said shares it has elected to purchase.
Within forty (40) days after the notice is mailed or delivered to the secretary,
the corporation shall deliver, by mail or otherwise, to the shareholder giving
such notice a written statement of the number of shares referred to in the
notice which the corporation and/or the shareholders have elected to purchase.
If (i) none or only a part of the shares referred to in the notice are
contracted for in the foregoing manner within the aforesaid forty (40) day
period, or (ii) prior to the expiration of the aforesaid forty (40) day period,
the holders of two-thirds (2/3) or more of the shares of the corporation on the
date the notice was received by the secretary file with the secretary their
consent in writing that such sale or transfer be made as proposed in the notice
and waive their right to acquire such shares as hereinabove provided, then the
shareholder desiring to sell or transfer shares may, within a period of ninety
(90) days after the date of the notice, sell or transfer to the proposed
purchaser or purchasers all or any part of the shares referred to in the notice;
provided, however, that he shall not sell or transfer any such shares at a lower
price or on terms or conditions more favorable to the purchaser or transferee
than those specified in the notice. If the shareholder desiring to sell or
transfer shares does not sell or transfer all shares referred to in the notice
within the aforesaid ninety (90) day period, the shares which remain thus
undisposed shall become again subject to the restrictions imposed by this
Article X.
Any sale or transfer, or purported sale or transfer, of shares of the
corporation shall be null and void unless made in accordance with the terms,
conditions and provisions of this Article X.
18
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of INTERNET COMMERCE
SERVICES CORPORATION, a Delaware corporation; and,
2. That the foregoing bylaws, comprising eighteen (18) pages, constitute
the bylaws
of said corporation as duly adopted by the Board of Directors of the
corporation on December __, 1999.
IN WITNESS WHEREOF, I have hereto subscribed my name this ____ day of
_____________, 1999.
------------------------------------
Richard Scudellari, Secretary
19
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of ______________ ___,
1999, by and between CyberSource Corporation, a Delaware corporation (the
"Company"), and __________________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims currently being asserted against directors and
officers of corporations;
WHEREAS, the Certificate of Incorporation and Bylaws of the Company
require the Company to indemnify and advance expenses to its directors and
officers to the fullest extent permitted under Delaware law, and the Indemnitee
has been serving and continues to serve as a director and/or officer of the
Company in part in reliance on the Company's Certificate of Incorporation and
Bylaws; and
WHEREAS, in recognition of Indemnitee's need for (i) substantial
protection against personal liability based on Indemnitee's reliance on the
aforesaid Certificate of Incorporation and Bylaws, (ii) specific contractual
assurance that the protection promised by the Certificate of Incorporation and
Bylaws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of the Certificate of Incorporation and Bylaws or any
change in the composition of the Company's Board of Directors or acquisition
transaction relating to the Company), and (iii) an inducement to provide
effective services to the Company as a director and/or officer, the Company
wishes to provide in this Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted under Delaware law and as set forth in this Agreement, and, to the
extent insurance is maintained, to provide for the continued coverage of
Indemnitee under the Company's directors' and officers' liability insurance
policies.
NOW, THEREFORE, in consideration of the above premises and of
Indemnitee continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties agree
as follows:
<PAGE>
1. Certain Definitions:
-------------------
(a) Board: the Board of Directors of the Company.
-----
(b) Affiliate: any corporation or other person or entity that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
(c) Change in Control: shall be deemed to have occurred if (i) any
-----------------
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))(other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, and other than any person holding shares of the Company on the date
that the Company first registers under the Act or any transferee of such
individual if such transferee is a spouse or lineal descendant of the transferee
or a trust for the benefit of the individual, his spouse or lineal descendants),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board and
any new director whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board, or (iii)
the stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
(d) Expenses: any expense, liability, or loss, including attorneys'
--------
fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be
paid in settlement, any interest, assessments, or other charges imposed thereon,
any federal, state, local, or foreign taxes imposed as a result of the actual or
deemed receipt of any payments under this Agreement, and all other costs and
obligations, paid or incurred in connection with investigating, defending, being
a witness in, participating in (including on appeal), or preparing for any of
the foregoing in, any Proceeding relating to any Indemnifiable Event.
(e) Indemnifiable Event: any event or occurrence that takes place
-------------------
either prior to or after the execution of this Agreement, related to the fact
that Indemnitee is or was a director or officer of the Company, or while a
director or officer is or was serving at the
<PAGE>
request of the Company as a director, officer, employee, trustee, agent, or
fiduciary of another foreign or domestic corporation, partnership, joint
venture, employee benefit plan, trust, or other enterprise, or was a director,
officer, employee, or agent of a foreign or domestic corporation that was a
predecessor corporation of the Company or of another enterprise at the request
of such predecessor corporation, or related to anything done or not done by
Indemnitee in any such capacity, whether or not the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent of the Company, as described above.
(f) Independent Counsel: the person or body appointed in connection
-------------------
with Section 3.
(g) Proceeding: any threatened, pending, or completed action, suit, or
----------
proceeding (including an action by or in the right of the Company), or any
inquiry, hearing, or investigation, whether conducted by the Company or any
other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, or proceeding, whether civil, criminal,
administrative, investigative, or other.
(h) Reviewing Party: the person or body appointed in accordance with
---------------
Section 3.
(i) Voting Securities: any securities of the Company that vote
-----------------
generally in the election of directors.
2. Agreement to Indemnify.
----------------------
(a) General Agreement. In the event Indemnitee was, is, or becomes a
-----------------
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from
and against any and all Expenses to the fullest extent permitted by law, as the
same exists or may hereafter be amended or interpreted (but in the case of any
such amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto). The parties hereto intend that this
Agreement shall provide for indemnification in excess of that expressly
permitted by statute, including, without limitation, any indemnification
provided by the Company's Certificate of Incorporation, its Bylaws, vote of its
stockholders or disinterested directors, or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this Agreement
------------------------
to the contrary, Indemnitee shall not be entitled to indemnification pursuant to
this Agreement in connection with any Proceeding initiated by Indemnitee against
the Company or any director or officer of the Company unless (i) the Company has
joined in or the Board has consented to the initiation of such Proceeding; (ii)
the Proceeding is one to enforce indemnification rights under Section 5; or
(iii) the Proceeding is instituted after a Change in Control (other than a
Change in Control approved by a majority of the directors on the Board
2
<PAGE>
who were directors immediately prior to such Change in Control) and Independent
Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company shall
----------------
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that (i) such an Expense Advance
shall be made only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee to repay the amount thereof if it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company, and
(ii) if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Indemnitee has commenced
or commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, as
provided in Section 4, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding, and Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or have lapsed). Indemnitee's obligation to reimburse the Company for Expense
Advances shall be unsecured and no interest shall be charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other provision of
-------------------------
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any Proceeding relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, Indemnitee
shall be indemnified against all Expenses incurred in connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to this
--------------------------
Agreement shall be paid by the Company on account of any Proceeding in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or similar provisions of any federal, state, or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing Party
---------------
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Independent Counsel referred to
below shall become the Reviewing Party. With respect to all matters arising
after a Change in Control (other than a Change in Control approved by a majority
of the directors on the Board who were directors immediately prior to such
Change in Control)
3
<PAGE>
concerning the rights of Indemnitee to indemnity payments and Expense Advances
under this Agreement or any other agreement or under applicable law or the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, the Company shall seek
legal advice only from Independent Counsel selected by Indemnitee and approved
by the Company (which approval shall not be unreasonably withheld), and who has
not otherwise performed services for the Company or the Indemnitee (other than
in connection with indemnification matters) within the last five years. The
Independent Counsel shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee should be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
Independent Counsel and to indemnify fully such counsel against any and all
expenses (including attorneys' fees), claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the engagement of Independent
Counsel pursuant hereto.
4. Indemnification Process and Appeal.
----------------------------------
(a) Indemnification Payment. Indemnitee shall be entitled to
-----------------------
indemnification of Expenses, and shall receive payment thereof, from the Company
in accordance with this Agreement as soon as practicable after Indemnitee has
made written demand on the Company for indemnification, unless the Reviewing
Party has given a written opinion to the Company that Indemnitee is not entitled
to indemnification under applicable law.
(b) Suit to Enforce Rights. Regardless of any action by the Reviewing
----------------------
Party, if Indemnitee has not received full indemnification within thirty days
after making a demand in accordance with Section 4(a), Indemnitee shall have the
right to enforce its indemnification rights under this Agreement by commencing
litigation in any court in the State of California or the State of Delaware
having subject matter jurisdiction thereof seeking an initial determination by
the court or challenging any determination by the Reviewing Party or any aspect
thereof. The Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party not challenged by the
Indemnitee shall be binding on the Company and Indemnitee. The remedy provided
for in this Section 4 shall be in addition to any other remedies available to
Indemnitee at law or in equity.
(c) Defense to Indemnification, Burden of Proof, and Presumptions. It
-------------------------------------------------------------
shall be a defense to any action brought by Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. In connection with any such action or any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action by Indemnitee
that indemnification of the claimant is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Reviewing Party or Company (including its Board,
independent
4
<PAGE>
legal counsel, or its stockholders) that the Indemnitee had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
For purposes of this Agreement, the termination of any claim, action, suit, or
proceeding, by judgment, order, settlement (whether with or without court
approval), conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The Company
---------------------------------------------------------
shall indemnify Indemnitee against any and all Expenses that are incurred by
Indemnitee in connection with any action brought by Indemnitee for
(i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or under applicable law or the
Company's Certificate of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance policies
maintained by the Company, but only in the event that Indemnitee
ultimately is determined to be entitled to such indemnification or
insurance recovery, as the case may be. In addition, the Company shall,
if so requested by Indemnitee, advance the foregoing Expenses to
Indemnitee, subject to and in accordance with Section 2(c).
6. Notification and Defense of Proceeding.
--------------------------------------
(a) Notice. Promptly after receipt by Indemnitee of notice of the
------
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which Indemnitee
-------
notifies the Company of the commencement thereof, the Company will be entitled
to participate in the Proceeding at its own expense and except as otherwise
provided below, to the extent the Company so wishes, it may assume the defense
thereof with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ legal
counsel in such Proceeding, but all Expenses related thereto incurred after
notice from the Company of its assumption of the defense shall be
5
<PAGE>
at Indemnitee's expense unless: (i) the employment of legal counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, (iii) after a Change in Control (other
than a Change in Control approved by a majority of the directors on the Board
who were directors immediately prior to such Change in Control), the employment
of counsel by Indemnitee has been approved by the Independent Counsel, or (iv)
the Company shall not in fact have employed counsel to assume the defense of
such Proceeding, in each of which cases all Expenses of the Proceeding shall be
borne by the Company. The Company shall not be entitled to assume the defense of
any Proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the determination provided for in (ii), (iii) and (iv) above.
(c) Settlement of Claims. The Company shall not be liable to indemnify
--------------------
Indemnitee under this Agreement or otherwise for any amounts paid in settlement
of any Proceeding effected without the Company's written consent, such consent
not to be unreasonably withheld; provided, however, that if a Change in Control
has occurred (other than a Change in Control approved by a majority of the
directors on the Board who were directors immediately prior to such Change in
Control), the Company shall be liable for indemnification of Indemnitee for
amounts paid in settlement if the Independent Counsel has approved the
settlement. The Company shall not settle any Proceeding in any manner that would
impose any penalty or limitation on Indemnitee without Indemnitee's written
consent. The Company shall not be liable to indemnify the Indemnitee under this
Agreement with regard to any judicial award if the Company was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action; the Company's liability hereunder shall not be excused if
participation in the Proceeding by the Company was barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control (other than
----------------------
a Change in Control approved by a majority of the directors on the Board who
were directors immediately prior to such Change in Control) the Company shall,
upon written request by Indemnitee, create a Trust for the benefit of the
Indemnitee and from time to time upon written request of Indemnitee shall fund
the Trust in an amount sufficient to satisfy any and all Expenses reasonably
anticipated at the time of each such request to be incurred in connection with
investigating, preparing for, participating in, and/or defending any Proceeding
relating to an Indemnifiable Event. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by the
Independent Counsel. The terms of the Trust shall provide that (i) the Trust
shall not be revoked or the principal thereof invaded without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within ten business
days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the Trust under the same circumstances
for which the Indemnitee would be required to reimburse the Company under
Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by
the Company in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by the Independent Counsel or a court of competent
jurisdiction, as the case may be, that the Indemnitee has been
6
<PAGE>
fully indemnified under the terms of this Agreement. The Trustee shall be chosen
by the Indemnitee. Nothing in this Section 7 shall relieve the Company of any of
its obligations under this Agreement. All income earned on the assets held in
the Trust shall be reported as income by the Company for federal, state, local,
and foreign tax purposes. The Company shall pay all costs of establishing and
maintaining the Trust and shall indemnify the Trustee against any and all
expenses (including attorneys' fees), claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in addition
---------------
to any other rights Indemnitee may have under the Company's Certificate of
Incorporation, Bylaws, applicable law, or otherwise; provided, however, that
this Agreement shall supersede any prior indemnification agreement between the
Company and the Indemnitee. To the extent that a change in applicable law
(whether by statute or judicial decision) permits greater indemnification than
would be afforded currently under the Company's Certificate of Incorporation,
Bylaws, applicable law, or this Agreement, it is the intent of the parties that
Indemnitee enjoy by this Agreement the greater benefits so afforded by such
change.
9. Liability Insurance. To the extent the Company maintains an insurance
-------------------
policy or policies providing general and/or directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of
---------------------
action shall be asserted by or on behalf of the Company or any Affiliate of the
Company against Indemnitee, Indemnitee's spouse, heirs, executors, or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, or such longer period as may be required by
state law under the circumstances. Any claim or cause of action of the Company
or its Affiliate shall be extinguished and deemed released unless asserted by
the timely filing and notice of a legal action within such period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, the shorter period shall govern.
11. Amendment of this Agreement. No supplement, modification, or amendment
---------------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
binding unless in the form of a writing signed by the party against whom
enforcement of the waiver is sought, and no such waiver shall operate as a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver. Except as specifically provided herein,
no failure to exercise or any delay in exercising any right or remedy hereunder
shall constitute a waiver thereof.
12. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure
7
<PAGE>
such rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.
14. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though he
may have ceased to serve in such capacity at the time of any Proceeding.
15. Severability. If any provision (or portion thereof) of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, or
otherwise unenforceable, the remaining provisions shall remain enforceable to
the fullest extent permitted by law. Furthermore, to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of this Agreement containing any provision held to be invalid, void, or
otherwise unenforceable, that is not itself invalid, void, or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, void, or unenforceable.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to its
principles of conflicts of laws.
8
<PAGE>
17. Notices. All notices, demands, and other communications required or
-------
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:
CyberSource Corporation
550 South Winchester Boulevard
Suite 301
San Jose, CA 95128
Attention: William S. McKiernan, President and CEO
and to Indemnitee at:
__________________________
__________________________
__________________________
Notice of change of address shall be effective only when given in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of hand delivery or on the third business day
after mailing.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.
CYBERSOURCE CORPORATION
By:
---------------------------------------
William S. McKiernan, President and CEO
INDEMNITEE
By:
---------------------------------------
10
<PAGE>
EXHIBIT 10.2
CYBERSOURCE CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE. This 1998 Stock Option Plan/1/ ("Plan") is established as a
-------
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of CyberSource Corporation, a Delaware
Corporation (formerly Internet Commerce Services Corporation (the "Company")).
Capitalized terms not previously defined herein are defined in Section 18 of
this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
---------------------------
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of Common Stock of the Company ("Common
Stock").
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
----------------
pursuant to Options granted under this Plan is 3,800,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY.
-----------
(a) General Rules of Eligibility. Options may be granted to
----------------------------
employees, officers, directors, consultants, independent contractors and
advisors (provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction) of the Company or any Parent, Subsidiary or Affiliate of
the Company. ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or a Parent or Subsidiary of
the Company. The Committee (as defined in Section 15) in its sole discretion
shall select the recipients of Options ("Optionees"). An Optionee may be granted
more than one Option under this Plan.
(b) Company Assumption of Options. The Company may also, from time
-----------------------------
to time, assume outstanding options granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (i)
granting an Option under this Plan in replacement of the Option assumed by the
Company, or (ii) treating the assumed option as if it had been granted under
this Plan if the terms of such assumed option could be applied to an Option
_______________________
/1/ Approved by the Company's Board of Directors on March 17, 1998.
Approved by the Company's Shareholders on March 17, 1998.
1
<PAGE>
Option granted under this Plan. Such assumption shall be permissible if the
holder of the assumed option would have been eligible to be granted an Option
hereunder if the other company had applied the rules of this Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant (the "Grant") in substantially the
form attached hereto as Exhibit A or such other form as shall be approved by the
Committee.
(b) Date of Grant. The date of grant of an Option shall be the date
-------------
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee and subject to applicable provisions of the
Code. The Grant representing the Option will be delivered to the Optionee with a
copy of this Plan within a reasonable time after the date of grant; provided,
however, that if, for any reason, including a unilateral decision by the Company
not to execute an agreement evidencing such option, a written Grant is not
executed within sixty (60) days after the date of grant, such option shall be
deemed null and void. No Option shall be exercisable until such Grant is
executed by the Company and the Optionee.
(c) Exercise Price. The exercise price of an NQSO shall be not less
--------------
than eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Option is granted. The exercise price of an ISO shall be not less than
one hundred percent (100%) of the Fair Market Value of the Shares on the date
the Option is granted. The exercise price of any Option granted to a person
owning more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten
Percent Shareholders") shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Grant;
provided, however, that each Option must become exercisable at a rate of at
least twenty percent (20%) per year over five (5) years from the date the Option
is granted; provided further, that no Option shall be exercisable after the
expiration of ten (10) years from the date the Option is granted; and provided
further, that no ISO granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five (5) years from the date the Option is granted.
(e) Limitations on Options. The aggregate Fair Market Value
----------------------
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed one hundred
thousand dollars ($100,000). To the extent that the Fair Market Value of stock
with respect to which ISOs are exercisable for the first time by an Optionee
during any calendar year exceeds $100,000, the Options for the amount in excess
of $ 100,000 shall be treated as not being
2
<PAGE>
ISOs and shall be treated as NQSOs. The foregoing shall be applied by taking
Options into account in the order in which they were granted. In the event that
the Code or the regulations promulgated thereunder are amended after the
effective date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, such different limit shall be
incorporated herein and shall apply to any Options granted after the effective
date of such amendment. The foregoing provisions of this Plan notwithstanding,
no Optionee shall be granted Options under this Plan in any one fiscal year
which in the aggregate shall permit the Optionee to purchase more than 500,000
shares of Common Stock, provided that a newly-hired Optionee may in addition
receive a one-time Option grant to purchase up to an additional 500,000 shares
of Common Stock upon acceptance of employment with the Company or any Parent,
Subsidiary or Affiliate of the Company. To the extent the Board of Directors of
the Company determines that limitations such as the provisions of this Section
5(e) are no longer required to preserve the deductibility for the Company of
option-related compensation under Section 162(m) of the Code, the Board of
Directors may modify or eliminate the limitations contained in this Section 5
(e).
(f) Options Non-Transferable. Options granted under this Plan, and any
------------------------
interest therein, shall not be transferable or assignable by the Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionee only by the Optionee or any permitted
transferee.
(g) Assumed Options. In the event the Company assumes an option granted
---------------
by another company in accordance with Section 4(b) above, the terms and
conditions of such option shall remain unchanged (except the exercise price and
the number and nature of shares issuable upon exercise, which will be adjusted
appropriately pursuant to Section 424 of the Code and the Treasury Regulations
applicable thereto). In the event the Company elects to grant a new Option
rather than assuming an existing option (as specified in Section 4), such new
Option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
(h) Termination of Options. Except as otherwise provided in an Optionee's
----------------------
Grant, Options granted under the Plan shall terminate and may not be exercised
if the Optionee ceases to be employed by, or provide services to, the Company or
any Parent or Subsidiary of the Company (or, in the case of a NQSO, by or to any
Affiliate of the Company). An Optionee shall be considered to be employed by the
Company for all purposes under this Section 5(h) if the Optionee is an officer,
director or full-time employee of the Company or any Parent, Subsidiary or
Affiliate of the Company or if the Committee determines that the Optionee is
rendering substantial services as a part-time employee, consultant, contractor
or advisor to the Company or any Parent, Subsidiary or Affiliate of the Company.
The Committee shall have discretion to determine whether an Optionee has ceased
to be employed by the Company or any Parent, Subsidiary or Affiliate of the
Company and the effective date on which such employment terminated (the
"Termination Date").
3
<PAGE>
(i) Termination Generally. If an Optionee ceases to be employed
---------------------
by the Company and all Parents, Subsidiaries or Affiliates of the Company for
any reason except death or disability, the Options which are then exercisable
(and only to the extent exercisable) (the "Vested Options") by the Optionee on
the Termination Date, may be exercised by the Optionee, but only within three
months after the Termination Date or such shorter period of time as provided in
the Grant, but in no event less than thirty (30) days; provided that Options may
not be exercised in any event after the Expiration Date.
(ii) Death or Disability. If an Optionee's employment with the
-------------------
Company and all Parents, Subsidiaries and Affiliates of the Company is
terminated because of the death of the Optionee or the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code,
the Vested Options, as determined on the Termination Date, may be exercised by
the Optionee (or the Optionee's legal representative), but only within twelve
(12) months after the Termination Date; and provided further that Options may
not be exercised in any event later than the Expiration Date. If an Optionee's
employment with the Company and all Parents, Subsidiaries and Affiliates of the
Company is terminated because of a disability of the Optionee which is not
permanent and total within the meaning of Section 22(e)(3) of the Code, the
Vested Options, as determined on the Termination Date, may be exercised by the
Optionee or the Optionee's legal representative, but only within six (6) months
after the Termination Date; and provided further that Options may not be
exercised in any event later than the Expiration Date.
6. DIRECTOR FORMULA OPTION GRANTS. In addition to discretionary grants
------------------------------
of Options granted pursuant to other terms of this Plan, NonEmployee Directors
of the Company shall receive Options in accordance with the following terms:
(a) Formula Grant. Upon the adoption of this Plan by the Board of
-------------
Directors, each Non-Employee Director shall receive a NQSO for 10,000 shares.
Following the date of adoption of this Plan, upon initial election or
appointment to the Company's Board of Directors, provided that such election or
appointment is not during the Company's last quarter of a year, the elected or
appointed Non-Employee Director shall receive a NQSO for 10,000 shares on the
first business day following the election or appointment of such Non-Employee
Director. Thereafter, annually on January 1, each Non-Employee Director shall
receive a NQSO for 10,000 shares.
(b) Terms of Grant. Options granted pursuant to this Section 6 shall
--------------
be subject to the following terms:
(i) Exercise Price and Payment Terms. The exercise price for
--------------------------------
the Options granted pursuant to this Section 6 shall be equal to one
hundred per cent (100%) of the Fair Market Value of the Shares on the date
of the grant, (excepting Ten Percent Shareholders in respect of whom the
exercise price for the Options granted pursuant to this Section 6 shall be
equal to one hundred ten percent (110%)) payable in cash or
4
<PAGE>
otherwise in accordance with the alternatives specified in clauses (i),
(ii), (iv), (v) and (vi) of Section 7(b) of this Plan.
(ii) Term. The term of the Options shall be ten (10) years
----
from the date the Option is granted (excepting Ten Percent Shareholders in
respect of whom the term of the Options shall be five (5) years).
(iii) Exercise Period. The Options shall be exercisable at
---------------
any time on or after nine (9) months after the date of the grant.
(iv) Other Terms. In order to be eligible for the annual
-----------
automatic option grants, the Non-Employee Director shall be on the date of
grant, and shall have maintained for the prior year, continuous status as
an active member of the Board of Directors. If, for any reason, a Non-
Employee Director ceases to be a member of the Board, such director shall
be ineligible for that year's grant.
7. EXERCISE OF OPTIONS.
-------------------
(a) Notices. Options may be exercised only by delivery to the
-------
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by check)
-------
or, where permitted by law any of the following methods approved by the
Committee at the date of grant of this option, or any combination thereof: (i)
by cancellation of indebtedness of the Company to the Optionee; (ii) by
surrender of shares of Common Stock of the Company already owned by the
Optionee, having a Fair Market Value equal to the exercise price of the Option;
(iii) by waiver of compensation due or accrued to Optionee for services
rendered; (iv) through delivery of a promissory note for the full exercise price
bearing interest at such rate with the note due at such time, on a secured or
unsecured basis, as determined by the Committee; (v) provided that a public
market for the Company's stock exists, through a "same day sale" commitment from
the Optionee and a broker-dealer that is a member of the National Association of
Securities Dealers, Inc. (an "NASD Dealer") whereby the Optionee irrevocably
elects to exercise the Option and to sell a portion of the Shares so purchased
to pay for the exercise price and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; and/or (vi) provided that a public market for the Company's stock
exists, through a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company.
5
<PAGE>
(c) Withholding Taxes. Prior to issuance of the Shares upon
-----------------
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable. Where
approved by the Committee in its sole discretion, the Optionee may provide for
payment of withholding taxes upon exercise of the Option by requesting that the
Company retain Shares with a Fair Market Value equal to the minimum amount of
taxes required to be withheld. In such case, the Company shall issue the net
number of Shares to the Optionee by deducting the Shares retained from the
Shares exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by
Optionees to have Shares withheld for this purpose shall be made in writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable
Tax Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent or
disapproval of the Committee;
(iv) if the Optionee is an officer or director of the
Company or other person (in each case, an "Insider") whose transactions in
the Company's Common Stock are subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and if the Company
is subject to Section 16(b) of the Exchange Act, the election must comply
with Rule 16b-3 as promulgated by the Securities and Exchange Commission
("Rule 16b-3").
(d) Limitations on Exercise. Notwithstanding anything else to the
-----------------------
contrary in the Plan or any Grant, no Option may be exercisable later than
the expiration date of the Option.
8. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) for so long as
the Company's stock is not publicly traded, a right to repurchase a portion of
or all Shares held by an Optionee upon the Optionee's termination of employment
or service with the Company or its Parent, Subsidiary or Affiliate of the
Company for any reason within a specified time as determined by the Committee at
the time of grant at the higher of (i) the Optionee's original purchase price
or, (ii) the Fair Market Value of such Shares.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
----------------------------------------------
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of the Optionee, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be
6
<PAGE>
treated in accordance with Section 424(h) of the Code. The Committee shall have
the power to reduce the exercise price of outstanding options; provided,
however, that the exercise price per share may not be reduced below the minimum
exercise price that would be permitted under Section 5(c) of this Plan for
options granted on the date the action is taken to reduce the exercise price.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
-----------------------------
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee,
regardless of the reports provided to shareholders in general, a copy of the
annual financial statements of the Company within a reasonable time frame
following the end of the fiscal year of the Company.
11. NO OBLIGATION TO EMPLOY; NO RIGHT TO FUTURE GRANTS. Nothing in this
--------------------------------------------------
Plan or any Option granted under this Plan shall confer on any Optionee any
right (a) to continue in the employ of, or other relationship with, the Company
or any Parent or Subsidiary of the Company or limit in any way the right of the
Company or any Parent, Subsidiary or Affiliate of the Company to terminate the
Optionee's employment or other relationship at any time, with or without cause,
or (b) to have any Option(s) granted to such Optionee under this Plan, or any
other plan, or to acquire any other securities of the Company, in the future.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
---------------------------
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
or shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded down to the nearest whole number, as determined by the
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
13. ASSUMPTION OF OPTIONS BY SUCCESSORS.
-----------------------------------
(a) In the event of (i) a merger or consolidation as a result of
which the holders of voting securities of the Company prior to the transaction
hold shares representing less than 51% of the voting securities of the Company
after giving effect to the transaction (other than a merger or consolidation
with a wholly-owned subsidiary or where there is no substantial change in the
shareholders of the corporation and the Options granted under this Plan are
7
<PAGE>
assumed by the successor corporation), or (ii) the sale of all or substantially
all of the assets of the Company, any or all outstanding Options shall be
assumed by the successor corporation, which assumption shall be binding on all
Optionees, an equivalent option shall be substituted by such successor
corporation or the successor corporation shall provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of the Optionees' options such as the exercise
price and the vesting schedule), and, in the case o outstanding shares subject
to a repurchase option, issue substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Optionee.
(b) In the event such successor corporation, if any, refuses to
assume or substitute, as provided above, pursuant to an event described in
subsection (a) above, or in the event of a dissolution or liquidation of the
Company, the Options shall, notwithstanding any contrary terms in the Grant,
expire on a date specified in a written notice given by the Committee to the
Optionees specifying the terms and conditions of such termination (which date
shall be at least twenty (20) days after the date the Committee gives the
written notice).
14. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
---------------------------------
on the date that it is adopted by the Board of Directors of the Company (the
"Board"). This Plan shall be approved by the shareholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board.
15. ADMINISTRATION. This Plan may be administered by the Board or a
--------------
Committee appointed by the Board (the "Committee"). At all times during which
the Company is registered under the Exchange Act, the Committee shall be
comprised solely of two or more Non-Employee Directors. As used in this Plan,
references to the "Committee" shall mean either such Committee or the Board if
no committee has been established. The interpretation by the Committee of any of
the provisions of this Plan, any related agreements, or any Option granted under
this Plan shall be final and binding upon the Company and all persons having an
interest in any Option or any Shares purchased pursuant to an Option. All
references herein to the
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time on or prior to ______________, 2008, a date which is less than ten years
after the earlier of the date of approval of this Plan by the Board or the
shareholders of the Company pursuant to Section 14 of this Plan.
17. AMENDMENT OR TERMINATION OF PLAN. The Board or Committee may, at any
time, amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made which would impair the
rights of any Optionee under any Option theretofore granted, without his or her
consent, or which, without the approval of the shareholders of the Company
would:
(a) except as provided in Section 12 of the Plan, increase the
total number of Shares reserved for the purposes of the Plan;
(b) extend the duration of the Plan;
8
<PAGE>
(c) extend the period during and over which Options may be
exercised under the Plan; or
(d) change the class of persons eligible to receive Options granted
hereunder (except as may be required to comport with changes in the Code,
ERISA or regulations promulgated thereunder).
Without limiting the foregoing, the Board or Committee may at any time or
from time to time authorize the Company, with the consent of the respective
Optionees, to issue new Options in exchange for the surrender and cancellation
of any or all outstanding Options.
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
-------------------
have the following meanings:
(a) "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the Company) in
----------
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(c) "Affiliate" means software.net Corporation, a Delaware
---------
corporation, and any corporation that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, another corporation, where "control" (including the terms "controlled by"
and "under common control with") means the possession, direct or indirect, of
the power to cause the direction of the management and policies of the
corporation, whether through the ownership of voting securities, by contract or
otherwise.
(d) "Non-employee Directors" shall have the meaning set forth in
----------------------
Rule 16b-3(b)(3) as promulgated by the Securities and Exchange Commission under
Section 16(b) of the Exchange Act, as such rule is amended from time to time and
as interpreted by the Securities and Exchange Commission.
(e) "Fair Market Value" shall mean the fair market value of the
-----------------
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or is a Nasdaq National
Market security, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination.
9
<PAGE>
19. APPLICABLE LAW AND REGULATIONS. The obligations of the Company under
------------------------------
this Plan are subject to the approval of state and federal authorities or
agencies with jurisdiction over the subject matter hereof. The Company shall not
be obligated to issue or deliver shares under this Plan if such issuance or
delivery would violate applicable state or federal securities laws.
10
<PAGE>
EXHIBIT A
---------
STOCK OPTION GRANT
------------------
Optionee:__________________________________________________________
Address: __________________________________________________________
Total Shares Subject to Option:____________________________________
Exercise Price Per Share:__________________________________________
Date of Grant:_____________________________________________________
Expiration Date of Option:_________________________________________
Type of Stock Option: Incentive: __________
Nonqualified: __________
1. Grant of Option. CyberSource Corporation, a Delaware corporation (the
"Company"), hereby grants to the optionee named above ("Optionee") an option
(this "Option") to purchase the total number of shares of Common Stock ("Common
Stock") of the Company set forth above (the "Shares") at the exercise price per
share set forth above (the "Exercise Price"), subject to all of the terms and
conditions of this Grant and the Company's 1998 Stock Option Plan, as amended to
the date hereof (the "Plan"). If designated as an Incentive Stock Option above,
this Option is intended to qualify as an "incentive stock option" ("ISO") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings ascribed to them in the Plan.
2. Exercise Period of Option
-------------------------
(a) (ISOs). The Optionee has option rights hereunder to purchase atotal
of ________________ Shares which shall become exercisable during the time
periods as set forth in this Section 2. On and after_______________________ [one
year from date of grant], this Option may be exercised by the Optionee for the
purchase of____________________ [fraction] of the Shares covered by this Option
(______________ Shares), or any portion thereof. On or after the last day of
each full month following__________________ [one year from the date of grant]
this Option may be exercised by the Optionee for the purchase of an additional
[fraction] of the Shares covered by this Option (Shares), or any portion
thereof. Once a portion of this Option becomes exercisable it shall remain
exercisable until the Expiration Date, or until it terminates pursuant to the
terms of Section 4 hereof, whichever is first to occur.
(b) (NQSOs). The Optionee has option rights hereunder to purchase a total
of_________________ Shares which shall become exercisable by the Optionee at any
time on or after nine (9) months after ____________________. Once a portion of
this Option becomes
11
<PAGE>
exercisable it shall remain exercisable until the Expiration Date, or until it
terminates pursuant to the terms of Section 4 hereof, whichever is first to
occur.
(c) The minimum number of Shares that may be purchased upon any partial
exercise of the Option is one hundred (100) shares; and
(d) This Option shall expire on the Expiration Date set forth above and
must be exercised, if at all, on or before the Expiration Date. The portion of
as to which an Option is exercisable in accordance with the above schedule as of
the applicable dates shall be deemed "Vested Options."
3. Restriction on Exercise. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise,
and the requirements of any stock exchange or over-the-counter market on which
the Company's Common Stock may be listed or quoted at the time of exercise.
Optionee understands that the Company is under no obligation to register,
qualify or list the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
4. Termination of Option. Except as provided below in this Section 4,
---------------------
this Option shall terminate and may not be exercised if Optionee ceases to be
employed by, or provide services to, the Company or by any Parent or Subsidiary
of the Company (or, in the case of a nonqualified stock option, by or to any
Affiliate of the Company). Optionee shall be considered to be employed by the
Company for all purposes under this Section 4 if Optionee is an officer,
director or full-time employee of the Company or any Parent, Subsidiary or
Affiliate of the Company or if the Committee determines that Optionee is
rendering substantial services as a part-time employee, consultant, contractor
or advisor to the Company or any Parent, Subsidiary or Affiliate of the Company.
The Committee shall have discretion to determine whether Optionee has ceased to
be employed by the Company or any Parent, Subsidiary or Affiliate of the Company
and the effective date on which such employment terminated (the "Termination
Date").
(a) Termination Generally. If Optionee ceases to be employed by the
---------------------
Company and all Parents, Subsidiaries or Affiliates of the Company for any
reason except death or disability, the Vested Options, to the extent (and only
to the extent) exercisable by Optionee on the Termination Date, may be exercised
by Optionee, but only within thirty (30) days after the Termination Date;
provided that this Option may not be exercised in any event after the Expiration
Date.
(b) Death or Disability. If Optionee's employment with the Company and
-------------------
all Parents, Subsidiaries and Affiliates of the Company is terminated because of
the death of Optionee or the disability of Optionee, including, without
limitation, such disability as defined in Section 22(e)(3) of the Code, the
Vested Options, to the extent (and only to the extent) exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or Optionee's legal
representative), but only within twelve (12) months after the Termination Date;
provided that this Option may not be exercised in any event later than the
Expiration Date.
12
<PAGE>
(c) No Right to Employment. Nothing in the Plan or this Grant shall
----------------------
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Optionee's employment or other relationship at any
time, with or without cause.
5. Manner of Exercise
------------------
(a) Exercise Agreement. This Option shall be exercisable by delivery to
------------------
the Company of an executed written Stock Option Exercise Agreement in the form
attached hereto as Exhibit 1, or in such other form as may be approved by the
Company, which shall set forth Optionee's election to exercise some or all of
this Option, the number of Shares being purchased, any restrictions imposed on
the Shares and such other representations and agreements as may be required by
the Company to comply with applicable securities laws.
(b) Exercise Price. The Stock Option Exercise Agreement shall be
--------------
accompanied by full payment of the Exercise Price for the Shares being
purchased. Payment for the Shares may be made in cash (by check), or, where
permitted by law, by any of the following methods approved by the Committee at
the date of grant of this Option, or any combinations thereof.
(i) by cancellation of indebtedness of the Company to the
Optionee;
(ii) by surrender of shares of Common Stock of the Company
alreadyowned by the Optionee, or which were obtained by Optionee in the open
public market, having a Fair Market Value equal to the exercise price of the
Option;
(iii) by waiver of compensation due or accrued to Optionee for
services rendered;
(iv) by delivery of a promissory note in the amount of
$__________ with such terms as determined by the Committee;
(v) provided that a public market for the Company's stock
exists, through a "same day sale" commitment from the Optionee and a broker
dealer that is a member of the National Association of Securities Dealers, Inc.
(an "NASD Dealer") whereby the Optionee irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price directly to the Company; or
(vi) provided that a public market for the Company's stock
exists, through a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise this option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company.
13
<PAGE>
(c) Withholding Taxes. Prior to the issuance of the Shares upon exercise
-----------------
of this Option, Optionee must pay or make adequate provision for any applicable
federal or state withholding obligations of the Company. The Optionee may
provide for payment of Optionee's minimum statutory withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld, all
as set forth in Section 6(c) of the Plan. In such case, the Company shall issue
the net number of Shares to the Optionee by deducting the Shares retained from
the Shares exercised.
(d) Issuance of Shares. Provided that such Stock Option Exercise
------------------
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall cause the Shares to be issued in the name of Optionee
or Optionee's legal representative.
6. Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after exercise of the ISO with respect to the Shares to be sold or disposed
of, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that Optionee may be subject to
income tax withholding by the Company on the compensation income recognized by
the Optionee from any such early disposition by payment in cash or out of the
current wages or other earnings payable to the Optionee.
7. Nontransferability of Option. This Option may not be transferred in
----------------------------
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Optionee only by Optionee or any permitted
transferee. The terms of this Option shall be binding upon the executors,
administrators, successors and assigns of the Optionee.
8. Restrictions on Shares. The Company and the Company's shareholder
----------------------
have certain rights of first refusal that are set forth in Article X of the
Company's Bylaws. A copy of Article X of the Bylaws is available upon request
from the Secretary of the Company. The Company reserves to itself for so long as
the Company's stock is not publicly traded (a) the right of first refusal to
purchase all Shares that Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) the right to repurchase within one year of
the Optionee's termination of employment or service with the Company or its
Parent, Subsidiary or Affiliate of the Company, a portion of or all Shares held
by an Optionee at the higher of (i) the Optionee's original purchase price or,
(ii) the Fair Market Value of such Shares.
9. Federal Tax Consequences. Set forth below is a brief summary as of
------------------------
the date this form of Option Grant was adopted of some of the federal tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
14
<PAGE>
(a) Exercise of ISO. If this Option qualifies as an ISO, there will beno
---------------
regular federal income tax liability upon the exercise of this Option, although
the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price will be treated as an adjustment to alternative
minimum taxable income for federal income tax purposes and may subject the
Optionee to an alternative minimum tax liability in the year of exercise.
(b) Exercise of Nonqualified Stock Option. If this Option does not
-------------------------------------
qualify as an ISO (a "nonqualified stock option"), there may be a regular
federal income tax liability upon the exercise of the Option. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price. The Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. In the case of a nonqualified stock option, if
---------------------
Shares are held for at least one year before disposition, any gain on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an ISO, if Shares are held
for at least one year after the date of exercise and at least two years after
the Date of Grant, any gain on disposition of the Shares will be treated as
long-term capital gain for federal and California income tax purposes. If Shares
acquired pursuant to an ISO are disposed of within such one-year or two-year
periods (a "disqualifying disposition"), gain on such disqualifying disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price (the "Spread"). Any gain in excess of the
Spread shall be treated as capital gain.
10. Interpretation. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Company's Board of
Directors or the Committee, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Board or Committee shall be
final and binding on the Company and on Optionee
11. Entire Agreement. The Plan and the Stock Option Exercise Agreement
----------------
attached hereto as Exhibit I are incorporated herein by this reference. This
Grant, the Plan and the Stock Option Exercise Agreement constitute the entire
agreement of the parties hereto and supersede all prior undertakings and
agreements with respect to the subject matter hereof.
15
<PAGE>
INTERNET COMMERCE SERVICES
CORPORATION, a Delaware corporation
By:_______________________________________
Name: ____________________________________
Title: ___________________________________
16
<PAGE>
ACCEPTANCE
----------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Stock
Option Grant. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax adviser prior to such exercise or disposition.
OPTIONEE
By:____________________________________
Name:__________________________________
Date:__________________________________
17
<PAGE>
EXHIBIT 1
TO STOCK OPTION GRANT
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
This Agreement is made this __________ day of __________, 19___
between CyberSource Corporation, a Delaware corporation (the "Company"), and the
optionee named below ("Optionee").
Optionee:__________________________________________________________________
Social Security Number:____________________________________________________
Address:___________________________________________________________________
Number of Shares Purchased:________________________________________________
Price Per Share:___________________________________________________________
Aggregate Purchase Price:__________________________________________________
Date of Option Grant:______________________________________________________
Type of Stock Option: Incentive: __________
Nonqualified: __________
Optionee hereby delivers to the Company the Aggregate Purchase Price, to
the extent permitted in the Option Grant, as follows [check as applicable and
complete]:
cash (check) in the amount of $__________ receipt of which is acknowledged
by the Company;
by delivery of _________________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Optionee and owned free
and clear of all liens, claims, encumbrances or security interests, valued
at the current fair market value of $_______________ per share (determined
in accordance with the Plan);
by the waiver hereby of compensation due or accrued for services rendered
in the amount of $__________;
through delivery of a promissory note in the amount of $_________________
with such terms as determined by the Committee;
by delivery of a "same day sale" commitment from the Optionee and a broker
dealer that is a member of the National Association of Securities Dealers,
Inc. (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price of
18
<PAGE>
$____________ and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company (this
payment method may be used only if a public market for the Company's stock
exists); or
by delivery of a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise this option and to
pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise
price, and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price of $ directly to the Company (this
payment method may be used only if a public market for the Company's stock
exists).
The Company and Optionee hereby agree as follows:
1. Purchase of Shares. On this date and subject to the terms and
------------------
conditions of this Agreement, Optionee hereby exercises the Stock Option Grant
between the Company and Optionee dated as of the Date of Option Grant set forth
above (the "Grant"), with respect to the Number of Shares Purchased set forth
above of the Company's Common Stock (the "Shares") at an aggregate purchase
price equal to the Aggregate Purchase Price set forth above (the "Purchase
Price") and the Price per Share set forth above (the "Purchase Price Per
Share"). The term "Shares" refers to the Shares purchased under this Agreement
and includes all securities received (a) in replacement of the Shares, and (b)
as a result of stock dividends or stock splits in respect of the Shares.
Capitalized terms used herein that are not defined herein have the definitions
ascribed to them in the Plan or the Grant.
2. Representations of Purchaser. Optionee represents and warrants to the
----------------------------
Company that:
(a) Optionee has received, read and understood the Plan and the
Grant and agrees to abide by and be bound by their terms and conditions.
(b) Optionee is capable of evaluating the merits and risks of this
investment, has the ability to protect Optionee's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
(c) Optionee is fully aware of (i) the highly speculative nature of
the investment in the Shares; (ii) the financial hazards involved; and (iii) the
lack of liquidity of the Shares and the restrictions on transferability of the
Shares (e.g., that Optionee may not be able to sell or dispose of the Shares or
use them as collateral for loans).
(d) Optionee is purchasing the Shares for Optionee's own account
for investment purposes only and not with a view to, or for sale in connection
with, a distribution of the Shares within the meaning of the Securities Act of
1933, as amended (the "1933 Act").
19
<PAGE>
(e) Optionee has no present intention of selling or otherwise
disposing of all or any portion of the Shares.
3. Compliance with Securities Laws. Optionee understands and
-------------------------------
acknowledges that the Shares have not be en registered under the 1933 Act and
that, notwithstanding any other provision of the Grant to the contrary, the
exercise of any rights to purchase any Shares is expressly conditioned upon
compliance with the 1933 Act and all applicable state securities laws. Optionee
agrees to cooperate with the Company to ensure compliance with such laws. The
Shares are being issued under the 1933 Act pursuant to [the Company will check
the applicable box]:
the exemption provided by Rule 701;
the exemption provided by Rule 504;
Section 4(2) of the 1933 Act;
other:____________________________________________________________
4. Federal Restrictions on Transfer. Optionee understands that the
--------------------------------
Shares must be held indefinitely unless they are registered under the 1933 Act
or unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares, and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
(a) Rule 144. Optionee has been advised that Rule 144 promulgated
--------
under the 1933 Act, which permits certain resales or unregistered securities, is
not presently available with respect to the Shares and, in any event, requires
that a minimum of one (1) year elapse between the date of acquisition of Shares
from the Company or an affiliate of the Company and any resale under Rule 144.
Prior to an initial public offering of the Company's stock, "nonaffiliates"
(i.e. persons other than officers, directors and major shareholders of the
Company) may resell only under Rule 144(k), which requires that a minimum of two
(2) years elapse between the date of acquisition of Shares from the Company or
an affiliate of the Company and any resale under Rule 144(k). Rule 144(k) is
not available to affiliates.
(b) Rule 701. If the exemption relied upon for exercise of the
--------
Shares is Rule 701, the Shares will become freely transferable, subject to
limited conditions regarding the method of sale, by nonaffiliates ninety (90)
days after the first sale of common stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission (the "SEC"), subject to any lengthier market
standoff agreement contained in this Agreement or entered into by Optionee.
Affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
20
<PAGE>
5. State Law Restrictions on Transfer. Optionee understands that
----------------------------------
transfer of the Shares may be restricted by applicable state securities laws,
and that the certificate(s) representing the Shares may bear a legend or legends
to that effect.
6. Market Standoff Agreement. Optionee agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as the Company or the underwriters may specify for
employee shareholders generally.
7. Legends. Optionee understands and agrees that the certificate(s)
-------
representing the Shares will bear a legend in substantially the following forms,
in addition to any other legends required by applicable law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE `SECURITIES ACT'), AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OR, IN THE OPINION OF COUNSEL, PREPARED
AT ISSUER'S REQUEST AND EXPENSE, IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH."
8. Stop-Transfer Notices. Optionee understands and agrees that, in order
---------------------
or ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
9. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEEMAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF
THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
10 Repurchase Options. The Company and the Company's shareholders have
------------------
certain rights of first refusal that are set forth in Article X of the Company's
Bylaws. A copy of Article X of the Bylaws is available upon request from the
Secretary of the Company. The Company reserves to itself for so long as the
Company's stock is not publicly traded (a) the right of first refusal to
purchase all Shares that Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) the right to repurchase within one year of
the Optionee's termination of employment or service with the Company or its
Parent, Subsidiary or Affiliate of
21
<PAGE>
the Company, a portion of or all Shares held by an Optionee at the higher of (i)
the Optionee's original purchase price or, (ii) the Fair Market Value of such
Shares.
11. Entire Agreement. The Plan and Grant are incorporated herein by
----------------
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
Submitted By: Accepted By:
OPTIONEE:____________________________
[print name]
By:_______________________
______________________________________
[signature] Its:_______________________
Dated:____________________ Dated:_____________________
Address: _____________________
_____________________
_____________________
22
<PAGE>
EXHIBIT 10.3
CYBERSOURCE CORPORATION
1999 STOCK OPTION PLAN
1. Purpose. This 1999 Stock Option Plan/1/ ("Plan") is established as a
-------
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of CyberSource Corporation, a Delaware
corporation (the "Company"). Capitalized terms not previously defined herein
are defined in Section 18 of this Plan.
2. Types of Options and Shares. Options granted under this Plan (the
---------------------------
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options (also known as "nonstatutory stock options")
("NQSOs"), as designated at the time of grant. The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of Common Stock of the Company ("Common Stock").
3. Number of Shares. The aggregate number of Shares that may be issued
----------------
pursuant to Options granted under this Plan is 5,000,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. Shares that actually have been issued under the Plan shall not be
returned to the Plan and shall not become available for future issuance under
the Plan, except that if unvested Shares are forfeited, or repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan. At all times during the term of this Plan, the
Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
4. Eligibility.
-----------
(a) General Rules of Eligibility. Options may be granted to employees,
----------------------------
officers, directors, consultants, independent contractors and advisors (provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company. ISOs may be granted only to employees (including officers and directors
who are also employees) of the Company or a Parent or Subsidiary of the Company.
The Committee (as defined in Section 15) in its sole discretion shall select the
recipients of Options ("Optionees"). An Optionee may be granted more than one
Option under this Plan.
(b) Company Assumption of Options. The Company may also, from time to
-----------------------------
time, assume outstanding options granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (i)
granting an Option under this Plan in replacement of the Option assumed by the
Company, or (ii) treating the assumed option as if it
- -------------
/1/Approved by the Company's Board of Directors and stockholders on ______ __,
199_, and ______ __, 199_, respectively.
<PAGE>
had been granted under this Plan if the terms of such assumed option could be
applied to an Option granted under this Plan. Such assumption shall be
permissible if the holder of the assumed option would have been eligible to be
granted an Option hereunder if the other company had applied the rules of this
Plan to such grant.
5. Terms and Conditions of Options. The Committee shall determine whether
-------------------------------
each Option is to be an ISO or an NQSO, the number of Shares subject to the
Option, the exercise price of the Option, the period during which the Option may
be exercised, and all other terms and conditions of the Option, subject to the
following:
(a) Form of Option Grant. Each Option granted under this Plan shall be
--------------------
evidenced by a written Stock Option Grant (the "Grant") in substantially the
form attached hereto as Exhibit A and Exhibit A-1 (with respect to grants made
to Non-Employee Directors pursuant to Section 6 hereof) or such other form as
shall be approved by the Committee.
(b) Date of Grant. The date of grant of an Option shall be the date on
-------------
which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee and subject to applicable provisions of the
Code. The Grant representing the Option will be delivered to the Optionee with a
copy of this Plan within a reasonable time after the date of grant; provided,
however, that if, for any reason, including a unilateral decision by the
Committee not to execute an agreement evidencing such Option, a written Grant is
not executed within sixty (60) days after the date of grant, such Option shall
be deemed null and void (at the discretion of the Committee). No Option shall be
exercisable until such Grant is executed by the Company and the Optionee.
(c) Exercise Price. The exercise price of an NQSO shall be not less
--------------
than eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Option is granted. The exercise price of an ISO shall be not less than
one hundred percent (100%) of the Fair Market Value of the Shares on the date
the Option is granted. The exercise price of any Option granted to a person
owning more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten
Percent Shareholders") shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the times or
---------------
upon the events determined by the Committee as set forth in the Grant; provided,
however, that, so long as required by Applicable Laws, each Option must become
exercisable at a rate of at least twenty percent (20%) per year over five (5)
years from the date the Option is granted; provided further, that no Option
shall be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further, that no ISO granted to a Ten Percent
Shareholder shall be exercisable after the expiration of five (5) years from the
date the Option is granted. The Committee may grant an Option whereby the
Optionee may elect to exercise any or all of the Option prior to full vesting.
Any unvested Shares received pursuant to such exercise may be subject to a
repurchase right in favor of the Company or to any other restriction the
Committee determines to be appropriate.
2
<PAGE>
(e) Limitations on Options. The aggregate Fair Market Value
----------------------
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed one hundred
thousand dollars ($100,000). To the extent that the Fair Market Value of stock
with respect to which ISOs are exercisable for the first time by an Optionee
during any calendar year exceeds $100,000, the Options for the amount in excess
of $100,000 shall be treated as not being ISOs and shall be treated as NQSOs.
The foregoing shall be applied by taking Options into account in the order in
which they were granted. In the event that the Code or the regulations
promulgated thereunder are amended after the effective date of this Plan to
provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISOs, such different limit shall be incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
(f) Options Non-Transferable. To the extent provided in an individual
-------------------------
Grant, NQSOs shall be transferable by gift to members of the Optionee's
Immediate Family, by instrument to an inter vivos or testamentary trust under
which the NQSOs are to be passed to beneficiaries upon the death of the Optionee
as settlor of the trust, by will, and by the laws of descent and distribution.
ISOs granted under this Plan, and any interest therein, shall not be
transferable or assignable by the Optionee, and may not be made subject to
execution, attachment or similar process, otherwise than by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Optionee only by the Optionee or any permitted transferee.
(g) Assumed Options. In the event the Company assumes an option
---------------
granted by another company in accordance with Section 4(b) above, the terms and
conditions of such option shall remain unchanged (except the exercise price and
the number and nature of shares issuable upon exercise, which will be adjusted
appropriately pursuant to Section 424 of the Code and the Treasury Regulations
applicable thereto). In the event the Company elects to grant a new Option
rather than assuming an existing option (as specified in Section 4), such new
Option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
(h) Termination of Options. Except as otherwise provided in an
----------------------
Optionee's Grant, Options granted under the Plan shall terminate and may not be
exercised if the Optionee ceases to be employed by, or provide services to, the
Company or any Parent or Subsidiary of the Company (or, in the case of a NQSO,
by or to any Affiliate of the Company). An Optionee shall be considered to be
employed by the Company for all purposes under this Section 5(h) if the Optionee
is an officer, director or full-time employee of the Company or any Parent,
Subsidiary or Affiliate of the Company or if the Committee determines that the
Optionee is rendering substantial services as a part-time employee, consultant,
contractor or advisor to the Company or any Parent, Subsidiary or Affiliate of
the Company. The Committee shall have discretion to determine whether an
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated (the "Termination Date").
3
<PAGE>
(i) Termination Generally. If an Optionee ceases to be employed by the
---------------------
Company and all Parents, Subsidiaries or Affiliates of the Company for any
reason except death or disability, the Options which are then exercisable (and
only to the extent exercisable)(the "Vested Options") by the Optionee on the
Termination Date, may be exercised by the Optionee, but only within three months
after the Termination Date or such shorter period of time as provided in the
Grant, but in no event less than thirty (30) days; provided that Options may not
be exercised in any event after the Expiration Date.
(j) Death or Disability. If an Optionee's employment with the Company
-------------------
and all Parents, Subsidiaries and Affiliates of the Company is terminated
because of the death of the Optionee or the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code, the Vested
Options, as determined on the Termination Date, may be exercised by the Optionee
(or the Optionee's legal representative), but only within twelve (12) months
after the Termination Date; and provided further that Options may not be
exercised in any event later than the Expiration Date. If an Optionee's
employment with the Company and all Parents, Subsidiaries and Affiliates of the
Company is terminated because of a disability of the Optionee which is not
permanent and total within the meaning of Section 22(e)(3) of the Code, the
Vested Options, as determined on the Termination Date, may be exercised by the
Optionee or the Optionee's legal representative, but only within six (6) months
after the Termination Date; and provided further that Options may not be
exercised in any event later than the Expiration Date.
6. Director Formula Option Grants. In addition to discretionary grants of
------------------------------
Options granted pursuant to other terms of this Plan, Non-Employee Directors of
the Company shall receive Options in accordance with the following terms:
(a) Formula Grant. On the date of adoption of this Plan, each Non-
--------------
Employee Director shall receive a NQSO for 10,000 shares. Following the date of
adoption of this Plan, upon initial election or appointment to the Company's
Board of Directors, provided that such election or appointment is not during the
Company's last quarter of a year, the elected or appointed Non-Employee Director
shall receive a NQSO for 10,000 shares on the first business day following the
election or appointment of such Non-Employee Director. Thereafter, annually on
January 1, each Non-Employee Director shall receive a NQSO for 10,000 shares.
(b) Terms of Grant. Options granted pursuant to this Section 6 shall
--------------
be subject to the following terms:
(i) Exercise Price and Payment Terms. The exercise price for the
--------------------------------
Options granted pursuant to this Section 6 shall be equal to one hundred
per cent (100%) of the Fair Market Value of the Shares on the date of the
grant, (excepting Ten Percent Shareholders in respect of whom the exercise
price for the Options granted pursuant to this Section 6 shall be equal to
one hundred ten percent (110%)) payable in cash or otherwise in accordance
with the alternatives specified in clauses (i), (ii), (iv), (v) and (vi) of
Section 7(b) of this Plan.
4
<PAGE>
(ii) Term. The term of the Options shall be ten (10) years from
----
the date the Option is granted (excepting Ten Percent Shareholders in
respect of whom the term of the Options shall be five (5) years).
(iii) Vesting and Repurchase Period. All Options granted pursuant
-----------------------------
to the terms of this Section 6 shall be exercisable at anytime on or after
the date of grant pursuant to the terms of the form of Grant set forth as
Exhibit A-1 hereto. The Company shall have the right to repurchase any
unvested Shares at the exercise price paid for such Shares pursuant to the
terms of the form of Grant set forth as Exhibit A-1 hereto. With respect to
Shares issued pursuant to Options granted on the date of adoption of the
Plan, the Company's repurchase rights as to unvested Shares shall lapse on
the earlier of (i) June 30, 1999 or (ii) the consummation of the Company's
initial public offering of common stock. With respect to Shares issued
pursuant to all other Options granted pursuant to the terms of this Section
6, the Company's repurchase rights as to unvested Shares shall lapse nine
(9) months after the date of the grant.
(iv) Other Terms. In order to be eligible for the annual
-----------
automatic option grants, the Non-Employee Director shall be on the date of
grant, and shall have maintained for the prior year, continuous status as
an active member of the Board of Directors for the entire year or from the
date the Non-Employee Director joined the Board of Directors. If, for any
reason, a Non-Employee Director ceases to be a member of the Board, such
director shall be ineligible for that year's grant.
7. Exercise of Options.
-------------------
(a) Notices. Options may be exercised only by delivery to the Company
-------
of a written exercise agreement in a form approved by the Committee (which need
not be the same for each Optionee), stating the number of Shares being
purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by check) or,
-------
where permitted by law any of the following methods approved by the Committee,
or any combination thereof, provided that the portion of the consideration equal
to the par value of the Shares must be paid in cash or other legal consideration
permitted by the Delaware General Corporation Law: (i) by cancellation of
indebtedness of the Company to the Optionee; (ii) by surrender of shares of
Common Stock of the Company already owned by the Optionee, having a Fair Market
Value equal to the exercise price of the Option (but only to the extent that
such exercise would not result in an accounting compensation charge with respect
to the Shares used to pay the exercise price unless otherwise determined by the
Committee); (iii) by waiver of compensation due or accrued to Optionee for
services rendered; (iv) through delivery of a promissory note for the full
exercise price bearing interest at such rate with the note due at such time, on
a secured or unsecured basis, as determined by the Committee; (v) provided that
a
5
<PAGE>
public market for the Company's stock exists, through a "same day sale"
commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; and/or (vi) provided that a public market for the
Company's stock exists, through a "margin" commitment from the Optionee and an
NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable. Where approved
by the Committee in its sole discretion, the Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the minimum amount of taxes
required to be withheld. In such case, the Company shall issue the net number of
Shares to the Optionee by deducting the Shares retained from the Shares
exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by
Optionees to have Shares withheld for this purpose shall be made in writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent or
disapproval of the Committee; and
(iv) if the Optionee is an officer or director of the Company or
other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and if the Company
is subject to Section 16(b) of the Exchange Act, the election must comply
with Rule 16b-3 as promulgated by the Securities and Exchange Commission
("Rule 16b-3").
(d) Limitations on Exercise. Notwithstanding anything else to the
-----------------------
contrary in the Plan or any Grant, no Option may be exercisable later than the
expiration date of the Option.
8. Restrictions on Shares. At the discretion of the Committee, the Company
----------------------
may reserve to itself and/or its assignee(s) in the Grant (a) a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party, and/or (b) a
6
<PAGE>
right to repurchase a portion of or all Shares held by an Optionee upon the
Optionee's termination of employment or service with the Company or its Parent,
Subsidiary or Affiliate of the Company for any reason within a specified time
(but not to exceed ninety (90) days of the later of termination or exercise of
the Option, if required by Applicable Laws), as determined by the Committee at
the time of grant at the higher of (i) the Optionee's original purchase price
or, (ii) the Fair Market Value of such Shares. Shares may be repurchased at
Optionee's original purchase price provided that, so long as required by
Applicable Laws, such right to repurchase as to employees lapses at the rate of
at least twenty percent (20%) of the Shares subject to the Option per year over
five (5) years from the date the Option is granted (without respect to the date
the Option was exercised or became exercisable).
9. Modification, Extension and Renewal of Options. The Committee shall have
----------------------------------------------
the power to modify, extend or renew outstanding Options and to authorize the
grant of new Options in substitution therefor, provided that any such action may
not, without the written consent of the Optionee, impair any rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding options; provided, however, that the exercise price per share may
not be reduced below the minimum exercise price that would be permitted under
Section 5(c) of this Plan for options granted on the date the action is taken to
reduce the exercise price.
10. Privileges of Stock Ownership. No Optionee shall have any of the rights
-----------------------------
of a shareholder with respect to any Shares subject to an Option until such
Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee,
regardless of the reports provided to shareholders in general, a copy of the
annual financial statements of the Company within a reasonable time frame
following the end of the fiscal year of the Company.
11. No Obligation to Employ; No Right to Future Grants. Nothing in this
--------------------------------------------------
Plan or any Option granted under this Plan shall confer on any Optionee any
right (a) to continue in the employ of, or other relationship with, the Company
or any Parent or Subsidiary of the Company or limit in any way the right of the
Company or any Parent, Subsidiary or Affiliate of the Company to terminate the
Optionee's employment or other relationship at any time, with or without cause,
or (b) to have any Option(s) granted to such Optionee under this Plan, or any
other plan, or to acquire any other securities of the Company, in the future.
12. Adjustment of Option Shares. In the event that the number of
---------------------------
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
or shareholders of the Company and compliance with
7
<PAGE>
applicable securities laws; provided, however, that a fractional share shall not
be issued upon exercise of any Option and any fractions of a Share that would
have resulted shall either be cashed out at Fair Market Value or the number of
Shares issuable under the Option shall be rounded down to the nearest whole
number, as determined by the Committee; and provided further that the exercise
price may not be decreased to below the par value, if any, for the Shares.
13. Assumption of Options by Successors.
-----------------------------------
(a) In the event of (i) a merger or consolidation as a result of which
the holders of voting securities of the Company prior to the transaction hold
shares representing less than 51% of the voting securities of the Company after
giving effect to the transaction (other than a merger or consolidation with a
wholly-owned subsidiary or where there is no substantial change in the
shareholders of the corporation and the Options granted under this Plan are
assumed by the successor corporation), or (ii) the sale of all or substantially
all of the assets of the Company, any or all outstanding Options shall be
assumed by the successor corporation, which assumption shall be binding on all
Optionees, an equivalent option shall be substituted by such successor
corporation or the successor corporation shall provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of the Optionees' options such as the exercise
price and the vesting schedule), and, in the case of outstanding shares subject
to a repurchase option, issue substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Optionee.
(b) In the event such successor corporation, if any, refuses to assume
or substitute, as provided above, pursuant to an event described in
subsection (a) above, or in the event of a dissolution or liquidation of
the Company, the Options shall, notwithstanding any contrary terms in the
Grant, expire on a date specified in a written notice given by the
Committee to the Optionees specifying the terms and conditions of such
termination (which date shall be at least twenty (20) days after the date
the Committee gives the written notice).
14. Adoption and Shareholder Approval. This Plan shall become effective on
---------------------------------
the date that it is adopted by the Board of Directors of the Company (the
"Board"). This Plan shall be approved by the shareholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board.
15. Administration. This Plan may be administered by the Board or a
--------------
Committee appointed by the Board (the "Committee"). At all times during which
the Company is registered under the Exchange Act, with respect to grants of
awards to directors or employees who are also officers or directors of the
Company, the Plan shall be administered by (A) the Board, or (B) a Committee
designated by the Board, which Committee shall be constituted in such a manner
as to satisfy the Applicable Laws and to permit such grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange Act
in accordance with Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. As used
in this Plan, references to the "Committee" shall mean either such Committee or
the Board if no committee has been established. The interpretation by the
Committee of any of the provisions of this Plan, any related agreements, or any
Option granted
8
<PAGE>
under this Plan shall be final and binding upon the Company and all persons
having an interest in any Option or any Shares purchased pursuant to an Option.
16. Term of Plan. Options may be granted pursuant to this Plan from time to
------------
time on or prior to December 31, 2008, a date which is less than ten years after
the earlier of the date of approval of this Plan by the Board or the
shareholders of the Company pursuant to Section 14 of this Plan.
17. Amendment or Termination of Plan. The Board or Committee may, at any
--------------------------------
time, amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made which would impair the
rights of any Optionee under any Option theretofore granted, without his or her
consent. To the extent necessary to comply with Applicable Laws, the Company
shall obtain approval of the stockholders of the Company of any plan amendment
in such a manner and to such a degree as required. Without limiting the
foregoing, the Board or Committee may at any time or from time to time authorize
the Company, with the consent of the respective Optionees, to issue new Options
in exchange for the surrender and cancellation of any or all outstanding
Options.
18. Certain Definitions. As used in this Plan, the following terms shall
-------------------
have the following meanings:
(a) "Affiliate" means any corporation that directly, or indirectly
---------
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal and state securities laws, the corporate laws of California and, to the
extent other than California, the corporate law of the state of the Company's
incorporation, the Code, the rules of any applicable stock exchange or national
market system, and the rules of any foreign jurisdiction applicable to awards
granted to residents therein.
(c) "Fair Market Value" shall mean the fair market value of the Shares
-----------------
as determined by the Committee from time to time in good faith, and if required
by Applicable Laws, in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations. If a public market exists for the Shares,
the Fair Market Value shall be the average of the last reported bid and asked
prices for Common Stock of the Company on the last trading day prior to the date
of determination or, in the event the Common Stock of the Company is listed on a
stock exchange or is a Nasdaq National Market security, the Fair Market Value
shall be the closing price on such exchange or quotation system on the last
trading day prior to the date of determination.
9
<PAGE>
(d) "Non-Employee Directors" shall have the meaning set forth in Rule
-----------------------
16b-3(b)(3) as promulgated by the Securities and Exchange Commission under
Section 16(b) of the Exchange Act, as such rule is amended from time to time and
as interpreted by the Securities and Exchange Commission.
(e) "Immediate Family" means an individual who is a member of the
----------------
Optionee's "immediate family" as that term is defined under Rule 16a-1(e) of the
Exchange Act.
(f) "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(g) "Subsidiary" means any corporation (other than the Company) in an
---------
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
19. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more options outstanding,
copies of financial statements at least annually.
20. Applicable Law and Regulations. The obligations of the Company under
------------------------------
this Plan are subject to the approval of state and federal authorities or
agencies with jurisdiction over the subject matter hereof. The Company shall not
be obligated to issue or deliver shares under this Plan if such issuance or
delivery would violate applicable state or federal securities laws.
10
<PAGE>
EXHIBIT A
STOCK OPTION GRANT
------------------
Optionee:
Address:
Total Shares Subject to Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date of Option
Type of Option: Incentive:
-------------------------------
Nonqualified:
----------------------------
1. Grant of Option. CyberSource Corporation, a Delaware corporation (the
---------------
"Company"), hereby grants to the optionee named above ("Optionee") an option
(this "Option") to purchase the total number of shares of Common Stock ("Common
Stock") of the Company set forth above (the "Shares") at the exercise price per
share set forth above (the "Exercise Price"), subject to all of the terms and
conditions of this Grant and the Company's 1999 Stock Option Plan, as amended to
the date hereof (the "Plan"). If designated as an Incentive Stock Option above,
this Option is intended to qualify as an "incentive stock option" ("ISO") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings ascribed to them in the Plan.
2. Exercise Period of Option.
-----------------------------
(a) (ISOs). The Optionee has option rights hereunder to purchase a
----
total of ___________ Shares which shall become exercisable during the time
periods as set forth in this Section 2. On and after ______________ [one year
from date of grant], this Option may be exercised by the Optionee for the
purchase of ________ [fraction] of the Shares covered by this Option (_______
Shares), or any portion thereof. On or after the last day of each full month
following __________ [one year from the date of grant] this Option may be
exercised by the Optionee for the purchase of an additional ________ [fraction]
of the Shares covered by this Option (_________ Shares), or any portion thereof.
Once a portion of this Option becomes exercisable it shall remain exercisable
until the Expiration Date, or until it terminates pursuant to the terms of
Section 4 hereof, whichever is first to occur.
(b) (NQSOs). The Optionee has option rights hereunder to purchase a
-----
total of ___________ Shares which shall become exercisable by the Optionee at
any time on or after _______________ after _____________ . Once a portion of
this Option becomes exercisable it
1
<PAGE>
shall remain exercisable until the Expiration Date, or until it terminates
pursuant to the terms of Section 4 hereof, whichever is first to occur.
(c) The minimum number of Shares that may be purchased upon any
partial exercise of the Option is one hundred (100) shares.
(d) This Option shall expire on the Expiration Date set forth above
and must be exercised, if at all, on or before the Expiration Date. The portion
of Shares as to which an Option is exercisable in accordance with the above
schedule as of the applicable dates shall be deemed "Vested Options."
3. Restriction on Exercise. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise,
and the requirements of any stock exchange or over-the-counter market on which
the Company's Common Stock may be listed or quoted at the time of exercise.
Optionee understands that the Company is under no obligation to register,
qualify or list the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
4. Termination of Option. Except as provided below in this Section 4, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be
employed by, or provide services to, the Company or by any Parent or Subsidiary
of the Company (or, in the case of a nonqualified stock option, by or to any
Affiliate of the Company). Optionee shall be considered to be employed by the
Company for all purposes under this Section 4 if Optionee is an officer,
director or full-time employee of the Company or any Parent, Subsidiary or
Affiliate of the Company or if the Committee determines that Optionee is
rendering substantial services as a part-time employee, consultant, contractor
or advisor to the Company or any Parent, Subsidiary or Affiliate of the Company.
The Committee shall have discretion to determine whether Optionee has ceased to
be employed by the Company or any Parent, Subsidiary or Affiliate of the Company
and the effective date on which such employment terminated (the "Termination
Date").
(a) Termination Generally. If Optionee ceases to be employed by the
---------------------
Company and all Parents, Subsidiaries or Affiliates of the Company for any
reason except death or disability, the Vested Options, to the extent (and only
to the extent) exercisable by Optionee on the Termination Date, may be exercised
by Optionee, but only within thirty (30) days after the Termination Date;
provided that this Option may not be exercised in any event after the Expiration
Date.
(b) Death or Disability. If Optionee's employment with the Company and
------------------
all Parents, Subsidiaries and Affiliates of the Company is terminated because of
the death of Optionee or the disability of Optionee, including, without
limitation, such disability as defined in Section 22(e)(3) of the Code, the
Vested Options, to the extent (and only to the extent) exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or Optionee's
2
<PAGE>
legal representative), but only within twelve (12) months after the Termination
Date; provided that this Option may not be exercised in any event later than the
Expiration Date.
(c) No Right to Employment. Nothing in the Plan or this Grant shall
----------------------
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Optionee's employment or other relationship at any
time, with or without cause.
5. Manner of Exercise.
------------------
(a) Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Stock Option Exercise Agreement in the
form attached hereto as Exhibit 1, or in such other form as may be approved by
the Company, which shall set forth Optionee's election to exercise some or all
of this Option, the number of Shares being purchased, any restrictions imposed
on the Shares and such other representations and agreements as may be required
by the Company to comply with applicable securities laws.
(b) Exercise Price. The Stock Option Exercise Agreement shall be
--------------
accompanied by full payment of the Exercise Price for the Shares being
purchased. Payment for the Shares may be made in (by check), or, where permitted
by law, by any of the following methods approved by the Committee, or any
combinations thereof:
[ ] (i) by cancellation of indebtedness of the Company to the
Optionee;
[ ] (ii) by surrender of shares of Common Stock of the Company
already owned by the Optionee, or which were obtained by
Optionee in the open public market, having a Fair Market
Value equal to the exercise price of the Option (but only
to the extent that such exercise would not result in an
accounting compensation change with respect to the Shares
used to pay the exercise price unless otherwise determined
by the Committee);
[ ] (iii) by waiver of compensation due or accrued to Optionee for
services rendered;
[ ] (iv) by delivery of a promissory note in the amount of
$__________ with such terms as determined by the
Committee;
[ ] (v) provided that a public market for the Company's stock
exists, through a "same day sale" commitment from the
Optionee and a broker dealer that is a member of the
National Association of Securities Dealers, Inc. (an "NASD
Dealer") whereby the Optionee irrevocably elects to
exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the
3
<PAGE>
NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price directly to the
Company; or
[ ] (vi) provided that a public market for the Company's stock
exists, through a "margin" commitment from the Optionee
and an NASD Dealer whereby the Optionee irrevocably elects
to exercise this option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD dealer
irrevocably commits upon receipt of such Shares to forward
the exercise price directly to the Company.
(c) Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the Company. The Optionee
may provide for payment of Optionee's minimum statutory withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld, all
as set forth in Section 7(c) of the Plan. In such case, the Company shall issue
the net number of Shares to the Optionee by deducting the Shares retained from
the Shares exercised.
(d) Issuance of Shares. Provided that such Stock Option Exercise
------------------
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall cause the Shares to be issued in the name of Optionee
or Optionee's legal representative.
6. Notice of Disqualifying Disposition of ISO Shares. If the Option granted
-------------------------------------------------
to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any
of the Shares acquired pursuant to the ISO on or before the later of (1) the
date two years after the Date of Grant, or (2) the date one year after exercise
of the ISO with respect to the Shares to be sold or disposed of, the Optionee
shall immediately notify the Company in writing of such disposition. Optionee
acknowledges and agrees that Optionee may be subject to income tax withholding
by the Company on the compensation income recognized by the Optionee from any
such early disposition by payment in cash or out of the current wages or other
earnings payable to the Optionee.
7. Nontransferability of Option. This Option may not be transferred in any
----------------------------
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of Optionee only by Optionee or any permitted
transferee as set forth in the Plan. The terms of this Option shall be binding
upon the executors, administrators, successors and assigns of the Optionee.
8. Restrictions on Shares. The Company and the Company's shareholder have
----------------------
certain rights of first refusal that are set forth in Article X of the Company's
Bylaws. A copy of Article X of the Bylaws is available upon request from the
Secretary of the Company. The
4
<PAGE>
Company reserves to itself for so long as the Company's stock is not publicly
traded (a) the right of first refusal to purchase all Shares that Optionee (or a
subsequent transferee) may propose to transfer to a third party and/or (b) the
right to repurchase within 90 days of the later of Optionee's termination of
employment or service with the Company or its Parent, Subsidiary or Affiliate of
the Company and the exercise of the Option, a portion of or all Shares held by
an Optionee at the higher of (i) the Optionee's original purchase price or, (ii)
the Fair Market Value of such Shares.
9. Federal Tax Consequences. Set forth below is a brief summary as of the
------------------------
date this form of Option Grant was adopted of some of the federal tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of this Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to
alternative minimum taxable income for federal income tax purposes and may
subject the Optionee to an alternative minimum tax liability in the year of
exercise.
(b) Exercise of Nonqualified Stock Option. If this Option does not
-------------------------------------
qualify as an ISO (a "nonqualified stock option"), there may be a regular
federal income tax liability upon the exercise of the Option. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price. The Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. In the case of a nonqualified stock option,
---------------------
if Shares are held for at least one year before disposition, any gain on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an ISO, if Shares are held
for at least one year after the date of exercise and at least two years after
the Date of Grant, any gain on disposition of the Shares will be treated as
long-term capital gain for federal and California income tax purposes. If Shares
acquired pursuant to an ISO are disposed of within such one-year or two-year
periods (a "disqualifying disposition"), gain on such disqualifying disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price (the "Spread"). Any gain in excess of the
Spread shall be treated as capital gain.
5
<PAGE>
10. Interpretation. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Company's Board of
Directors or the Committee, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Board or Committee shall be
final and binding on the Company and on Optionee
11. Entire Agreement. The Plan and the Stock Option Exercise Agreement
----------------
attached hereto as Exhibit 1 are incorporated herein by this reference. This
Grant, the Plan and the Stock Option Exercise Agreement constitute the entire
agreement of the parties hereto and supersede all prior undertakings and
agreements with respect to the subject matter hereof.
12. Corporate Transactions.
----------------------
(a) Definitions. For purposes of this Grant, the following terms shall
have the meanings set forth below:
(i) "Annual Base Salary" means Optionee's annual base salary at
the rate in effect during the last regularly scheduled payroll period
immediately preceding (i) the Change in Control or (ii) the Covered
Termination, whichever is greater.
(ii) "Change in Control" means the occurrence of any of the
following events:
(A) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) fifty-percent (50%) or more
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) the stockholders of the Company
approve either a plan of liquidation or dissolution of the Company or
an agreement for the sale, lease, exchange or other transfer or
disposition by the Company of fifty-percent (50%) or more of the
Company's assets; or
(B) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), is or becomes the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act), directly or indirectly,
of fifty percent (50%) or more of the Company's outstanding common
stock.
6
<PAGE>
(iii) "Constructive Termination" means that the Optionee
voluntarily terminates his employment after any of the following are
undertaken without Optionee's express written consent:
(A) the assignment to Optionee of any duties or
responsibilities which result in any material diminution or material
adverse change of Optionee's position, status or circumstances of
employment as in effect immediately prior to a Change in Control of
the Company; a change in Optionee's titles or offices as in effect
immediately prior to a Change in Control of the Company which results
in any material diminution or material adverse change of Optionee's
position, status or circumstances of employment; or any removal of
Optionee from or any failure to re-elect Optionee to any of such
positions, except in connection with the termination of his employment
for death, disability, retirement, fraud, misappropriation,
embezzlement or any other voluntary termination of employment by
Optionee other than a Constructive Termination; provided, however,
that no Constructive Termination shall be deemed to occur following a
Change in Control of the Company by merely virtue of the Company
operating as a subsidiary or division of the acquiring company if the
Optionee continues with no material adverse change or material
diminution in Optionee's title, duties or responsibilities following
the Change in Control;
(B) a reduction by the Company in Optionee's Annual Base
Salary by greater than ten (10) percent;
(C) any failure by the Company to continue in effect any
benefit plan or arrangement, including incentive plans or plans to
receive securities of the Company, in which Optionee is participating
at the time of a Change in Control of the Company (hereinafter
referred to as "Benefit Plans"), or the taking of any action by the
Company which would materially adversely affect Optionee's
participation in or reduce Optionee's benefits under the Benefit Plans
or deprive Optionee of any fringe benefit enjoyed by Optionee at the
time of a Change in Control of the Company; provided, however, that no
Constructive Termination shall be deemed to occur following a Change
in Control of the Company if the Company offers a range of benefit
plans and programs which, taken as a whole, are comparable to the
Benefit Plans as determined in good faith by the Company;
7
<PAGE>
(D) a relocation of Optionee, or the Company's principal
offices if Optionee's principal office is at such offices, to a
location more than forty (40) miles from the location at which
Optionee was performing his duties prior to a Change in Control of the
Company, except for required travel by Optionee on the Company's
business to an extent substantially consistent with Optionee's
business travel obligations at the time of a Change in control of the
Company;
(E) any material breach by the Company of any provision of
this Grant; or
(F) any failure by the Company to obtain the assumption of
this Grant by any successor or assign of the Company.
(iv) "Covered Termination" means an Involuntary Termination or a
Constructive Termination occurring in either case within one (1) year
following a Change in Control. No other event shall be a Covered
Termination for purposes of this Grant.
(v) "Involuntary Termination" means Optionee's dismissal or discharge
by the Company (or, if applicable, by the successor entity) for reasons
other than commission of a felony or any other crime involving moral
turpitude, repeated failure to perform services in accordance with the
requests of superiors within the context of Optionee's duties, or the
commission of a material fraud, misappropriation, embezzlement or other act
of gross dishonesty on the part of Optionee which resulted in material
loss, damage or injury to the Company.
The termination of an Optionee's employment would not be deemed to be an
"Involuntary Termination" if such termination occurs as a result of the death or
disability of Optionee.
8
<PAGE>
(b) Stock Option Vesting Acceleration. One-half (1/2) of the Shares
---------------------------------
covered by this Option which are then unvested shall become fully vested and
exercisable immediately upon the occurrence of a Covered Termination. By way of
example and solely for illustrative purposes, if at the time of a Covered
Termination Optionee holds stock options covering the purchase of 100,000 shares
of Company stock which are exercisable as to 50,000 shares and not exercisable
as to 50,000 shares, the stock options shall be exercisable as to an additional
25,000 shares due to the Covered Termination. Except as set forth herein, the
terms of the Grant shall remain in full force and effect and subject to the
terms of the Plan. Optionee acknowledges that the acceleration of the vesting of
his options may cause such options to disqualify as incentive stock options (as
defined under Section 422 of the Code) which may create adverse tax consequences
to the Optionee. The Company recommends that Optionee obtain the advice of his
tax advisor prior to entering into this Grant.
CYBERSOURCE CORPORATION, a Delaware corporation
By:
----------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
9
<PAGE>
ACCEPTANCE
----------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Stock
Option Grant. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax adviser prior to such exercise or disposition.
OPTIONEE
By:
----------------------------------------------
Name:
-------------------------------------------
Date:
-------------------------------------------
<PAGE>
EXHIBIT 1 TO STOCK OPTION GRANT
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
This Agreement is made this _____ day of ________________, _____ between
CyberSource Corporation, a Delaware corporation (the "Company"), and the
optionee named below ("Optionee").
Optionee:
Address:
Total Shares Subject to Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date of Option
Type of Option: Incentive:
------------
Nonqualified:
------------
Optionee hereby delivers to the Company the Aggregate Purchase Price, to
the extent permitted in the Option Grant, as follows [check as applicable and
complete]:
[ ] cash (check) in the amount of $___________, receipt of which is
acknowledged by the Company;
[ ] by delivery of ____________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Optionee and owned
free and clear of all liens, claims, encumbrances or security
interests, valued at the current fair market value of $_________ per
share (determined in accordance with the Plan) (but only to the extent
that such exercise would not result in an accounting compensation
change with respect to the Shares used to pay the exercise price
unless otherwise determined by the Committee);
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $______________;
[ ] through delivery of a promissory note in the amount of $_________
with such terms as determined by the Committee;
[ ] by delivery of a "same day sale" commitment from the Optionee and
a broker dealer that is a member of the National Association of
Securities Dealers, Inc. (an "NASD Dealer") whereby the Optionee
irrevocably elects to exercise the Option
<PAGE>
and to sell a portion of the Shares so purchased to pay for the
exercise price of $_________ and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price
directly to the Company (this payment method may be used only if a
public market for the Company's stock exists); or
[ ] by delivery of a "margin" commitment from the Optionee and an
NASD Dealer whereby the Optionee irrevocably elects to exercise this
option and to pledge the Shares so purchased to the NASD Dealer in a
margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price of
$_________ directly to the Company (this payment method may be used
only if a public market for the Company's stock exists).
The Company and Optionee hereby agree as follows:
1. Purchase of Shares. On this date and subject to the terms and conditions
------------------
of this Agreement, Optionee hereby exercises the Stock Option Grant between the
Company and Optionee dated as of the Date of Option Grant set forth above (the
"Grant"), with respect to the Number of Shares Purchased set forth above of the
Company's Common Stock (the "Shares") at an aggregate purchase price equal to
the Aggregate Purchase Price set forth above (the "Purchase Price") and the
Price per Share set forth above (the "Purchase Price Per Share"). The term
"Shares" refers to the Shares purchased under this Agreement and includes all
securities received (a) in replacement of the Shares, and (b) as a result of
stock dividends or stock splits in respect of the Shares. Capitalized terms used
herein that are not defined herein have the definitions ascribed to them in the
Plan or the Grant.
2. Representations of Purchaser. Optionee represents and warrants to the
----------------------------
Company that:
(a) Optionee has received, read and understood the Plan and the Grant
and agrees to abide by and be bound by their terms and conditions.
(b) Optionee is capable of evaluating the merits and risks of this
investment, has the ability to protect Optionee's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
(c) Optionee is fully aware of (i) the highly speculative nature of
the investment in the Shares; (ii) the financial hazards involved; and (iii) the
lack of liquidity of the Shares and the restrictions on transferability of the
Shares (e.g., that Optionee may not be able to sell or dispose of the Shares or
use them as collateral for loans).
(d) Optionee is purchasing the Shares for Optionee's own account for
investment purposes only and not with a view to, or for sale in connection with,
a distribution of the Shares within the meaning of the Securities Act of 1933,
as amended (the "1933 Act").
<PAGE>
(e) Optionee has no present intention of selling or otherwise
disposing of all or any portion of the Shares.
3. Compliance with Securities Laws. Optionee understands and acknowledges
-------------------------------
that the Shares have not been registered under the 1933 Act and that,
notwithstanding any other provision of the Grant to the contrary, the exercise
of any rights to purchase any Shares is expressly conditioned upon compliance
with the 1933 Act and all applicable state securities laws. Optionee agrees to
cooperate with the Company to ensure compliance with such laws. The Shares are
being issued under the 1933 Act pursuant to [the Company will check the
applicable box]:
[ ] the exemption provided by Rule 701;
[ ] the exemption provided by Rule 504;
[ ] Section 4(2) of the 1933 Act;
[ ] other:
-------------------------
4. Federal Restrictions on Transfer. Optionee understands that the Shares
must be held indefinitely unless they are registered under the 1933 Act or
unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares, and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
(a) Rule 144. Optionee has been advised that Rule 144 promulgated
--------
under the 1933 Act, which permits certain resales of unregistered securities, is
not presently available with respect to the Shares and, in any event, requires
that a minimum of one (1) year elapse between the date of acquisition of Shares
from the Company or an affiliate of the Company and any resale under Rule 144.
Prior to an initial public offering of the Company's stock, "nonaffiliates"
(i.e. persons other than officers, directors and major shareholders of the
Company) may resell only under Rule 144(k), which requires that a minimum of two
(2) years elapse between the date of acquisition of Shares from the Company or
an affiliate of the Company and any resale under Rule 144(k). Rule 144(k) is not
available to affiliates.
(b) Rule 701. If the exemption relied upon for exercise of the Shares
--------
is Rule 701, the Shares will become freely transferable, subject to limited
conditions regarding the method of sale, by nonaffiliates ninety (90) days after
the first sale of common stock of the Company to the general public pursuant to
a registration statement filed with and declared effective by the Securities and
Exchange Commission (the "SEC"), subject to any lengthier market standoff
agreement contained in this Agreement or entered into by Optionee. Affiliates
must comply with the provisions (other than the holding period requirements) of
Rule 144.
<PAGE>
5. State Law Restrictions on Transfer. Optionee understands that transfer
----------------------------------
of the Shares may be restricted by applicable state securities laws, and that
the certificate(s) representing the Shares may bear a legend or legends to that
effect.
6. Market Standoff Agreement. Optionee agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as the Company or the underwriters may specify for
employee shareholders generally.
7. Legends. Optionee understands and agrees that the certificate(s)
-------
representing the Shares will bear a legend in substantially the following forms,
in addition to any other legends required by applicable law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE 'SECURITIES ACT'), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT OR, IN THE OPINION OF
COUNSEL, PREPARED AT ISSUER'S REQUEST AND EXPENSE, IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH."
<PAGE>
8. Stop-Transfer Notices. Optionee understands and agrees that, in order or
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
9. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
----------------
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
10. Repurchase Options. The Company and the Company's shareholders have
------------------
certain rights of first refusal that are set forth in Article X of the Company's
Bylaws. A copy of Article X of the Bylaws is available upon request from the
Secretary of the Company. The Company reserves to itself for so long as the
Company's stock is not publicly traded (a) the right of first refusal to
purchase all Shares that Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) the right to repurchase within 90 days of
the later of the Optionee's termination of employment or service with the
Company or its Parent, Subsidiary or Affiliate of the Company and the exercise
of the Option, a portion of or all Shares held by an Optionee at the higher of
(i) the Optionee's original purchase price or, (ii) the Fair Market Value of
such Shares.
11. Entire Agreement. The Plan and Grant are incorporated herein by
----------------
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
Submitted By: Accepted By:
"OPTIONEE" "COMPANY"
CyberSource Corporation, a
Delaware corporation
By:
- ------------------------------------- -----------------------------
Name: Name:
-------------------------------- --------------------------
Address: Title:
----------------------------- --------------------------
-----------------------------
-----------------------------
Dated: ______ __, _____ Dated: ______ __, ____
<PAGE>
EXHIBIT A-1
IMMEDIATELY EXERCISABLE STOCK OPTION GRANT
------------------------------------------
Optionee:
Address:
Total Shares Subject to
Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date of Option
Type of Option: Nonqualified
1
<PAGE>
1. Grant of Option. CyberSource Corporation, a Delaware corporation (the
---------------
"Company"), hereby grants to the optionee named above ("Optionee") an option
(this "Option") to purchase the total number of shares of Common Stock ("Common
Stock") of the Company set forth above (the "Shares") at the exercise price per
share set forth above (the "Exercise Price"), subject to all of the terms and
conditions of this Grant and the Company's 1999 Stock Option Plan, as amended to
the date hereof (the "Plan"). This Option is not intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Plan.
2. Exercise Period of Option and Vesting. This Option is immediately
-------------------------------------
exercisable although the Shares issued upon exercise of the Option will be
subject to the restrictions on transfer and a right of repurchase at the
Exercise Price, in favor of the Company, as described herein (the "Repurchase
Right"). The Shares are also subject to a Repurchase Right as to vested Shares
pursuant to the terms of the Company's Bylaws. For purposes of this Grant, the
term "vest" shall mean, with respect to any Shares, that such Shares (whether
subject to the Option or acquired upon exercise of the Option) are no longer
subject to the Repurchase Right as to unvested Shares, provided, however, that
such Shares shall remain subject to other restrictions on transfer set forth in
the Grant or the Plan. If the Optionee would become vested in a fraction of a
Share, such Share shall not vest until the Optionee becomes vested in the entire
Share. This Option shall remain exercisable until the Expiration Date, or until
it terminates pursuant to the terms of Section 4 hereof, whichever is first to
occur. Subject to the limitations set forth in this Grant and the Plan, the
Repurchase Right as to unvested Shares shall lapse in accordance with the
following schedule: The Optionee has option rights hereunder to purchase a total
of ___________ Shares subject to NQSOs which vest in full on ___________ after
____________.
(a) The minimum number of Shares that may be purchased upon any
partial exercise of the Option is one hundred (100) shares.
(b) This Option shall expire on the Expiration Date set forth above
and must be exercised, if at all, on or before the Expiration Date. The portion
of Shares as to which an Option is vested and not yet exercised in accordance
with the above schedule as of the applicable dates shall be deemed "Vested
Options."
2
<PAGE>
3. Restriction on Exercise. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise,
and the requirements of any stock exchange or over-the-counter market on which
the Company's Common Stock may be listed or quoted at the time of exercise.
Optionee understands that the Company is under no obligation to register,
qualify or list the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
4. Termination of Option. Except as provided below in this Section 4, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be
employed by, or provide services to, the Company or by any Parent or Subsidiary
of the Company (or, in the case of a nonqualified stock option, by or to any
Affiliate of the Company). Optionee shall be considered to be employed by the
Company for all purposes under this Section 4 if Optionee is an officer,
director or full-time employee of the Company or any Parent, Subsidiary or
Affiliate of the Company or if the Committee determines that Optionee is
rendering substantial services as a part-time employee, consultant, contractor
or advisor to the Company or any Parent, Subsidiary or Affiliate of the Company.
The Committee shall have discretion to determine whether Optionee has ceased to
be employed by the Company or any Parent, Subsidiary or Affiliate of the Company
and the effective date on which such employment terminated (the "Termination
Date").
(a) Termination Generally. If Optionee ceases to be employed by the
---------------------
Company and all Parents, Subsidiaries or Affiliates of the Company for any
reason except death or disability, the Vested Options, to the extent (and only
to the extent) exercisable by Optionee on the Termination Date, may be exercised
by Optionee, but only within thirty (30) days after the Termination Date;
provided that this Option may not be exercised in any event after the Expiration
Date.
(b) Death or Disability. If Optionee's employment with the Company and
-------------------
all Parents, Subsidiaries and Affiliates of the Company is terminated because of
the death of Optionee or the disability of Optionee, including, without
limitation, such disability as defined in Section 22(e)(3) of the Code, the
Vested Options, to the extent (and only to the extent) exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or Optionee's legal
representative), but only within twelve (12) months after the Termination Date;
provided that this Option may not be exercised in any event later than the
Expiration Date.
(c) No Right to Employment. Nothing in the Plan or this Grant shall
----------------------
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Optionee's employment or other relationship at any
time, with or without cause.
3
<PAGE>
5. Manner of Exercise.
------------------
(a) Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Stock Option Exercise Agreement in the
form ttached hereto as Exhibit 1, or in such other form as may be approved by
the Company, which shall set forth Optionee's election to exercise some or all
of this Option, the number of Shares being purchased, any restrictions imposed
on the Shares and such other representations and agreements as may be required
by the Company to comply with applicable securities laws.
(b) Exercise Price. The Stock Option Exercise Agreement shall be
--------------
accompanied by full payment of the Exercise Price for the Shares being
purchased. Payment for the Shares may be made in cash (by check), or, where
permitted by law, by any of the following methods approved by the Committee, or
any combinations thereof:
[ ] (i) by cancellation of indebtedness of the Company to the
Optionee;
[ ] (ii) by surrender of shares of Common Stock of the Company
already owned by the Optionee, or which were obtained by
Optionee in the open public market, having a Fair Market
Value equal to the exercise price of the Option (but only
to the extent that such exercise would not result in an
accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined
by the Committee);
[ ] (iii) by waiver of compensation due or accrued to Optionee for
services rendered;
[ ] (iv) by delivery of a promissory note in the amount of
$__________ with such terms as determined by the
Committee;
[ ] (v) provided that a public market for the Company's stock
exists, and the Shares are vested, through a "same day
sale" commitment from the Optionee and a broker dealer
that is a member of the National Association of Securities
Dealers, Inc. (an "NASD Dealer") whereby the Optionee
irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price
directly to the Company; or
[ ] (vi) provided that a public market for the Company's stock
exists, and the Shares are vested, through a "margin"
commitment from the Optionee and an NASD Dealer whereby
the Optionee irrevocably elects to exercise this option
and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan
4
<PAGE>
from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price
directly to the Company.
(c) Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the Company. The Optionee
may provide for payment of Optionee's minimum statutory withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld, all
as set forth in Section 7(c) of the Plan. In such case, the Company shall issue
the net number of Shares to the Optionee by deducting the Shares retained from
the Shares exercised.
(d) Issuance of Shares/Escrow. Provided that the Stock Option Exercise
-------------------------
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall cause the Shares to be issued in the name of Optionee
or Optionee's legal representative. For purposes of facilitating the enforcement
of the provisions of the Repurchase Right, the Optionee agrees, immediately upon
receipt of the certificate(s) for the Shares and the request of the Company, to
deliver such certificate(s), together with an Assignment Separate from
Certificate in the form prescribed by the Company, executed in blank by the
Optionee and the Optionee's spouse (if required for transfer) with respect to
each such stock certificate, to the Secretary or Assistant Secretary of the
Company, or their designee, to hold in escrow for so long as such Shares have
not vested pursuant to the vesting schedule set forth in the Grant and are
subject to Company's Repurchase Right for unvested Shares, with the authority to
take all such actions and to effectuate all such transfers and/or releases as
may be necessary or appropriate to accomplish the objectives of this Grant in
accordance with the terms hereof. The Optionee hereby acknowledges that the
appointment of the Secretary or Assistant Secretary of the Company (or their
designee) as the escrow holder hereunder with the stated authorities is a
material inducement to the Company to make this Grant and that such appointment
is coupled with an interest and is accordingly irrevocable. The Optionee agrees
that such escrow holder shall not be liable to any party hereto (or to any other
party) for any actions or omissions unless such escrow holder is grossly
negligent relative thereto. The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine and may
resign at any time. Subject to the provisions of any security agreement relating
to Optionee's purchase of the Shares, upon the vesting of Shares and termination
of the Company's Repurchase Right for unvested shares, the escrow holder will,
upon request, transmit to the Optionee the certificate evidencing such Shares.
5
<PAGE>
6. Transfer Restrictions for Unvested Shares. The Shares sold to the
-----------------------------------------
Optionee hereunder may not be sold, transferred by gift, pledged, hypothecated,
or otherwise transferred or disposed of by the Optionee prior to the date that
the Shares become vested. Any attempt to transfer Shares in violation of this
Section 6 will be null and void and will be disregarded. After the Shares vest,
the Shares will remain subject to the Company's Right of First Refusal and the
Company's Repurchase Right for vested shares as set forth in the Company's
Bylaws.
7. Company's Repurchase Right.
--------------------------
(a) Grant of Repurchase Right. The Company is hereby granted the right
-------------------------
(the "Repurchase Right"), exercisable at any time (i) during the ninety (90) day
period following the Termination Date, or (ii) during the ninety (90) day period
following an exercise of the Option that occurs after the Termination Date, to
repurchase all or any portion of the unvested Shares purchased upon exercise of
the Option (the "Share Repurchase Period").
(b) Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each holder of the Shares prior to
the expiration of the Share Repurchase Period. The notice shall indicate the
number of Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not later than the last day of the Share Repurchase
Period. On the date on which the repurchase is to be effected, the Company
and/or its assigns shall pay to the holder in cash or cash equivalents
(including the cancellation of any purchase-money indebtedness) an amount equal
to the Exercise Price per Share for unvested Shares which are to be repurchased
from the Holder. Upon such payment or deposit into escrow for the benefit of the
holder, the Company and/or its assigns shall become the legal and beneficial
owner of the Shares being repurchased and all rights and interest thereon or
related thereto, and the Company shall have the right to transfer to its own
name or its assigns the number of Shares being repurchased, without further
action by the holder.
(c) Assignment. Whenever the Company shall have the right to purchase
----------
Shares under this Repurchase Right, the Company may designate and assign one or
more employees, officers, directors or shareholders of the Company or other
persons or organizations, to exercise all or a part of the Company's Repurchase
Right.
(d) Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Shares for which it is not timely exercised.
8. Corporate Transaction. The Repurchase Right as to unvested Shares shall
---------------------
apply to the new capital stock or other property (including cash paid other than
as a regular cash dividend) received in exchange for the Shares in consummation
of a corporate transaction described in Section 13 of the Plan and such stock or
property shall be deemed additional Shares for purposes of this Grant, but only
to the extent the Shares are at the time covered by such Repurchase Right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the corporate
transaction. To the extent that this Option and Grant are is not assumed by the
successor corporation (or its Parent) in
6
<PAGE>
connection with such corporate transaction, the Repurchase Right as to such
unvested Shares shall automatically lapse.
9. Nontransferability of Option. This Option may not be transferred in any
----------------------------
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of Optionee only by Optionee or any permitted
transferee. The terms of this Option shall be binding upon the executors,
administrators, successors and assigns of the Optionee.
10. Restrictions on Shares. The Company and the Company's shareholder have
----------------------
certain rights of first refusal that are set forth in Article X of the Company's
Bylaws. A copy of Article X of the Bylaws is available upon request from the
Secretary of the Company. The Company reserves to itself for so long as the
Company's stock is not publicly traded (a) the right of first refusal to
purchase all Shares that Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) the right to repurchase within 90 days of
the later of Optionee's termination of employment or service with the Company or
its Parent, Subsidiary or Affiliate of the Company and the exercise of the
Option, a portion of or all vested Shares held by an Optionee at the higher of
(i) the Optionee's original purchase price or, (ii) the Fair Market Value of
such Shares.
11. Federal Tax Consequences. Set forth below is a brief summary as of the
------------------------
date this form of Option Grant was adopted of some of the federal tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Section 83 (b) Election For Exercise of Non-Qualified Stock Option
-----------------------------------------------------------------
Subject to Vesting. If the Shares are acquired hereunder pursuant to the
- ------------------
exercise of a NQSO that has not vested pursuant to the vesting schedule set
forth in the Grant, then the Optionee understands that under Code Section 83,
the excess of the Fair Market Value of the Shares on the date any forfeiture
restrictions applicable to the Shares lapse over the Exercise Price paid for the
Shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the Company to
repurchase the Shares pursuant to the Repurchase Right for unvested Shares. The
Optionee understands that he/she may elect under Code Section 83(b) to be taxed
at the time the Shares are acquired hereunder, rather than when and as the
Shares cease to be subject to the forfeiture restrictions. Such election (the
"83(b) Election") must be filed with the Internal Revenue Service within thirty
(30) days after the date Shares are acquired upon exercise of the Option. Even
if the Fair Market Value of the Shares on the date the Option is exercised
equals the Exercise Price paid (and thus no tax is payable), the 83(b) Election
must be made to avoid adverse tax consequences in the future. THE OPTIONEE
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-
DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS
THE FORFEITURE RESTRICTIONS LAPSE.
7
<PAGE>
(b) Exercise of Vested Non-Qualified Stock Option. If pursuant to the
---------------------------------------------
vesting schedule, the Shares acquired upon exercise of the Option are not
subject to any forfeiture restrictions, there may be a regular federal income
tax liability upon the exercise of the Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. The Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
(c) Disposition of Shares. In the case of a nonqualified stock option,
---------------------
if Shares are held for at least one year before disposition, any gain on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes.
12. Interpretation. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Company's Board of
Directors or the Committee, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Board or Committee shall be
final and binding on the Company and on Optionee
13. Entire Agreement. The Plan and the Stock Option Exercise Agreement
----------------
attached hereto as Exhibit 1 are incorporated herein by this reference. This
Grant, the Plan and the Stock Option Exercise Agreement constitute the entire
agreement of the parties hereto and supersede all prior undertakings and
agreements with respect to the subject matter hereof.
CYBERSOURCE CORPORATION, a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
8
<PAGE>
ACCEPTANCE
----------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Stock
Option Grant. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax adviser prior to such exercise or disposition.
OPTIONEE
By:
-----------------------------------------
Name:
---------------------------------------
Date:
----------------------------------------
<PAGE>
EXHIBIT 1 TO STOCK OPTION GRANT
IMMEDIATELY EXERCISABLE STOCK OPTION EXERCISE AGREEMENT
-------------------------------------------------------
This Agreement is made this _____ day of ________________, ___ between
CyberSource Corporation, a Delaware corporation (the "Company"), and the
optionee named below ("Optionee").
Optionee:
Address:
Total Shares Subject to
Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date of Option
Type of Option: Nonqualified:
--------------
Optionee hereby delivers to the Company the Aggregate Purchase Price, to
the extent permitted in the Option Grant, as follows [check as applicable and
complete]:
[ ] cash (check) in the amount of $___________, receipt of which is
acknowledged by the Company;
[ ] by delivery of ____________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Optionee and owned
free and clear of all liens, claims, encumbrances or security
interests, valued at the current fair market value of $_________ per
share (determined in accordance with the Plan and only to the extent
that such exercise would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Committee);
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $______________;
[ ] through delivery of a promissory note in the amount of $_________
with such terms as determined by the Committee;
[ ] provided that the Shares are vested, by delivery of a "same day
sale" commitment from the Optionee and a broker dealer that is a
member of the National Association of Securities Dealers, Inc. (an
"NASD Dealer") whereby
<PAGE>
the Optionee irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise price of
$_________ and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company (this payment method may be used only if a public market for
the Company's stock exists); or
[ ] provided that the Shares are vested, by delivery of a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee
irrevocably elects to exercise this option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price of $_________ directly to the
Company (this payment method may be used only if a public market for
the Company's stock exists).
The Company and Optionee hereby agree as follows:
1. Purchase of Shares. On this date and subject to the terms and
------------------
conditions of this Agreement, Optionee hereby exercises the Stock Option
Grant between the Company and Optionee dated as of the Date of Option Grant
set forth above (the "Grant"), with respect to the Number of Shares
Purchased set forth above of the Company's Common Stock (the "Shares") at an
aggregate purchase price equal to the Aggregate Purchase Price set forth
above (the "Purchase Price") and the Price per Share set forth above (the
"Purchase Price Per Share"). The term "Shares" refers to the Shares
purchased under this Agreement and includes all securities received (a) in
replacement of the Shares, and (b) as a result of stock dividends or stock
splits in respect of the Shares, and such Shares shall be retained in escrow
in the same manner as the Shares with respect to which they relate.
Capitalized terms used herein that are not defined herein have the
definitions ascribed to them in the Plan or the Grant.
2. Representations of Purchaser. Optionee represents and warrants to the
----------------------------
Company that:
(a) Optionee has received, read and understood the Plan and the Grant
and agrees to abide by and be bound by their terms and conditions.
(b) Optionee is fully aware of the Repurchase Right for unvested
Shares in favor of the Company as set forth in the Grant and that unvested
Shares are subject to restrictions on transfer as set forth in the Grant.
(c) Optionee is capable of evaluating the merits and risks of this
investment, has the ability to protect Optionee's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
(d) Optionee is fully aware of (i) the highly speculative nature of
the investment in the Shares; (ii) the financial hazards involved; and
(iii) the lack of liquidity of the
<PAGE>
Shares and the restrictions on transferability of the Shares (e.g., that may not
be able to sell or dispose of the Shares or use them as collateral for loans).
(e) Optionee is purchasing the Shares for Optionee's own account for
investment purposes only and not with a view to, or for sale in connection with,
a distribution of the Shares within the meaning of the Securities Act of 1933,
as amended (the "1933 Act").
(f) Optionee has no present intention of selling or otherwise
disposing of all or any portion of the Shares.
3. Compliance with Securities Laws. Optionee understands and acknowledges
-------------------------------
that the Shares have not been registered under the 1933 Act and that,
notwithstanding any other provision of the Grant to the contrary, the exercise
of any rights to purchase any Shares is expressly conditioned upon compliance
with the 1933 Act and all applicable state securities laws. Optionee agrees to
cooperate with the Company to ensure compliance with such laws. The Shares are
being issued under the 1933 Act pursuant to [the Company will check the
applicable box]:
[ ] the exemption provided by Rule 701;
[ ] the exemption provided by Rule 504;
[ ] Section 4(2) of the 1933 Act;
[ ] other:
----------------------------
4. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the 1933 Act or
unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares, and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
(a) Rule 144. Optionee has been advised that Rule 144 promulgated
--------
under the 1933 Act, which permits certain resales or unregistered securities, is
not presently available with respect to the Shares and, in any event, requires
that a minimum of one (1) year elapse between the date of acquisition of Shares
from the Company or an affiliate of the Company and any resale under Rule 144.
Prior to an initial public offering of the Company's stock, "nonaffiliates"
(i.e. persons other than officers, directors and major shareholders of the
Company) may resell only under Rule 144(k), which requires that a minimum of two
(2) years elapse between the date of acquisition of Shares from the Company or
an affiliate of the Company and any resale under Rule 144(k). Rule 144(k) is not
available to affiliates.
<PAGE>
(b) Rule 701. If the exemption relied upon for exercise of the Shares
--------
is Rule 701, the Shares will become freely transferable, subject to limited
conditions regarding the method of sale, by nonaffiliates ninety (90) days after
the first sale of common stock of the Company to the general public pursuant to
a registration statement filed with and declared effective by the Securities and
Exchange Commission (the "SEC"), subject to any lengthier market standoff
agreement contained in this Agreement or entered into by Optionee. Affiliates
must comply with the provisions (other than the holding period requirements) of
Rule 144.
5. State Law Restrictions on Transfer. Optionee understands that transfer
----------------------------------
of the Shares may be restricted by applicable state securities laws, and that
the certificate(s) representing the Shares may bear a legend or legends to that
effect.
6. Market Standoff Agreement. Optionee agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as the Company or the underwriters may specify for
employee shareholders generally.
7. Legends. Optionee understands and agrees that the certificate(s)
-------
representing the Shares will bear a legend in substantially the following forms,
in addition to any other legends required by applicable law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE 'SECURITIES ACT'), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT OR, IN THE OPINION OF
COUNSEL, PREPARED AT ISSUER'S REQUEST AND EXPENSE, IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A REPURCHASE
RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES,
A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS, RIGHT
<PAGE>
OF FIRST REFUSAL AND REPURCHASE RIGHT ARE BINDING ON TRANSFEREES OF
THESE SHARES."
8. Stop-Transfer Notices. Optionee understands and agrees that, in order or
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
9. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
----------------
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE. The Optionee shall provide the Company with a copy of any timely
filed 83(b) Election relating to the purchase of the Shares. If the Optionee
makes a timely 83(b) Election, the Optionee shall immediately pay the Company
(or the entity that employs the Optionee) the amount necessary to satisfy any
applicable federal, state, and local income and employment tax withholding
obligations. If the Optionee does not make a timely 83(b) Election, the Optionee
shall, either at the time that the restrictions lapse under the Repurchase Right
for unvested Shares and the Plan or at the time withholding is otherwise
required by Applicable Laws, pay the Company (or the entity that employs the
Optionee) the amount necessary to satisfy any applicable federal, state, and
local income and employment tax withholding obligations.
10. Repurchase Options. In addition to the Repurchase Right for unvested
------------------
Shares as set forth in the Grant, the Company and the Company's shareholders
have certain rights of first refusal that are set forth in Article X of the
Company's Bylaws. A copy of Article X of the Bylaws is available upon request
from the Secretary of the Company. The Company reserves to itself for so long
as the Company's stock is not publicly traded (a) the right of first refusal to
purchase all Shares that Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) the right to repurchase within 90 days of
the later of Optionee's termination of employment or service with the Company or
its Parent, Subsidiary or Affiliate of the Company and the exercise of the
Option, a portion of or all vested Shares held by an Optionee at the higher of
(i) the Optionee's original purchase price or, (ii) the Fair Market Value of
such Shares.
11. Entire Agreement. The Plan and Grant are incorporated herein by
----------------
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
<PAGE>
Submitted By: Accepted By:
"OPTIONEE" "COMPANY"
CyberSource Corporation, a
Delaware corporation
By:
- --------------------------------- -----------------------------
Name: Name:
----------------------------- ---------------------------
Address: Title:
-------------------------- --------------------------
-------------------------
Dated: ______ __, _____ Dated: ______ __, ____
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
[Please sign this document but do not date it. The date and information of
the transferee will be completed if and when the shares are assigned.]
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers unto _______________________, __________________ (____) shares of
the Common Stock of CyberSource, Corporation, a Delaware corporation (the
"Company"), standing in his name on the books of, represented by Certificate No.
__ herewith, and does hereby irrevocably constitute and appoint the Secretary of
the Company attorney to transfer the said stock in the books of the Company with
full power of substitution.
DATED: ________________
-------------------------------------
The undersigned spouse of ____________________ joins in this assignment.
Dated: ___________________ ---------------------------
(Spouse of _____________
<PAGE>
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal
Revenue Code, to include in gross income for ________ the amount of any
compensation taxable in connection with the taxpayer's receipt of the property
described below:
1. The name, address, taxpayer identification number and
taxable year of the undersigned are:
TAXPAYER'S NAME _________________________________
SPOUSE'S NAME _________________________________
TAXPAYER'S SOCIAL SECURITY NO.: _________________________________
SPOUSE'S SOCIAL SECURITY NO.: _________________________________
TAXABLE YEAR: Calendar Year _______
ADDRESS: _________________________________
_________________________________
_________________________________
2. The property which is the subject of this election is
__________ shares of common stock of CyberSource, Corporation, a
Delaware corporation.
3. The property was transferred to the undersigned on
____________, ____.
4. The property is subject to the following
restrictions: The right of the Company to repurchase the shares, or a
portion thereof, at the purchase price of the shares. The rights
lapses as to a portion of the shares per month according to a vesting
schedule, based upon continued service to the Company.
5. The fair market value of the property at the time of
transfer (determined without regard to any restriction other than a
restriction which by its terms will never lapse) is: $_______ per
share x ________ shares = $___________.
6. The undersigned paid $______ per share x _________
shares for the property transferred or a total of $______________.
The undersigned has submitted a copy of this statement to the person for
whom the services were performed in connection with the undersigned's receipt of
the above-described property. The undersigned taxpayer is the person performing
the services in connection with the transfer of said property.
The undersigned will file this election with the Internal Revenue
Service office to which he or she files his annual income tax return not later
than 30 days after the date of transfer of the property. Additionally, the
undersigned will include a copy of the election with his income tax return for
the taxable year in which the property is transferred.
Dated:
--------------------------- ---------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
-------------------------- ----------------------------------
Spouse of Taxpayer
<PAGE>
Exhibit 10.4
Century Plaza
550 S. Winchester Blvd.
San Jose, California
STANDARD OFFICE LEASE
Landlord: California State Automobile Association
Inter-Insurance Bureau
Tenant: CyberSource Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
BASIC LEASE INFORMATION.......................................................................1
STANDARD OFFICE LEASE.........................................................................3
1. PREMISES.................................................................................3
1.1 Premises.............................................................................3
1.2 Exhibits.............................................................................3
1.3 Common Areas.........................................................................3
1.4 Landlord's Reserved Rights in Common Areas...........................................4
1.5 Rentable Areas.......................................................................4
1.6 Compliance...........................................................................4
1.7 Acceptance...........................................................................4
2. IMPROVEMENTS.............................................................................5
2.1 Construction of Tenant Improvements..................................................5
2.2 Failure to Complete Construction.....................................................5
2.3 Completion and Delivery..............................................................5
2.4 Early Entry..........................................................................6
3. TERM.....................................................................................6
3.1 Commencement of Term.................................................................6
3.2 Option to Extend.....................................................................6
3.3 Fair Market Value....................................................................6
4. RENT.....................................................................................8
4.1 Base Rent............................................................................8
4.2 Common Areas.........................................................................8
4.3 Late Payment.........................................................................8
4.4 Accord and Satisfaction..............................................................8
4.5 Security Deposit.....................................................................9
5. INSURANCE................................................................................9
5.1 All Risk Coverage....................................................................9
5.2 Comprehensive General Liability Insurance...........................................10
5.3 Rental Abatement Insurance..........................................................10
5.4 Insurance Certificates..............................................................10
5.5 Tenant's Failures...................................................................11
5.6 Waiver of Subrogation...............................................................11
5.7 Tenant's Property and Fixtures......................................................11
5.8 Indemnification of Landlord.........................................................11
5.9 Indemnification of Tenant...........................................................11
6. OPERATING EXPENSES......................................................................12
6.1 Operating Expenses..................................................................12
6.2 Impositions.........................................................................14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Services and Utilities..............................................................15
6.4 Special Services....................................................................15
7. REPAIRS AND MAINTENANCE.................................................................16
7.1 Landlord Repairs and Maintenance....................................................16
7.2 Tenant Repairs and Maintenance......................................................16
7.3 Inspection of Premises..............................................................16
7.4 Liens...............................................................................17
8. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS.............................................17
8.1 Fixtures and Personal Property......................................................17
8.2 Alterations.........................................................................17
9. USE AND COMPLIANCE WITH LAWS............................................................18
9.1 Use.................................................................................18
9.2 Compliance with Laws................................................................18
9.3 Signs...............................................................................18
9.4 Parking.............................................................................19
9.5 Floor Lead..........................................................................19
9.6 Deliveries..........................................................................19
9.7 Hazardous Materials.................................................................19
10. DAMAGE AND DESTRUCTION.................................................................19
10.1 Reconstruction......................................................................19
10.2 Rent Abatement......................................................................19
10.3 Excessive Damage or Destruction.....................................................20
10.4 Uninsured Casualty..................................................................20
10.5 Waiver..............................................................................21
11. EMINENT DOMAIN.........................................................................21
11.1 Total Condemnation..................................................................21
11.2 Partial Condemnation................................................................21
11.3 Landlord's Award....................................................................21
11.4 Tenant's Award......................................................................22
11.5 Temporary Condemnation..............................................................22
11.6 Notice and Execution................................................................22
11.7 Sale Under Threat of Condemnation...................................................22
12. DEFAULT................................................................................22
12.1 Events of Default...................................................................22
12.2 Landlord's Remedies.................................................................23
12.3 Interest............................................................................25
13. ASSIGNMENT AND SUBLETTING..............................................................26
13.1 Assignment and Subletting...........................................................26
13.2 Documentation.......................................................................26
13.3 Bonus Rental........................................................................27
13.4 Scope...............................................................................27
13.5 Waiver..............................................................................28
13.6 Release.............................................................................28
13.7 Limitation on Elective Provisions...................................................28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
14. OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION.........................................28
14.1 Offset Statement.....................................................................28
14.2 Attornment...........................................................................29
14.3 Subordination........................................................................29
15. NOTICES................................................................................29
15.1 Notices..............................................................................29
16. SUCCESSORS BOUND.......................................................................29
16.1 Successors Bound....................................................................30
17. MISCELLANEOUS..........................................................................30
17.1 Waiver...............................................................................30
17.2 No Light, air or View Easement.......................................................30
17.3 Corporate Authority..................................................................30
17.4 Limitation of Landlord's Liability...................................................30
17.5 Time.................................................................................30
17.6 Attorneys' Fees......................................................................31
17.7 Captions and Article Numbers.........................................................31
17.8 Severability.........................................................................31
17.9 Applicable Law.......................................................................31
17.10 Submission of Lease..................................................................31
17.11 Holding Over.........................................................................31
17.12 Surrender............................................................................31
17.13 Rules and Regulations................................................................32
17.14 No Nuisance..........................................................................32
17.15 Brokers..............................................................................32
17.16 Nonliability.........................................................................32
17.17 Recording............................................................................32
17.18 Joint and Several Liability..........................................................33
17.19 Entire Agreement.....................................................................33
17.20 Payment Under Protest................................................................33
17.21 Reasonableness.......................................................................33
EXHIBIT A 33
EXHIBIT B 34
EXHIBIT C 35
EXHIBIT D 36
</TABLE>
<PAGE>
BASIC LEASE INFORMATION
-----------------------
OFFICE LEASE
------------
550 S. Winchester Blvd.
San Jose, California
Lease Date: August 20, 1996
Landlord: California State Automobile Association
Inter-Insurance Bureau, an inter-insurance exchange
Landlord's Address: Real Estate Services
100 Van Ness Avenue, 11th Floor
San Francisco, California 94102
Address for payments: Accounting
100 Van Ness Avenue
San Francisco, CA 94102
Tenant: CyberSource Corporation
a California corporation
Tenant's Address: 550 S. Winchester Blvd., Suite 300
San Jose, California 95128
Attn.: Bill McKiernan, President
Total Rentable Area of Building: 93,529 square feet
Premises: Initial Premises: Suite 300.
Expansion Premises: Suite 310
Rentable Area of Initial Premises: 7,407 rentable square feet
the Premises: Expansion Premises: 2,700 rentable square feet
Permitted Uses: general administrative office
Term: Thirty-six (36) months from Commencement Date that
applies to the Initial Premises
Scheduled
Commencement Date: For Initial Premises: August 23, 1996. For Expansion
Premises: January 1, 1997.
1
<PAGE>
Monthly Base Rent: For months 1 through 12:
$2.05/rentable square foot
For months 13 through 24:
$2.10/rentable square foot
For months 25 through 36:
$2.15/rentable square foot
Security Deposit: $15,925.00, subject to increase per 4.05.
Tenant's Share of Excess
Operating Expenses: 7.92% (Initial Premises)
10.80% (After Expansion Premises are added)
Base Year: 1996
Option to Renew: One (1) extension for three (3) years
Brokers: Cornish & Carey Commercial (Landlord) CPS,
the Commercial Property Services Company (Tenant)
Brokers' Fee or
Commission, if any,
paid by: Landlord
Parking Rights: four (4) spaces in Parking Lot per 1,000 r.s.f.
The foregoing Basic Lease Information is hereby incorporated into and made
a part of this Lease. Each reference in this Lease to any of the terms above
shall mean the respective information hereinabove set forth and shall be
construed to incorporate all of the terms provided under the particular
paragraph pertaining to such information. In the event of any conflict between
any Basic Lease Information and the Lease, the latter shall control.
"Landlord" "Tenant"
CALIFORNIA STATE AUTOMOBILE CYBERSOURCE
ASSOCIATION INTER-INSURANCE CORPORATION, a California
BUREAU, an inter-insurance corporation
exchange
By: By:
------------------------ --------------------------
Its: Its:
------------------------ --------------------------
By: By:
------------------------ --------------------------
2
<PAGE>
STANDARD OFFICE LEASE
THIS LEASE ("Lease"), dated as of the Lease Date, by and between Landlord
and Tenant of space at the Building located on that certain real property
("Property") described more particularly on the Legal Description, attached
hereto as Exhibit A, shall be upon the terms and conditions contained
-
hereinafter.
1. PREMISES
1.1 Premises. Landlord leases to Tenant, subject to the provisions
of this Lease, the Premises, as defined as follows: the "Initial Premises" shall
be Suite 300, the useable space of which is shown on the Building Floor Plan,
attached hereto as Exhibit B. The "Expansion Premises" shall be Suite 310 of the
Building, consisting of 2,700 rentable square feet, subject to verification. The
Expansion Premises will become part of the Premises as of the Commencement Date
that applies to the Expansion Premises.
1.2 Exhibits. The following Exhibits are attached to this Lease
--------
after the signatures and by reference thereto are incorporated herein:
Exhibit A Legal Description
---------
Exhibit B Building Floor Plan
---------
Exhibit C Tenant Improvements
---------
Exhibit D Rules and Regulations
---------
1.3 Common Areas. Tenant shall have, as appurtenant to the
------------
Premises and subject to reasonable rules and regulations from time to time made
by Landlord of which Tenant is given notice, the right to the use of the
following in common (collectively, the "Common Areas"):
(a) Building Common Area. The common stairways and accessways,
lobbies, entrances, stairs, elevators and any passageways thereto, and the
common pipes, ducts, conduits, wires and appurtenant equipment serving the
Premises;
(b) Land Common Area. The common walkways, sidewalks,
----------------
parking spaces and driveways necessary for access to the Building and parking
spaces; and
(c) Parking Lot. The common Parking Lot ("Parking Lot")
-----------
appurtenant to the Building. Tenant shall have the right to use the number of
parking spaces set forth in the Basic Lease Information in the Parking Lot
during the Term. Tenant shall not use parking spaces in excess of the specified
number.
3
<PAGE>
1.4 Landlord's Reserved Rights in Common Areas. Landlord
------------------------------------------
reserves the right from time to time to do any and all of the following,
provided that doing so will not unreasonably interfere with Tenant's use of the
Premises:
(a) Building Changes. To install, use, maintain, repair
----------------
and replace pipes,ducts, conduits, wires and appurtenant meters and equipment
for service to other parts of the Building above the ceiling surfaces, below the
floor surfaces, within the walls and in the central core areas, and to relocate
any pipes, ducts, conduits, wires and appurtenant meters and equipment included
in the Premises which are so located or located elsewhere outside the Premises;
(b) Boundary Changes. To change the boundaries of the
----------------
Property and to redesign and restripe the Parking Lot and make other reasonable
changes and grant other rights thereto including, without limitation, the
granting of easements, rights of way and rights of ingress and egress and
similar rights over, across and upon the Property. Tenant shall execute,
acknowledge and deliver to Landlord any documents which Landlord determines are
necessary to effectuate the purposes of this Article within five (5) days after
written request by Landlord;
(c) Facility Changes. To alter or relocate any other Common
----------------
Areas or common facility;
(d) Parking. To grant exclusive use to portions of the
-------
Parking Lot to tenants and to impose parking charges from time to time for use
-------
of the Parking Lot; and
(e) Name Change. To change the name of the Building.
-----------
1.5 Rentable Area. As used in this Lease, the rentable area of
-------------
space within the Premises shall be determined applying the Building Owners and
Managers Association ("BOMA") American National Standard (Reprinted May, 1981).
1.6 Compliance. Landlord represents that, to the best of
----------
Landlord's knowledge, Landlord is delivering the Premises and Common Areas free
of violations of any and all Laws and Orders. For purposes of this Lease, the
term "Laws and Orders" includes all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements or orders in
force as of the applicable Commencement Date, including, without limitation, all
provisions of the Americans With Disabilities Act of 1990 and Title 24 of the
California Code of Regulations (collectively, the "ADA"), and laws regulating
Hazardous Materials.
1.7 Acceptance. By entering and taking possession of the
----------
Premises, Tenant shall be deemed to accept the same in their condition existing
as of the applicable Commencement Date and subject to all applicable municipal,
county, state and federal statutes, laws, ordinances, including zoning
ordinances, and regulations governing and relating to the use, occupancy or
possession of the Premises. Tenant acknowledges that the only warranties and
4
<PAGE>
representations Landlord has made in connection with the physical condition of
the Premises or Tenant's use of the same upon which Tenant has relied directly
or indirectly for any purpose are those expressly provided in this Lease.
2. IMPROVEMENTS
2.1 Construction of Tenant Improvements. Landlord shall complete,
-----------------------------------
at its expense, the tenant improvements ("Improvements") as provided in Exhibit
C, attached hereto. The Premises shall be Ready for Occupancy, as defined in
Article 2. 3, below, by not later than the applicable Scheduled Commencement
Date; provided, however, that the applicable Scheduled Commencement Date shall
be extended for a period equal to the period of any delay encountered by
Landlord affecting the work of construction because of fire, earthquake,
inclement weather, acts of God, acts of a public enemy, riot, insurrection,
governmental regulation of the sales of materials or supplies or the
transportation thereof, strikes or boycotts, shortages of material or labor,
Tenant's early entry under the provisions of Article 2.04, or any causes beyond
the control of Landlord.
2.2 Failure to Complete Construction.
--------------------------------
(a) Initial Premises. If the Initial Premises are not Ready
----------------
for Occupancy within ten (10) days following the applicable Scheduled
Commencement Date, as extended pursuant to Article 2.1 hereinabove, the sole
remedy of Landlord or Tenant shall be to terminate this Lease by delivering to
the other party written notice within ten (10) days after the day ten (10) days
following the applicable Scheduled Commencement Date, as extended. Upon
termination of this Lease pursuant to this Article 2.2(a), Landlord shall have
no further liability for any damage, costs or claims which arise in connection
with the Premises and this Lease.
(b) Expansion Premises. If the Expansion Premises are not
------------------
Ready for Occupancy within thirty (30) days following the applicable Scheduled
Commencement Date, as extended pursuant to Article 2.1 hereinabove, the sole
remedy of Landlord or Tenant shall be to delete the Expansion Premises from the
Premises by delivering to the other party written notice within ten (10) days
after the thirty (30) days following the applicable Scheduled Commencement Date,
as extended. If the election is made to delete the Expansion Premises from the
Premises, the parties will amend this Lease accordingly and upon such election,
Landlord shall have no further liability for any damage, costs or claims which
arise in connection with the Expansion Premises.
2.3 Completion and Delivery. The Premises shall be ready for
-----------------------
occupancy ("Ready for Occupancy") when the Improvements are substantially
completed, as reasonably determined by Landlord. Landlord shall prepare, certify
by Landlord's signature and deliver to Tenant a written statement certifying (i)
that the Premises are substantially completed; and (ii) the date of such
completion. Landlord shall diligently complete any items of work not completed
when the Premises are Ready for Occupancy and complete any item of such work
within thirty (30) days of written notice that the item has not been completed.
5
<PAGE>
2.4 Early Entry. With the prior written consent of Landlord,
-----------
Tenant may, prior to the applicable Commencement Date as defined in Article 3,
at Tenant's sole risk, enter the Premises and install trade fixtures and
equipment in the Premises; provided, however, that (i) Tenant's early entry
shall not interfere with completion of the Improvements or cause labor
difficulties; (ii) Tenant's early entry shall be subject to the indemnification
obligation set forth in Article 5.08; (iii) Tenant shall pay for and provide
evidence of insurance satisfactory to Landlord; and (iv) Tenant shall pay
utility charges reasonably allocated by Landlord to Tenant. Tenant shall not use
the Premises for storage of inventory or otherwise do business on the Premises
prior to the applicable Commencement Date without the express prior written
consent of Landlord.
3. TERM
3.1 Commencement of Term. The Term shall commence as to the
--------------------
Initial Premises and the Expansion Premises (in each case, the applicable
"Commencement Date") upon the later of the following dates:
(a) The date on which the Premises in question are Ready for
Occupancy; or
(b) The Scheduled Commencement Date as to the Premises in question.
3.2 Option to Extend. Tenant shall have one (1) option to extend
----------------
the lease for three 3 years (the "Extension Term"). Tenants shall give written
notice to Landlord of its intention to extend the Lease not less than one
hundred eighty (180) days prior to the expiration of the Term. Upon exercise of
such option by Tenant, the Term shall be extended for the Extension Term upon
the same terms, covenants and conditions of this Lease except that Base Rent
shall be adjusted as hereinafter provided. Notwithstanding the fact that the
Expansion Premises will have a Term that begins later than the Term for the
Initial Premises, the Term for the entire Premises shall expire or terminate on
one date, and Tenant's option to extend shall be exercised, if at all, only once
and as to the entire Premises.
3.3 Fair Market Value.
-----------------
(a) Fair Market Value. The Base Rent during the Extension
-----------------
Term shall be the Fair Market Rental Value for the Premises, to be determined as
provided herein, as of the commencement of the Extension Term and each
anniversary thereof (a "Determination Date"). Except as provided in 3.3(b), the
term Fair Market Rental Value shall mean the going market rental as of each
Determination Date for equivalent space in the Building, for the Permitted Uses,
excluding any alterations or personal property of Tenant installed in the
Premises at Tenant's expense, and for a tenant proposing to sign a lease equal
to the remaining Extension Term, taking into consideration size, location, floor
level, leasehold improvements provided or to be provided, extent of services to
be provided, the time that the particular rate under consideration became or is
to become effective, and any other relevant terms or conditions applicable to
both new and renewing tenants. It is understood that in determining Fair Market
Rental Value the parties shall negotiate in good faith in order to reach
agreement. In the event
6
<PAGE>
the parties are unable to reach agreement by ninety (90) days prior to any
Determination Date, the matter shall be determined by the appraisal procedure as
hereinafter provided.
(b) Appraisal. Within fifteen (15) days of failure to
---------
reach an agreement, each party, at its own cost and by giving notice to the
other party, shall appoint a disinterested real estate appraiser, with
membership in the American Institute of Real Estate Appraisers or the Society of
Real Estate Appraisers and at least five (5) years full-time commercial
appraisal experience in the area where the Building is located, to appraise and
determine the Fair Market Rental Value. For the purposes of this Section 3.3(b),
the term Fair Market Rental Value shall mean the going market rental as of the
Determination Date for equivalent space in comparable office buildings in San
Jose, California. If, in the time provided, only one (1) party shall give notice
of appointment of an appraiser, the single appraiser appointed shall determine
the Fair Market Rental Value. If two (2) appraisers are appointed by the
parties, the two (2) appraisers shall independently, and without consultation,
prepare an appraisal of the Fair Market Rental Value within fifteen (15) days of
their appointment. Each appraiser shall seal its appraisal after completion.
After both appraisals are completed, the resulting appraisals of the Fair Market
Rental Value shall be opened and compared. If the appraisals differ by no more
than ten percent (10%) of the value of the higher appraisal, then the Fair
Market Rental Value rent shall be the average of the two (2) appraisals. If the
appraisals differ by more than ten percent (10%) of the value of the higher
appraisal, then within ten (10) days from the date the appraisals are compared,
the two (2) appraisers selected by the parties shall appoint a third
disinterested appraiser who has not acted in any capacity for either party and
who meets the minimum qualifications described in this Section. If the two (2)
appraisers fail to select a third qualified appraiser, a third appraiser shall
be selected by the American Arbitration Association at the request of either
party or, if there is then no American Arbitration Association or if it refuses
to perform this function, then at the request of either Landlord or Tenant, the
third appraiser shall be appointed by the then Presiding Judge of the Superior
Court of the State of California of the County in which the Building is located.
The two (2) appraisers shall each then submit his independent appraisal in
simple letter form to the third appraiser stating his determination of the Fair
Market Rental Value. The sole responsibility of the third appraiser shall be to
determine which of the determinations made by the first two (2) appraisers is
most accurate. The third appraiser shall have no right to propose a middle
ground or any modification of either of the determinations made by the first two
(2) appraisers. The third appraiser's choice shall be submitted to Landlord and
Tenant within fifteen (15) days after the third appraiser has received the
written determination from each of the first two (2) appraisers. The Fair Market
Rental Value shall be determined by the selection made by the third appraiser
from the determination submitted by the first two (2) appraisers.
(c) Costs. Each party shall pay the fees and expenses of
-----
its own appraiser and fifty percent (50%) of the fees and expenses of the third
appraiser.
4. RENT
7
<PAGE>
4.1 Base Rent. The annual Base Rent shall be payable in equal
---------
monthly installments. Tenant shall pay the Base Rent to Landlord in advance upon
the first day of each calendar month of the Term, at Landlord's address or at
such other place designated by Landlord in a notice to Tenant, without any prior
demand therefor and without any deduction, abatement or setoff whatsoever. If
the Term shall commence or end on a day other than the first day of a calendar
month, then Tenant shall pay, upon the Commencement Date and first day of the
last calendar month, a pro rata portion of the Base Rent, prorated on a per diem
basis, with respect to the portion of the fractional calendar month included in
the Term. Upon execution of this Lease, Tenant shall pay the first month's Base
Rent owing hereunder along with Tenant's Security Deposit.
4.2 Additional Rent. All charges required to be paid by Tenant
---------------
hereunder, including without limitation, payments for Impositions, Operating
Expenses, and any other amounts payable hereunder, shall be considered
additional rent for the purposes of this Lease ("Additional Rent"), and Tenant
shall pay Additional Rent upon written demand by Landlord or otherwise as
provided in this Lease. "Rent" shall mean Base Rent and Additional Rent.
4.3 Late Payment. If any installment of Rent is not paid within
------------
five (5) days of written notice of nonpayment, Tenant shall pay to Landlord, in
addition to the installment of Rent then owing, a late charge equal to five
percent (5%) of the amount of the delinquent payment of Rent. Landlord and
Tenant recognize that the amount of damage Landlord shall suffer as a result of
Tenant's failure to timely pay any Rent is difficult to ascertain and the late
charge provided in this subsection is the best estimate of Landlord's damage
resulting from any late payment by Tenant. This provision shall not relieve
Tenant of Tenant's obligation to pay Rent at the time and in the manner herein
provided.
4.4 Accord and Satisfaction. No payment by Tenant or receipt by
-----------------------
Landlord of a lesser amount than the Rent herein stipulated shall be deemed to
be other than on account of the Rent, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy provided in this Lease.
4.5 Security Deposit. Upon executing this Lease, Tenant shall
----------------
deposit the Security Deposit as a security deposit with Landlord. The Security
Deposit shall secure Tenant's obligations under this Lease to pay Rent and other
monetary amounts, to maintain the Premises and repair damages thereto, to
surrender the Premises to Landlord in clean condition and repair upon
termination of this Lease as required pursuant to Article 17.12 below and to
discharge Tenant's other obligations hereunder. Landlord may use and commingle
the Security Deposit with other funds of Landlord. If Tenant fails to perform
Tenant's obligations hereunder, Landlord may, but without any obligation to do
so, apply all or any portion of the Security Deposit towards fulfillment of
Tenant's unperformed obligations. If Landlord does so apply any portion of the
Security Deposit, Tenant, upon demand by Landlord, shall immediately pay
Landlord a sufficient amount in cash to restore the Security Deposit to the full
original amount.
8
<PAGE>
Tenant's failure to forthwith remit to Landlord a sufficient amount in cash to
restore the Security Deposit to the original sum deposited within five (5) days
after receipt of such demand shall constitute an Event of Default. On or before
the Commencement Date for the Expansion Premises, Tenant shall increase the
Security Deposit by an amount equal to the result of multiplying !he number of
rentable square feet in the Expansion Premises by $2.15. The Security Deposit
shall be held by Landlord without liability for interest on the same. Upon
termination of this Lease, if Tenant has then performed all of Tenant's
obligations hereunder, Landlord shall return the Security Deposit to Tenant. If
Landlord sells or otherwise transfers Landlord's rights or interest under this
Lease, Landlord may deliver the Security Deposit to the transferee, whereupon
Landlord shall be released from any further liability to Tenant with respect to
the Security Deposit.
5. INSURANCE
5.1 All Risk Coverage.
-----------------
(a) Landlord's Insurance. Landlord shall procure and maintain
during the Term "all risk" property, fire, extended coverage, and special
extended coverage insurance with respect to the Building, with such
coverage as Landlord may elect including, without limitation, earthquake
and flood coverage, hazardous materials endorsement, inflation endorsement,
sprinkler leakage endorsement, and boiler and machinery coverage, in such
amounts as Landlord may elect. Landlord shall have no obligation to insure
Tenant's personal property. If the annual premiums charged Landlord for
such insurance exceed the standard premium rates because the nature of
Tenant's operations results in increased exposure, then Tenant shall, upon
receipt of an invoice, reimburse Landlord for such increased amount as
Additional Rent.
(b) Tenant's Insurance. Tenant shall procure and maintain
------------------
during the Term, at Tenant's sole cost and expense, insurance ("Personal
Property Insurance") covering leasehold improvements paid for by Tenant and
Tenant's personal property from time to time in, on, or at the Premises, in an
amount not less than one hundred percent (100%) of the full replacement cost,
without deduction for depreciation, providing protection against events
protected under "Fire and Extended Coverage," as well as against sprinkler
damage, vandalism, and malicious mischief. Any proceeds from the Personal
Property Insurance shall be used for the repair or replacement of the property
damaged or destroyed, unless this Lease is terminated under an applicable
provision herein. If the Premises are not repaired or restored following damage
or destruction in accordance with other provisions herein, Landlord shall
receive any proceeds from the Personal Property Insurance allocable to Tenant's
leasehold improvements constructed by Landlord.
5.2 Comprehensive General Liability Insurance. Tenant shall
-----------------------------------------
procure and maintain during the Term, at Tenant's sole cost and expense, a
policy or policies of comprehensive general liability insurance on an
"occurrence" basis against claims for personal injury liability, including,
without limitation, bodily injury, death, or property damage liability
9
<PAGE>
with a limit of not less than Three Million Dollars ($3,000,000.00) in the event
of personal injury to any number of persons or of damage to property arising out
of any one occurrence. All of such insurance shall be primary and
noncontributing with any insurance which may be carried by Landlord and shall
contain a provision that Landlord, although named as an insured, shall
nevertheless be entitled to recover under the policy for any loss, injury, or
damage to Landlord, its agents and employees, or the property of such persons by
reason of the negligence of Tenant. All such insurance shall specifically insure
Tenant's performance of the indemnity agreement contained in Article 5.8 of this
Lease. The adequacy of the coverage afforded by the liability and property
damage insurance shall be subject to review by Landlord from time to time, and,
if it appears in such a review that a prudent business person in the area
operating a similar business to that operated by Tenant on the Premises would
increase the limits of its liability insurance, Tenant shall effect such
increases within thirty (30) days of receipt of notice from Landlord.
5.3 Rental Abatement Insurance. At Landlord's election, Landlord
--------------------------
shall keep and maintain in full force and effect during the Term, rental income
insurance against abatement or loss of Rent in case of fire or other casualty,
in an amount at least equal to the amount of the Rent payable by Tenant during
one year next ensuing, as reasonably determined by Landlord.
5.4 Insurance Certificates. Tenant shall furnish to Landlord,
----------------------
prior to the date of commencement of this Lease and thereafter within thirty
(30) days prior to the expiration of each such policy, a certificate of
insurance issued by the insurance carrier of each policy of insurance carried by
Tenant pursuant hereto. Said certificates shall expressly provide that such
policies shall not be cancelable or subject to reduction of coverage or
otherwise be subject to modification except after thirty (30) days' prior
written notice to the parties named as additional insureds in this Article 5.4.
Landlord, its successors and assigns, and any nominee of Landlord holding any
interest in the Premises, including, without limitation, any ground lessor and
the holder of any fee or leasehold mortgage, shall be named as additional
insureds under each such policy of insurance maintained by Tenant pursuant to
this Lease. Nothing in this Article 5 shall prevent Tenant from carrying any of
the insurance required of Tenant hereunder in the form of a blanket insurance
policy or policies which cover other properties owned or operated by Tenant in
addition to the Premises, provided that Tenant obtains Landlord's prior written
consent to such blanket insurance policy or policies.
5.5 Tenant's Failure. If Tenant fails to maintain any insurance
----------------
required in this Lease, Tenant shall be liable for any loss or cost resulting
from said failure. This Article 5.5 shall not be deemed to be a waiver of any of
Landlord's rights and remedies under any other section of this Lease.
5.6 Waiver of Subrogation. Any policy or policies of fire,
---------------------
extended coverage or similar casualty insurance, which either party obtains in
connection with the Premises, or Tenant's personal property therein, shall, to
the extent the same can be obtained without undue expense, include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured prior to
10
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the occurrence of injury or loss. Landlord and Tenant waive any rights of
recovery against the other for injury or loss due to hazards covered by
insurance containing such a waiver of subrogation clause or endorsement to the
extent of the injury or loss covered thereby.
5.7 Tenant's Property and Fixtures. Tenant shall assume the risk
------------------------------
of damage to any furniture, equipment, machinery, goods, supplies or fixtures
which are or remain the property of Tenant or as to which Tenant retains the
right of removal from the Premises.
5.8 Indemnification of Landlord. Tenant shall indemnify and hold
---------------------------
Landlord, the Premises, Building, Property and Parking Lot, harmless from and
against (i) any and all liability, penalties, losses, damages, costs and
expenses, demands, causes of action, claims or judgments to the extent that they
arise from or grow out of any injury to any person or persons or any damage to
any property as a result of any accident or other occurrence during the Term
occasioned in any way as a result of the use, maintenance, occupation or
operation of the Premises during the Term by Tenant or Tenant's officers,
employees, agents, subtenants, licensees, contractors or invitees, and (ii) from
and against all legal costs and charges, including attorneys' fees, incurred in
any such matter and the defense of any action arising out of the same or in
discharging the Building, Property, Premises and Parking Lot or any part thereof
from any and all liens, charges or judgments which may accrue or be placed
thereon by reason of any act or omission of the Tenant; provided, however, that
Tenant shall not be required to indemnify Landlord for any damage or injury of
any kind arising as the result of the misconduct or negligence of Landlord or
its agents, employees, licensees, contractors or invitees. Tenant's obligations
pursuant to the foregoing indemnity shall survive the termination of this Lease.
5.9 Indemnification of Tenant. Landlord shall indemnify and hold
-------------------------
Tenant harmless from and against (i) any and all liability, penalties, losses,
damages, costs and expenses, demands, causes of action, claims or judgments to
the extent that they arise from or grow out of any injury to any person or
persons or any damage to any property as a result of any accident or other
occurrence during the Term occasioned in any way as a result of the use,
maintenance, occupation or operation of the Building, Property and Parking Lot
during the Term by Landlord, or Landlord's officers, employees, agents,
licensees, contractors or invitees, and (ii) from and against all legal costs
and charges, including attorneys' fees, incurred in any such matter and the
defense of any action arising out of the same or in discharging the Building,
Property, Premises and Parking Lot or any part thereof from any and all liens,
charges, or judgments which may accrue or be placed thereon by reason of any act
or omission of the Landlord; provided, however, that Landlord shall not be
required to indemnify Tenant for any damage or injury of any kind arising as the
result of the misconduct or negligence of Tenant or its agents, employees,
licensees, contractors or invitees. The obligations of Landlord pursuant to the
foregoing indemnity shall survive the termination of this Lease.
6. OPERATING EXPENSES
6.1 Operating Expenses. Tenant shall pay to Landlord, as
------------------
Additional Rent, Tenant's Share of Excess Operating Expenses. "Excess Operating
Expenses" shall mean the
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amount by which the "Operating Expenses" (as defined below) paid or incurred in
any calendar year of the Term exceed the Operating Expenses for the Base Year
set forth in the Basic Lease Information.
(a) Definition. "Operating Expenses" shall include all expenses
----------
and costs of every kind and nature which Landlord shall pay or become obligated
to pay because of or in connection with the ownership and operation of the
Building, Property, Parking Lot and surrounding property and supporting
facilities, including, without limitation: (i) all Impositions; (ii) license,
permit and inspection fees; (iii) premiums for insurance maintained by Landlord
pursuant to Articles 5.1 and 5.3; (v) wages, salaries and related expenses and
benefits of all on-site and off-site employees engaged in operation, maintenance
and security; (vi) all supplies, materials and rental equipment used in
operation of the Building; (vii) all maintenance and repair, janitorial,
security and service costs; (viii) property management services; (ix) legal and
accounting expenses, including the cost of audits by certified public
accountants; (x) repairs, replacements and general maintenance (excluding those
paid for by proceeds of insurance or other parties and alterations attributable
solely to tenants of the Building other than Tenant (xi) all maintenance and
repair costs, including sidewalks, landscaping, service areas, mechanical rooms,
Parking Lot and other parking areas, Building exterior, driveways; (xii)
amortization of capital improvements to the extent such capital improvements
reduce other Operating Expenses or to the extent that they are required by
governmental authorities; (xiii) all other operating, management and other
expenses incurred by Landlord in connection with operation of the Building;
(xiv) all charges for heat, water, gas, electricity and other utilities used or
consumed in the Building and surrounding Property, entranceways, sidewalks,
etc.; and (xv) transportation services costs, including, without limitation, the
cost of implementing the requirements of any present or future transportation
systems.
Operating Expenses will not include:
(i) any cost to the extent reimbursed to Landlord from any
source (including insurance or condemnation proceeds or another operating
expense entry); (ii) except as described in 6.1 (a)(x) or (xii) of the
Lease, costs incurred by Landlord for alterations or acquisitions which are
considered capital improvements under generally accepted accounting
principles, consistently applied; (iii) costs incurred for services or
items supplied to one specific tenant other than Tenant; or (iv) costs
incurred due to Landlord's violation of this Lease, any other lease
relating to the Building, or any law, ordinance, or governmental rule or
regulation pertaining to the Building. Tenant agrees that security services
supplied to the Building are for the benefit of all tenants.
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(b) Proration. Any Operating Expenses attributable to a
---------
period which falls only partially within the Term shall be prorated between
Landlord and Tenant so that Tenant shall pay only that proportion thereof which
the part of such period within the Term bears to the entire period.
(c) Survival. Any such sum payable by Tenant which would not
--------
otherwise be due until after the date of the termination of this Lease, shall,
if the exact amount is uncertain at the time that this Lease terminates, be paid
by Tenant to Landlord upon such termination in an amount to be determined by
Landlord with an adjustment to be made once the exact amount is known.
(d) Estimated Payments. Prior to the commencement of each of
------------------
Landlord's accounting years of the Term, Landlord shall estimate the Additional
Rent payable by Tenant pursuant to this provision and Tenant shall pay to
Landlord on the first of each month in advance, one-twelfth (1/12) of Landlord's
estimated amount. At the end of each year there shall be an adjustment made to
account for any difference between the actual and the estimated Operating
Expenses for the previous year. If Tenant has overpaid the amount of Additional
Rent owing pursuant to this provision, Landlord shall credit Tenant the amount
of such overpayment in determining Tenant's estimated payments for the following
lease year; provided, that in the case of an overpayment for the final lease
year of the Term, Landlord shall refund such overpayment to Tenant within thirty
(30) days after the end of Landlord's accounting year. If Tenant has underpaid
the amount of Additional Rent owing pursuant to this provision, Tenant shall pay
the amount of such underpayment to Landlord, as Additional Rent, within ten (10)
days after Landlord's written demand.
(e) Adjustment. Notwithstanding any provision herein to the
----------
contrary, in the event the Building is not fully occupied during any year of the
Term, anadjustment shall be made in computing variable Operating Expenses for
such year so that the same shall be computed for such year as though the
Building had been fully occupied during such year, and in no event shall
Landlord collect in excess of one hundred percent (100%) of actual Operating
Expenses.
(f) Review/Audit. If, within forty-five (45) days of receipt
------------
of Landlord's adjustment statement, Tenant requests a review of the records,
Landlord shall allow Tenant to review and copy Landlord's records with respect
to the Operating Expenses at any reasonable time. Tenant shall have the right to
cause a reputable accounting firm to audit Landlord's books and records relating
to the Operating Expenses for the year in question, provided that Tenant
notifies Landlord of its intention to exercise such audit right within such
forty-five (45) day period. Tenant shall bear the cost of such audit, except
that if the audit shows an aggregate overstatement of Operating Expenses of ten
percent (10%) or more, Landlord shall reimburse Tenant for the cost of such
audit within thirty (30) days after Landlord's receipt of a copy of the paid
invoice therefor. Landlord and Tenant shall reconcile payment of Operating
Expense within thirty (30) days after Landlord's receipt of Tenant's audit
report.
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(g) Limit on Increase. Notwithstanding anything in this
-----------------
Article 6 to the contrary, Landlord will not charge as Tenant's Share of Excess
Operating Expenses for any year an amount that exceeds the previous year's such
charge by more than eight percent (8%).
6.2 Impositions. All transit charges, housing fund assessments,
-----------
real estate taxes and all other taxes relating to the Property, Premises,
Parking Lot and/or the Building, all other taxes which may be levied in lieu of
real estate taxes, all assessments, assessment bonds, levies, fees and other
governmental charges (including, but not limited to, charges for traffic
facilities improvements, water service studies and improvements, and fire
service studies and improvements) or amounts necessary to be expended because of
governmental orders, whether general or special, ordinary or extraordinary,
unforeseen as well as foreseen, of any kind and nature for public improvements,
services, benefits, or any other purpose which are assessed, levied, confirmed,
proposed or become a lien upon the Property, Premises, Parking Lot or Building
or become payable during the Term shall collectively be referred to as
"Impositions."
(a) Installment Election. In the case of any impositions
--------------------
which may be evidenced by improvement or other bonds or which may be paid in
annual or other periodic installments, Landlord shall elect to cause such bonds
to be issued or cause such assessment to be paid in installments over the
maximum period permitted by law.
(b) Limitation. Nothing contained in this Lease shall require
----------
Tenant to pay any franchise, estate, inheritance or succession transfer tax of
Landlord, or any income, profits or revenue tax or charge, upon the net income
of Landlord from all sources; provided, however, that if at any time during the
Term under the laws of the United States Government or the State of California,
or any political subdivision thereof, a tax or excise on rent, or any- other tax
however described, is levied or assessed by any such political body against
Landlord on account of Rent, or a portion thereof, Tenant shall pay one hundred
percent (1 00%) of any said tax or excise as Additional Rent.
(c) Personal Property Taxes. Tenant shall pay or cause to be
-----------------------
paid, prior to delinquency, any and all taxes and assessments levied upon all
trade fixtures, inventories and other personal property placed in and upon the
Premises by Tenant.
6.3 Services and Utilities.
----------------------
(a) Normal Service. So long as Tenant is not in default under
--------------
this Lease, Landlord shall provide: (i) to the Premises during the Business
Hours, as defined in the Rules and Regulations, electricity, gas, water,
lighting, janitorial services, elevator service, heating, ventilating and air
conditioning and other Building services required in Landlord's reasonable
judgment for the comfortable use and occupancy of the Premises; and, (ii) to the
common areas during the Business Hours, as defined in the Rules and Regulations,
utilities and maintenance as required in Landlord's reasonable judgment for the
comfortable use and occupancy of the common areas.
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(b) Interruption of Service. In the event there is an
-----------------------
interruption in Landlord's ability to provide water or other necessary utilities
required hereunder to the Premises or the Building for fifteen (15) consecutive
days, Tenant shall be entitled to an abatement of Rent on a ratable basis (based
upon the area of the Premises which Tenant normally uses and which has been
rendered unusable) as of the date the interruption first occurs. In the event
Landlord is unable to provide water or other utilities required hereunder to the
Building or the Premises for a period of thirty (30) days or more during any
twelve (12) month period, Tenant may terminate this Lease by written notice
thereof delivered to Landlord at any time prior to the time that the condition
giving rise to the impairment has been cured.
(c) Liability. Except as otherwise provided herein, Landlord
---------
shall not be liable for, and Tenant shall not be entitled to, any reduction or
abatement of Rent on account of any failure on the part of Landlord to deliver
the services and utilities provided in this Lease unless the same results from
the willful misconduct of Landlord. Notwithstanding anything to the contrary in
this Lease, Landlord shall not be liable under any circumstances for
consequential damages that arise from a loss of or injury to property, however
occurring, incidental to any failure to furnish any utilities or services.
6.4 Special Services.
----------------
(a) Additional Services. In the event Landlord provides
--------------------
utilities, elevator, heating, air conditioning and/or cleaning services to
Tenant beyond the standard services related to the operation and management of a
first class office building or at times other than during the Business Hours, as
defined in the Rules and Regulations, Tenant shall pay Landlord's reasonable
charge for such special services as Additional Rent. Any cleaning of lunchrooms,
cafeterias, conference rooms, etc., shall be on a special services basis (except
with respect to the removal of trash from trash receptacles and cleaning
incidental to normal cleaning).
(b) Utility Consumption. If Tenant is likely to or does
-------------------
consume quantities of electricity, water or gas in excess of the amounts
customarily consumed by users of office space, Landlord shall have the right, at
Tenant's sole cost and expense, to install separate metering for such utilities
or to separately charge Tenant for any quantity of such utilities consumed by
Tenant beyond the amounts customarily consumed by office users. Any such charges
made by Landlord to Tenant shall be reasonably determined by Landlord and shall
be promptly paid by Tenant to Landlord as Additional Rent. Landlord may, at
Landlord's sole option, elect to rate the quantity of utilities consumed by
Tenant at the Premises. Such consumption shall be determined by one of the
following methods: (i) a rating by an appropriately licensed engineer with costs
to be computed on an average daily basis; (ii) metering by a licensed utility
company responsible for service to the Building; or (iii) a rating by an
appropriately licensed engineer and monitored by Landlord's central Building
computer. In each such case, the costs for administering such methods shall be
borne by Tenant.
7. REPAIRS AND MAINTENANCE
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<PAGE>
7.1 Landlord Repairs and Maintenance. Subject to the provisions
--------------------------------
of Paragraph 10, Landlord shall keep and maintain the roof, paving, structural
elements, landscaping, irrigation, and exterior walls of the Building and
Property in good order and repair. Landlord shall also keep and maintain the
windows, window frames, doors, hardware, and interior walls and the electrical,
plumbing, lighting, heating, and air conditioning systems, fire suppression and
life-safety systems, and intra-building telecommunications cabling and wiring up
to the Premises. Such expenses shall be included in Operating Expenses unless
otherwise provided in this Lease. If, however, any repair or maintenance beyond
those that would be necessitated by normal office use is required because of an
act or omission of Tenant, or its agents, employees or invitees, Tenant shall
pay to Landlord upon demand one hundred percent (100%) of the costs of such
repair or maintenance. Notwithstanding anything in this Lease to the contrary,
Landlord shall have no obligation to alter, remodel, improve, decorate, or paint
the Premises or any part thereof, except for the Improvements described in
Exhibit C hereto.
- -------
7.2 Tenant Repairs and Maintenance. Except as expressly
------------------------------
provided in Section 7.1, Tenant shall, at its sole cost, keep and maintain the
interior of the Premises, in good and sanitary order, condition and repair.
Should Tenant fail to maintain the Premises as required of Tenant hereunder
forthwith upon notice from Landlord, Landlord, in addition to all other remedies
available hereunder or by law, and without waiving any alternative remedies, may
make the same, and in that event, Tenant shall reimburse Landlord for the cost
of such maintenance or repairs as Additional Rent, at Landlord's election on
demand or on the next date upon which Basic Rent becomes due. Tenant hereby
expressly waives the provisions of Subsection 1 of Section 1932, and Sections
1941 and 1942 of the Civil Code of California and all rights to make repairs at
the expense of Landlord, as provided in Section 1942 of said Civil Code.
7.3 Inspection of Premises. Landlord, at reasonable times,
----------------------
upon reasonable advance notice except in the case of emergencies, may enter the
Premises to complete construction undertaken by Landlord on the Property,
Premises or Building, to inspect, clean or repair the same, to inspect the
performance by Tenant of the terms and conditions hereof and to affix reasonable
signs and displays, show the Premises to prospective purchasers, tenants and
lenders and for all other purposes as Landlord shall reasonably deem necessary.
Landlord will use its best efforts to minimize any disruption to Tenant's use of
the Premises that may be caused by any such entry.
7.4 Liens. Tenant shall promptly pay and discharge all claims
-----
for work or labor done, supplies furnished or services rendered by Tenant and
shall keep the Property, Premises and Building free and clear of all mechanic's
and materialmen's liens in connection therewith. Landlord shall have the right
to post or keep posted on the Premises, or in the immediate vicinity thereof,
any notices of non-responsibility for any construction, alteration or repair of
the Premises by Tenant. If any such lien is filed, Landlord may, but shall not
be required to, take such action or pay such amount as may be necessary to
remove such lien; and, Tenant shall pay to Landlord as Additional Rent any such
amounts expended by Landlord within five (5) days after notice is received from
Landlord of the amount expended by Landlord.
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8. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
-------------------------------------------
8.1 Fixtures and Personal Property. Tenant, at Tenant's
------------------------------
expense, may install any necessary trade fixtures, equipment and furniture in
the Premises, provided that such items are installed and are removable without
damage to the structure of the Building. Landlord reserves the right to approve
or disapprove of curtains, draperies, shades, paint or other interior
improvements visible from outside the Premises on wholly aesthetic grounds. Such
improvements must be submitted for Landlord's written approval prior to
installation, or Landlord may remove or replace such items at Tenant's sole
expense. Said trade fixtures, equipment and furniture shall remain Tenant's
property and shall be removed by Tenant upon expiration of the Term, or earlier
termination of this Lease. Tenant shall repair, at Tenant's sole expense, all
damage caused by the installation or removal of trade fixtures, equipment,
furniture or temporary improvements. If Tenant fails to remove the foregoing
items on termination of this Lease, Landlord may keep and use them or remove any
or all of them and cause them to be stored or sold in accordance with applicable
law.
8.2 Alterations. Tenant shall not make or allow to be made any
-----------
alterations, additions or improvements to the Premises, either at the inception
of this Lease or subsequently during the Term, without obtaining the prior
written consent of Landlord, which consent will not be unreasonably withheld.
Landlord may take into consideration all effects of the proposed alterations,
including but not limited to their compatibility with the Building's structure
and systems, compliance with all laws, and effect on the other occupants of the
Building. Tenant shall deliver to Landlord full and complete plans and
specifications of all such alterations, additions or improvements, and no such
work shall be commenced by Tenant until Landlord has given its written approval
thereof. Landlord does not expressly or implicitly covenant or warrant that any
plans or specifications submitted by Tenant are safe or that the same comply
with any applicable laws, ordinances, etc. Further, Tenant shall indemnify and
hold Landlord harmless from any loss, cost or expense, including attorneys' fees
and costs, incurred by Landlord as a result of any defects in design, materials
or workmanship resulting from Tenant's alterations, additions or improvements to
the Premises. All alterations, additions and improvements shall remain the
property of Tenant until termination of this Lease, at which time they shall be
and become the property of Landlord. All repairs, alterations, additions, and
restoration by Tenant hereinafter required or permitted shall be done in a good
and workmanlike manner and in compliance with all applicable laws and lawful
ordinances, bylaws, regulations and orders of any federal, state, county,
municipal or other public authority and of the insurers of the Building. Tenant
shall not permit liens of any kind to be imposed upon the Property, Premises or
Building and Tenant shall discharge of record any such liens within five (5)
days after written notice thereof. Tenant shall reimburse Landlord for
Landlord's reasonable charges for reviewing and approving or disapproving plans
and specifications for any alterations proposed by Tenant, not in excess of 3%
of the total cost of such alterations. Tenant shall require that any contractors
used by Tenant carry a comprehensive liability insurance policy covering bodily
injury in the amounts of Three Million Dollars ($3,000,000) per person and Three
Million Dollars ($3,000,000) per occurrence and covering property damage in the
amount of One Million Dollars ($1 000,000).
17
<PAGE>
Landlord may require proof of such insurance prior to commencement of any work
on the Premises.
9. USE AND COMPLIANCE WITH LAWS
9.1 Use. Tenant shall use the Premises only for the Permitted
---
Uses specified on the Basic Lease Information, consistent with any covenants,
conditions, and restrictions affecting the Property, and all applicable Rules
and Regulations, and for no other use. Tenant, shall not commit waste, interfere
with any other tenants in the Building, subject the Premises to any use which
would damage the Premises or raise or violate any insurance coverage maintained
at the Building or take any action that would impair parking or alter parking
spaces.
9.2 Compliance with Laws. Tenant shall comply with all current
--------------------
and future requirements of municipal, county, state, federal and other
applicable governmental authorities, pertaining to Tenant's use of the Premises,
Building, Property and Parking Lot, provided that this Section 9.2 does not
create any obligation or liability of Tenant for compliance with the ADA for any
area outside the Premises. Tenant is responsible for compliance with the ADA as
it applies to Tenant as an employer and as it applies to Tenant's alterations,
fixtures equipment and other property. Landlord represents that, as of each
applicant Commencement Date, the Premises and the Building comply with the ADA.
9.3 Signs. Landlord will provide Building standard signage at
-----
the Premises and in the Building lobby. Tenant shall not install any sign on or
in th Building or Premises without the prior written consent of Landlord. Any
sign installed for the benefit of Tenant shall contain only Tenant's name, or
the name of any affiliate of Tenant actually occupying the Premises, and no
advertising matter. Landlord shall have the right, in Landlord's sole
discretion, to object to any sign proposed by Tenant. Tenant shall remove upon
termination of this Lease all signs installed by Tenant and shall return the
site of such sign to its condition prior to the placement of each the sign.
9.4 Parking Access. In addition to the general obligation of
---------------
Tenant to comply with laws and without limitation thereof, Landlord shall not be
liable to Tenant nor shall this Lease be affected if any parking privileges
appurtenant to the Premises are impaired by reason of any moratorium,
initiative, referendum, statute, regulation, denial of permit or other
governmental decree or action which could in any manner prevent or limit the
parking rights of Tenant hereunder. Any governmental charges or surcharges or
other monetary obligations imposed relative to parking rights with respect to
the Premises, Building, Property and Parking Lot shall be considered as
Impositions and shall be payable by Tenant under the provisions of Article 6
hereinabove.
9.5 Floor Load. Tenant shall not place a load upon any floor
----------
of the Premises which exceeds the load per square foot which such floor is
designed to carry and which is then allowed by law.
18
<PAGE>
9.6 Deliveries. All deliveries to and from the Premises shall
----------
be made using the elevator designated by Landlord during the time periods
specified by Landlord and so as to cause the minimum amount of interference with
the business of other tenants of the Building.
9.7 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, guns, ammunition,
radioactive materials, hazardous or toxic substances, material or waste or
related materials including any substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials"
or "toxic substances" now or subsequently regulated under any applicable
federal, state or local laws or regulations, including without limitation,
petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks,
acids, pesticides, ammonia compounds, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environment or the health and safety of persons.
Tenant shall not cause or permit any Hazardous Material to be generated,
produced, brought upon, used, stored, traded or disposed of in or about the
Building by Tenant, its agents, employees, contractors, sublessees or invitees
in violation of applicable law.
10. DAMAGE AND DESTRUCTION
10.1 Reconstruction. If the Premises are damaged or destroyed
--------------
during the Term, except as otherwise provided in this Lease, Landlord shall
diligently repair or rebuild them to substantially the condition in which they
existed immediately prior to such damage or destruction.
10.2 Rent Abatement. Rent due and payable hereunder shall be
--------------
abated proportionately during any period in which, by reason of any such damage
or destruction, Tenant reasonably determines that there is substantial
interference with the operation of Tenant's business in the Premises, having
regard to the extent to which Tenant may be required to discontinue its business
in the Premises. Such abatement shall continue for the period commencing with
such damage or destruction and ending with a substantial completion by Landlord
of the work of repair or reconstruction which Landlord is obligated or
undertakes to do. If it be determined that continuation of business is not
practical pending reconstruction, Base Rent due and payable hereunder shall
abate to the extent of proceeds from rental abatement insurance until
reconstruction is substantially completed or until business is totally or
partially resumed, whichever is the earlier.
10.3 Excessive Damage or Destruction.
-------------------------------
(a) Determination. If the Building is damaged or
-------------
destroyed to the extent that Landlord determines that it cannot, with reasonable
diligence, be fully repaired or restored by Landlord within one hundred twenty
(120) days after the date of the damage or destruction, Landlord may terminate
this Lease. Notwithstanding the fact that the Premises have been damaged or
destroyed, Landlord shall determine whether the Building can be fully repaired
or restored within the one hundred twenty (120) day period, and Landlord's
determination shall
19
<PAGE>
be binding upon Tenant. If the Premises have been destroyed or damaged to the
extent that Landlord determines that the Premises cannot, with reasonable
diligence, be fully repaired or restored within one hundred twenty (120) days
after the date of the damage or destruction, either Landlord or Tenant may
terminate this Lease. Landlord shall notify Tenant of its determination, in
writing, within forty-five (45) days after the date of the damage or
destruction. If Landlord determines that the Building or the Premises can be
fully repaired or restored within the one hundred twenty (120) day period, or if
it is determined that such repair or restoration cannot be made within said
period but neither Landlord nor Tenant elects to terminate within forty-five
(45) days from the date of said determination, this Lease shall remain in full
force and effect and Landlord shall diligently repair and restore the damage
as soon as reasonably possible.
(b) Failure to Complete. In the event that Landlord
-------------------
should fail to complete such repairs and rebuildings within a one hundred twenty
(120) day period, 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, or delays of the contractors
or subcontractors or any other causes or contingencies beyond the reasonable
control of Landlord, Tenant may at Tenant's option within ten (10) days after
the expiration of such one hundred twenty (120) day period (as such period may
be extended), terminate this Lease by delivering written notice of termination
to Landlord, whereupon all rights hereunder shall cease and terminate thirty
(30) days after Landlord's receipt of such termination notice.
10.4 Uninsured Casualty. Notwithstanding anything contained
------------------
herein to the contrary, in the event of damage to or destruction of all or any
portion of the Building and/or the Premises, $50,000 or more of which will not
be reimbursed by the insurance proceeds received by Landlord under the insurance
policies required under Article 5.1 hereinabove, Landlord may terminate this
Lease by written notice to Tenant, given within forty-five (45) days after the
date of notice to Landlord that said damage or destruction is not to be so
reimbursed. If Landlord does not elect pursuant to this Article 10.04 to
terminate this Lease, the Lease shall remain in full force and effect and the
Building and/or Premises shall be repaired and rebuilt, subject to the
provisions for repair set forth in Articles 10.01 and 10.03 hereinabove.
10.5 Waiver. With respect to any destruction which Landlord
------
is obligated to repair or may elect to repair under the terms of this Article
10, Tenant hereby waives all rights to terminate this Lease pursuant to rights
otherwise presently or hereafter accorded by law to tenants, except as expressly
otherwise provided herein.
11. EMINENT DOMAIN
11.1 Total Condemnation. If the whole of the Premises is
------------------
acquired or condemned by eminent domain, inversely condemned or sold in lieu of
condemnation, for any public or quasi-public use or purpose ("Condemned"), then
the Term shall terminate as of the date of title vesting pursuant to such
proceeding or sale, and Rent shall be adjusted as of the date of such
termination.
20
<PAGE>
11.2 Partial Condemnation. If any part of the Premises is
--------------------
Condemned, and such partial condemnation renders the Premises unusable for the
business of the Tenant, as reasonably determined by Landlord, or if a
substantial portion of the Building is Condemned, as reasonably determined by
Landlord, then the Term shall terminate as of the date of title vesting pursuant
to such condemnation and Rent shall be adjusted to the date of termination. If
such condemnation is not sufficiently extensive to result in termination
pursuant to the preceding sentence then Landlord shall (to the extent the
proceeds of the award are available therefrom and are not applied by any lender
against payment of an existing loan on the Building or Property) promptly
restore the Premises to a condition comparable to its condition immediately
prior to such condemnation less the portion thereof lost in such condemnation,
and this Lease shall continue in full force and effect except that after the
date of such title vesting the Base Rent shall be appropriately reduced as
reasonably determined by Landlord. In restoring the Premises to their original
condition, Landlord shall not be required to spend an amount in excess of the
product obtained by multiplying Tenant's Share of Operating Expenses by the
total amount of any condemnation proceeds received by Landlord. If any parking
areas are Condemned, Landlord has the option but not the obligation to supply
Tenant with other parking areas. Landlord and Tenant hereby waive the provisions
of California Code of Civil Procedure (S)265.130.
11.3 Landlord's Award. If the Premises are wholly or
----------------
partially Condemned, then, subject to the provision of Article 11.04 below,
Landlord shall be entitled to the entire award paid for such condemnation, and
Tenant waives any right or claim to any part thereof from Landlord or the
condemning authority.
11.4 Tenant's Award. Tenant shall have the right to claim and
--------------
recover from the condemning authority, but not from Landlord, only such
compensation as may be separately awarded to or recoverable by Tenant in
Tenant's own right on account of any and all costs or loss to which Tenant might
be put in removing Tenant's merchandise, furniture, fixtures, leasehold
improvements and equipment to a new location. In addition, any compensation
specifically awarded to Tenant for loss of business, personal property or
goodwill, shall be the property of Tenant.
11.5 Temporary Condemnation. If the whole or any part of the
----------------------
Premises shall be Condemned for any temporary public or quasi-public use or
purpose, this Lease shall remain in effect and Tenant shall be entitled to
receive for itself such portion or portions of any award made for such use with
respect to the period of the taking which is within the Term. If a temporary
condemnation remains in force at the expiration or earlier termination of this
Lease, Tenant shall pay to Landlord a sum equal to the reasonable cost of
performing any obligations required of Tenant by this Lease with respect to the
surrender of the Premises, including, without limitation, repairs and
maintenance, and upon such payment Tenant shall be excused from any such
obligations. If a temporary condemnation is for an established period which
extends beyond the Term, the Lease shall terminate as of the date of occupancy
by the condemning authority, and the damages shall be as provided in Articles
11.03 and 11.04 hereinabove and Rent shall be adjusted to the date of occupancy.
21
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11.6 Notice and Execution. Landlord shall, immediately upon
--------------------
service of process in connection with any condemnation or potential
condemnation, give Tenant notice in writing thereof. Tenant shall immediately
execute and deliver to the Landlord all instruments that may be required to
effectuate the provisions of this Article 11.
11.7 Sale Under Threat of Condemnation. A sale by Landlord to
---------------------------------
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for purposes of this Article 11.
12. DEFAULT
12.1 Events of Default. The occurrence of any of the
-----------------
following events shall constitute an "Event of Default" on the part of Tenant,
without notice from Landlord unless notice is specifically required:
(a) Vacation or Abandonment. While any other Event of
-----------------------
Default is outstanding, ceasing to use the Premises as a business office or
otherwise vacating or abandoning the Premises;
(b) Payment. Failure to pay any installment of Base
-------
Rent, Additional Rent or other monies due and payable hereunder upon the date
when said payment is due, the failure continuing for a period of five (5) days
following written notice thereof from Landlord;
(c) Performance. Default in the performance of any of
-----------
Tenant's covenants, agreements or obligations hereunder (except default in the
payment of Rent, Additional Rent or other monies), the default continuing for
thirty (30) days after written notice thereof from Landlord;
(d) Assignment. A general assignment by Tenant for the
----------
benefit of creditors;
(e) Bankruptcy. The filing of a voluntary petition by
----------
Tenant, or the filing of an involuntary petition by any of Tenant's creditors
seeking the liquidation or reorganization of Tenant under any law relating to
bankruptcy, insolvency or other relief of debtors, which involuntary petition
remains undischarged for sixty (60) days;
(f) Receivership. The appointment of a receiver or
------------
other custodian to take possession of substantially all of Tenant's assets or of
this leasehold;
(g) Insolvency, Dissolution, Etc. Tenant shall become
----------------------------
insolvent or unable to pay its debts, or shall fail generally to pay its debts
as they become due; or any court shall enter a decree or order directing the
winding up or liquidation of Tenant or of substantially
22
<PAGE>
all of its assets; or Tenant shall take any action toward the dissolution or
winding up of its affairs or the cessation or suspension of its use of the
Premises; or
(h) Attachment. Attachment, execution or other judicial
----------
seizure of substantially all of Tenant's assets or this leasehold.
12.2 Landlord's Remedies.
-------------------
(a) Abandonment. If Tenant vacates or abandons the
-----------
Premises, this Lease shall continue in effect unless or until terminated by
Landlord as provided in Article 12.02(b) below, and Landlord shall have all of
the rights and remedies of a landlord provided by Section 1951.4 of the
California Civil Code.
(b) Termination. Following the occurrence of any Event
-----------
of Default, Landlord shall have the right, so long as the default continues, to
terminate this Lease by written notice to Tenant setting forth: (i) the default,
(ii) the requirements to cure it and (iii) a demand for possession, which shall
be effective three (3) days after it is given. Landlord shall not be deemed to
have terminated this Lease other than by delivering written notice of
termination to Tenant.
(c) Possession. Following termination under Article
----------
12.02(b) above, without prejudice to any other remedies Landlord may have by
reason of Tenant's default or of such termination, Landlord may then or at any
time thereafter (i) peaceably re-enter the Premises, or any part thereof, upon
voluntary surrender by Tenant, or, expel or remove Tenant and any other persons
occupying the Premises, using such legal proceedings as may be available; (ii)
repossess and -enjoy the Premises, or relet the Premises or any part thereof for
such term or terms (which may be for a term extending beyond the Term), at such
rental or rentals and upon such other terms and conditions as Landlord in
Landlord's sole discretion shall determine, with the right to make reasonable
alterations and repairs to the Premises; and (iii) remove all personal property
from the Premises.
(d) Recovery. Following termination under Article
--------
12.02(b) above, Landlord shall have all the rights and remedies of a landlord
provided by Section 1951.2 of the California Civil Code, which provides that
Landlord may recover from Tenant the following: (i) the worth at the time of the
award of the unpaid Rent which had been earned at the time of termination; (ii)
the worth at the time of the award of the amount by which the unpaid Rent which
would have been earned after termination until the time of the award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(iii) the worth at the time of the award of the amount by which the unpaid Rent
for the balance of the Term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Landlord for all detriment proximately caused by
Tenant's failure to perform Tenant's obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom. The "worth at the
time of award" of the amounts referred to in (i) and (ii) of this subsection
shall be computed by allowing
23
<PAGE>
interest at the interest rate set forth in Article 12.03. The "worth at the time
of the award" of the amount referred to in (iii) above shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1 %).
(e) Other. If Tenant causes or threatens to cause a
-----
breach of any of the covenants, terms or conditions contained in this Lease,
Landlord shall be entitled to retain all sums held by Tenant, any trustee or in
any account provided for herein, to enjoin such breach or threatened breach, and
to invoke any remedy allowed at law, in equity, by statute or otherwise as
though re-entry, summary proceedings and other remedies were not provided for in
this Lease.
(f) Cumulative. Each right and remedy of Landlord
----------
provided for in this Lease shall be cumulative and shall be in addition to every
other right or remedy provided for now or hereafter existing at law, in equity,
by statute or otherwise. If Landlord undertakes to exercise any remedy provided
for in this Lease, or now or hereafter existing at law, in equity, by statute,
or otherwise, such action shall not preclude the Landlord from exercising any or
all other rights or remedies provided for in this Lease or now or hereafter
existing at law, in equity, by statute, or otherwise.
(g) No Waiver. No failure by Landlord to insist upon
---------
the strict performance of any term hereof or to exercise any right or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach shall constitute a waiver of
any such breach or of any such term. Efforts by Landlord to mitigate the damages
caused by Tenant's breach of this Lease shall not be construed to be a waiver of
Landlord's right to recover damages under this Article 12.02.
(h) Landlord's Right to Perform. Upon Tenant's failure
---------------------------
to perform any obligation of Tenant hereunder, including, without limitation,
payment of Tenant's insurance premiums and charges of contractors who have
supplied materials or labor to the Premises, Landlord shall have the right to
perform such obligations of Tenant on behalf of Tenant and/or to make payment on
behalf of Tenant to such parties. Except in cases of emergency and situations
where Landlord has already given Tenant notice of nonperformance, Landlord will
give Tenant prior written notice of Landlord's intention to act pursuant to this
Article 12.02(h) and Tenant shall have ten (10) days from the date of that
notice to cure its nonperformance. Tenant shall reimburse Landlord the
reasonable cost of Landlord's performing such obligations on Tenant's behalf,
including, without limitation, reimbursement of any amounts that may be expended
by Landlord and Landlord's reasonable attorneys' fees, plus interest from the
date of any expenditure of sums at the rate set forth in Article 12.03.
(i) Additional Remedies. In addition to the foregoing
-------------------
remedies and so long as this Lease is not terminated, Landlord shall have the
right to remedy any default of Tenant, to maintain or improve the Premises
without terminating this Lease, to incur expenses on behalf of Tenant in seeking
a subtenant or assignee, including, without limitation, brokers' commissions,
expenses of remodeling the Premises, and other inducements Landlord determines
are necessary, to cause a receiver to be appointed to administer the Premises
and new or existing
24
<PAGE>
subleases and to add to the Rent payable hereunder all of Landlord's costs in so
doing, including reasonable attorneys' fees, with interest at the rate provided
in Article 12.03 from the date of such expenditure until the same is repaid.
(j) Additional Rent. For purposes of any unlawful
---------------
detainer action by Landlord against Tenant pursuant to California Code of Civil
Procedure Sections 1161 through 1179, or any similar or successor statutes,
Landlord shall be entitled to recover as rent not only such sums specified as
Base Rent herein which may then be overdue, but also Additional Rent and all
such additional sums of money as may then be overdue.
(k) Indemnification. Nothing in this Article 12 affects
---------------
the right of Landlord to indemnification by Tenant in accordance with Article
5.8 for liability arising from personal injuries, property damage, or any other
cause prior to the termination of this Lease.
(l) After Default. Landlord shall be under no
-------------
obligation to observe or perform any covenant of this Lease on its part to be
observed or performed which accrues after the date of any Event of Default, and
for so long as the Event of Default continues.
12.3 Interest. Any payment of Rent or other amount from
--------
Tenant to Landlord in this Lease which is not paid on the date due shall accrue
interest from the date due until the date paid at a rate equal to three (3)
points over the prime rate as announced by Wells Fargo Bank, N.A., at the time
of the default, but in no event less than ten percent (10%) per year; provided,
however, that if a court of competent jurisdiction determines the above rate
exceeds the highest lawful rate of interest, then at the maximum rate permitted
by law. In the event that Landlord receives any payment before nonpayment has
become an Event of Default, no interest shall be charged to Tenant as to that
payment. This provision shall not relieve Tenant of Tenant's obligation to pay
any amount owing hereunder at the time and in the manner provided.
13. ASSIGNMENT AND SUBLETTING
13.1 Assignment and Subletting.
-------------------------
(a) Prohibition. Tenant, including any subsequent
-----------
assignee or subtenant, shall not assign, mortgage, pledge, or otherwise transfer
this Lease, in whole or in part, nor sublet or permit occupancy by any party
other than Tenant of all or any part of the Premises, without the prior written
consent of Landlord in each instance. Landlord's consent under this Article 13
shall not be unreasonably withheld, but Landlord may nevertheless condition its
consent upon such factors as the proposed use, reputation and financial
stability of any proposed assignee or subtenant. If Tenant is an entity, the
sale or other transfer of 51% or more of the beneficial ownership of Tenant
shall be deemed to be an assignment subject to the terms of this Article, unless
Tenant is a corporation whose stock is traded on a public exchange or over the
counter. No assignment or subletting shall relieve Tenant of any obligation
under this Lease, including Tenant's obligation to pay Rent. Any purported
assignment or subletting contrary to the provisions hereof without Landlord's
prior written consent shall be voidable at
25
<PAGE>
Landlord's option. As Additional Rent hereunder, Tenant shall reimburse
Landlord, in an amount not to exceed Five Hundred Dollars ($500.00) per request,
for reasonable legal and other expenses incurred by Landlord in connection with
the review of any request by Tenant for consent to assignment or subletting.
(b) Notice. If Tenant desires to assign this Lease or
------
sublet any or all of the Premises, Tenant shall give Landlord written notice
thirty (30) days prior to the anticipated effective date of the assignment or
sublease. Landlord shall then have the period of ten (10) days following receipt
of such notice to notify Tenant in writing whether it will permit Tenant to
assign this Lease or sublet its space. If Landlord should fail to notify Tenant
in writing of such election within such period, Landlord shall be deemed to have
disapproved the proposed assignment or sublease.
13.2 Documentation. Prior to any assignment or sublease which
-------------
Tenant desires to make, Tenant shall provide to Landlord true and complete
copies of all documents relating to Tenant's prospective assignment or sublease,
shall specify all consideration to be received by Tenant for such assignment or
sublease, and shall provide Landlord with all information and documentation as
Landlord shall reasonably require, including but not limited to the following
information about the prospective assignee or subtenant: name and address;
proposed use of the Premises; current financial statements, including a balance
sheet and a profit/loss statement for the then current fiscal year and the two
(2) preceding fiscal years, if available. Any request by Tenant to assign or
sublet shall be accompanied by the proposed assignment or sublease agreement,
which agreement shall include the following provisions:
(a) Attornment. If Tenant proposes to assign, the
----------
assignment agreement shall provide that the assignee shall expressly assume the
obligations of Tenant hereunder. If Tenant proposes to sublet, the sublease
agreement shall provide that sublessee will attorn to the Landlord in the event
of any breach of the Lease by Tenant;
(b) Assignment of Subrents. Tenant's subrents to
----------------------
Landlord as security for Tenant's obligations under the Lease; agreement to
assign all subrents to Landlord as security for Tenant's obligations under the
Lease;
(c) Termination of Lease. A provision that the
--------------------
termination of this Lease shall, at Landlord's sole election, constitute a
termination of every assignment or sublease; and
(d) Subordination. A provision that the assignment or
-------------
sublease is subordinate to the provisions of this Lease.
13.3 Bonus Rental. If for any assignment or sublease, Tenant
------------
receives rent or other consideration, either initially or over the term of the
assignment or sublease, in excess of the Rent called for hereunder, or in case
of the sublease of a portion of the Premises, in excess of such Rent fairly
allocable to such portion, after appropriate adjustments to assure that
26
<PAGE>
all other payments called for hereunder are appropriately taken into account,
Tenant shall pay to Landlord, as Additional Rent hereunder, fifty percent (50%)
of the excess of each such payment of rent or other consideration received by
Tenant within three (3) days after receipt. For purposes of this Article 13.03,
"consideration" shall include, without limitation, all monies or other economic
consideration of any kind, if such sums are related to Tenant's interest in this
Lease, the Premises or any improvements thereon, including but not limited to,
bonus money, and payments (in excess of book value thereof) for Tenant's assets,
accounts, good will, general intangibles, Tenant's personal property, and any
capital stock or other equity ownership of Tenant, and "excess" consideration
will be the amount after deduction of (a) the aggregate concession package of
Tenant which shall consist of architectural and engineering fees, tenant
improvements costs and other inducements, and (b) a reasonable brokerage
commission and reasonable attorneys' fees actually paid by Tenant.
13.4 Scope. The prohibition against assigning or subletting
-----
contained in this Article shall be construed to include a prohibition against
any assignment or subletting that is effected by a merger or acquisition or by
operation of law. If this Lease is assigned, or if the underlying beneficial
interest of Tenant is transferred, or if the Premises or any part thereof is
sublet or occupied by anybody other than Tenant, Landlord may collect rent from
the assignee, subtenant or occupant and apply the net amount collected to the
Rent reserved and apportion any excess rent so collected in accordance with the
terms of the preceding paragraph, but no such collection shall be deemed a
waiver of any covenant, or the acceptance of the assignee, subtenant or occupant
as tenant, or a release of Tenant from the further performance of Tenant's
covenants hereunder. No assignment or subletting shall affect the continuing
primary liability of Tenant (which shall be joint and several with the
assignee), and Tenant shall not be released from performing any of the terms,
covenants and conditions of this Lease.
13.5 Waiver. Notwithstanding any assignment or sublease, or
------
any indulgences, waivers or extensions of time granted by Landlord to any
assignee or sublessee, or failure by Landlord to take action against any
assignee or sublessee, Tenant waives notice of any default of any assignee or
sublessee and agrees that Landlord may, at its option, proceed against Tenant
without having taken action against or joined such assignee or sublessee, except
that Tenant shall have the benefit of any indulgences, waivers and extensions of
time granted to any such assignee or sublessee.
13.6 Release. Whenever Landlord conveys its interest in the
-------
Parking Lot, Property and/or Building, Landlord shall be automatically released
from the further performance of covenants on the part of Landlord herein
contained, and from any and all further liability, obligations, costs and
expenses, demands, causes of action, claims or judgments arising from or growing
out of, or connected with this Lease after the effective date of said
conveyance, but is not hereby released from any such liability or claim that
existed on or before the date of such conveyance. The effective date of said
release shall be the date the assignee executes an assumption of the assignment
of Landlord's obligations, duties, responsibilities and liabilities with respect
to this Lease. If requested, Tenant shall execute a form of release and such
other documentation as may be required to further effect the provisions of this
Article 13.06.
27
<PAGE>
13.7 Limitation on Elective Provisions. Any assignment or
---------------------------------
subletting by Tenant of the Premises, or any portion thereof, shall
automatically operate to terminate any and every right, option, or election of
Tenant, if any, including, but not limited to, the right to expand the Premises
or to extend the Term of this Lease as to all or any part of the Premises.
14. OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
14.1 Offset Statement. Within ten(10)days after request
----------------
therefor by Landlord, or if on any sale, assignment or hypothecation by Landlord
of Landlord's interest in the Building, Property and/or Parking Lot, or any part
thereof, an offset statement shall be required from Tenant, Tenant shall
deliver, in recordable form, a certificate to any proposed mortgagee or
purchaser, and to Landlord, certifying (if such be the case) that this Lease is
in full force and effect, the date of Tenant's most recent payment of Rent, and
that Tenant has no defenses or offsets outstanding, or stating those claimed by
Tenant, and any other information reasonably requested. Tenant's failure to
deliver said statement in time shall be conclusive upon Tenant that: (i) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (ii) there are no uncured defaults in Landlord's
performance and Tenant has no right of offset, counterclaim or deduction against
Rent hereunder; and (iii) no more than one period's Base Rent has been paid in
advance.
14.2 Attornment. In the event any proceeding is brought for
----------
the foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by the Landlord, its successors or assigns,
encumbering the Premises, or any part thereof, Tenant shall attorn to the
purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of
foreclosure and recognize such purchaser as the Landlord under this Lease.
14.3 Subordination. The rights of Tenant hereunder are and
-------------
shall be, at the election of the mortgagee, subject and subordinate to the lien
of such mortgage, or the lien resulting from any other method of financing, now
or hereafter in force and recorded against the Building, Property and/or Parking
Lot, and to all advances made or hereafter to be made upon the security thereof;
provided, however, that notwithstanding such subordination, so long as Tenant is
not in default under any of the terms, covenants and conditions of this Lease,
neither this Lease nor any of the rights of Tenant hereunder, shall be
terminated or subject to termination by any trustee's sale, any action to
enforce the security, or by any proceeding or action in foreclosure. If
requested, Tenant agrees to execute whatever documentation may be required to
further effect the provisions of this Article within ten (10) days of Landlord's
request to do so. Landlord agrees to use its reasonable efforts to obtain from
the holder of any mortgage affecting the Premises a non-disturbance agreement in
form reasonably acceptable to Tenant which shall provide that in the event of a
foreclosure, this Lease shall not be extinguished or terminated but instead
shall remain in full force and effect and that Tenant shall not be disturbed in
the event of sale or foreclosure so long as Tenant is not in default beyond the
expiration of any applicable grace period hereunder.
15. NOTICES
28
<PAGE>
15.1 Notices. All notices required to be given hereunder
-------
shall be in writing and mailed postage prepaid by certified or registered mail,
return receipt requested, or by personal delivery, to the appropriate address
indicated in the Basic Lease Information, or at such other place or places as
either Landlord or Tenant may, from time to time, respectively, designate in a
written notice given to the other. Notices shall be deemed effective four (4)
days after the date of mailing thereof, or upon personal delivery. Notices from
Landlord's property manager shall be effective as notice from Landlord.
16. SUCCESSORS BOUND
16.1 Successors Bound. This Lease and each of its covenants
----------------
and conditions shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors and legal representatives
and their respective assigns, subject to the provisions hereof. Whenever in this
Lease a reference is made to the Landlord, such reference shall be deemed to
refer to the person in whom the interest of the Landlord shall be vested, and
Landlord shall have no obligation hereunder as to any claim arising after the
transfer of its interest in the Premises. Any successor or assignee of the
Tenant who accepts an assignment or the benefit of this Lease and enters into
possession or enjoyment hereunder shall thereby assume and agree to perform and
be bound by the covenants and conditions thereof. Nothing herein contained shall
be deemed in any manner to give a right of assignment to Tenant without the
written consent of Landlord.
17. MISCELLANEOUS
17.1 Waiver. Waivers of any covenant, term or condition
------
contained herein by either party shall not be construed as a waiver of any
subsequent breach of the same covenant, term or condition. No waiver is to be
implied from any omission to act. No express waiver shall affect any default
other than the default specified in the waiver, and said waiver shall be
operative only for the time and to the extent therein stated.
17.2 No Light, Air or View Easement. Any diminution or
------------------------------
shutting off of light, air or view by any structure which may be erected on
lands adjacent to or in the vicinity of the Building shall in no way affect this
Lease or impose any liability on Landlord.
17.3 Corporate Authority. If Tenant executes this Lease as a
-------------------
corporation, each of the person's executing this Lease on behalf of Tenant
hereby covenants and warrants that: (i) Tenant is a duly authorized and existing
corporation; (ii) Tenant is qualified to do business in the State of California;
(iii) Tenant has full right and authority to enter into this Lease; and (iv)
each of the person's executing on behalf of Tenant is authorized to do so.
17.4 Limitation of Landlord's Liability. The obligations of
----------------------------------
Landlord under this Lease shall not constitute the obligation of any other
entity nor the personal obligations of the individual directors or officers of
Landlord, and Tenant shall look solely to the real estate that is the subject of
this Lease and to no other assets of Landlord for satisfaction of
29
<PAGE>
any liability in respect of this Lease and shall not seek recourse against any
other entity or individual or any of their assets for such satisfaction.
17.5 Time. Time is of the essence of every provision hereof.
----
17.6 Attorneys' Fees. In any action or proceeding which the
---------------
Landlord or the Tenant may be required to prosecute to enforce its respective
rights hereunder, the unsuccessful party therein agrees to pay all costs
incurred by the prevailing party therein, including reasonable attorneys' fees,
to be fixed by the court, and said costs and attorneys' fees shall be made a
part of the judgment in said action.
17.7 Captions and Article Numbers. The captions, article
----------------------------
numbers and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such sections or articles of this Lease.
17.8 Severability. If any term, covenant, condition or
------------
provision of this Lease shall to any extent be held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
covenants, conditions or provisions of this Lease shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
17.9 Applicable Law. This Lease, and the rights and
--------------
obligations of the parties hereto, shall be construed and enforced in accordance
with the laws of the State of California.
17.10 Submission of Lease. The submission of this document
-------------------
for examination and negotiation does not constitute an offer to lease or option
for leasing the Premises. This document shall become effective and binding only
upon execution and delivery hereof by Landlord. No act or omission of any
employee or agent of Landlord or of Landlord's broker or managing agent shall
alter, change, or modify any of the provisions hereof.
17.11 Holding Over. Should Tenant, or any of its successors
------------
in interest, hold over the Premises, or any part thereof, after the expiration
of the term of this Lease, unless otherwise agreed to in writing, such holding
over shall constitute and be construed as tenancy from month-to-month only, at a
monthly rent equal to one hundred twenty-five percent (125%) the Base Rent in
effect during the final year of the Term of this Lease as the same may be
extended from time to time. The preceding sentence shall not be construed as
Landlord's permission for Tenant to hold over.
17.12 Surrender. Upon the expiration or earlier termination
---------
of this Lease, enant shall surrender the Premises to Landlord in good order,
condition and repair, except for reasonable wear and tear and items for which
Landlord is responsible hereunder or as otherwise provided in Articles 10 and
11. Tenant shall not commit or allow any waste or damage to be committed on any
portion of the Property, Premises or Building. All property that Tenant
30
<PAGE>
is required to surrender shall become Landlord's property upon the termination
of this Lease. Landlord may cause any of said personal property that is not
removed from the Premises within thirty (30) days after the date of any
termination of this Lease to be removed from the Premises and stored at Tenant's
expense, or, at Landlord's election said personal property thereafter shall
belong to Landlord without the payment of any consideration, subject to the
rights of any person holding a perfected security interest therein.
17.13 Rules and Regulations. At all times during the Term,
---------------------
Tenant shall comply with rules and regulations ("Rules and Regulations") for the
Building, Parking Lot and the Property, as set forth in Exhibit D (and such
---------
amendments as Landlord may reasonably adopt), attached hereto and by this
reference made a part hereof.
17.14 No Nuisance. Tenant shall conduct its business and
-----------
control its agents, employees, invitees and visitors in such a manner as not to
create any nuisance, or interfere with, annoy or disturb any other tenant or
Landlord in its operation of the Building.
17.15 Brokers. Tenant warrants that it has had no dealings
-------
with any real estate broker or agent other than Brokers in connection with the
negotiation of this Lease, and that it knows of no other real estate broker or
agent who is entitled to any commission or finder's fee in connection with this
Lease. Tenant agrees to indemnify Landlord and hold Landlord harmless from and
against any and all claims, demands, losses, liabilities, lawsuits, judgments,
costs and expenses (including without limitation, attorneys' fees and costs)
with respect to any leasing commission or equivalent compensation alleged to be
owing on account of Tenant's dealings with any real estate broker or agent other
than Brokers.
17.16 Nonliability. Landlord shall not be in default
------------
hereunder, nor, except as otherwise provided herein shall Landlord be liable for
any damages directly or indirectly resulting from, nor, except as otherwise
provided herein, shall the rental herein reserved be abated by reason of (i) the
interruption of use of the Premises as a result of the installation of any
equipment in connection with the Property, Premises or Building or (ii) any
failure or delay in furnishing any services required to be provided by Landlord
when such failure or delay is caused by accident or any condition beyond the
reasonable control of Landlord or by the making of necessary repairs or
improvements to the Property, Premises or to the Building, or the rationing or
restriction on use of water or electricity, gas or any other form of energy or
any other service or utility whatsoever serving the Property, Premises or the
Building. Landlord shall use reasonable efforts to remedy any interruption in
the furnishing of such services.
17.17 Recording. This Lease shall not be recorded, but Tenant
---------
shall, at the option of Landlord, execute and deliver to Landlord a short form
hereof, in a recordable form approved by Landlord, and Landlord may, at
Landlord's option, cause the short form to be recorded. If a short form of this
Lease is recorded, Tenant shall, at Tenant's expense, upon the termination of
this Lease, execute and deliver to Landlord a recordable instrument evidencing
the termination in a form approved by Landlord.
31
<PAGE>
17.18 Joint and Several Liability. If Tenant is more than (1)
---------------------------
person or entity, each such person or entity shall be jointly and severally
liable for the obligations of Tenant hereunder.
17.19 Entire Agreement. This Lease sets forth all covenants,
----------------
agreements, and conditions between Landlord and Tenant concering the Premises,
Building, Parking Lot and Property, and there are no covenants, agreements or
conditions, either oral or written, between Landlord and Tenant other than as
are herein set forth. Except as herein otherwise provided, no subsequent
amendment or addition to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and signed by Landlord and Tenant.
17.20 Payment Under Protest. If at any time a dispute shall
---------------------
arise as to any amount or sum of money to be paid by one party to the other
under the provisions of the Lease, the party against whom the obligation to pay
the money is asserted shall have the right to make payment "under protest" and
there shall survive the right on the part of said party to institute suit for
recovery of such sum. If it shall be adjudged that there was no legal obligation
on the part of said party to pay such sum or any part thereof, said party shall
be entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of the Lease with simple interest thereon
at the rate of ten percent (10%) per annum from the date of payment through the
date of recovery.
17.21 Reasonableness. Whenever the consent or approval of
--------------
either party hereto is required, such consent or approval shall not be
unreasonably withheld or delayed, and whenever this Lease grants to either party
hereto the right to take action, exercise discretion, make a judgment or other
determination, or request or require documents or other items or information,
such party shall act reasonably and in good faith. Any costs, expenses, fees or
charges incurred by one party hereto and to be paid by the other party shall be
limited in type and amount to those reasonably incurred.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
"Landlord" "Tenant"
CALIFORNIA STATE AUTOMOBILE CYBERSOURCE CORPORATION
ASSOCIATION INTER-INSURANCE a California corporation
BUREAU, an inter-insurance exchange
By: By:
--------------------------------- --------------------------------
Its: Its:
-------------------------------- -------------------------------
By: By:
--------------------------------- --------------------------------
Its: Its:
--------------------------------- -------------------------------
32
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
That certain real property situated in the City of San Jose, County of Santa
Clara, State of California, more particularly described as follows:
PARCEL ONE:
- -----------
All of Parcel 1 as shown on that certain Parcel Map filed for record in the
office of the Recorder, County of Santa Clara, State of California, on May 21,
1986 in Book 559 of Maps at pages 49 and 50.
PARCEL TWO:
- -----------
All of Parcel 2 as shown upon that certain Parcel Map filed for record in the
office of the Recorder, County of Santa Clara, State of California, on May 21,
1986 in Book 559 of Maps, pages 49 and 50.
33
<PAGE>
EXHIBIT B
---------
BUILDING FLOOR PLAN
-------------------
[To Be Inserted]
34
<PAGE>
EXHIBIT C
TENANT IMPROVEMENTS
-------------------
1. As to Initial Premises: Landlord shall professionally clean all carpeted
areas and touch up paint throughout.
2. As to Expansion Premises: Landlord shall prepare Suite 310 for Tenant's
proposed use, as agreed by the parties.
35
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, lobby, elevators, stairways and public
corridors shall be used only as a means of ingress and egress and shall remain
unobstructed at all times. The entrance and exit doors of all suites are to be
kept closed at all times except as required for orderly passage to and from a
suite. Loitering in any part of the Building or obstruction of any means of
ingress or egress shall not be permitted. Doors and windows shall not be
covered or obstructed.
2. Plumbing fixtures shall not be used for any purposes other than those
for which they were constructed, and no rubbish, newspapers, trash or other
substances of any kind shall be thrown into them. Walls, floors and ceilings
shall not be defaced in any way and no one shall be permitted to mark, drive
nails, screws or drill into, paint, or in any way mar any Building surface,
except that pictures, certificates, licenses and similar items normally used in
Tenant's business may be carefully attached to the walls by Tenant in a manner
to be prescribed by Landlord. Upon removal of such items by Tenant any damage
to the walls or other surfaces, except minor nail holes, shall be repaired by
Tenant.
3. No awning, shade, sign, advertisement or notice shall be inscribed,
painted, displayed or affixed on, in or to any window, door or balcony or any
other part of the outside or inside of the Building or the demised premises. No
window displays or other public displays shall be permitted without the prior
written consent of Landlord. All tenant identification on public corridor doors
beyond building standard will be installed by Landlord for Tenant but the cost
shall be paid by Tenant. No lettering or signs other than the name of Tenant
will be permitted on public corridor doors with the size and type of letters to
be prescribed by Landlord. The directory of the Building will be provided
exclusively for the display and location of Tenant only and Landlord reserves
the right to exclude all other names therefrom. All requests for listing on the
Building directory shall be submitted to the office of Landlord in writing.
Landlord reserves the right to approve all listing requests. Any change
requested by Tenant of Landlord of the name or names posted on directory, after
initial posting, will be charged to Tenant.
4. The cost of any special electrical circuits for items such as copying
machines, computers, microwaves, etc., shall be borne by Tenant unless the same
are part of the building standard improvements. Prior to installation of
equipment Tenant must receive written approval from Landlord.
5. The weight, size and position of all safes and other unusually heavy
objects used or placed in the Building shall be prescribed by Landlord and
shall, in all cases, stand on metal plates of such size as shall be prescribed
by Landlord.. The repair of any damage done to the Building or property therein
by putting in or taking out or maintaining such safes or other unusually heavy
objects shall be paid for by Tenant.
36
<PAGE>
6. All freight, furniture, fixtures and other personal property shall be
moved into, within and out of the Building at times designated by and under the
supervision of Landlord and in accordance with such regulations as may be posted
in the office of the Building manager. In no event will Landlord be responsible
for any loss or damage to such freight, furniture, fixtures or personal property
from any cause.
7. No improper noises, vibrations or odors will be permitted in the
Building, nor shall any person be permitted to interfere in any way with tenants
or those having business with them. No person will be permitted to bring or
keep within the Building any animal, bird or bicycle or any toxic or flammable
substances without Landlord's prior permission. No person shall throw trash,
refuse, cigarettes or other substances of any kind any place within or out of
the Building except in the refuse containers provided therefor. Landlord
reserves the right to exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs
or who shall in any manner do any act in violation of the rules and regulations
of the Building.
8. All re-keying of office doors or changes to the card access system,
after occupancy, will be at the expense of Tenant. Tenant shall not re-key any
doors or change the card access system in any way without making prior
arrangements with Landlord.
9. Tenant will not install or use any window coverings except those
provided by Landlord, nor shall Tenant use the balconies, if any, for storage,
barbecues, drying of laundry or any other activity which would detract from the
appearance of the Building or interfere in any way with the use of the Building
by other tenants.
10. If Tenant uses the Premises after regular business hours or on non-
business days, Tenant shall lock any entrance doors to the Building used by
Tenant or take such other steps as are necessary to secure the Building's doors
immediately after entering or leaving the Building.
11. If Tenant requires telegraphic, telephonic, burglar alarms or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
12. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
bootblacking or other personal services upon the Premises, except at such hours
and under such regulations as may be fixed by Landlord.
37
<PAGE>
15. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord, which consent shall not
be unreasonably withheld. Canvassing, soliciting and distribution of handbills
or any other written material, and peddling in the Building, are prohibited, and
each tenant shall cooperate to prevent same.
16. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with rubber tires and side
guards, or such other material-handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building.
17. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by other tenants or visitors to the Building.
Tenant shall not leave vehicles in the Parking Lot overnight nor park any
vehicles in the Parking Lot other than automobiles, motorcycles, motor driven or
pedal bicycles or four-wheeled trucks. Landlord may, in its sole discretion,
designate separate areas for bicycles and motorcycles.
18. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition to its occupancy of the Premises.
19. The normal business hours of the Building shall be 8:00 a.m. to 6:00
p.m., Monday through Friday, holidays excepted. Not less than once annually,
Landlord shall publish to all tenants a list of the holidays to be observed by
the Building.
20. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
21. Landlord reserves the right to make such other and further rules and
regulations as in Landlord's judgment may be necessary for the safety, care and
cleanliness of the Premises and for the preservation of good order therein.
Tenant shall abide by all rules and regulations hereinabove stated and any
additional rules and regulations adopted by Landlord.
38
<PAGE>
Exhibit 10.5
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is entered into as of
_______________, 1999 by and between CALIFORNIA STATE ASSOCIATION INTER-
INSURANCE BUREAU ("Landlord") and CYBERSOURCE CORPORATION, a California
corporation ("Tenant").
R E C I T A L S:
A. Landlord and Tenant entered into that certain Lease dated August 20,
1996 (the "Lease"), pursuant to which Landlord leased to Tenant and Tenant
leased from Tenant that certain office space containing approximately 7,407
rentable square in Suite 300, with the right to expand to Suite 310 containing
an additional 2,700 rentable square feet, in that certain building commonly
known as 550 S. Winchester Blvd., San Jose, California;
B. Tenant exercised its right to expand into Suite 310 so that the total
rental square feet leased by Tenant under the Lease became 10,107 rentable
square feet (the "Initial Leased Premises");
C. Subsequent to entering into the Lease, Landlord and Tenant have agreed
to increase the square footage of the Initial Leased Premises by adding certain
expansion space adjacent to the Initial Leased Premises consisting of 1,820
rentable square feet and 1,625 usable square feet in Suite 308 (the "Expansion
Space");
D. Landlord and Tenant wish to enter into this Amendment to confirm the
addition of the Expansion Space, to adjust the base rent payable under the Lease
and to otherwise modify the Lease as provided herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Capitalized Terms. All capitalized terms used herein shall have the
-----------------
same meanings as is given such terms in the Lease unless expressly superseded by
the terms of this Amendment.
2. Premises. Upon the Effective Date, all references to "the premises"
--------
or to "the Premises" in the Lease shall mean and refer to, collectively, the
Initial Leased Space and the Expansion Space (the "Premises"). Notwithstanding
anything to the contrary contained in the Lease, as of the Effective Date, the
total rentable square footage contained in the Premises shall be to 10,107.
3. Tenant's Share of Excess Operating Expenses. The Tenant's Share of
-------------------------------------------
Excess Operating Expenses attributable to the Expansion Space is 1.95%. Due to
the increase of
1
<PAGE>
square footage of the Premises as described above, as of the Effective Date,
Tenant's Share of the Excess Operating Expenses shall be increased to 12.75%.
4. Tenant Improvements. Landlord shall, at Landlord's cost and expense,
-------------------
remove the adjoining wall as shown on the plan attached hereto as Schedule 1 and
----------
recarpet the Expansion Space (the "Expansion Improvements"). By Tenant having
entered and taken possession of the Expansion Space, Tenant shall be deemed to
have accepted the same in their condition existing as of the date of such entry
and subject to all applicable municipal, county, state and federal statutes,
laws, ordinances (including zoning ordinances), and regulations governing and
relating to the use, occupancy or possession of the Expansion Space which forms
a part of the Premises. The "Effective Date" shall be the date on which the
Expansion Improvements have been substantially completed, as reasonably
determined by Landlord. Landlord shall prepare, certify by Landlord's signature
and deliver to Tenant a written statement certifying (a) that the Expansion
Improvements have been substantially completed; and (b) the date of such
completion. Landlord shall diligently complete any items of work not fully
completed (i.e., punch list items) within thirty (30) days after written notice
that an item has not been completed.
5. Base Rent. Commencing on the Effective Date, the base rent payable
---------
by Tenant for the Premises (including the Expansion Space) shall be as follows:
(a) During the period beginning on the Effective Date and ending on
August 22, 1998, Tenant shall pay Landlord equal monthly installments of base
rent each in the amount of Four Thousand Three Hundred Sixty-Eight and 00/100
Dollars ($4,368.00);
(b) During the period beginning on August 23, 1998 and ending on August
22, 1999 Tenant shall pay Landlord equal monthly installments of base rent each
in the amount of Four Thousand Four Hundred Fifty-Nine and 00/100 Dollars
($4,459.00).
6. Security Deposit. Upon executing this Amendment, Tenant shall give an
----------------
additional security deposit to Landlord in the amount of Four Thousand Three
Hundred Sixty-Eight and 00/100 Dollars ($4,368.00) resulting in the total
Security Deposit under the Lease being Twenty-Five Thousand Three Hundred Fifty-
Seven Dollars and Thirty-Five Cents ($25,357.35).
7. Base Year for Operating Expenses. For purposes of calculating Tenant's
--------------------------------
Share of Excess Operating Expenses, a Base Year of 1996 will be used for the
Initial Leased Premises and a Base Year of 1997 will be used for the Expansion
Space.
8. No Further Modifications. Except as set forth in this Amendment, all of
------------------------
the terms and provisions of the Lease shall apply and shall remain unmodified
and shall continue in full force and effect.
9. Conflict. The terms and provisions contained in this Amendment shall
--------
control in the event of a conflict or inconsistency between this Amendment and
the Lease.
2
<PAGE>
10. Ratification. Tenant hereby ratifies, reaffirms and remakes as of the
------------
date hereof each and every term, covenant, provision, representation and
warranty contained in the Lease, as amended by this Amendment.
IN WITNESS WHEREOF, this Amendment has been executed as of the day and year
first above written.
"Tenant" "Landlord"
CYBERSOURCE CORPORATION, a CALIFORNIA STATE AUTOMOBILE
California corporation ASSOCIATION INTER-INSURANCE
BUREAU
By:_______________________ By:___________________________
Its:______________________ Its:__________________________
3
<PAGE>
SCHEDULE 1
DESCRIPTION OF EXPANSION IMPROVEMENTS
See Attached
<PAGE>
Exhibit 10.6
ASSIGNMENT OF STANDARD OFFICE LEASE
Century Plaza
550 S. Winchester Blvd.
San Jose, California
Landlord: California State Automobile Association
Inter-Insurance Bureau
Current Tenant/Assignor: CyberSource Corporation, a California corporation
(to be renamed software.net Corporation).
Net Tenant/Assignee: Internet Commerce Services Corporation, a Delaware
corporation
(to be renamed CyberSource Corporation).
This Assignment of Standard Office Lease ("Assignment") is made effective
as of December 31, 1997, between CyberSource Corporation, a California
corporation, ("Assignor") and Internet Commerce Services Corporation, a Delaware
corporation, ("Assignee").
RECITALS
A. California State Automobile Association Inter-Insurance Bureau as
landlord ("Landlord"), and Assignor, as Tenant ("Tenant"), executed a lease
dated as of August 20, 1996, as amended by the parties pursuant to an amendment
dated October 20, 1997 (collectively with all exhibits and attachments thereto,
"Lease"), a copy of which is attached hereto and incorporated herein by
reference as Exhibit A, pursuant to which Landlord leased to Tenant, and Tenant
leased from Landlord, that certain property described on attached Exhibit A for
a term of thirty-six (36) months commencing on August 23, 1996, subject to
earlier termination as provided in the Lease.
B. Assignor desires to assign the Lease to Assignee, and Assignee desires
to accept the assignment of the Lease from Assignor and assume the rights and
obligations under the Lease.
Therefore, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Assignor and Assignee agree as follows:
Section 1. Assignment
Assignor assigns and transfers to Assignee all right, title, and interest
in the Lease and Assignee accepts from Assignor all such right, title and
interest, subject to the terms and conditions set forth in this Agreement. This
Assignment is subordinate to the provisions of the Lease.
<PAGE>
Section 2. Attornment; Assumption of Lease Obligations
Assignee assumes and agrees to perform and fulfill all the terms,
covenants, conditions, and obligations required to be performed and fulfilled by
Assignor as Tenant under the Lease, including the making of all payments due to
or payable to the Landlord under the Lease as they become due and payable.
Section 3. Assignor's Covenants
(a) Assignor covenants that the copy of the Lease attached as Exhibit A is
a true and accurate copy of the Lease as currently in effect and that there
exists no other agreement relating to Assignor's tenancy under the Lease.
(b) Assignor covenants that the Lease is in full effect and no defaults
exist under the Lease and that no acts or events have occurred which, with the
passage of time or the giving of notice or both, could become defaults.
Section 4. Litigation Costs
If any litigation between Assignor and Assignee arises out of this
Assignment or concerning the meaning or interpretation of this Assignment, the
losing party shall pay the prevailing party's costs and expenses of such
litigation, including, without limitation, reasonable attorney fees.
Section 5. Indemnification
Assignor agrees to indemnify and hold harmless Assignee from and against
any loss, cost, or expense, including attorneys' fees and court costs relating
to the failure of Assignor to fulfill Assignor's obligations under the Lease,
and accruing with respect to the period on or prior to the date of this
Assignment. Assignee agrees to indemnify and hold harmless Assignor from and
against any loss, cost or expense, including attorneys' fees and court costs
relating to the failure of Assignee to fulfill obligations under the Lease, and
accruing with respect to the period subsequent to the date of this Assignment.
Section 6. Successors and Assigns
This Assignment shall be binding on and inure to the benefit of the parties
hereto, their heirs, executors, administrators, successors in interest, and
assigns.
Section 7. Termination
Termination of the Lease shall, at Landlord's sole election, constitute a
termination of this Assignment.
<PAGE>
Section 8. Governing Law
This Assignment shall be governed by and constructed in accordance with
California law. If any clause, section, or part of this Assignement is adjudged
by any court of competent jurisdiction to be invalid, such judgment will not
affect, impair or invalidate the remainder thereof, but will be confined in its
operation to the clause, section, or part thereof directly involved in the
controversy in which such judgment is rendered; provided, however, that the
consideration and benefit (including the performance of the covenants,
agreements and the indemnity) to be received hereunder by both parties is
not thereby altered.
The parties have executed this Assignment as of the date first above written.
CyberSource Corporation (to be Internet Commerce Services Corporation (to
renamed as software net Coproration) be renamed as CyberSource Corporation)
By:__________________________________ By:_________________________________
Name: _______________________________ Name:_______________________________
Title: ______________________________ Title: _____________________________
<PAGE>
Exhibit 10.7
SUBLEASE
This sublease (the "Sublease") is made as of July 1, 1998 by and between
MultiGen Inc. of California ("Sublessor") and Cybersource of California
("Sublessee") with reference to the following:
A. Sublessor has entered into a Standard Office Lease (the "Master Lease")
dated March 31, 1995, as amended by a First Amendment dated June 19, 1997 with
California State Automobile Association Inter-Insurance Bureau (the "Master
Lessor"), and copy of which is attached hereto, for approximately 22,608
rentable square feet, (the "Premises").
B. Sublessor and Sublessee wish to enter into this Sublease pursuant to
which Sublessor shall sublease to Sublessee a portion of the Premises consisting
of approximately 3,068 square feet and referred to as Suite 406 and 410 (the
"Subleased Premises").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized Terms. All capitalized terms used herein that are not
-----------------
otherwise defined shall have the definitions set forth in the Master Lease.
2. Subleased Premises. Sublessee desires to sublet the Subleased Premises
------------------
from Sublessor and Sublessor desires to sublet the Subleased Premises to
Sublessee subject to the terms, provisions and conditions of this Sublease. For
purposes of this Sublease, the "Subleased Premises" shall mean and refer to the
portion of the Premises indicated on the copy of the space plan attached hereto
as Exhibit A (the "Space Plan").
3. Term. The "Sublease Term" shall commence on July 13, 1998 ("Commencement
----
Date") and shall end on September 4, 2000 (the "Term").
4. Use. The Subleased Premises shall be occupied only for general office
---
uses and for no other purpose.
5. Condition of Premises. Sublessee accepts the Subleased Premises in "as
---------------------
is" condition.
6. Subrent. Sublessee shall pay to Sublessor, as base rent for the
-------
Subleased Premises per month (the "Subrent") the following:
<TABLE>
<CAPTION>
Period Monthly Subrent
------ ----------------
<S> <C>
6/15/98 to 12/15/98 $2.70 per sq. ft.
12/16/98 to 12/15/99 $2.90 per sq. ft.
12/16/99 to 9/4/00 $2.90 per sq. ft.
</TABLE>
1
<PAGE>
Sublessee shall pay the Subrent in monthly installments commencing on the
Commencement Date, except that the amount due for July, 1998 will be paid upon
execution of this Sublease. The Subrent payable for any portion of a calendar
month shall be a pro rata portion of the Subrent payable for a full calendar
month.
7. Direct Expenses and Tax Adjustment. Sublessee shall also pay to
----------------------------------
Sublessor, as additional rent, sublessee's share of the Excess Operating
Expenses, (approximately 3.2% of building premises) as defined in master lease.
The additional rent will be payable as and when "Tenant's Share of Excess
Operating Expenses" under the Master Lease are payable by Sublessor to Master
Lessor. If the Master Lease provides for payment by Sublessor of "Tenant's Share
of Excess Operating Expenses" on the basis of an estimate, then as and when
adjustments between the estimated and actual "Tenant's Share of Excess Operating
Expenses" are made under the Master Lease, the obligations of Sublessor and
Sublessee will be adjusted in the same manner. If the adjustment occurs after
the expiration or earlier termination of the Term, the obligations of Sublessor
and Sublessee under this paragraph will survive said expiration or termination.
Sublessor will furnish Sublessee with copies of all statements submitted by
Master Lessor of the actual or estimated "Tenant's Share of Excess Operating
Expenses" during the Term of Agreement.
8. Security Deposit. Upon Sublessee's execution of this Sublease,
----------------
Sublessee shall pay to Sublessor a security deposit in the amount of $8,897.20.
The security deposit is not to be applied to the last months' rent, but shall be
retained by Sublessor to guarantee Sublessee's performance of this Sublease and
return to Sublessee within thirty (30) days after expiration or other
termination of this Sublease, provided that Sublessee has complied with the
terms of this Sublease.
9. Additional Services. If after hours HVAC is requested by Sublessee,
-------------------
Sublessee shall pay to Sublessor, as additional rent, all amounts for after-
hours HVAC payable by Sublessor under the Master Lease and attributable to the
Sublease Premises.
10. Payment. Sublessee shall pay the Subrent the first day of each
-------
calendar month. When Sublessor is billed for additional services pursuant to the
Master Lease, Sublessor shall submit a written statement to Sublessee setting
forth Sublessee's Additional HVAC, showing the calculations. Sublessee shall pay
said amount within fifteen (15) days after Sublessee's receipt of the statement.
All such amounts shall be sent to MultiGen Inc. Attention Accounts Receivables,
550 S. Winchester Blvd., Suite 500, San Jose, CA 95128 or such other address as
designated by Sublessor in writing. Upon reasonable prior written request, and
as permitted by law and the Master Lease, information relating to the Additional
HVAC that is within Sublessor's control shall be made available to Sublessee for
inspection during regular business hours at the place where said information is
maintained by Sublessor.
11. Indemnity. Sublessee agrees to protect, defend, indemnify, and hold
---------
Sublessor harmless from and against any and all liabilities, claims, expenses,
losses and damages (including reasonable attorney fees and costs), that may at
any time be asserted against Sublessee by (a) the Master Lessor for failure of
Sublessee to perform any of the
2
<PAGE>
covenants, agreements, terms, provisions, or conditions contained in the Master
Lease that Sublessee is obligated to perform under the provisions of this
Sublease; or (b) any person as a result of Sublessee's use or occupancy of the
Premises, except to the extent any of the foregoing is caused by the gross
negligence or willful misconduct of Sublessor. The provisions of the Section 12
shall survive the expiration or earlier termination of the Master Lease or this
Sublease.
12. Insurance. Sublessee shall maintain adequate liability, personal
---------
property damage and business interruption insurance coverage as may be necessary
to protect itself and the contents of the Premises, but in no event in an amount
less than $1,000,000.00 single limit for liability insurance and property
damage. Sublessee shall provide Sublessor with a certificate or other evidence
of insurance showing such coverage in effect at all times during the term of
this Lease and naming Sublessor and Master Lessor as additional insureds with a
thirty (30) day prior cancellation notice. Upon request, Sublessee shall provide
Sublessor with a complete copy of any such policy.
Sublessor will maintain adequate fire insurance to cover its personal
property located in the Premises. So long as their respective insurers so
permit, Sublessee and Sublessor hereby mutually waive their respective rights of
recovery against each other for any loss insured by fire, extended coverage and
other property insurance policies existing for the benefit of the respective
party. Each party shall obtain any special endorsement, if required, to
evidence compliance with this waiver.
13. Sublessor's Duties. Sublessor does not assume the obligations of the
------------------
Master Lessor under the Master Lease, but shall exercise due diligence in
attempting to cause the Master Lessor to perform its obligations under the
Master Lease for the benefit of Sublessee. Sublessor shall use reasonable
efforts to perform the obligations applicable to the "Lessee" under the Master
Lease. Sublessor shall provide Sublessee with copies of all written notices
received by Sublessor from Master Lessor, within a reasonable time of receipt.
Sublessor shall seek to obtain the consent of Master Lessor on this Sublease
Agreement. This Sublease shall not become effective until such consent has been
obtained and if said consent has not been obtained by July 30, 1998, Sublessee
shall have the right to terminate this Sublease, in which event any payments
received by Sublessor shall be promptly refunded.
14. Covenant of Quiet Enjoyment. Sublessor represents that the Master
---------------------------
Lease is in full force and effect and that there are no defaults on Sublessor's
part under it as of the Commencement Date of the Sublease Term. Subject to this
Sublease terminating as a result of the termination of the Master Lease,
Sublessor represents that, if Sublessee performs all of the provisions in this
Sublease to be performed by Sublessee, Sublessee shall have and enjoy throughout
the Sublease Term the quiet and undisturbed possession of the Subleased
Premises.
15. Assignment and Subletting. Sublessee will not assign this Sublease or
-------------------------
further sublet all or any part of the Subleased Premises without Sublessor's
prior written consent, which shall not be unreasonably withheld, and Master
Lessor's prior written
3
<PAGE>
consent. Sublessor shall request Master Lessor's consent, but shall not be held
liable for Master Lessor's failure or refusal to consent to any assignment or
sublet.
16. Master Lease. A copy of the Master Lease is attached as Exhibit B and
------------
incorporated into this Sublease. Sublessee acknowledges having received a copy
of, and reviewed, the Master Lease. In the event of any conflict between the
Master Lease and this Sublease, the terms of this Sublease shall govern as
between Sublessor and Sublessee. Except as specifically provided herein, this
Sublease is subject to all of the terms, provisions and conditions of the Master
Lease and Sublessee shall not permit any act or omission to act that will
violate any of the provisions of the Master Lease, Sublessee assumes and agrees
to perform Sublessor's duties under the Master Lease during the Term to the
extent that these obligations are applicable to Sublessee and the Subleased
Premises. If the Master Lease terminates for any reason, this Sublease shall
terminate effective as of the termination of the Master Lease and the parties
shall be relieved from all liabilities and obligations under this Sublease;
except that, if this Sublease terminates as a result of a default of one of the
parties under this Sublease or the Master Lease, or both, the defaulting party
shall be liable to the nondefaulting party for all damage suffered by the non-
defaulting party as a result of termination.
17. Notices. All notices and demands which may or are required to be given
-------
by either party to the other hereunder shall be in writing and shall be deemed
to have been fully given (a) three (3) business days after deposit in the United
States mail, certified or registered, postage prepaid, or (b) one (1) business
day after delivered to a reputable and reliable overnight courier, and, in
either event, addressed to the other party at the address set forth on the
signature page to this Agreement, or to such other place as one party may from
time to time designate in a notice to the other party. Sublessor shall also send
copies of all notices of default given to the Sublessee under this Sublease to
Master Lessor.
18. Brokers. Sublessor and Sublessee each warrants that it has not dealt
-------
with any real estate broker in connection with this transaction.
19. Attorney Fees. If any action at law or in equity is brought by either
-------------
party arising under or related to this Sublease, the prevailing party shall be
entitled to recover from the other party the full amount of its reasonable
attorneys' fees and costs.
4
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Sublease as of the
date above written.
Sublessor Sublessee
By: By:
------------------------------ -------------------------------
Title: Title:
--------------------------- ---------------------------
Address for Notice: Address for Notice:
550 S. Winchester Blvd., Suite 500 550 S. Winchester Blvd., Suite 301
San Jose, CA 95128 San Jose, CA 95128
Master Lessor
By:
-------------------------------
Title:
----------------------------
Address for Notice:
100 Van Ness Avenue
Real Estate & Facilities - 11th Floor
San Francisco, CA 94102
5
<PAGE>
Exhibit B
Century Plaza
550 S. Winchester Blvd.
San Jose, California
STANDARD OFFICE LEASE
Landlord: California State Automobile Association
Inter-Insurance Bureau
Tenant: MULTIGEN, INC.
6
<PAGE>
BASIC LEASE INFORMATION
OFFICE LEASE
550 S. Winchester Blvd.
San Jose, California
<TABLE>
<S> <C>
Lease Date: March 31, 1995
Landlord: California State Automobile Association
Inter-Insurance Bureau, an inter-insurance exchange
Landlord's Address: Real Estate Services
100 Van Ness Avenue, 11th Floor
San Francisco, California 94102
Send rental payments to:
Accounting
100 Van Ness Avenue
San Francisco, CA 94102
Tenant: MultiGen, Inc., a California corporation
Tenant's Address 550 S. Winchester Blvd.
Suite 500
San Jose, CA 95128
Attn: ___________________
Total Rentable Area of Building 95,762 square feet
Premises: 5th Floor
Rentable Area of the Premises: 17,250 rentable square feet
Permitted Uses: general administrative offices of the Tenant,
including without limitation, software and computer
electronic development and sales and any other
legally permitted uses compatible with the Building
Term: Sixty-three (63) months from Commencement Date
Scheduled Term
Commencement Date: May 1, 1995
Monthly Base Rent: For months 1 through 3: $ -0-
For months 4 through 36: $31,050.00.
($1.80/rentable square foot)
For months 37 through 63: $33,637.50
($1.95/rentable square foot)
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Security Deposit: $33,637.50
Tenant's Share of Excess
Operating Expenses: 18.01% (based on 17,250 r.s.f.)
Base Year: 1995, adjusted to reflect a minimum of 95% occupancy
Option to Extend: One (1) three (3)-year option, as per Section 3.02
Broker: Cornish & Carey, Landlord's broker Colliers Parrish
International, Inc., Tenant's broker
Brokers' Fee or Commission, if
any, paid by: Landlord. Brokers will split the fee 50/50.
Parking Rights: four (4) spaces in Parking Lot per 1,000 r.s.f.
</TABLE>
The foregoing Basic Lease Information is hereby incorporated into and made
a part of this Lease. Each reference in this Lease to any of the term above
shall mean the respective information hereinabove set forth and shall be
construed to incorporate all of the terms provided under the particular
paragraph pertaining to such information. In the event of any conflict between
any Basic Lease Information and the Lease, the latter shall control.
<TABLE>
<S> <C>
"Landlord" "Tenant"
CALIFORNIA STATE AUTOMOBILE ASSOCIATION MULTIGEN, INC., a California corporation
INTER-INSURANCE BUREAU, an inter-insurance
exchange
By: By:
--------------------------------------- ---------------------------------------
Its: Its:
--------------------------------------- ---------------------------------------
By: By:
--------------------------------------- ---------------------------------------
Its: Its:
--------------------------------------- ---------------------------------------
</TABLE>
8
<PAGE>
STANDARD OFFICE LEASE
THIS LEASE ("Lease"), dated as of the Lease Date, by and between Landlord
and Tenant of space at the Building located on that certain real property
("Property") described more particularly on the Legal Description attached
hereto as Exhibit A, shall be upon the terms and conditions contained
---------
hereinafter.
1. PREMISES
1.01 Premises. Landlord leases to Tenant, subject to the provisions of this
--------
Lease, the Premises the usable space of which is shown on the Building Floor
Plan, attached hereto as Exhibit B. By entering and taking possession of the
---------
Premises, Tenant shall be deemed to accept the same in their condition existing
as of the Commencement Date and subject to all applicable municipal county,
state and federal statutes, laws, ordinances, including zoning ordinances, and
regulations governing and relating to the use, occupancy or possession of the
Premises. Tenant acknowledges that the only warranties an representations
Landlord has made in connection with the physical condition of the Premises or
Tenant's use of the same upon which Tenant has relied directly or indirectly for
any purpose are those expressly provided in this Lease.
1.02 Exhibits. The following Exhibits are attached to this Lease after the
--------
signatures and by reference thereto are incorporated herein:
Exhibit A Legal Description
Exhibit B Building Floor Plan
Exhibit C Tenant Improvements
Exhibit D Rules and Regulations
1.03 Common Areas. Tenant shall have, as appurtenant to the Premises and
------------
subject to reasonable rules and regulations from time to time made by Landlord
of which Tenant is given notice, the right to the use of the following in
common:
(a) Building Common Area. The common stairways and accessways,
--------------------
lobbies, entrances, stairs, elevators and any passageways thereto, and the
common pipes, ducts, conduits, wires and appurtenant equipment serving the
Premises;
(b) Land Common Area. The common walkways, sidewalk parking spaces
----------------
and driveways necessary for access to the Building and parking spaces; and
(c) Parking Lot. The common Parking Lot ("Parking Lot") appurtenant
-----------
to the Building. Tenant shall have the right to use the number of parking spaces
set forth in the Basic Lease Information in the Parking Lot during the Term.
1.04 Landlord's Reserved Rights in Common Areas. Landlord reserves the
------------------------------------------
right from time to time to do any and all of the following, provided that doing
so will not unreasonably interfere with Tenant's use of the Premises:
9
<PAGE>
(a) Building Changes. To install, use, maintain, repair and replace
----------------
pipes, ducts, conduits, wires and appurtenant meters and equipment for service
to other parts of the Building above the ceiling surfaces, below the floor
surfaces, within the walls and in the central core areas, and to relocate any
pipes, ducts, conduits, wires and appurtenant meters and equipment included in
the Premises which are so located or located elsewhere outside the Premises;
(b) Boundary Changes. To change the boundaries of the Property and
----------------
to redesign and restripe the Parking Lot and make other reasonable changes and
grant other rights thereto including, without limitation, the granting of
easements, rights of way and rights of ingress and egress and similar rights
over, across and upon the Property. Tenant shall execute, acknowledge and
deliver to Landlord any documents which Landlord determines are necessary to
effectuate the purposes of this Article within five (5) days after written
request by Landlord;
(c) Facility Changes. To alter or relocate any other common areas or
----------------
facility;
(d) Parking. To grant exclusive use a to portions of the Parking Lot
-------
to tenants; and
(e) Name Change. To change the name of the Building.
-----------
1.05 Rentable Area. As used in this Lease, the rentable area of space
-------------
within the Premises shall be determined applying the Building Owners and
Managers Association ("BOMA") American National Standard (Reprinted May, 1981).
1.06 Right to Negotiate for Additional Space. Tenant shall have the first
---------------------------------------
right to negotiate on space that becomes available on the fourth or sixth floor
of the Building at the time it first becomes available for lease to third
parties. Landlord will give tenant written notice of the availability of the
space and Tenant will indicate in writing its intention to lease such space
within thirty (30) days of such notice from Landlord. If Tenant does not so
indicate its intention within thirty (30) days, Landlord may lease or use the
space in its sole discretion. If Landlord accepts Tenant's offer, such space
will be added to the Premises and will be subject to all the terms and
conditions of the Lease. Base Rent and Tenant's Share of Excess Operating
Expenses will be recalculated to include the additional rentable space. The
parties will execute an amendment to this Lease, stating the addition of the
expansion space to the Premises.
2. IMPROVEMENTS
2.01 Construction of Tenant Improvements. Landlord and Tenant shall
-----------------------------------
cooperate in the construction of the tenant improvements ("Improvements") as
provided in Exhibit C, attached hereto. Landlord shall contract for the design
---------
and construction of the Improvements and be responsible for all payments
pursuant to such contract(s), but not in excess of Ten Dollars ($10) per usable
square foot. Tenant may review the plans and designs and request changes,
provided that any additional design costs shall be applied to Landlord's $10 per
square foot allowance. Landlord will not approve any
10
<PAGE>
change order that increases the cost of construction unless Tenant agrees in
writing to such change order. The Premises shall be Ready for Occupancy, as
defined in Article 2.03, below, by not later than the Scheduled Commencement
Date; provided, however, that the Scheduled Commencement Date shall be extended
for a period equal to the period of any delay encountered by Landlord affecting
the work of construction because of fire, earthquake, inclement weather, acts of
God, acts of a public enemy, riot, insurrection, governmental regulation of the
sales of materials or supplies or the transportation thereof, strikes or
boycotts, shortages of material or labor, Tenant's early entry under the
provisions of Article 2.04, or any causes beyond the control of Landlord.
2.02 Failure to Complete Construction. If the Premises are not Ready for
--------------------------------
Occupancy within six (6) months following the Scheduled Commencement Date, as
extended pursuant to Article 2.01 hereinabove, the sole remedy of Landlord or
Tenant shall be to terminate this Lease by delivering to the other party written
notice within ten (10) days after the day six (6) months following the Scheduled
Commencement Date, as extended. Upon termination of this Lease pursuant to this
Article 2.02, Landlord and Tenant shall have no further liability for any
damage, costs or claims which arise in connection with the Premises and this
Lease.
2.03 Completion and Delivery. The Premises shall be ready for occupancy
-----------------------
("Ready for Occupancy") when construction is substantially completed, as
reasonably determined by Landlord. Landlord shall prepare, certify by
Landlord's signature and deliver to Tenant a written statement certifying (i)
that the Premises are substantially completed; and (ii) the date of such
completion. Landlord shall diligently complete any items of work not completed
when the Premises are Ready for Occupancy and complete any item of such work
within thirty (30) days of written notice that the item has not been completed.
2.04 Early Entry. With the prior written consent of Landlord, Tenant may,
-----------
prior to the Commencement Date as defined in Article 3, at Tenant's sole risk,
enter the Premises and install trade fixtures and equipment in the Premises;
provided, however, that (i) Tenant's early entry shall not interfere with
construction of the Premises or cause labor difficulties; (ii) Tenant's early
entry shall be subject to the indemnification obligation set forth in Article
5.08; (iii) Tenant shall pay for and provide evidence of insurance satisfactory
to Landlord; and (iv) Tenant shall pay utility charges reasonably allocated by
Landlord to Tenant. Tenant shall not use the Premises for storage of inventory
or otherwise do business on the Premises prior to the Commencement Date without
the express prior written consent of Landlord.
2.05 Additional Useable Area. Tenant has requested reconfiguration of
-----------------------
certain interior walls, to increase the useable office space. Such
reconfiguration will be part of the Improvements and subject to all the terms
and conditions that apply to the Improvements, including Landlord's allowance.
11
<PAGE>
3. TERM
3.01 Commencement of Term. The Term shall commence ("Commencement Date")
--------------------
upon the later of the following dates:
(a) The date on which the Premises are Ready for Occupancy; or
(b) The Scheduled Commencement Date.
3.02 Option to Extend. Tenant shall have one (1) option to extend the
----------------
lease for three (3) years (the "Extension Term"). Tenant shall give written
notice to Landlord of its intention to extend the Lease not less than one
hundred twenty (120) days prior to the expiration of the term. Upon exercise of
such option by Tenant, the Term shall be extended for the Extension Term upon
the same terms, covenants and conditions of this Lease except that Base Rent
shall be adjusted as hereinafter provided.
3.03 Fair Market Value. The Base Rent during the Extension Term shall be
-----------------
ninety-five percent (95%) of the Fair Market Rental Value for the Premises, to
be determined as provided herein.
(a) Determination. Except as provided in 3.03(b), the term Fair
-------------
Market Rental Value shall mean the going market rental as of the date of the
commencement of the Extension Term for equivalent space in the Building, for the
permitted uses, excluding any alterations or personal property of Tenant
installed in the Premises at Tenant's expense, and for a tenant proposing to
sign a lease equal to the Extension Term, taking into account any concession
including, without limitation, free rent and tenant improvement allowance, that
Landlord may at that time typically grant prospective tenants. It is understood
that in determining Fair Market Rental Value the parties shall negotiate in good
faith in order to reach agreement. In the event the parties are unable to reach
agreement within thirty (30) days of Tenant's notice of intention to extend the
Lease, the matter shall be determined by the appraisal procedure as hereinafter
provided.
(b) Appraisal. Within fifteen (15) days of failure to reach an
---------
agreement, each party, at its own cost and by giving notice to the other party,
shall appoint a real estate appraiser, with membership in the American Institute
of Real Estate Appraisers or the Society of Real Estate Appraisers and at least
five (5) years' full-time commercial appraisal experience in the area where the
Building is located, to appraise and determine the Fair Market Rental Value. For
the purposes of this Section 3.03(b), the term Fair Market Rental Value shall
mean the going market rental as of the date of the commencement of the Extension
Term for equivalent space in comparable office buildings in San Jose,
California. If in the time provided, only one (1) party shall give notice
appointment of an appraiser, the single appraiser appointed shall determine the
Fair Market Rental Value. If two (2) appraisers are appointed by the parties,
the two (2) appraisers shall independently, and without consultation, prepare an
appraisal of the Fair Market Rental Value within fifteen (15) days of the
appointment. Each appraiser shall seal its appraisal after completion. After
both appraisals are completed, the resulting
12
<PAGE>
appraisals of the Fair Market Rent Value shall be opened and compared. If the
appraisals differ by no more than ten percent (10%) of the value of the higher
appraisal, then the Fair Market Rental Value rent shall be the average of the
two (2) appraisals. If the appraisals differ by more than ten percent (10%) of
the value of the high appraisal, then within ten (10) days from the date the
appraisals are compared, the two (2) appraisers selected by the parties shall
appoint a third appraiser who meets the minimum qualifications described in this
Section. If the two (2) appraisers fail to select a third qualified appraiser, a
third appraiser shall b selected by the American Arbitration Association at the
request of either party or, if there is then no American Arbitration Association
or if it refuses to perform this function, then at the request of either
Landlord or Tenant, the appraiser shall be appointed by the then Presiding Judge
of the Superior Court of the State of California of the County in which the
Building is located. The two (2) appraisers shall each then submit his
independent appraisal in simple letter form to the third appraiser stating his
determination of the Fair Market Rental Value. The sole responsibility of the
third appraiser shall be to determine which of the determinations made by the
first two (2) appraisers is most accurate. The third appraiser shall have no
right to propose a middle ground or any modification of either of the
determinations made by the first two (2) appraisers. The third appraiser's
choice shall be submitted to Landlord and Tenant within fifteen (15) days after
the third appraiser has received the written determination from each of the
first two (2) appraisers. The Fair Market Rental Value shall be determined by
the selection made by the third appraiser from the determination submitted by
the first two (2) appraisers.
(c) Costs. Each party shall pay the fees and expenses of its own
-----
appraiser and fifty percent (50%) of the fees and expenses of the third
appraiser.
4. RENT
4.01 Base Rent. The annual Base Rent shall be payable in equal monthly
---------
installments. Beginning with the fifth month of the Term, Tenant shall pay the
Base Rent to Landlord in advance upon the first day of each calendar month of
the Term, at Landlord's address for rental payments or at such other place
designated by Landlord in a notice to Tenant, without any prior demand therefor
and without any deduction, abatement or setoff whatsoever. If the Term shall
commence or end on a day other than the first day of a calendar month, then
Tenant shall pay, for the fifth month of the Term and on the first day of the
last calendar month, a pro rata portion of the Base Rent, prorated on a per diem
basis, with respect to the portion of the fractional calendar month included in
the Term. On or before the Commencement Date, Tenant shall pay the full month's
Base Rent owing hereunder for the fourth month of the Term, along with Tenant's
Security Deposit.
4.02 Additional Rent. All charges required to be paid by Tenant hereunder,
---------------
including without limitation, payments for Impositions, Operating Expenses, and
any other amounts payable hereunder, shall be considered additional rent for the
purposes of this Lease ("Additional Rent"), and Tenant shall pay Additional Rent
upon written demand by Landlord or otherwise as provided in this Lease. "Rent"
shall mean Base Rent and Additional Rent.
13
<PAGE>
4.03 Late Payment. If any installment of Rent is not paid within three (3)
------------
days of written notice of nonpayment, Tenant shall pay to Landlord, in addition
to the installment of Rent then owing, a late charge equal to five percent (5%)
of the amount of the delinquent payment of Rent. Landlord and Tenant recognize
that the amount of damage Landlord shall suffer as a result of Tenant's failure
to timely pay any Rent is difficult to ascertain and the late charge provided in
this subsection is the best estimate of Landlord's damage resulting from any
late payment by Tenant. This provision shall not relieve Tenant of Tenant's
obligation to pay Rent at the time and in the manner herein provided.
4.04 Security Deposit. Upon executing this Lease, Tenant shall deposit the
----------------
Security Deposit as a security deposit with Landlord. The Security Deposit
shall secure Tenant's obligations under this Lease to pay rent and other
monetary amounts, to maintain the Premises and repair damages thereto, to
surrender the Premises to Landlord in clean condition and repair upon
termination of this Lease as required pursuant to Article 17.12 below and to
discharge Tenant's other obligations hereunder. Landlord may use and commingle
the Security Deposit with other funds of Landlord. If Tenant fails to perform
Tenant's obligations hereunder, Landlord may, but without any obligation to do
so, apply all or any portion of the Security Deposit towards fulfillment of
Tenant's unperformed obligations. If Landlord does so apply any portion of the
Security Deposit, Tenant, upon demand by Landlord, shall immediately pay
Landlord a sufficient amount in cash to restore the Security deposit to the full
original amount. Tenant's failure to forthwith remit to Landlord sufficient
amount in cash to restore the Security Deposit to the original sum deposited
within five (5) days after receipt of such demand shall constitute an Event of
Default. The Security Deposit shall be held by Landlord without liability r
interest on the same. Upon termination of this Lease, if Tenant has then
performed all of Tenant's obligations hereunder, Landlord shall return the
Security Deposit to Tenant. If Landlord sells or otherwise transfers Landlord's
rights or interest under this Lease, Landlord may deliver the Security Deposit
to the transferee, whereupon Landlord shall be released from any further
liability to Tenant with respect to the Security Deposit, provided that such
transferee assumes all the outstanding obligations of Landlord under this Lease.
4.05 Accord and Satisfaction. No payment by Tenant or receipt by Landlord
-----------------------
of a lesser amount than the Rent herein stipulated shall be deemed to be other
than on account of the Rent, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided in this Lease.
5. INSURANCE
5.01 All Risk Coverage.
-----------------
(a) Landlord's Insurance. Landlord shall procure and maintain during
--------------------
the Term "all risk" property, fire, extended coverage, and special extended
coverage insurance with respect to the Building, with such coverage as Landlord
may elect
14
<PAGE>
including, without limitation, earthquake and flood coverage, hazardous
materials endorsement, inflation endorsement, sprinkler leakage endorsement, and
boiler and machinery coverage, in such amounts as Landlord may elect. Landlord
shall have no obligation to insure Tenant's personal property. If the annual
premiums charged Landlord for such insurance exceed the standard premium rates
because the nature of Tenant's operations results in increased exposure, then
Tenant shall, upon receipt of an invoice, reimburse Landlord for such increased
amount as Additional Rent.
(b) Tenant's Insurance. Tenant shall procure and maintain during the
------------------
Term, at Tenant's sole cost and expense, insurance ("Personal Property
Insurance") covering leasehold improvements paid for by Tenant and Tenant's
personal property from time to time in, on, or at the Premises, in an amount not
less than one hundred percent (100%) of the full replacement cost, without
deduction for depreciation, providing protection against events protected under
"Fire and Extended Coverage," as well as against sprinkler damage, vandalism,
and malicious mischief. Any proceeds from the Personal Property Insurance shall
be used for the repair or replacement of the property damaged or destroyed,
unless this Lease is terminated under an applicable provision herein. If the
Premises are not repaired or restored following damage or destruction in
accordance with other provisions herein, Landlord shall receive any proceeds
from the Personal Property Insurance allocable to Tenant's leasehold
improvements constructed by Landlord.
5.02 Comprehensive General Liability Insurance. Tenant shall procure and
-----------------------------------------
maintain during the Term, at Tenant's sole cost and expense, a policy or
policies of comprehensive general liability insurance on an "occurrence" basis
against claims for personal injury liability, including, without limitation,
bodily injury, death, or property damage liability with limits of not less than
One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars
($2,000,000) aggregate. All of such insurance shall be primary and
noncontributing with any insurance which may be carried by Landlord and shall
contain a provision that Landlord, although named as an insured, shall
nevertheless be entitled to recover under the policy for any loss, injury, or
damage to Landlord, its agents and employees, or the property of such person by
reason of the negligence of Tenant. All such insurance shall specifically
insure Tenant's performance of the indemnity agreement contained in Article 5.08
of this Lease. The adequacy of the coverage afforded by the liability and
property damage insurance shall be subject to review by Landlord from time to
time, and, if it appears in such a review that a prudent business person in the
area operating a similar business to that operated by Tenant on the Premises
would increase the limits of its liability insurance, Tenant shall effect such
increases within thirty (30) days of receipt of notice from Landlord.
5.03 Rental Abatement Insurance. At Landlord's election, Landlord shall
--------------------------
keep and maintain in full force and effect during the Term, rental income
insurance against abatement or loss of Rent in case of fire or other casualty,
in an amount at least equal to the amount of the Rent payable by Tenant during
one year next ensuing, as reasonably determined by Landlord.
15
<PAGE>
5.04 Insurance Certificates. Tenant shall furnish to Landlord, prior to
----------------------
the date of commencement of this Lease and thereafter within thirty (30) days
prior to the expiration of each such policy, a certificate of insurance issued
by the insurance carrier of each policy of insurance carried by Tenant pursuant
hereto. Said certificates shall expressly provide that such policies shall not
be cancelable or subject to reduction of coverage or otherwise be subject to
modification except after thirty (30) days' prior written notice to the parties
named as addition insureds in this Article 5.04. Landlord, its successors and
assigns, and any nominee of Landlord holding any interest in the Premises,
including, without limitation, any ground lessor and the holder of any fee or
leasehold mortgage, shall be named as additional insureds under each such policy
of insurance maintained by Tenant pursuant to this Lease. Nothing in this
Article 5 shall prevent Tenant from carrying any of the insurance required of
Tenant hereunder in the form of a blanket insurance policy or policies which
cover other properties owned or operated by Tenant in addition to the Premises,
provided that Tenant obtains Landlord's prior written consent to such blanket
insurance policy policies.
5.05 Tenant's Failure. If Tenant fails to maintain any insurance required
----------------
in this Lease, Tenant shall be liable for any loss or cost resulting from said
failure. This Article 5.05 shall not be deemed to be a waiver of any Landlord's
rights and remedies under any other section of this Lease.
5.06 Waiver of Subrogation. Any policy or policies of fire, extended
---------------------
coverage or similar casualty insurance, which either party obtains in connection
with the Premises, or Tenant's personal property therein, shall, to the extent
the same can be obtained without undue expense, include a clause or endorsement
denying the insurer any rights of subrogation against the other party to the
extent rights have been waived by the insured prior to the occurrence of injury
or loss. Landlord and Tenant waive any rights of recovery against the other for
injury or loss due to hazards covered by insurance containing such a waiver of
subrogation clause or endorsement to the extent of the injury or loss covered
thereby.
5.07 Tenant's Property and Fixtures. Tenant shall assume the risk of
------------------------------
damage to any furniture, equipment, machinery, goods, supplies or fixtures which
are or remain the property of Tenant or as to which Tenant retains the right of
removal from the Premises.
5.08 Indemnification. Tenant shall indemnify and hold Landlord, the
---------------
Premises, Building, Property and Parking Lot, harmless from and against (i) any
and all liability, penalties, losses, damages, costs and expenses, demands,
causes of action, claims or judgments arising from or growing out of any injury
to any person or persons or any damage to any property as a result of any
accident or other occurrence during the Term occasioned in any way as a result
of the use, maintenance, occupation or operation of the Premises during the Term
by Tenant or Tenant's officers, employees, agents, servants, subtenants,
concessionaires, licensees, contractors or invitees, and (ii) from and against
all legal costs and charges, including attorneys' fees, incurred in any such
matter and the defense of any action arising out of the same or in discharging
the Building, Property, Premises and Parking Lot or any part thereof from any
and all liens, charges or judgments which may accrue or be placed thereon by
reason of any act or omission of the Tenant;
16
<PAGE>
provided, however, that Tenant shall not be required to indemnify Landlord for
any damage or injury of any kind arising as the result of the willful misconduct
or negligence of Landlord or its agents or employees. Landlord shall indemnify
and hold Tenant harmless from any damage or injury of any kind arising as the
result of the willful misconduct or negligence of Landlord or its agents or
employees. Each party's obligation to indemnify and hold the other party
harmless shall be limited to the sum that exceeds the amount of insurance
proceeds, if any, received by the party being indemnified. The obligations
pursuant to the foregoing indemnities shall survive the termination of this
Lease.
6. OPERATING EXPENSES
6.01 Operating Expenses. Tenant shall pay to Landlord, as Additional Rent,
------------------
Tenant's Share of Excess Operating Expenses. "Excess Operating Expenses" shall
mean the amount by which the "Operating Expenses" (as defined below) paid or
incurred in any calendar year of the Term exceed the Operating Expenses for the
Base Year set forth in the Basic Lease Information.
(a) Definition. "Operating Expenses" shall include all expenses and
----------
costs of every kind and nature which Landlord shall pay or become obligated to
pay because of or in connection with the ownership and operation of the
Building, Property, Parking Lot and surrounding property and supporting
facilities, including, without limitation: (i) all Impositions; (ii) license,
permit and inspection fees; (iii) premiums for insurance maintained by Landlord
pursuant to Articles 5.01 and 5.03; (v) wages, salaries and related expenses and
benefits of all on-site and off-site employees engaged in operation, maintenance
and security; (vi) all supplies, materials and equipment rental used in
operation of the Building; (vii) all maintenance and repair, janitorial,
security and service costs; viii) property management services; (ix) legal and
accounting expenses, including the cost of audits by certified public
accountants; (x) repairs, replacements and general maintenance (excluding those
paid for by proceeds of insurance or other parties and alterations attributable
solely to tenants of the Building other than Tenant); (xi) all maintenance and
repair costs, including sidewalks, landscaping, service areas, mechanical rooms,
Parking Lot and other parking areas, Building exterior, driveways; (xii)
amortization of capital improvements to the extent such capital improvements
reduce other Operating Expenses or to the extent that they are required by
governmental authorities; xiii) all other operating, management and other
expenses incurred by Landlord in connection with operation of the Building;
(xiv) all charges for heat, water, gas, electricity and other utilities used or
consumed in the Building and surrounding Property, entranceways, sidewalks,
etc.; and (xv) transportation services costs, including, without limitation, the
cost of implementing the requirements of any present or future transportation
systems.
Operating Expenses will not include:
(i) any cost to the extent reimbursed to Landlord from any
source (including insurance or condemnation proceeds); (ii) except as
described in 6.01(a)(x) or (xii) of the Lease, costs incurred by Landlord
for alterations or acquisitions which are
17
<PAGE>
considered capital improvements under generally accepted accounting
principles, consistently applied; or (iii) costs incurred for services or
items supplied to one specific tenant other than Tenant. Tenant agrees that
security services supplied to the Building are for the benefit of all
tenants.
(b) Proration. Any Operating Expenses attributable to a period which falls
---------
only partially within the Term shall be prorated between Landlord and Tenant so
that Tenant shall pay only that proportion thereof which the part of such period
within the Term bears to the entire period.
(c) Survival. Any such sum payable by Tenant which would not otherwise be
--------
due until after the date of the termination of this Lease, shall, if the exact
amount is uncertain at the time that this Lease terminates, be paid by Tenant to
Landlord upon such termination in an amount to be determined by Landlord with an
adjustment to be made once the exact amount is known.
(d) Estimated Payments. Prior to the commencement of each of Landlord's
------------------
accounting years of the Term, Landlord shall estimate the Additional Rent
payable by Tenant pursuant to this provision and Tenant shall pay to Landlord on
the first of each month in advance, one-twelfth (1/12) of Landlord's estimated
amount. At the end of each year there shall be an adjustment made to account for
any difference between the actual and the estimated Operating Expenses for the
previous year. If, within thirty (30) days of receipt of Landlord's adjustment
statement, Tenant requests a review of the records, Landlord shall allow Tenant
to review Landlord's records with respect to the Operating Expenses at any
reasonable time. If Tenant has overpaid the amount of Additional Rent owing
pursuant to this provision, Landlord shall credit Tenant the amount of such
overpayment in determining Tenant's estimated payments for the following lease
year; provided, that in the case of an overpayment for the final lease year of
the Term, Landlord shall refund such overpayment to Tenant within thirty (30)
days after the end of Landlord's accounting year. If Tenant has underpaid the
amount of Additional Rent owing pursuant to this provision, Tenant shall pay the
amount of such underpayment to Landlord, as Additional Rent, within five (5)
days after Landlord's written demand.
(e) Adjustment. Notwithstanding any provision hereinabove to the contrary,
----------
in the event the Building is not fully occupied during any year of the Term, an
adjustment shall be made in computing variable Operating Expenses for such year
so that the same shall be computed for such year as though the Building had been
fully occupied during such year, and in no event shall Landlord collect in
excess of one hundred percent (100%) of actual Operating Expenses.
(f) Limit on Increase. Notwithstanding any provision of this Lease to the
-----------------
contrary, including Section 6.01(e), in no event will Landlord be entitled to
charge Tenant any annual increase in Tenant's Share of Excess Operating Expenses
that exceeds the prior year's charge to Tenant by the greater of (i) five per
cent (5%) or (ii) the percentage increase for the prior year in the Consumer
Price Index ("CPI") for all Urban Consumers, All Items, San Francisco -
Oakland - San Jose Metropolitan Area, as
18
<PAGE>
published by the Bureau of Labor Statistics of the U.S. Department of Labor,
using the year 1984 as a base of 100. If the CPI fails to exist, then the CPI
shall be replaced by such other index selected by Landlord as may be generally
recognized as a successor index, or, if none, any other reasonable index which
Landlord may select.
6.02 Impositions. All transit charges, housing fund assessments, real
-----------
estate taxes and all other taxes relating to the Property, Premises, Parking Lot
and/or the Building, all other taxes which may be levied in lieu of real estate
taxes, all assessments, assessment bonds, levies, fees and other governmental
charges (including, but not limited to, charges for traffic facilities
improvements, water service studies and improvements, and fire service studies
and improvements) or amounts necessary to be expended because of governmental
orders, whether general or special, ordinary or extraordinary, unforeseen as
well as foreseen, of any kind and nature for public improvements, services,
benefits, or any other purpose which are assessed, levied, confirmed, proposed
or, become a lien upon the Property, Premises, Parking Lot or Building or become
payable during the Term shall collectively be referred to as "Impositions."
(a) Installment Election. In the case of any Impositions which may
--------------------
be evidenced by improvement or other bonds or which may be paid in annual or
other periodic installments, Landlord shall elect to cause such bonds to be
issued or cause such assessment to be paid in installments over the maximum
period permitted by law.
(b) Limitation. Nothing contained in this Lease shall require Tenant
----------
to pay any franchise, estate, inheritance or succession transfer tax of
Landlord, or any income, profits or revenue tax or charge, upon the net income
of Landlord from all sources; provided, however, that if at any time during the
Term under the laws of the United States Government or the State of California,
or any political subdivision thereof, a tax or excise on rent, or any other tax
however described, is levied or assessed by any such political body against
Landlord on account of Rent, or a portion thereof, Tenant shall pay one hundred
percent (100%) of any said tax or excise as Additional Rent.
(c) Personal Property Taxes. Tenant shall pay or cause to be paid,
-----------------------
prior to delinquency, any and all taxes and assessments levied upon all trade
fixtures, inventories and other personal property placed in and upon the
Premises by Tenant.
6.03 Services and Utilities. So long as Tenant is not in default under
----------------------
this Lease, Landlord shall provide: (i) to the Premises during the Business
Hours, as defined in the Rules and Regulations, electricity, gas, water,
lighting, janitorial services, elevator service, heating, ventilating and air
conditioning and other Building services required in Landlord's reasonable
judgment for the comfortable use and occupancy of the Premises; and, (ii) to the
common areas during the Business Hours, as defined in the Rules and Regulations,
utilities and maintenance as required in Landlord's reasonable judgment for the
comfortable use and occupancy of the Premises. Landlord shall not be liable for,
and Tenant shall not be entitled to, any reduction or abatement of Rent on
account of any failure on the part of Landlord to deliver the services and
utilities provided in this Lease unless the same results from the willful
misconduct of Landlord, nor shall Landlord be liable under any circumstances for
a loss of or injury to property, however occurring,
19
<PAGE>
incidental to any failure to furnish any utilities or services. For the purposes
of this Lease, "comfortable use and occupancy" shall mean an average work
environment of approximately 70 degrees Fahrenheit in the Premises during
Business Hours.
6.04 Special Services.
----------------
(a) Additional Services. In the event Landlord provides utilities,
-------------------
elevator, heating, air conditioning and/or cleaning services to Tenant beyond
the standard services related to the operation and management of a first class
office building or at times other than during the Business Hours, as defined in
the Rules and Regulations, Tenant shall pay Landlord's reasonable charge for
such special services as Additional Rent. Landlord's current charge for
additional HVAC operations outside Business Hours is Five Dollars ($5.00) per
hour per pump zone; Landlord agrees not to increase such additional HVAC charge
in any year by an amount that exceeds the prior year's such charge by more than
ten percent (10%). Any cleaning of lunchrooms, cafeterias, conference rooms,
etc., shall be on a special services basis (except with respect to the removal
of trash from trash receptacles and cleaning incidental to normal cleaning).
(b) Utility Consumption. If Tenant is likely to or does consume
-------------------
quantities of electricity, water or gas in excess of the amounts customarily
consumed by tenants in the Building, Landlord shall have the right, at Tenant's
sole cost and expense, to install separate metering for such utilities or to
separately charge Tenant for any such excess utility consumption by Tenant. Any
such charges made by Landlord to Tenant shall be reasonably determined by
Landlord and shall be promptly paid by Tenant to Landlord as Additional Rent.
Landlord may, at Landlord's sole option, elect to rate the quantity of utilities
consumed by Tenant at the Premises. Such consumption shall be determined by one
of the following methods: (i) a rating by an appropriately licensed engineer
with costs to be computed on an average daily basis; (ii) metering by a licensed
utility company responsible for service to the Building; or (iii) a rating by an
appropriately licensed engineer and monitored by Landlord's central Building
computer. In each such case, the costs for administering such methods shall be
borne by Tenant.
7. REPAIRS AND MAINTENANCE
7.01 Landlord Repairs and Maintenance. Subject to the provisions of
--------------------------------
Paragraph 10, Landlord shall keep and maintain the roof, paving, structural
elements, landscaping, irrigation, and exterior walls of the Building and
Property in good order and repair. Landlord shall also keep and maintain the
windows, window frames, doors, hardware, and interior walls and the electrical,
plumbing, lighting, heating, and air conditioning systems. Such expenses shall
be included in Operating Expenses. If, however, any repairs or maintenance are
required because of an act or omission of Tenant, or its agents, employees or
invitees, Tenant shall pay to Landlord upon demand one hundred percent (100%) of
the costs of such repair or maintenance. Notwithstanding anything in this Lease
to the contrary, Landlord shall have no obligation to alter, remodel, improve,
decorate, or paint the Premises or any part thereof, except for the Improvements
described in Exhibit C hereto.
---------
20
<PAGE>
7.02 Tenant Repairs and Maintenance. Except as expressly provided in
------------------------------
Section 7.01, Tenant shall, at its sole cost, keep and maintain the interior of
the Premises, in good and sanitary order, condition and repair. Should Tenant
fail to maintain the Premises as required of Tenant hereunder forthwith upon
notice from Landlord, Landlord, in addition to all other remedies available
hereunder or by law, and without waiving any alternative remedies, may make the
same, and in that event, Tenant shall reimburse Landlord for the cost of such
maintenance or repairs as Additional Rent, at Landlord's election on demand or
on the next date upon which Basic Rent becomes due. Tenant hereby expressly
waives the provisions of Subsection 1 of Section 1932, and Sections 1941 and
1942 of the Civil Code of California and all rights to make repairs at the
expense of Landlord, as provided in Section 1942 of said Civil Code.
7.03 Inspection of Premises. Landlord, at reasonable times and with
----------------------
twenty-four (24) hours prior notice, may enter the Premises to complete
construction undertaken by Landlord on the Property, Premises or Building, to
inspect, clean or repair the same, to inspect the performance by Tenant of the
terms and conditions hereof and to affix reasonable signs and displays, show the
Premises to prospective purchasers, tenants and lenders and for all other
purposes as Landlord shall reasonably deem necessary. In the event of an
emergency, Landlord may enter the Premises as described in this Section without
prior notice.
7.04 Liens. Tenant shall promptly pay and discharge all claims for work or
-----
labor done, supplies furnished or services rendered by Tenant and shall keep the
Property, Premises and Building free and clear of all mechanic's and
materialmen's liens in connection therewith. Landlord shall have the right to
post or keep posted on the Premises, or in the immediate vicinity thereof, any
notices of non-responsibility for any construction, alteration or repair of the
Premises by Tenant. If any such lien is filed, Landlord may, but not be required
to, take such action or pay such amount as may be necessary to remove such lien;
and, Tenant shall pay to Landlord as Additional Rent any such amounts expended
by Landlord within five (5) days after notice is received from Landlord of the
amount expended by Landlord.
8. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
8.01 Fixtures and Personal Property. Tenant, at Tenant's expense, may
------------------------------
install any necessary trade fixtures, equipment and furniture in the Premises,
provided that such items are installed and are removable without damage to the
structure of the Building. Landlord reserves the right to approve or disapprove
of curtains, draperies, shades, paint or other interior improvements visible
from outside the Premises on wholly aesthetic grounds. Such improvements must be
submitted for Landlord's written approval prior to installation, or Landlord may
remove or replace such items at Tenant's sole expense. Said trade fixtures,
equipment and furniture shall remain Tenant's property and shall be removed by
Tenant upon expiration of the Term, or earlier termination of this Lease. Tenant
shall repair, at Tenant's sole expense, all damage caused by the installation or
removal of trade fixtures, equipment, furniture or temporary improvements. If
Tenant fails to remove the foregoing items on termination of this Lease,
Landlord may keep and
21
<PAGE>
use them or remove any or all of them and cause them to be stored or sold in
accordance with applicable law.
8.02 Alterations. Except for alterations, additions or improvements that
-----------
cost less than One Thousand Dollars ($1,000), Tenant shall not make or allow to
be made any alterations, additions or improvements to the Premises, either at
the inception of this Lease or subsequently during the Term, without obtaining
the prior written consent of Landlord. Tenant shall deliver to Landlord full and
complete plans and specifications of all such alterations, additions or
improvements, and no such work shall be commenced by Tenant until Landlord has
given its written approval thereof. Landlord does not expressly or implicitly
covenant or warrant that any plans or specifications submitted by Tenant are
safe or that the same comply with any applicable laws, ordinances, etc. Further,
Tenant shall indemnify and hold Landlord harmless from any loss, cost or
expense, including attorneys' fees and costs, incurred by Landlord as a result
of any defects in design, materials or workmanship resulting from Tenant's
alterations, additions or improvements to the Premises. All alterations,
additions and improvements shall remain the property of Tenant until termination
of this Lease, at which time they shall be and become the property of Landlord.
All repairs, alterations, additions, and restoration by Tenant hereinafter
required or permitted shall be done in a good and workmanlike manner and in
compliance with all applicable laws and lawful ordinances, bylaws, regulations
and orders of any federal, state, county, municipal or other public authority
and of the insurers of the Building. Tenant shall not permit liens of any kind
to be imposed upon the Property, Premises or Building and Tenant shall discharge
of record any such liens within five (5) days after written notice thereof.
Tenant shall reimburse Landlord for Landlord's reasonable charges for reviewing
and approving or disapproving plans and specifications for any alterations
proposed by Tenant. Tenant shall require that any contractors used by Tenant
carry a comprehensive liability insurance policy covering bodily injury in the
amounts of Three Million Dollars ($3,000,000) per person and Three Million
Dollars ($3,000,000) per occurrence and covering property damage in the amount
of One Million Dollars ($1,000,000). Landlord may require proof of such
insurance prior to commencement of any work on the Premises.
9. USE AND COMPLIANCE WITH LAWS
9.01 Use. Tenant shall use the Premises only for the Permitted Uses
---
specified on the Basic Lease information, consistent with any covenants,
conditions, and restrictions affecting the Property, and all applicable Rules
and Regulations, and for no other use. Tenant shall not commit waste, interfere
with any other tenants in the Building, subject the Premises to any use which
would damage the Premises or raise or violate any insurance coverage maintained
at the Building or take any action that would impair parking or alter parking
spaces.
9.02 Compliance with Laws.
--------------------
(a) Tenant's Compliance. Tenant shall comply with all of the
-------------------
requirements of municipal, county, state, federal and other applicable
governmental authorities, now in force, or which may hereafter be in force,
pertaining to the Premises,
22
<PAGE>
Building, Property and Parking Lot, provided that this Section 9.0 2 does not
create any obligation or liability of Tenant for compliance with the Americans
with Disabilities Act (the "ADA") for any area outside the Premises. Tenant is
responsible for compliance with the ADA as it applies to Tenant as an employer
and as it applies to Tenant's alterations, fixtures, equipment and other
property.
(b) Landlord's Compliance. Landlord represents, to the best of its
---------------------
knowledge, that as of the Commencement Date the Building and Premises do not
violate any ordinance, rule, code or regulation of any governmental agency,
including the ADA, and Landlord does not know of any currently effective notice
from any governmental agency regarding any such possible violation.
9.03 Signs. Landlord shall provide Building standard signs in the Building
-----
lobby and at the entrance to the Premises. Tenant shall not install any sign on
or in the Building or Premises without the prior written consent of Landlord.
Any sign placed or erected for the benefit of Tenant in the Building or Premises
shall contain only Tenant's name, or the name of any affiliate of Tenant
actually occupying the Premises, and no advertising matter. Landlord shall have
the right, in Landlord's sole discretion, to object to any sign proposed by
Tenant. Tenant shall remove any sign installed by Tenant upon termination of
this Lease and shall return the site of such sign to its condition prior to the
placement of the sign.
9.04 Parking Access. In addition to the general obligation of Tenant to
--------------
comply with laws and without limitation thereof, Landlord shall not be liable to
Tenant nor shall this Lease be affected if any parking privileges appurtenant to
the Premises are impaired by reason of any moratorium, initiative, referendum,
statute, regulation, denial of permit or other governmental decree or action
which could in any manner prevent or limit the parking rights of Tenant
hereunder. Any governmental charges or surcharges or other monetary obligations
imposed relative to parking rights with respect to the Premises, Building,
Property and Parking Lot shall be considered as Impositions and shall be payable
by Tenant under the provisions of Article 6 hereinabove.
9.05 Floor Load. Tenant shall not place a load upon any floor of the
----------
Premises which exceeds the load per square foot which such floor is designed to
carry and which is then allowed by law. The load factor will be available to
Tenant from Landlord's architect at the completion of the Improvements.
9.06 Deliveries. All deliveries to and from the Premises shall be made
----------
using the elevator designated by Landlord during the time periods specified by
Landlord and so as to cause the minimum amount of interference with the business
of other tenants of the Building.
9.07 Hazardous Materials. As used in this Lease, the term "Hazardous
-------------------
Material"' means any flammable items, explosives, guns, ammunition, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials" or "toxic
substances" now or subsequently
23
<PAGE>
regulated under any applicable federal, state or local laws or regulations,
including without limitation, petroleum-based products, paints, solvents, lead,
cyanide, DDT, printing inks, acids, pesticides, ammonia compounds, asbestos,
PCBs and similar compounds, and including any different products and materials
which are subsequently found to have adverse effects on the environment or the
health and safety of persons. Tenant shall not cause or permit any Hazardous
Material to be generated, produced, brought upon, used, stored, traded or
disposed of in or about the Building by Tenant, its agents, employees,
contractors, sublessees or invitees in violation of applicable law.
10. DAMAGE AND DESTRUCTION
10.01 Reconstruction. If the Premises are damaged or destroyed during the
--------------
Term, except as otherwise provided in this Lease, Landlord shall diligently
repair or rebuild them to substantially the condition in which they existed
immediately prior to such damage or destruction.
10.02 Rent Abatement. Rent due and payable hereunder shall be abated
--------------
proportionately, but only to the extent of any proceeds received by Landlord
from rental abatement insurance described in Article 5.03 hereinabove, during
any period in which, by reason of any such damage or destruction, Tenant
reasonably determines that there is substantial interference with the operation
of Tenant's business in the Premises, having regard to the extent to which
Tenant may be required to discontinue its business in the Premises. Such
abatement shall continue for the period commencing with such damage or
destruction and ending with a substantial completion by Landlord of the work of
repair or reconstruction which Landlord is obligated or undertakes to do. If it
be determined that continuation of business is not practical pending
reconstruction, Base Rent due and payable hereunder shall abate to the extent of
proceeds from rental abatement insurance until reconstruction is substantially
completed o r until business is totally or partially resumed, whichever is the
earlier.
10.03 Excessive Damage or Destruction. If the Building is damaged or
-------------------------------
destroyed to the extent that Landlord determines that it cannot, with reasonable
diligence, be fully repaired or restored by Landlord within one hundred eighty
(180) days after the date of the damage or destruction, Landlord may terminate
this Lease. Notwithstanding the fact that the Premises have been damaged or
destroyed, Landlord shall determine whether the Building can be fully repaired
or restored within the one hundred eighty (180) day period, and Landlord's
determination shall be binding upon Tenant. If the Premises have been destroyed
or damaged to the extent that Landlord determines that the Premises cannot, with
reasonable diligence, be fully repaired or restored within one hundred eighty
(180) days after the date of the damage or destruction, either Landlord or
Tenant may terminate this Lease. Landlord shall notify Tenant of its
determination, in writing, within forty-five (45) days after the date of the
damage or destruction. If Landlord determines that the Building or the Premises
can be fully repaired or restored within the one hundred eighty (180) day
period, or if it is determined that such repair or restoration cannot be made
within said period but Landlord does not elect to terminate within forty-five
(45) days from the date of
24
<PAGE>
[MISSING PAGE 23..... SECTION 11.]
11.
11.01
11.02 ..... restoring the Premises to their original condition, Landlord
shall not be required to spend an amount in excess of the product obtained by
multiplying Tenant's Share of Operating Expenses by the total amount of any
condemnation proceeds received by Landlord. If any parking areas are Condemned,
Landlord has the option but not the obligation to supply Tenant with other
parking areas. Landlord and Tenant hereby waive the provisions of California
Code of Civil Procedure (S) 1265.130.
11.03 Landlord's Award. If the Premises are wholly or partially Condemned,
----------------
then, subject to the provision of Article 11.04 below, Landlord shall be
entitled to the entire award paid for such condemnation, and Tenant waives any
right or claim to any part thereof from Landlord or the condemning authority.
11.04 Tenant's Award. Tenant shall have the right to claim and recover
--------------
from the condemning authority, but not from Landlord, only such compensation as
may be separately awarded to or recoverable by Tenant in Tenant's own right on
account of any and all costs or loss to which Tenant might be put in removing
Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment
to a new location.
11.05 Temporary Condemnation. If the whole or any part of the Premises
----------------------
shall be Condemned for any temporary public or quasi-public use or purpose, this
Lease shall remain in effect and Tenant shall be entitled to. receive for itself
such portion or portions of any award made for such use with respect to the
period of the taking which is within the Term. If a temporary condemnation
remains in force at the expiration or earlier termination of this Lease, Tenant
shall pay to Landlord a sum equal to the reasonable cost of performing any
obligations required of Tenant by this Lease with respect to the surrender of
the Premises, including, without limitation, repairs and maintenance, and upon
such payment Tenant shall be excused from any such obligations. If a temporary
condemnation is for an established period which extends beyond the Term, the
Lease shall terminate as of the date of occupancy by the condemning authority,
and the damages shall be as provided in Articles 11.03 and 11.04 hereinabove and
Rent shall be adjusted to the date of occupancy.
11.06 Notice and Execution. Landlord shall, immediately upon service of
--------------------
process in connection with any condemnation or potential condemnation, give
Tenant notice in writing thereof. Tenant shall immediately execute and deliver
to the Landlord all instruments that may be required to effectuate the
provisions of this Article 11.
11.07 Sale Under Threat of Condemnation. A sale by Landlord to any
---------------------------------
authority having the power of eminent domain, either under threat of
condemnation or while
25
<PAGE>
condemnation proceedings are pending, shall be deemed a taking under the power
of eminent domain for purposes of this Article 11.
12. DEFAULT
12.01 Events of Default. The occurrence of any of the following events
-----------------
shall constitute an "Event of Default" on the part of Tenant with or without
notice from Landlord:
(a) Vacation or Abandonment. While any other Event of Default is
-----------------------
outstanding, failing to use the Premises for the Tenant's general administrative
office, or otherwise vacating or abandoning the Premises;
(b) Payment. Failure to pay any installment of Base Rent, Additional
-------
Rent or other monies due and payable hereunder upon the date when said payment
is due, the failure continuing for a period of three (3) days following notice;
(c) Performance. Default in the performance of any of Tenant's
-----------
covenants, agreements or obligations hereunder (except default in the payment of
Rent, Additional Rent or other monies), the default continuing for thirty (30)
days after written notice thereof from Landlord;
(d) Assignment. A general assignment by Tenant for the benefit of
----------
creditors;
(e) Bankruptcy. The filing of a voluntary petition by Tenant, or the
----------
filing of an involuntary petition by any of Tenant's creditors seeking the
liquidation or reorganization of Tenant under any "law relating to bankruptcy,
insolvency or other relief of debtors;
(f) Receivership. The appointment of a receiver or other custodian
------------
to take possession of substantially all of Tenant's assets or of this leasehold;
(g) Insolvency, Dissolution, Etc. Tenant shall become insolvent or
----------------------------
unable to pay its debts, or shall fail generally to pay its debts as they become
due; or any court shall enter a decree or order directing the winding up or
liquidation of Tenant or of substantially all of its assets; or Tenant shall
take any action toward the dissolution or winding up of its affairs or the
cessation or suspension of its use of the Premises; or
(h) Attachment. Attachment, execution or other judicial seizure of
----------
substantially all of Tenant's assets or this leasehold.
12.02 Landlord's Remedies.
(a) Abandonment. If Tenant vacates or abandons the Premises, this
-----------
Lease shall continue in effect unless or until terminated by Landlord as
provided in Article 12.02(b) below, and Landlord shall have all of the rights
and remedies of a landlord provided by Section 1951.4 of the California Civil
Code.
26
<PAGE>
(b) Termination. Following the occurrence of any Event of Default,
-----------
Landlord shall have the right, so long as the default continues, to terminate
this Lease by written notice to Tenant setting forth: (i) the default; (ii) the
requirements to cure it; and (iii) a demand for possession, which shall be
effective three (3) days after it is given. Landlord shall not be deemed to have
terminated this Lease other than by delivering written notice of termination to
Tenant.
(c) Possession. Following termination under Article 12.02(b) above,
----------
without prejudice to any other remedies Landlord may have by reason of Tenant's
default or of such termination, Landlord may then or at any time thereafter (i)
peaceably re-enter the Premises, or any part thereof, upon voluntary surrender
by Tenant, or, expel or remove Tenant and any other persons occupying the
Premises, using such legal proceedings as may be available; (ii) repossess and
enjoy the Premises, or relet the Premises or any part thereof for such term or
terms (which may be for a term extending beyond the Term), at such rental or
rentals and upon such other terms and conditions as Landlord in Landlord's sole
discretion shall determine, with the right to make reasonable alterations and
repairs to the Premises; and (iii) remove all personal property from the
Premises.
(d) Recovery. Following termination under Article 12.02(b) above,
--------
Landlord shall have all the rights and remedies of a landlord provided by
Section 1951.2 of the California Civil Code, which provides that Landlord may
recover from Tenant the following: (i) the worth at the time of the award of the
unpaid Rent which had been earned at the time of termination; (ii) the worth at
the time of the award of the amount by which the unpaid Rent which would have
been earned after termination until the time of the award exceeds the amount of
such Rent loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid Rent for the
balance of the Term after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all detriment proximately caused by
Tenant's failure to perform Tenant's obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom. The "worth at the
time of award" of the amounts referred to in (i) and (ii) of this subsection
shall be computed by allowing interest at the interest rate set forth in Article
12.03. The "worth at the time of the award" of the amount referred to in (iii)
above shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
(e) Other. If Tenant causes or threatens to cause a breach of any of
-----
the covenants, terms or conditions contained in this Lease, Landlord shall be
entitled to retain all sums held by Tenant, any trustee or in any account
provided for herein, to enjoin such breach or threatened breach, and to invoke
any remedy allowed at law, in equity, by statute or otherwise as though re-
entry, summary proceedings and other remedies were not provided for in this
Lease.
(f) Cumulative. Each right and remedy of Landlord provided for in
----------
this Lease shall be cumulative and shall be in addition to every other right or
remedy
27
<PAGE>
provided for now or hereafter existing at law, in equity, by statute or
otherwise. If Landlord undertakes to exercise any remedy provided for in this
Lease, or now or hereafter existing at law, in equity, by statute, or otherwise,
such action shall not preclude the Landlord from exercising any or all other
rights or remedies provided for in this Lease or now or hereafter existing at
law, in equity, by statute, or otherwise.
(g) No Waiver. No failure by Landlord to insist upon the strict
---------
performance of any term hereof or to exercise any right or remedy consequent
upon a breach thereof, and no acceptance of full or partial payment of Rent
during the continuance of any such breach shall constitute a waiver of any such
breach or of any such term. Efforts by Landlord to mitigate the damages caused
by Tenant's breach of this Lease shall not be construed to be a waiver of
Landlord's right to recover damages under this Article 12.02.
(h) Landlord's Right to Perform. Upon Tenant's failure to perform
---------------------------
any obligation to Tenant hereunder, including, without limitation, payment of
Tenant's insurance premiums and charges of contractors who have supplied
materials or labor to the Premises, Landlord shall have the right to perform
such obligations of Tenant on behalf of Tenant and/or to make payment on behalf
of Tenant to such parties. Tenant shall reimburse Landlord the reasonable cost
of Landlord's performing such obligations on Tenant's behalf, including, without
limitation, reimbursement of any amounts that may be expended by Landlord and
Landlord's reasonable attorneys' fees, plus interest from the date of any
expenditure of sums at the rate set forth in Article 12.03.
(i) Additional Remedies. In addition to the foregoing remedies and
-------------------
so long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to maintain or improve the Premises without terminating
this Lease, to incur expenses on behalf of Tenant in seeking a subtenant or
assignee, including, without limitation, brokers' commissions, expenses of
remodeling the Premises, and other inducements Landlord determines are
necessary, to cause a receiver to be appointed to administer the Premises and
new or existing subleases and to add to the Rent payable hereunder all of
Landlord's costs in so doing, including reasonable attorneys' fees, with
interest at the rate provided in Article 12.03 from the date of such expenditure
until the same is repaid.
(j) Additional Rent. For purposes of any unlawful detainer action by
---------------
Landlord against Tenant pursuant to California Code of Civil Procedure Sections
1161 through 1179, or any similar or successor statutes, Landlord shall be
entitled to recover as rent not only such sums specified as Base Rent herein
which may then be overdue, but also Additional Rent and all such additional sums
of money as may then be overdue.
(k) Indemnification. Nothing in this Article 12 affects the right of
---------------
Landlord to indemnification by Tenant in accordance with Article 5.08 for
liability arising from personal injuries, property damage, or any other cause
prior to the termination of this Lease.
28
<PAGE>
(l) After Default. Landlord shall be under no obligation to observe
-------------
or perform any covenant of this Lease on its part to be observed or performed
which accrues after the date of any Event of Default, and for so long as the
Event of Default continues.
12.03 Interest. Any payment of Rent or other amount from Tenant to
--------
Landlord in this Lease which is not paid on the date due shall accrue interest
from the thirtieth (30th) day after the date due until the date paid at a rate
equal to three (3) points over the prime rate as announced by Wells Fargo Bank,
N.A., at the time of the due date, but in no event less than ten percent (10%)
per year; provided, however, that if a court of competent jurisdiction
determines the above rate exceeds the highest lawful rate of interest, then at
the maximum rate permitted by law. This provision shall not relieve Tenant of
Tenant's obligation to pay any amount owing hereunder at the time and in the
manner provided.
13. ASSIGNMENT AND SUBLETTING
13.01 Assignment and Subletting: Prohibition. Tenant, including any
---------------------------------------
subsequent assignee or subtenant, shall not assign, mortgage, pledge, or
otherwise transfer this Lease, in whole or in part, nor sublet or permit
occupancy by any party other than Tenant of all or any part of the Premises,
without the prior written consent of Landlord in each instance. Landlord's
consent under this Article 13 shall not be unreasonably withheld. No assignment
or subletting by Tenant shall relieve Tenant of any obligation under this Lease,
including Tenant's obligation to pay Rent and other monies due hereunder. Any
purported assignment or subletting contrary to the provisions hereof without
Landlord's prior written consent shall be void. The consent by Landlord to any
assignment or subletting shall not constitute a waiver of the necessity for such
consent to any subsequent assignment or subletting. As Additional Rent
hereunder, Tenant shall reimburse Landlord for reasonable legal and other
expenses incurred by Landlord or its attorneys or advisors in connection with
the review and approval or disapproval of any request by Tenant for consent to
assignment or subletting, up to a maximum amount of $1000 per assignment or
subletting.
13.02 Documentation. Prior to any assignment or sublease which Tenant
-------------
desires to make, Tenant shall provide to Landlord the name and address of the
proposed assignee or subtenant, the proposed use of the Premises by the proposed
assignee or subtenant, true and complete copies of all documents relating to
Tenant's prospective assignment or sublease, current financial statements of the
proposed assignee or subtenant, including a balance sheet and a profit and loss
statement for the then current fiscal year and the two (2) immediately prior
fiscal years, if available, and such additional information and documentation as
Landlord shall reasonably require, and shall specify all consideration to be
received by Tenant for such assignment or sublease. Any request by Tenant to
Landlord to assign or sublet the Lease or the Premises shall be accompanied by
the proposed assignment or sublease agreement, which agreement shall include the
following provisions:
(a) Attornment. If Tenant proposes to assign, the assignment
----------
agreement shall provide that the assignee shall expressly assume the obligations
of
29
<PAGE>
Tenant hereunder. If Tenant proposes to sublet, the sublease agreement shall
provide that sublessee will attorn to the Landlord in the event of any breach of
the Lease by Tenant;
(b) Assignment of Subrents. Tenant's agreement to assign all
----------------------
subrents to Landlord as security for Tenant's obligations under the Lease;
(c) Termination of Lease. A provision that the termination of this
--------------------
Lease shall, at Landlord's sole election, constitute a termination of every
assignment or sublease; and
(d) Subordination. A provision that the assignment or sublease is
-------------
subordinate to the provisions of this Lease.
13.03 Bonus Rental. If for any assignment or sublease, Tenant receives rent
------------
or other consideration, either initially or over the term of the assignment or
sublease, in excess of the Rent called for hereunder, or in case of the sublease
of a portion of the Premises, in excess of such Rent fairly allocable to such
portion, after appropriate adjustments to assure that all other payments called
for hereunder are appropriately taken into account, Tenant shall pay to
Landlord, as Additional Rent hereunder, fifty percent (50%) of the excess of
each such payment of rent or other consideration received by Tenant within three
(3) days after receipt. For purposes of this Article 13.03, "consideration"
shall include, without limitation, all monies or other economic consideration of
any kind, if such sums are related to Tenant's interest in this Lease, the
Premises or any improvements thereon, including but not limited to, bonus money,
and payments (in excess of book value thereof) for Tenant's assets, accounts,
good will, general intangibles, Tenant's personal property, and any capital
stock or other equity ownership of Tenant.
13.04 Scope. The prohibition against assigning or subletting contained in
-----
this Article shall be construed to include a prohibition against any assignment
or subletting that is effected by a merger or acquisition or by operation of
law. If this Lease is assigned, or if the underlying beneficial interest of
Tenant is transferred, or if the Premises or any part thereof is sublet or
occupied by anybody other than Tenant, Landlord may collect rent from the
assignee, subtenant or occupant and apply the net amount collected to the Rent
reserved and apportion any excess rent so collected in accordance with the terms
of the preceding paragraph, but no such collection shall be deemed a waiver of
any covenant, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance of Tenant's
covenants hereunder. No assignment or subletting shall affect the continuing
primary liability of Tenant (which shall be joint and several with the
assignee), and Tenant shall not be released from performing any of the terms,
covenants and conditions of this Lease.
13.05 Waiver. Notwithstanding any assignment or sublease, or any
------
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant waives notice of any default of any assignee or sublessee and
agrees that Landlord may, at its option, proceed against Tenant without having
taken action against or joined such assignee or sublessee,
30
<PAGE>
except that Tenant shall have the benefit of any indulgences, waivers and
extensions of time granted to any such assignee or sublessee.
13.06 Release. Whenever Landlord conveys its interest in the Parking Lot,
-------
Property and/or Building, Landlord shall be automatically released from the
further performance of covenants on the part of Landlord herein contained, and
from any and all further liability, obligations, costs and expenses, demands,
causes of action, claims or judgments arising from or growing out of, or
connected with this Lease after the effective date of said release. The
effective date of said release shall be the date the assignee executes an
assumption of the assignment of Landlord's obligations, duties, responsibilities
and liabilities with respect to this Lease. If requested, Tenant shall execute
a form of release and such other documentation as may be required to further
effect the provisions of this Article 13.06.
13.07 Limitation on Elective Provisions. Any assignment or subletting by
---------------------------------
Tenant of the Premises, or any portion thereof, shall automatically operate to
terminate any and every right, option, or election of Tenant, if any, including,
but not limited to, the right to expand the Premises or to extend the Term of
this Lease as to all or any part of the Premises.
14. OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
14.01 Offset Statement. Within ten (10) days after request therefor by
----------------
Landlord, or if on any sale, assignment or hypothecation by Landlord of
Landlord's interest in the Building, Property and/or Parking Lot, or any part
thereof, an offset statement shall be required from Tenant, Tenant shall
deliver, in recordable form, a certificate to any proposed mortgagee or
purchaser, and to Landlord, certifying (if such be the case) that this Lease is
in full force and effect, the date of Tenant's most recent payment of Rent, and
that Tenant has no defenses or offsets outstanding, or stating those claimed by
Tenant, and any other information reasonably requested. Tenant's failure to
deliver said statement in time shall be conclusive upon Tenant that: (i) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (ii) there are no uncured defaults in Landlord's
performance and Tenant has no right of offset, counterclaim or deduction against
Rent hereunder; and (iii) no more than one period's Base Rent has been paid in
advance.
14.02 Attornment. In the event any proceeding is brought for the
----------
foreclosure of, or in the event of exercise of the power of sale under any
mortgage or deed of trust made by the Landlord, its successors or assigns,
encumbering the Premises, or any part thereof, Tenant shall attorn to the
purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of
foreclosure and recognize such purchaser as the Landlord under this Lease.
14.03 Subordination. The rights of Tenant hereunder are and shall be, at
-------------
the election of the mortgagee, subject and subordinate to the lien of such
mortgage, or the lien resulting from any other method of financing, now or
hereafter in force and recorded against the Building, Property and/or Parking
Lot, and to all advances made or hereafter
31
<PAGE>
to be made upon the security thereof; provided, however, that notwithstanding
such subordination, so long as Tenant is not in default under any of the terms,
covenants and conditions of this Lease, neither this Lease nor any of the rights
of Tenant hereunder, shall be terminated or subject to termination by any
trustee's sale, any action to enforce the security, or by any proceeding or
action in foreclosure. If requested, Tenant agrees to execute whatever
documentation may be required to further effect the provisions of this Article
within five (5) days of Landlord's request to do so.
15. NOTICES
15.01 Notices. All notices required to be given hereunder shall be in
-------
writing (except for notice required pursuant to Article 12.01(b)) and mailed
postage prepaid by certified or registered mail, return receipt requested, or by
personal delivery, to the appropriate address indicated in the Basic Lease
Information, or at such other place or places as either Landlord or Tenant may,
from time to time, respectively, designate in a written notice given to the
other. Notices shall be deemed served four (4) days after the date of mailing
thereof, or upon personal delivery.
16. SUCCESSORS BOUND
16.01 Successors Bound. This Lease and each of its covenants and
----------------
conditions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, successors and legal representatives and
their respective assigns, subject to the provisions hereof. Whenever in this
Lease a reference is made to the Landlord, such reference shall be deemed to
refer to the person in whom the interest of the Landlord shall be vested, and
Landlord shall have no obligation hereunder as to any claim arising after the
transfer of its interest in the Premises. Any successor or assignee of the
Tenant who accepts an assignment or the benefit of this Lease and enters into
possession or enjoyment hereunder shall thereby assume and agree to perform and
be bound by the covenants and conditions thereof. Nothing herein contained shall
be deemed in any manner to give a right of assignment to Tenant without the
written consent of Landlord.
17. MISCELLANEOUS
17.01 Waiver. No waiver of any default or breach of any covenant by either
------
party hereunder shall be implied from any omission by either party to take
action on account of such default if such default persists or is repeated, and
no express waiver shall affect any default other than the default specified in
the waiver, and then said waiver shall be operative only for the time and to the
extent therein stated. Waivers of any covenant, term or condition contained
herein by either party shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition.
17.02 No Light, Air or View Easement. Any diminution or shutting off of
------------------------------
light, air or view by any structure which may be erected on lands adjacent to or
in the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
17.03 Corporate Authority. If Tenant executes this Lease as a corporation,
-------------------
each of the persons executing this Lease on behalf of Tenant hereby covenants
and warrants
32
<PAGE>
that: (i) Tenant is a duly authorized and existing corporation; (ii) Tenant is
qualified to do business in the State of California; (iii) Tenant has full right
and authority to enter into this Lease; and (iv) each of the persons executing
on behalf of Tenant is authorized to do so.
17.04 Limitation of Landlord's Liability. The obligations of Landlord
----------------------------------
under this Lease shall not constitute the obligation of any other entity nor the
personal obligations of the individual directors or officers of Landlord, and
Tenant shall look solely to the real estate that is the subject of this Lease
and to no other assets of Landlord for satisfaction of any liability in respect
of this Lease and shall not seek recourse against any other entity or individual
or any of their assets for such satisfaction.
17.05 Time. Time is of the essence of every provision hereof.
----
17.06 Attorneys' Fees. In any action or proceeding which the Landlord or
---------------
the Tenant may be required to prosecute to enforce its respective rights
hereunder, the unsuccessful party therein agrees to pay all costs incurred by
the prevailing party therein, including reasonable attorneys' fees, to be fixed
by the court, and said costs and attorneys' fees shall be made a part of the
judgment in said action.
17.07 Captions and Article Numbers. The captions, article numbers and
----------------------------
table of contents appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections or articles of this Lease.
17.08 Severability. If any term, covenant, condition or provision of this
------------
Lease shall to any extent be held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, covenants,
conditions or provisions of this Lease shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
17.09 Applicable Law. This Lease, and the rights and obligations of the
--------------
parties hereto, shall be construed and enforced in accordance with the laws of
the State of California.
17.10 Submission of Lease. The submission of this document for examination
-------------------
and negotiation does not constitute an offer to lease or option for leasing the
Premises. This document shall become effective and binding only upon execution
and delivery hereof by Landlord. No act or omission of any employee or agent of
Landlord or of Landlord's broker or managing agent shall alter, change, or
modify any of the provisions hereof.
17.11 Holding Over. Should Tenant, or any of its successors in interest,
------------
hold over the Premises, or any part thereof, after the expiration of the term of
this Lease, unless otherwise agreed to in writing, such holding over shall
constitute and be construed as tenancy from month-to-month only, at a monthly
rent equal to one hundred twenty-five percent (125%) the Base Rent in effect
during the final year of the Term of this
33
<PAGE>
Lease as the same may be extended from time to time. The preceding sentence
shall not be construed as Landlord's permission for Tenant to hold over.
17.12 Surrender. Upon the expiration or earlier termination of this Lease,
---------
Tenant shall surrender the Premises to Landlord in good order, condition and
repair, except for reasonable wear and tear or as otherwise provided in Articles
10 and 11. Tenant shall not commit or allow any waste or damage to be committed
on any portion of the Property, Premises or Building. All property that Tenant
is required to surrender shall become Landlord's property upon the termination
of this Lease. Landlord may cause any of said personal property that is not
removed from the Premises within thirty (30) days after the date of any
termination of this Lease to be removed from the Premises and stored at Tenant's
expense, or, at Landlord's election said personal property thereafter shall
belong to Landlord without the payment of any consideration, subject to the
rights of any person holding a perfected security interest therein.
17.13 Rules and Regulations. At all times during the Term, Tenant shall
---------------------
comply with rules and recitations ("Rules and Regulations") for the Building,
Parking Lot and the Property, as set forth in Exhibit D (and such amendments as
---------
Landlord may reasonably adopt), attached hereto and by this reference made a
part hereof. In the event of any inconsistency between the Rules and Regulations
and the provisions of this Lease, the provisions of this Lease shall control.
Tenant hereby acknowledges that Tenant shall not use in excess of Tenant's pro
rata share of the Building's total parking spaces.
17.14 No Nuisance. Tenant shall conduct its business and control its
-----------
agents, employees, invitees and visitors in such a manner as not to create any
nuisance, or interfere with, annoy or disturb any other tenant or Landlord in
its operation of the Building.
17.15 Broker. Tenant warrants that it has had no dealings with any real
------
estate broker or agent other than Broker in connection with the negotiation of
this Lease, and that it knows of no other real estate broker or agent who is
entitled to any commission or finder's fee in connection with this Lease. Each
party agrees to indemnify and hold the other party harmless from and against any
and all claims, demands, losses, liabilities, lawsuits, judgments, costs and
expenses (including without limitation, attorneys' fees and costs) with respect
to any leasing commission or equivalent compensation alleged to be owing on
account of the indemnifying party's dealings with any real estate broker or
agent other than Broker.
17.16 Nonliability. Landlord shall not be in default hereunder or be
------------
liable for any damages directly or indirectly resulting from, nor shall the
rental herein reserved be abated by reason of (i) the interruption of use of the
Premises as a result of the installation of any equipment in connection with the
Property, Premises or Building or (ii) any failure or delay in furnishing any
services required to be provided by Landlord when such failure or delay is
caused by accident or any condition beyond the reasonable control of Landlord or
by the making of necessary repairs or improvements to the Property, Premises or
to the Building, or the rationing or restriction on use of water or electricity,
gas or any other form of energy or any other service or utility whatsoever
34
<PAGE>
serving the Property, Premises or the Building. Landlord shall use reasonable
efforts to remedy any interruption in the furnishing of such services.
17.17 Recording. This Lease shall not be recorded, but Tenant shall, at
---------
the option of Landlord, execute and deliver to Landlord a short form hereof, in
a recordable form approved by Landlord, and Landlord may, at Landlord's option,
cause the short form to be recorded. If a short form of this Lease is recorded,
Tenant shall, at Tenant's expense, upon the termination of this Lease, execute
and deliver to Landlord a recordable instrument evidencing the termination in a
form approved by Landlord.
17.18 Joint and Several Liability. If Tenant is more than (1) person or
---------------------------
entity, each such person or entity shall be jointly and severally liable for the
obligations of Tenant hereunder.
17.19 Entire Agreement. This Lease sets forth all covenants, agreements,
----------------
and conditions between Landlord and Tenant concerning the Premises, Building,
Parking Lot and Property, and there are no covenants, agreements or conditions,
either oral or written, between Landlord and Tenant other than as are herein set
forth. Except as herein otherwise provided, no subsequent amendment or addition
to this Lease shall be binding upon Landlord or Tenant unless reduced to writing
and signed by Landlord and Tenant.
17.20 Satellite Dish. Tenant shall be permitted to install a satellite
--------------
dish at the Building, on the conditions that Landlord shall have approved the
type of dish and its exact location in the Building, that operation of the dish
will not interfere with other communications facilities at the Building, and
that the installation is in compliance with all city, state and federal
requirements and regulations. Tenant shall be responsible for all costs and
maintenance of such system.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above-written.
<TABLE>
<CAPTION>
"Landlord" "Tenant"
<S> <C>
CALIFORNIA STATE AUTOMOBILE ASSOCIATION MULTIGEN, INC.,
INTER-INSURANCE BUREAU, an inter-insurance exchange a California corporation
By: By:
------------------------------------- -------------------------------------
Its: Its:
------------------------------------ ------------------------------------
By: By:
------------------------------------- -------------------------------------
Its: Its:
------------------------------------ ------------------------------------
</TABLE>
36
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
That certain real property situated in the City of San Jose, County of
Santa Clara, State of California, more particularly described as follows:
PARCEL ONE:
- ----------
All of Parcel 1 as shown on that certain Parcel Map filed for record in the
office of the Recorder, County of Santa Clara, State of California, on May 21,
1986 in Book 559 of Maps at pages 49 and 50.
PARCEL TWO:
- ----------
A non-exclusive easement for Ingress and Egress, for the benefit of Parcel One
above, over that portion of Parcel 2 as shown upon that certain Parcel Map filed
for record in the office of the Recorder, County of Santa Clara, State of
California, on May 21, 1986 in Book 559 of Maps, pages 49 and 50, designated on
said Parcel Map as 26' and 30' Ingress and Egress Easement.
PARCEL THREE:
- ------------
Non-exclusive easements for Parking and Pedestrian and Vehicular Access, for the
benefit of Parcel One, over a portion of Parcel 2 (as shown upon that certain
Parcel Map filed for record in the office of the Recorder, County of Santa
Clara, State of California on May 21, 1986 in Book 559 of Maps, pages 49 and
50), as set forth in that certain Amended and Restated Declaration of Covenants,
Conditions and Restrictions recorded June 11, 1987 in Book K184, page 550 of
Official Records.
37
<PAGE>
EXHIBIT "B"
-----------
38
<PAGE>
EXHIBIT "C"
-----------
39
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, lobby, elevators, stairways and public
corridors shall be used only as a means of ingress and egress and shall remain
unobstructed at all times. The entrance and exit doors of all suites are to be
kept closed at all times except as required for orderly passage to and from a
suite. Loitering in any part of the Building or obstruction of any means of
ingress or egress shall not be permitted. Doors and windows shall not be covered
or obstructed.
2. Plumbing fixtures shall not be used for any purposes other than those
for which they were constructed, and no rubbish, newspapers, trash or other
substances of any kind shall be thrown into them. Walls, floors and ceilings
shall not be defaced in any way and no one shall be permitted to mark, drive
nails, screws or drill into, paint, or in any way mar any Building surface,
except that pictures, certificates, licenses and similar items normally used in
Tenant's business may be carefully attached to the walls by Tenant in a manner
to be prescribed by Landlord. Upon removal of such items by Tenant any damage to
the walls or other surfaces, except minor nail holes, shall be repaired by
Tenant.
3. No awning, shade, sign, advertisement or notice shall be inscribed,
painted, displayed or affixed on, in or to any window, door or balcony or any
other part of the outside or inside of the Building or the demised premises. No
window displays or other public displays shall be permitted without the prior
written consent of Landlord. All tenant identification on public corridor doors
beyond building standard will be installed by Landlord for Tenant but the cost
shall be paid by Tenant. No lettering or signs other than the name of Tenant
will be permitted on public corridor doors with the size and type of letters to
be prescribed by Landlord. The directory of the Building will be provided
exclusively for the display and location of Tenant only and Landlord reserves
the right to exclude all other names therefrom. All requests for listing on the
Building directory shall be submitted to the office of Landlord in writing.
Landlord reserves the right to approve all listing requests. Any change
requested by Tenant of Landlord of the name or names posted on directory, after
initial posting, will be charged to Tenant.
4. The cost of any special electrical circuits for items such as copying
machines, computers, microwaves, etc., shall be borne by Tenant unless the same
are part of the building standard improvements. Prior to installation of
equipment Tenant must receive written approval from Landlord.
5. The weight, size and position of all safes and other unusually heavy
objects used or placed in the Building shall be prescribed by Landlord and
shall, in all cases, stand on metal plates of such size as shall be prescribed
by Landlord. The repair of any damage done to the Building or property therein
by putting in or taking out or maintaining such safes or other unusually heavy
objects shall be paid for by Tenant.
40
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6. All freight, furniture, fixtures and other personal property shall be
moved into, within and out of the Building at times designated by and under the
supervision of Landlord and in accordance with such regulations as may be posted
in the office of the Building manager. In no event will Landlord be responsible
for any loss or damage to such freight, furniture, fixtures or personal property
from any cause.
7. No improper noises, vibrations or odors will be permitted in the
Building, nor shall any person be permitted to interfere in any way with tenants
or those having business with them. No person will be permitted to bring or keep
within the Building any animal, bird or bicycle or any toxic or flammable
substances without Landlord's prior permission. No person shall throw trash,
refuse, cigarettes or other substances of any kind any place within or out of
the Building except in the refuse containers provided therefor. Landlord
reserves the right to exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs
or who shall in any manner do any act in violation of the rules and regulations
of the Building.
8. All re-keying of office doors or changes to the card access system,
after occupancy, will be at the expense of Tenant. Tenant shall not re-key any
doors or change the card access system in any way without making prior
arrangements with Landlord.
9. Tenant will not install or use any window coverings except those
provided by Landlord, nor shall Tenant use the balconies, if any, for storage,
barbecues, drying of laundry or any other activity which would detract from the
appearance of the Building or interfere in any way with the use of the Building
by other tenants.
10. If Tenant uses the Premises after regular business hours or on non-
business days, Tenant shall lock any entrance doors to the Building used by
Tenant or take such other steps as are necessary to secure the Building's doors
immediately after entering or leaving the Building.
11. If Tenant requires telegraphic, telephonic, burglar alarms or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
12. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
bootblacking or other personal services upon the Premises, except at such hours
and under such regulations as may be fixed by Landlord.
41
<PAGE>
15. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord, which consent shall not
be unreasonably withheld. Canvassing, soliciting and distribution of handbills
or any other written material, and peddling in the Building, are prohibited, and
each tenant shall cooperate to prevent same.
16. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with rubber tires and side
guards, or such other material-handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building.
17. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by other tenants or visitors to the Building.
Tenant shall not leave vehicles in the Parking Lot overnight nor park any
vehicles in the Parking Lot other than automobiles, motorcycles, motor driven or
pedal bicycles or four-wheeled trucks. Landlord may, in its sole discretion,
designate separate areas for bicycles and motorcycles.
18. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition to its occupancy of the Premises.
19. The normal business hours of the Building shall be 8:00 a.m. to 6:00
p.m., Monday through Friday, holidays excepted. Not less than once annually,
Landlord shall publish to all tenants a list of the holidays to be observed by
the Building.
20. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
21. Landlord reserves the right to make such other and further rules and
regulations as in Landlord's judgment may be necessary for the safety, care and
cleanliness of the Premises and for the preservation of good order therein.
Tenant shall abide by all rules and regulations hereinabove stated and any
additional rules and regulations adopted by Landlord.
42
<PAGE>
FIRST AMENDMENT TO LEASE
____________________
This First Amendment ("Amendment") is made this 19th day of June, 1997, to
the Lease dated March 31, 1995 ("Lease"), by and between CALIFORNIA STATE
AUTOMOBILE ASSOCIATION INTER-INSURANCE BUREAU ("Landlord") and MULTIGEN, INC.
("Tenant").
RECITALS
A. Pursuant to the Lease, Tenant leases the Fifth Floor of 550 S. Winchester,
San Jose, California.
B. Tenant and Landlord now desire to expand the premises that will be subject
to the Lease, to establish the rental for the additional premises, and to
make certain amendments to the Lease.
NOW, THEREFORE, the parties agree as set forth below.
1. Capitalized Words. Capitalized words used in this Amendment are used as
-----------------
defined the Lease, unless otherwise defined herein.
2. Additional Premises. Landlord leases to the Tenant, and Tenant leases from
-------------------
landlord, the additional space now designated as Suites 406, 410 and 605 of
the Building, which together total 5,358 rentable square feet (the
"Additional Premises"). The Additional Premises shall be deemed to be part
of the Premises for all purposes and subject to all terms and conditions of
the Lease, except where specific provisions are made for only the
Additional Premises.
3. Base Rent. Monthly installments of Base Rent for the Additional Premises
---------
shall be as follows:
Months 1-12: $2.40 per rentable square foot
Months 13-24: $2.50 per rentable square foot
Months 25-expiration of Term: $2.60 per rentable square foot
4. Security Deposit. Upon execution of this Amendment, Tenant shall increase
----------------
the Security Deposit by $13,930.80, bringing the total Security Deposit to
$47,568.30.
5. Commencement Date. The Commencement Date for the Additional Premises shall
-----------------
be the date on which Suite 605 is Ready for Occupancy, provided that Rent
will not commence as to current Suite 406 and 410 until those suites have
been combined and are Ready for Occupancy. The month during which the
Commencement Date for the Additional Premises occurs shall be "Month 1" for
purposes of determining when the Rent for the entire Additional Premises is
to be increased pursuant to Paragraph of this Amendment.
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<PAGE>
6. Term. The Term as to the Additional Premises will commence on the
----
Commencement Date for the Additional Premises and terminate at the same
time as does the Term for the Premises, including any extension period. The
parties agree that the original Term expires September 4, 2000.
7. Tenant Improvements. Tenant Improvements to Suite 605 will be constructed
-------------------
according to the space plan attached hereto as Exhibit A, with costs
allocated as stated in Exhibit B hereto. Tenant Improvements to the current
Suite 406 and 410 shall be made as agreed between Landlord and Tenant, with
Landlord providing an improvement allowance equal to Seven Dollars ($7.00)
per rentable square foot of Suites 406 and 410.
8. Operating Expenses. The Tenant's Share of Excess Operating Expenses will be
------------------
increased to 23.61% as of the Commencement Date for the Additional
Premises.
9. Brokers. Landlord shall pay a one-half leasing commission to Colliers
-------
Parrish International, Inc., equal to three percent (3%) of the total Base
Rent for the Additional Premises for the original Term. Tenant represents
and warrants that it knows of no other broker or other person who may be
entitled to a commission or fee based upon Tenant's expansion into the
Additional Premises and agrees that Tenant's indemnity obligations pursuant
to Section 17.15 apply to Tenant's representation and warranty hereunder.
10. Lease Affirmed. Except as specifically modified herein, the Lease is
--------------
affirmed and remains in full force and effect.
IN WITNESS WHEREOF, the parties execute this Amendment as of the date first
written herein.
CALIFORNIA STATE AUTOMOBILE ASSOCIATION MULTIGEN, INC.
INTER-INSURANCE BUREAU
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ---------------------------
44
<PAGE>
Exhibit 10.8
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE ("Second Amendment") is entered into this
30th day of October, 1998 by and between California State Automobile Association
Inter-Insurance Bureau, an inter-insurance exchange ("Landlord") and CyberSource
Corporation, a Delaware corporation ("Tenant").
RECITALS:
A. On or about August 20, 1996, the parties entered into that certain lease
(the "Lease") pursuant to which Landlord leased to Tenant and Tenant leased from
Landlord certain office space in that building commonly known as Century Plaza,
located at 550 S. Winchester Blvd., San Jose, California (the "Building")
containing approximately 7,407 rentable square feet in Suite 300 with the right
to expand to Suite 310 which contains an additional 2,700 rentable square feet.
B. By First Amendment to Lease dated October 20, 1997, Landlord and Tenant
confirmed Tenant's expansion into Suite 310 and Landlord also leased to Tenant
certain expansion space adjacent to Tenant's initial 7,407 square feet
consisting of 1,820 rentable square feet (the 11,927 square feet are referred to
herein as the "Initial Premises").
C. Landlord and Tenant have now agreed to amend the Lease to lease to
Tenant: (i) Suite 306 consisting of 4,587 rentable square feet, commencing on or
about December 1, 1998; and (ii) a portion of the second floor of the Building
being vacated by Landlord consisting of approximately 7,018 rentable square feet
(the "Second Floor Space"), commencing on or about February 1, 1999. Suite 306
and the Second Floor Space are referred to collectively as the "Additional
Premises." The parties have agreed that the termination date of the Lease for
the Initial Premises and the Additional Premises will be January 31, 2001, with
options to extend the Lease as set forth in this Second Amendment.
D. Landlord and Tenant have also agreed that Tenant will lease (i) Suite
100 consisting of 2,448 rentable square feet commencing on November 1, 1998 and
ending on December 31, 1998; and (ii) Suite 610 consisting of 1,182 rentable
square feet commencing (on November 1, 1998 and ending on January 31, 1999
(collectively, the "Temporary Premises"). Tenant will have the right to continue
its tenancies of Suite 100 and of Suite 610 after their respective termination
dates, on a month to month basis thereafter, as set forth in this Second
Amendment.
E. The parties now wish to set forth their agreements with respect to the
Initial Premises, the Additional Premises and the Temporary Premises.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1
<PAGE>
1. Capitalized Terms. All capitalized terms used herein will have the same
meanings as is given such terms in the Lease unless expressly superseded by the
terms of this Amendment.
2. Delivery of Temporary Premises and Additional Premises: Landlord agrees
to deliver possession of the Temporary Premises (Suite 100 and Suite 610) to
Tenant on or about November 1, 1998. Landlord will deliver possession of Suite
306 to Tenant on or about December 1, 1998 and will deliver possession of the
Second Floor Space to Tenant on or about February 1, 1999. The approximate
rentable square footage figures set forth herein for the Temporary Premises and
the Additional Premises are subject to verification by Tenant pursuant to the
BOMA standard set forth in Section 1.05 of the Lease.
3. Demising/Condition of Premises. With respect to the Second Floor Space,
Landlord will construct, at its sole cost and expense, a perimeter demising
wall. The demising wall will be clad with properly rated sheet rock, taped,
sanded, patched, filled, dusted and ready to receive paint or other Tenant
finish. Tenant will accept possession of the Additional Premises and the
Temporary Premises on an "as-is" basis and acknowledges that: (a) any and all
demolition of the existing improvements in such Additional Premises and
Temporary Premises; and (b) the construction of any and all Tenant improvements
(the "Tenant Improvements") in such Additional Premises and Temporary Premises
will be at Tenant's sole cost and expense. All such demolition work and Tenant
Improvements will be governed by Section 8.02 of the Lease.
4. Term: (a) Section 3.01 of the Lease is hereby amended to provide that
the term of the Lease for the Temporary Premises will commence on November 1,
1998 or on the date on which Landlord delivers possession of the Temporary
Premises to Tenant, whichever last occurs. The term of the Lease for Suite 100
will end on December 31, 1998 and the term of the Lease for Suite 610 will end
on January 31, 1999. On written notice to Landlord, which must be delivered
prior to December 31, 1998 for Suite 100 and before January, 31, 1999 for Suite
610, Tenant may elect to continue its lease of the Suite 100 and of Suite 610 on
a month to month basis upon the same terms and conditions as set forth in this
Amendment. Thereafter, either party may terminate the Lease as to the Suite 100
and/or Suite 610 upon 30 days written notice to the other party.
(b) Section 3.01 of the Lease is hereby amended to provide that: (i) the
term of the Lease for Suite 306 of the Additional Premises will commence on
December 1, 1998 or the date on which Landlord delivers possession of Suite 306
to Tenant, whichever last occurs; and (ii) the term of the Lease for the Second
Floor Space will commence on February 1, 1999 or the date on which Landlord
delivers possession of the Second Floor Space to Tenant, whichever last occurs.
(c) Section 3.01 of the Lease is further amended to provide that the
Lease for the Initial Premises and the Additional Premises will terminate on
January, 31, 2001, subject to the Options to Extend provided for in Section 5
below.
2
<PAGE>
5. Options to Extend: Section 3.02 of the Lease is hereby deleted. The
parties agree that Tenant will have the right to extend the term of the Lease
for the Initial Premises and the Additional Premises for 2 options of 3 years
each. Tenant expressly agrees that, if it elects to exercise either option to
extend the term of the Lease, it must extend the term of the Lease for both the
----
Initial Premises and the Additional Premises. Tenant must give written notice to
Landlord of its intention to extend the Lease not less than 180 days prior to
the expiration of the Term or the first extension period, as applicable. Upon
exercise of such option by Tenant, the term of the Lease will be extended upon
the same terms, covenants and conditions of the Lease, except that Base Rent
will be adjusted as set forth in Section 3.03 of the Lease.
6. Rent: Rent for the Initial Premises, the Additional Premises and the
Temporary Premises are as set forth in Schedule 1 annexed hereto. This Section 6
supersedes the provisions of: (a) the Basic Lease Information annexed to the
Lease; (b) the provisions of Article 4 of the Lease to the extent inconsistent
with this Second Amendment and its Schedule 1; and (c) Section 5 of the First
Amendment to Lease. Upon the execution of this Amendment, Tenant agrees to pay
the first month's rent in advance for the Additional Premises and the Temporary
Premises as follows:
Temporary Premises: $10,5890
Additional Premises:
Second Floor Space: $21,054
Suite 306: $13,746
7. Rent Enhancement: As additional consideration to Landlord for delivery
of Suite 306 to Tenant on December 1, 1998, Tenant will pay to Landlord the sum
of $10,000 upon delivery of Suite ' ) 06 to Tenant.
8. Security Deposit: Landlord and Tenant agree that Landlord is currently
holding $25,357.35 as a Security Deposit, as defined in Section 4.05 of the
Lease. Upon execution of this Amendment, Tenant agrees to increase such security
deposit by the following amounts:
Temporary Premises: $10,890
Additional Premises:
Second Floor Space: $21,054
Suite 306: $13,746
The parties agree that the Security Deposit, as increased, will be held and
applied as set forth in the Lease. The parties further agree that Landlord will
return the Security Deposit for the Temporary Premises promptly upon Tenant's
vacation of the Temporary Premises in accordance with Section 4.05 of the Lease.
9. Parking: Landlord agrees that Tenant will receive 4 additional parking
spaces in the Parking Lot appurtenant to the Building for each additional 1,000
rentable square feet leased.
3
<PAGE>
10. Operating Expenses: Tenant's Share of Excess Operating Expenses
(currently 12.75%) will be increased as follows:
With addition of the Temporary Premises - increased to 16.63%
With the addition of Suite 3O6 - increased to 21.53%
With the addition of the Second Floor Space - increased to 29.04%
Upon vacation of Suite 100 and/or Suite 610, Tenant's Share of Excess Operating
Expenses will be appropriately reduced.
Tenant will pay Tenant's Share of Excess Operating Expenses in accordance with
Article 6 of the Lease.
11. Base Year for Operating Expenses: For the purposes of calculating
Tenant's Share of Excess Operating Expenses, a base year of 1998 will be used
for the Temporary) and Additional Premises.
12. Option to Expand: (a) Landlord hereby grants to Tenant the option
("Expansion Option") to further amend the Lease to expand its leased premises to
include the balance of the second floor space currently occupied by Landlord
that becomes available from time to time during the term of the Lease, as it may
be extended. Landlord agrees to give Tenant written notice of Landlord's
intended vacation of all or any portion of the second floor space. Tenant will
have the right, within 10 days following receipt of Landlord's notice
("Landlord's Notice"), to accept or reject the entire portion of the second
floor space then available (the "Available Space"). Tenant will be required to
accept all of such Available Space then offered by Landlord.
(b) If Tenant properly exercises the Expansion Option, the Available
Space will be added to the Premises currently leased by Tenant under the Lease,
as amended, effective as of the date the Available Space is delivered to Tenant
in "as-is" condition. Landlord's Notice .,%,ill contain Landlord's good-faith
estimate of the date the Available Space will be delivered to Tenant and will
also specify the approximate number of rentable square feet being offered.
(c) Tenant's lease of the Available Space will be on the same terms and
conditions as set forth in the Lease; provided however that: (i) Tenant's Share
of Excess Operating Expenses will be increased to take into account the
additional rentable square footage of the Available Space and all figures in the
Lease affected by the addition of the rentable square footage of the Available
Space will be adjusted accordingly; and (ii) the monthly Base Rent for the
Available Space will be for the then fair market rent for such space determined
in accordance with Section 3.03 of the Lease.
(d) The foregoing Subsections (a), (b) and (c) notwithstanding, upon
receipt by Tenant of a written notice from Landlord that Landlord has elected to
sell the Building, Tenant's right to exercise this Expansion Option will
immediately terminate as
4
<PAGE>
to any Available Space which has not been accepted by Tenant prior to the date
of receipt of such notice.
13. No Further Modifications: Except as set forth in this Second Amendment,
all of the terms and provisions of the Lease will apply and will remain
unmodified and will continue in full force and effect.
14. Conflict: The terms and provisions contained in t his Second Amendment
will control in the event of a conflict or inconsistency between this Second
Amendment and the Lease.
15. Ratification: Tenant hereby ratifies, reaffirms and remakes as of the
date hereof each and every term, covenant, provision, representation and
warranty contained in the Lease as amended by the First Amendment to Lease and
by this Second Amendment.
Except as amended or modified herein, all terms and conditions of the
Lease, as amended by First Amendment to Lease, will remain the same.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first above written.
"LANDLORD" "TENANT"
California State Automobile CyberSource Corporation,
Association Inter-Insurance Bureau, a Delaware corporation
an inter-insurance exchange
By: By:
---------------------------------- ----------------------------------
Title: Title:
------------------------------- -------------------------------
5
<PAGE>
SCHEDULE 1
BASE RENT
---------
Base Rent will be payable in equal monthly installments in advance on the first
day of each calendar month during the Term of this Lease and any extensions. If
the Term-of the Lease for the Additional Premises or the Temporary Premises
begins or ends on a date other than the first or last day of a month, Base Rent
for such month will be prorated on a per diem basis.
A. Base Rent for the Temporary Premises will be as follows:
11/1/98 - 11/31/99 ($3.00 per rentable square foot) -$10,890.00/month
($32,670/total).
B. Base Rent for Suite 306 will be as follows:
12/1/98 - 11/30/99 ($3.00 per rentable square foot) - $165,132/year
($13,746/month)
12/1/99 - 11/30/00 ($3.09 per rentable square foot) - $170,085/year
($14,173.83/month)
12/1/00 - 1/31/01 ($3.18 per rentable square foot) - $14,599.04/month
($29,198.09/total).
C. Base Rent for the Second Floor Space will be as follows:
2/1/99 - 1/31/00 ($3.00 per rentable square foot) - $252,648.00/year
($21,054/month)
2/1/00 - 1/31/01 ($3.09 per rentable square foot) - $260,227.44/year
($21,685.62/month).
D. Base Rent for the Initial Premises will be as follows:
8/24/99 - 8/31/00 - $300 per rentable square foot - $429,300/year
($35,775/month)
9/1/00 - 1/31/01 - $3.09 per rentable square foot - $36,848.25/month ($36,848.25
total).
E. Rent for the Initial Premises and the Additional Premises during the Options
to Extend will be the Fair Market Rental Value for such premises, determined in
accordance with Section 3.03 of the lease.
6
<PAGE>
EXHIBIT 10.9
CONVEYANCE AGREEMENT
THIS CONVEYANCE AGREEMENT ("Agreement"), dated this 31st day of
December, 1997, is made and entered into by and between CyberSource Corporation,
a California Corporation ("CyberSource"), and Internet Commerce Services
Corporation, a Delaware corporation ("ICS").
ARTICLE 1.
DEFINITIONS
The following definitions shall for all purposes, unless otherwise
clearly indicated to the contrary, apply to the terms used in this Agreement:
1.1. "Assets" means all of CyberSource's right, title and interest,
legal or equitable, in and to the assets, properties, rights, contract rights,
licenses, interests, claims, demands, causes of action, utility (and similar)
deposits, business, and goodwill used or acquired by CyberSource in connection
with its internet commerce services business (hereinafter referred to as the
"Commerce Services Business"), including the assets listed as Exhibit A attached
hereto, and the contents of such business throughout the United States and the
rest of the world including, but not limited to, all of the furniture, fixtures,
equipment and other items of personal property reflected on the balance sheet of
CyberSource relating to the Commerce Services Business and the contracts of the
Commerce Services Business. "Assets" specifically excludes the assets,
properties, rights, contract rights, licenses, interests, claims, demands,
causes of action, utility (and similar) deposits, business, and goodwill used or
acquired by CyberSource in connection with its Software.net business.
1.2. "Liabilities" means, with respect to the Assets being transferred
pursuant to this Agreement, all of CyberSource's liabilities, duties and
obligations of every kind reflected on the balance sheet of CyberSource,
including the liabilities set forth on Exhibit C hereof, acquired by CyberSource
in connection with the Commerce Services Business, or associated with a contract
being transferred to ICS hereunder.
ARTICLE 2.
CONVEYANCES
CyberSource hereby grants, bargains, sells, conveys, assigns, transfers
and delivers all of the Assets to ICS and ICS hereby accepts such Assets, at and
as of the Effective Time hereinafter provided.
TO HAVE AND TO HOLD all and singular the said Assets hereby granted,
bargained, sold, conveyed, assigned, transferred and delivered or intended so to
be unto ICS, its successors and assigns, to and for its and their own use
forever, together with all and singular the properties, assets, members and
appurtenances thereunder belonging or in anyway incident or appertaining
thereto.
<PAGE>
If the conveyance and assignment attempted to be made hereunder of any
agreement, lease, permit, license, right, claim or other Asset would be
ineffective as between CyberSource and ICS without the consent of any third
person, or would serve as a cause for terminating or invalidating any such
agreement, lease, permit, license, right, claim or other Asset or would cause or
serve as a cause for the loss of ownership thereof, then such Asset is
temporarily excluded from the aforesaid conveyance and assignment to the extent
agreed by CyberSource and ICS. However, under such circumstances CyberSource
shall, to the greatest extent permitted, hold such Asset for the exclusive use
and benefit of ICS until such consent has been obtained. Upon the obtaining of
such consent no further conveyance or assignment shall be required, but full and
complete title to such Asset shall automatically become vested in ICS by virtue
of this Agreement.
ARTICLE 3.
ASSUMPTION OF LIABILITIES
In connection with the grant, bargain, sale, conveyance, assignment,
transfer and delivery made under Article 2 and for any conveyances, assignments,
transfers and deliveries to be made by CyberSource to ICS pursuant to Article 7,
ICS hereby assumes and agrees to perform and fully discharge all of the
Liabilities at and as of the Effective Time. ICS hereby agrees to indemnify,
defend and hold harmless CyberSource, its successors and assigns, of and from
any and all costs, liabilities and expense, including court costs and reasonable
attorneys' fees, arising from or connected with the Liabilities hereby assumed
to the extent of the assumption hereunder.
ARTICLE 4.
CONSIDERATION
In consideration of the transfer of the Assets to ICS hereunder, ICS
hereby agrees to issue, and shall be issuing at and as of the Effective Time
upon the written instruction of CyberSource to (i) the holders of the Series A
Preferred Stock of CyberSource 1,985,520 shares of the Series A Preferred Stock
of ICS ("ICS Series A"), (ii) the holders of the Series B Preferred Stock of
CyberSource 2,037,038 shares of Series B Preferred Stock of ICS ("ICS Series
B"), (iii) the holders of the Series C Preferred Stock of CyberSource 3,000,000
Series C Preferred Stock of ICS ("ICS Series C"), and to the holders of the
Company Common Stock 9,070,000 shares of the common stock of ICS ("ICS Common"),
each such issuance to be on a same percentage basis with respect to each
shareholder's shareholdings in CyberSource with the same preferential
characteristics (adjusted for the value of the distribution) for the Company's
preferred shareholders and with the same percentage ownership for each
shareholder as those which currently exist (the "ICS Stock Issuance"), and the
agreement by ICS to assume, perform and fully discharge all of the Liabilities.
CyberSource and ICS hereby agree that for tax purposes the capital stock issued
by ICS shall be deemed to have been issued to CyberSource and distributed by
CyberSource to its shareholders.
-2-
<PAGE>
ARTICLE 5.
WARRANTIES
EXCEPT AS SET FORTH IN ARTICLE 11 TO THE CONTRARY, ALL SALES,
CONVEYANCES, ASSIGNMENTS, TRANSFERS AND DELIVERIES TO BE MADE HEREUNDER WILL BE
MADE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND (INCLUDING, WITHOUT
LIMITATION, ANY REPRESENTATION OR WARRANTY OF TITLE). ALL ASSETS, RIGHTS AND
BUSINESSES TO BE SOLD, CONVEYED, ASSIGNED, TRANSFERRED AND DELIVERED HEREUNDER
WILL BE SOLD, CONVEYED, ASSIGNED, TRANSFERRED AND DELIVERED "AS IS". CYBERSOURCE
EXPRESSLY DISCLAIMS ANY WARRANTIES OF CONDITION, MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE. This Agreement is made, however, with full rights of
substitution and subrogation of ICS in and to all covenants, warranties and
other rights of indemnification by others heretofore given or made with respect
to any of the Assets.
ARTICLE 6.
SALES TAXES AND RECORDING FEES
The parties agree that ICS shall pay all sales, use and similar taxes
arising out of the sales, conveyances, assignments, transfers and deliveries to
be made hereunder, and shall pay all documentary, filing and recording fees
required in connection therewith.
ARTICLE 7.
FURTHER ASSURANCES
From time to time after the date hereof, and without any further
consideration, CyberSource will execute and deliver such instruments of
conveyance, assignment, transfer and delivery, and take such other action, as
ICS may reasonably request in order more effectively to vest in ICS beneficial
and record title to the Assets to be conveyed and assigned hereunder or intended
so to be and to put ICS in actual possession and operating control of such
Assets. After the date hereof, CyberSource agrees to use its best efforts to
obtain, without additional cost to ICS any and all consents and approvals that
may be necessary to vest or confirm title to all the Assets in ICS.
ARTICLE 8.
POWER OF ATTORNEY
CyberSource does hereby constitute and appoint ICS, its successors and
assigns, the true and lawful attorney of CyberSource with full power of
substitution for it and in its name, place and stead or otherwise on behalf of
CyberSource, its successors and assigns, and for the benefit of ICS, its
successors and assigns, to demand and receive from time to time any and all
property and assets, real, personal, and mixed, tangible and intangible, hereby
conveyed and assigned or intended so to be and to execute in the name of
CyberSource, its successors and assigns, deeds, assignments and other
instruments of further assurance and to give receipts and releases in respect of
the same, and from time to time to institute and prosecute in the name of ICS or
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CyberSource for the benefit of ICS as may be appropriate, any and all
proceedings at law, in equity or otherwise which ICS, its successors and
assigns, may deem proper in order to collect, assert or enforce any claims,
rights or title of any kind in and to the Assets hereby conveyed and assigned or
intended so to be, and to defend and compromise any and all actions, suits or
proceedings in respect of any of said Assets and to do any and all such acts and
things in furtherance of this Agreement as ICS, its successors or assigns, shall
deem advisable. CyberSource hereby declares that the appointment hereby made and
the powers hereby granted are coupled with an interest and are and shall be
irrevocable and perpetual and shall not be terminated by any act of CyberSource
or its successors or assigns or by operation of law.
ARTICLE 9.
SECURITIES LAW REPRESENTATIONS
CyberSource acknowledges that the capital stock to be issued pursuant to
the ICS Stock Issuance are being issued to it pursuant to a private offering
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act"), and, as a result thereof, the shares of ICS capital stock are
"restricted securities" for purposes of Rule 144 as promulgated under the
Securities Act. CyberSource represents and warrants that it and each of its
shareholders is an "accredited investor" as such term is defined in Regulation D
as promulgated under the Securities Act.
ARTICLE 10.
GENERAL
10.1. Registration Rights. The holders of ICS Series A, ICS Series B,
and ICS Series C are hereby granted by the Company the information rights and
registration rights with respect to their Preferred Stock holdings in ICS as
such holders have with respect to the shares of Preferred Stock of CyberSource.
10.2. McKiernan Transfers. William S. McKiernan ("McKiernan") hereby
agrees that the holders of ICS Series A Interests, ICS Series B and ICS Series C
shall have co-sale and rights of first offer on proposed transfers of shares of
ICS capital stock by McKiernan to the same extent such holders have with respect
to the shares of Preferred Stock of CyberSource.
10.3. Effective Time. Regardless of when executed, this Conveyance
Agreement shall be effective as of 3:30 p.m., Pacific Standard Time (the
"Effective Time"), on December 31, 1997.
10.4. Headings. All article or section headings in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any of the provisions hereof.
10.5. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
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10.6. Integration. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
10.7. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
10.8. Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California.
ARTICLE 11.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES
11.1 Representations and Warranties of CyberSource. CyberSource hereby
represents and warrants to ICS the following:
(a) Neither the execution of this Agreement by CyberSource nor
the consummation of the transactions contemplated hereby which are to be
performed by CyberSource violates the provisions of Section 500 the California
General Corporation Law (the "GCL") as applicable to CyberSource.
(b) All consents and approvals necessary or appropriate for
CyberSource to execute this Agreement and to consummate the transactions
contemplated hereby which are to be performed by CyberSource have been obtained,
except for such consents and approvals the failure of which to obtain would not
result in any material adverse effect on CyberSource or its shareholders; it
being specifically understood that the effect of Sections 502, 503 and 506 of
the GCL are expressly excluded from this representation.
(c) To the best knowledge of CyberSource , the transfer by
CyberSource of its internet commerce services business to ICS as provided in
this Agreement in exchange for stock of ICS qualifies as a Section 351
transaction under the Internal Revenue Code.
11.2 Representations and Warranties of ICS. ICS hereby represents and
warrants to CyberSource the following:
(a) ICS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own and hold its properties, carry on its
business as now conducted and as proposed to be conducted. ICS has the corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated by this Agreement.
(b) The total number of shares of capital stock which ICS is
authorized to issue is forty million (40,000,000), divided into two classes as
follows: thirty million (30,000,000) shares of common stock, $.001 par value per
share (the "Common Stock") and ten million shares of preferred stock. $.001 par
value per share (the "Preferred Stock"). 1,985,520 shares of Preferred Stock
have been designated Series A Preferred Stock (the "Series A Stock"),
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2,500,000 shares of Preferred Stock have been designated Series B Preferred
Stock (the "Series B Stock") and 3,000,000 shares of Preferred Stock have been
designated Series C Preferred Stock (the "Series C Stock"). No such shares will
have been issued by ICS prior to the ICS Stock Issuance. The rights, preferences
and privileges of the Series A Stock, Series B Stock and the Series C Stock will
be as stated in the Certificate of Incorporation of ICS. Except as set forth in
this Agreement, ICS has no obligations as of the date of this Agreement to issue
any shares of its capital stock.
(c) All corporate action on the part of ICS, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of ICS hereunder
and for the authorization, issuance and delivery of the shares of capital stock
to be issued in the ICS Stock Issuance has been taken and this Agreement
constitutes a valid and legally binding agreement of ICS enforceable against ICS
in accordance with its terms, except as limited by (i) bankruptcy or insolvency
laws or (ii) equitable principles or public policy.
(d) The shares to be issued in the ICS Stock Issuance, when
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable. The Board of Directors of ICS has adopted resolutions reserving
the shares of Common Stock to be issued upon conversion of the Series A Stock,
Series B Stock and Series C Stock and when the shares of Common Stock are issued
upon such conversion in accordance with the Certificate of Incorporation of ICS,
such shares will be duly and validly issued, fully paid and nonassessable.
(e) ICS has no assets or liabilities other than those conveyed
pursuant to this Agreement.
11.3 Covenants of ICS. ICS hereby covenants that it will take all
actions reasonably necessary or appropriate to grant and preserve the rights of
the ICS stockholders set forth in Sections 10.1 and 10.2 of this Agreement and
any other rights or duties such stockholders have in their capacity as
CyberSource shareholders, such that the CyberSource shareholders will have
equivalent rights and duties in their capacity as ICS stockholders.
11.4 Beneficiaries of Representations and Warranties. The
representations and warranties of CyberSource and ICS set forth in this Article
11 are expressly made for the benefit of, in addition to the party specified
above, the shareholders and stockholders, as the case may be, of the relevant
entity. CyberSource expressly acknowledges that its shareholders are relying on
these representations and warranties in connection with their approval of this
Agreement and the transactions contemplated hereby. The representations and
warranties set forth in this Article 11 shall expire and be of no further force
and effect as of the close of business on January 30, 1998.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
INTERNET COMMERCE SERVICES
CORPORATION
By: /s/ William S. McKiernan
-------------------------------
/s/ William McKiernan
- ----------------------------
William McKiernan Name: William S. McKiernan
----------------------------
Title: CEO
---------------------------
CYBERSOURCE CORPORATION
By: /s/ William S. McKiernan
-------------------------------
Name: William McKiernan
Title: President and Chief Executive
Officer
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<PAGE>
EXHIBIT A
LIST OF INCLUDED ASSETS
1. All contract, technology license and other rights between
CyberSource and third parties for the operation of the Commerce Services
Business, and other directly related services, including CyberSource's customer
contracts and employment agreements with Commerce Services Business employees,
including specifically those assets and liabilities set forth on the balance
sheet attached hereto as Exhibit B and the schedule of employees and other
assets contained in Appendix I hereto.
2. All technology currently used in the Commerce Services
Business;
3. The portion of the leases for the space occupied by the
Commerce Services Business and the Employees thereof; and
4. All of the employees of CyberSource who are singularly engaged
in the Commerce Services Business.
<PAGE>
EXHIBIT 10.10
AMENDED AND RESTATED
INTER-COMPANY CROSS LICENSE AGREEMENT
This Agreement is entered into as of this 19th day of May, 1998 by and
between Internet Commerce Services Corporation, a Delaware corporation, with its
principal place of business at 550 S. Winchester Boulevard, Suite 300, San Jose,
CA 95128 (hereafter "ICS") and software.net Corporation, a California
corporation previously known as CyberSource Corporation, with its principal
place of business at 3031 Tisch Way, Suite 900, San Jose, CA 95128 (hereafter
"software.net").
RECITALS
A. WHEREAS, the parties entered into that certain Conveyance Agreement
dated December 31, 1997 (hereafter "Conveyance Agreement"), which among other
things, conveyed, transferred and assigned from CyberSource Corporation to
Internet Commerce Services Corporation all intellectual property and other
assets of the "back office" aspects of the internet commerce services business
of CyberSource Corporation; and
B. WHEREAS, in furtherance of the Conveyance Agreement, CyberSource has
executed and recorded with the United States Patent & Trademark Office, that
certain Assignment of Applications of Letters of Patent of the United States
dated March 26, 1998, and that certain Assignment of Marks dated March 26,
1998; and
C. WHEREAS, on or about April 22, 1998, CyberSource Corporation changed
its name to software.net Corporation; and
D. WHEREAS, on or about April 23, 1998, the parties entered into that
certain Inter-Company Cross License Agreement (the "Original Cross-License
Agreement") for the purposes of clarifying the ownership of such intellectual
property which has not been specifically described in the foregoing assignments
and to set forth the terms for the cross licensing of technology, data and
information held by each party; and
E. WHEREAS, the parties now desire to amend the Original Cross License
Agreement for the purposes of clarifying the terms of the Original Cross
License Agreement.
AGREEMENT
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt and sufficiency of which is hereby
acknowledged, the parties agree that the Original Cross License Agreement shall
be amended and restated as follows:
1. DEFINITIONS. The following definitions shall apply to this Agreement
and each of the Schedules attached hereto.
1.1. "Internal use" (with or without capitalization) shall mean
use only by IP Licensee's employees, agents or authorized representatives on
computer systems controlled by IP Licensee.
1.2. "IP Owner" shall mean a party which is the owner of the
particular technology or intellectual property as identified in Section 2
hereunder.
* Further information in this document has been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
1.3. "IP Licensee" shall mean a party which is the licensee for a
particular technology or intellectual property as identified in Section 3
hereunder.
1.4. "Licensed IP" shall mean the particular technology or
intellectual property which is cross licensed under Section 3, herein.
2. OWNERSHIP OF INTELLECTUAL PROPERTY
2.1 software.net acknowledges, agrees and affirms that, as
between software.net and ICS, ICS is the sole and exclusive owner of the
following, and that nothing else was transferred to ICS under the Conveyance
Agreement except for the following:
2.1.1. That SmartCert Technology as described in Schedule
2.1.1, attached hereto (hereafter "SmartCert"), including without limitation,
any and all improvements, enhancements and modifications thereto created and
developed by either or both parties on or before December 31, 1998;
2.1.2. Those certain inventions as described in the patent
applications identified in Schedule 2.1.2, attached hereto ("Patents Pending");
2.1.3. Those certain "back office" technologies and
systems as described in Schedule 2.1.3, attached hereto (hereafter "Backoffice
Systems");
2.1.4. The rights to licenses of software and other
intellectual property acquired from third parties in connection with ICS's
internet commerce operations as described in Schedule 2.1.4, attached hereto
(hereafter "ICS Third Party Software"), subject to any required consents to
assignment which have not been obtained; and
2.1.5. The trademarks and service marks and applications
thereof described in Schedule 2.1.5, attached hereto (hereafter "ICS Trademarks,
Services Marks and Applications Thereof").
2.2. ICS acknowledges, agrees and affirms that as between
software.net and ICS, software.net is the sole and exclusive owner of the
following:
2.2.1. That software known as "Cache Manager", but
excluding the underlying SmartCert Technology, as described in Schedule 2.2.1
attached hereto (hereafter "Cache Manager"), including without limitation any
and all improvements, enhancements and modifications thereto created and
developed by either or both parties on or before December 31, 1998;
2.2.2. That certain database of customer information, as
described in Schedule 2.2.2, attached hereto (hereafter "Customer Database");
2.2.3. That certain software which comprises
software.net's internet software and digital content superstore and related
server engine as described in Schedule 2.2.3, attached hereto (hereafter "Store
Engine");
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2.2.4. The rights to licenses of software and other
intellectual property acquired from third parties in connection with
software.net's operations as described in Schedule 2.2.4, attached hereto
(hereafter "software.net Third Party Software"); and
2.2.5. The trademarks and service marks and applications
thereof described in Schedule 2.2.5, attached hereto (hereafter "software.net
Trademarks, Service Marks and Applications Thereof").
2.3. The parties acknowledge, agree and affirm that the utility
tools set forth in Schedule 2.3, attached hereto (hereafter "Jointly Owned
Utility Tools") are jointly owned by both parties and may be freely used by
either party without accounting to each other.
2.4. Ownership of any other inventions not cited in above
sections 2.1, 2.2 and 2.3, which were made by the parties on or before June 30,
1998 ("Background Inventions") shall be as follows:
2.4.1. If made exclusively by one party, then such
Background Inventions shall be the property of that party.
2.4.2. If made jointly by both parties, then such
Background Inventions shall be jointly owned without accounting to each other.
In the case of a jointly filed patent application, the patent expenses shall be
divided equally between the parties. If either party elects not to file an
application on a joint Background Invention and/or not pay its share of the
expenses thereof, the other party may file at its own expense and shall have
sole control of the prosecution thereof. The party not participating in the
prosecution thereof shall remain liable for its share of the expenses for
prosecution of the application unless it assigns its entire interest in the
Background Invention to the prosecuting party.
2.5. Ownership of improvements, enhancements and modifications
made by the parties after December 31, 1998 and before January 1, 2000 to any of
the technologies and information which are licensed under sections 3.1 and 3.3,
herein (hereafter "Enhancements") shall be treated as follows:
2.5.1. If made exclusively by one party, then such
Enhancements shall be the property of that party.
2.5.2. If made jointly by both parties, then such Enhancements shall
be jointly owned without accounting to each other. In the case of a jointly
filed patent application, the patent expenses shall be divided equally between
the parties. If either party elects not to file an application on a jointly
owned Enhancement and/or not pay its share of the expenses thereof, the other
party may file at its own expense and shall have sole control of the prosecution
thereof. The party not participating in the prosecution thereof shall remain
liable for its share of the expenses for prosecution of the application unless
it assigns its entire interest in the Enhancement to the prosecuting party.
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2.6. Each of the parties agrees to execute, acknowledge, and
deliver as necessary any instruments confirming the ownership by the other in
accordance with this Section 2.
3. CROSS LICENSES.
3.1. SmartCert. ICS hereby grants to software.net, and
software.net accepts, a worldwide, perpetual, irrevocable, royalty-free license
with respect to the SmartCert Technology in object and source code (including
all related user documentation) as follows:
3.1.1. a non-exclusive license for software.net's
internal use only, which license shall also include the right to
reproduce and modify;
3.1.2. a license to modify the SmartCert software for
the purposes of merging it into Cache Manager alone or Cache
Manager in combination with other software (including all
related user documentation) developed, owned or licensed by
software.net and to reproduce and sublicense the merged product
(but not the SmartCert software alone) directly to, and for use
by, enterprises (including without limitation corporations,
partnerships, sole proprietorships and universities) and
governmental agencies, provided:
3.1.2.1. sublicenses of the merged product to
the U.S. Government or other governmental agencies shall
be as "restricted computer software" or "limited rights
data" as set forth in "Rights in Data - General" at 48
CFR 52.227-14, or as "commercial computer software" or
"commercial computer software documentation" under DFARS
252.227-7015, or under such other similar applicable
terms and conditions to prevent the transfer of rights
in and to the technology to the government other than
under normal commercial licensing terms and conditions;
and
3.1.2.2. sublicenses of the merged product shall
not include the right to further sublicense to another
party the merged product;
3.1.3. software.net shall keep the source code for the SmartCert
Technology confidential in accordance with Section 6, below.
3.2. Patents Pending. In the event that letters patent issue from the
Patents Pending, ICS grants to software.net, and software.net accepts, a
worldwide, perpetual, irrevocable, royalty-free, nonexclusive license to
practice any and all methods, systems and other inventions described in said
letters patent with the following conditions:
3.2.1. Such license shall not include the right to sublicense,
except in conjunction with, and only to the extent as necessary to give
effect to, the sublicense of any software, products or technology
licensed by ICS to software.net pursuant to any other license which may
be granted in writing by ICS to software.net, including the license set
forth in above Section 3.1.
3.2.2. Such license shall not in any way convey, grant or
transfer to software.net any right to use any software, technical data
or physical device owned by ICS, including without limitation, the
SmartCert Technology, its object code, source code and related
documentation. Any right to use such software, technical data or
physical device shall be governed by a separate license agreement, or
in the case of the SmartCert Technology, shall be governed by above
section 3.1.
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3.3. Cache Manager. software.net hereby grants to ICS, and ICS accepts,
a non-exclusive, worldwide, perpetual, irrevocable, royalty-free license with
respect to the Cache Manager software in source and object codes (including all
related user documentation) as follows:
3.3.1. such license shall be for ICS's internal use only, and
shall include the right to reproduce and modify the source and object
codes;
3.3.2. such license shall not permit any right to sublicense;
and
3.3.3. ICS shall keep the source code for the Cache Manager
confidential in accordance with Section 6, below.
3.4. Customer Database. software.net hereby grants to ICS, and ICS
accepts, a non-exclusive, worldwide, perpetual, irrevocable, royalty-free
license with respect to the Customer Database as follows:
3.4.1. Customer Database shall be used only as part of the fraud
detection and verification system owned by ICS, including without the
limitation, the IVS system, and shall include the right to reproduce and
modify;
3.4.2. sublicensing of the Customer Database is not permitted
except in conjunction with the sublicensing of ICS's fraud detection and
verification system provided that (i) sublicensees are expressly
prohibited under such sublicenses from using the Customer Data for any
purpose other than for fraud detection and verification utilizing ICS's
fraud detection and verification system, (ii) sublicensees shall not
have access to the raw, human-readable Customer Database, but shall have
only access to the evaluated scores derived from the utilization of the
fraud detection and verification system, (iii) such sublicensees shall
agree under said sublicenses that any such breach of said limitation of
use by sublicensee shall constitute irreparable injury which shall
entitle ICS and software.net to extraordinary remedies, including
without limitation, injunctive relief, and (iv) ICS indemnifies and
holds harmless software.net for any and all damages and losses suffered
by software.net resulting from any breach of said limitation of use by
any of such sublicensees, including without limitation any and all
attorneys' fees and costs to enjoin the unlawful use of the Customer
Data caused by such breach; and
3.4.3. ICS shall keep the Customer Database confidential in
accordance with Section 6, below.
3.5. Background Inventions. If any letters patent should issue on
Background Inventions which are owned exclusively by one party ("Single Owner
Background Patents"), the parties agree as follows:
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3.5.1. The owner of the Single Owner Background Patent
shall grant to the other party a worldwide, perpetual,
irrevocable, royalty-free, nonexclusive license, without the
right to sublicense, to practice any and all methods, systems
and inventions contained in the Single Owner Background Patent;
3.5.2. Such license to practice the Single Owner
Background Patent does not convey in any way to the licensee any
right to use any of the licensor's software, technical data or
physical device in connection with the Single Owner Background
Patent. Such use of the licensor's software, technical data or
physical device shall be governed by a separate license to be
negotiated and agreed to by the parties.
3.6. Relations Back to Date of Conveyance Agreement. Each of the
licenses of the Licensed IP by the IP Owners to the IP Licensees as set forth in
this Agreement shall be effective as of December 31, 1997, the effective date of
the Conveyance Agreement.
4. MOST FAVORED TERMS FOR ENHANCEMENTS. A party owning exclusively a
Enhancement is not required to offer such Enhancement to any entity. However, if
the party owning such Enhancement should offer such Enhancement to any third
party, it shall offer to the other party under this Agreement such Enhancement
under terms and conditions which are at least as favorable to the best terms and
conditions offered to any other third party under similar circumstances. If at
any time more favorable terms and conditions are granted to any third party
pertaining to such Enhancement, the party acting as IP Owner or grantor shall
notify the other party herein and, if the other party so elects, shall be
automatically become entitled to such more favorable terms and conditions.
5. LIMITATION OF WARRANTY. DISCLAIMER OF WARRANTIES. EACH OF THE
TECHNOLOGIES, INFORMATION AND INTELLECTUAL PROPERTIES LICENSED HEREUNDER ARE
PROVIDED "AS IS" WITH ALL FAULTS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES.
THE ENTIRE RISK AS TO SATISFACTORY QUALITY, PERFORMANCE, ACCURACY, AND EFFORT IS
WITH THE IP LICENSEE. THIS DISCLAIMER OF WARRANTY EXTENDS TO THE RESPECTIVE IP
LICENSEES AND IP LICENSEE'S CUSTOMERS AND END-USERS AND IS IN LIEU OF ALL
WARRANTIES AND CONDITIONS WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, TITLE AND
NONINFRINGEMENT WITH RESPECT TO THE LICENSED TECHNOLOGIES AND INTELLECTUAL
PROPERTIES.
6. CONFIDENTIALITY. The Customer Database, the Patents Pending,
Backoffice Systems and the source code for SmartCert, Cache Manager and the
Store Engine and all documentation and information designated by the party
disclosing the information (the "Disclosing Party") as proprietary and
confidential, including without limitation drawings, computer program listings,
techniques, algorithms and processes and technical and marketing information
which are supplied by the Disclosing Party in connection with this Agreement or
which have been treated by either of the parties heretofore as proprietary and
confidential (the foregoing shall be collectively referred to hereafter as
"Confidential Information") shall be
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treated confidentially by the recipient of Confidential Information
("Recipient") and its employees, and shall not be disclosed by the
Recipient without Disclosing Party's prior written consent. Each party
shall have an appropriate agreement with each of its employees having
access to the Confidential Information sufficient to enable the party to
comply with all terms of this Agreement. Each party agrees to protect
the Confidential Information with the same (but in no case less than
reasonable) standard of care and procedures it uses to protect its own
trade secrets and proprietary information.
7. INDEMNITY.
7.1. Each IP Licensee shall indemnify and hold harmless the IP
Owner for any and all third party claims based on the IP Licensee's usage of the
Licensed IP, excluding any third party claim based on a claim that Licensed IP
infringes the third party's patent, copyright, trademark or other proprietary
right.
7.2. The indemnities set forth in sections section 3.4.2 and 7.1,
above, will not apply to the extent the party claiming the indemnification was
responsible for giving rise to the matter upon which the claim for
indemnification is based and will not apply unless the party claiming
indemnification promptly notifies the other of any matters in respect of which
the indemnity may apply and of which the notifying party has knowledge and gives
the other full opportunity to control the response thereto and the defense
thereof, including without limitation any agreement relating to the settlement
thereof.
8. LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY FOR PERSONAL INJURY AND
PHYSICAL PROPERTY DAMAGE, THE INDEMNITY PROVISIONS OF SECTION 3.4.2, ABOVE, AND
A BREACH OF THE CONFIDENTIALITY PROVISIONS OF SECTION 6, ABOVE, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, PUNITIVE, EXEMPLARY, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES
ARISING FROM BREACH OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT
LIABILITY), OR FOR INTERRUPTED COMMUNICATIONS, LOST DATA, LOST PROFITS, LOST
SAVINGS, OR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES ARISING OUT
OF OR RESULTING FROM THIS AGREEMENT, EVEN IF THE PARTY HAD BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. MARKINGS. In conjunction with the licenses granted herein, the
respective IP Licensee shall agree to place such markings, notices and legends
as requested by the IP Owner for purposes of preservation of rights under
patent, copyright, trademark or other proprietary rights.
10. TERMINATION. Any IP Licensee may terminate its license for the
applicable Licensed IP by giving written notice and returning to the IP Owner
all copies of the Licensed IP in its possession. All sublicenses and licenses,
if any, granted by the IP Licensee as permitted under the terms of this
Agreement shall continue under their own terms.
11. GENERAL
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11.1. Governing Law. This Agreement shall be governed and
interpreted by the laws of the State of California, excluding its conflict of
laws provisions. The parties agree that any action brought for any dispute
between the parties relating to this Agreement shall take place in, and the
parties consent to jurisdiction of, the Superior Court for the County of Santa
Clara or the United States District Court for the Northern California District
in San Jose, California.
11.2. Irreparable Injury. The parties agree that a violation or
breach of Sections 3, 4, 6 and 9, herein, will result in irreparable injury and
agree that such provisions shall be specifically enforced by the injured party.
11.3. Severability; Waiver. If any provision of this Agreement is
held to be invalid or unenforceable for any reason, the remaining provisions
will continue in full force without being impaired or invalidated in any way.
The parties agree to replace any invalid provision with a valid provision which
most closely approximates the intent and economic effect of the invalid
provision. The waiver by either party of a breach of any provision of this
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
11.4. Headings. Headings used in this Agreement are for reference
purposes only and in no way define, limit, construe or describe the scope or
extent of such section or in any way affect this Agreement.
11.5. Successors and Assigns. This Agreement, and the licenses
herein granted, will inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, but will not be assigned by
either party, except to a wholly-owned subsidiary or to a party acquiring
substantially all of its business and assuming all of its obligations and
liabilities, without the written consent of the other party. In the event of any
assignment, the transferor or assignor will remain obligated to perform its own
obligations and, in addition, will be jointly liable for the proper performance
of the obligations of the transferee or assignee pursuant to this Agreement.
11.6. Notice. Any notices required or permitted hereunder shall
be given to the appropriate party at the address specified above or at such
other address as the party shall specify in writing. Such notice shall be deemed
given: upon personal delivery; if sent by telephone facsimile, upon confirmation
of receipt; if sent by electronic mail, upon confirmation of receipt; or if sent
by certified or registered mail, postage prepaid, five (5) days after the date
of mailing.
11.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
11.8. Entire Agreement. This Agreement, including any exhibits
attached hereto, and the Conveyance Agreement sets forth the entire
understanding and agreement of the parties and supersedes any and all oral or
written agreements or understandings between the parties, including without
limitation the Original Cross License Agreement, as to the subject matter of
this Agreement. It may be changed only by a writing signed by both parties.
Neither party is relying upon any warranties, representations, assurances or
inducements not expressly set forth herein.
-8-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have executed this
Agreement as of the date first written above.
SOFTWARE.NET CORPORATION: INTERNET COMMERCE SERVICES
CORPORATION:
By: /s/ Jim Lussier By: /s/ W.S. McKiernan
------------------------------- -----------------------------
Title: V.P., Business Operations Title: President & CEO
---------------------------- --------------------------
Fax: 415-241-8258 Fax: 408-241-8270
---------------------------- ----------------------------
E Mail: [email protected] E Mail: [email protected]
--------------------------- -------------------------
-9-
<PAGE>
SCHEDULE 2.1.1
SMARTCERT TECHNOLOGY
All right, title, interest, and benefit (including to make, use, or sell
under patent law; to copy, adapt, distribute, display, perform, transmit and
access under copyright law; and to use and disclose under trade secret law) in
and to all United States and foreign patents and patent applications, patent
license rights, patentable inventions, trade secrets, trademarks, service marks,
trade names (including, in the case of trademarks, service marks and trade
names, all goodwill appertaining thereto), copyrights, technology licenses,
know-how, confidential information, shop rights, and all other intellectual
property rights owned or claimed in the following:
That certain software program, in object code and source code,
called SmartCert by the parties, which program is used to deliver
products electronically together with marketing and promotional
information. Such program, among other things, tracks the
transmission of electronically distributed software and has
features which enables interrupted downloads to be resumed
without reloading the entire product.
<PAGE>
SCHEDULE 2.1.2
PATENTS PENDING
[*] which has been recorded with the United States Patent & Trademark
Office, all right, title and interest (including without limitation, all
divisional, continuing, substitute, renewal and reissue applications thereof) in
and to the following applications pending with the United States Patent &
Trademark Office:
<TABLE>
<CAPTION>
TITLE
FILING DATE APPLICATION NO.
- ----------- ----------------
<S> <C>
[*] [*]
[*]
[*] [*]
[*]
[*] [*]
[*]
</TABLE>
* Further information on this page has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
SCHEDULE 2.1.3
BACK OFFICE SYSTEMS
All right, title and interest in those backoffice software systems which
are operated by ICS as of the date of this Agreement, except as otherwise
specified in Section 2.2 of this Agreement, including without limitation:
1. Payment processing system
2. IVS system
3. Export and territory management system
4. Fulfillment house notification system
5. Rights management system
6. Global rights registry (old LCH) database system
7. US sales tax calculation system
8. IBM/SMS NetTrade Finance system for international currency payment
processing
9. VAT calculation system
10. Digital warehouse for storing and downloading digital products like
software
11. Simple Commerce Messaging Protocol (SCMP) client libraries and
related server libraries and functions
12. Digital Commerce Component (DCC), an SCMP implementation over
Windows NT for Microsoft Site Server
13. Payment processing software for direct connection to FUSA and other
processors
14. SmartReg web site and associated images, scripts and server
components
15. www.cybersource.com web site and associated images, scripts, server
components and worldwide registered use of name
16. www.esdmap.org web site and associated images, scripts, server
components and worldwide registered use of name
17. CommerceFLEX and all components
18. CommerceEZ and all related components
<PAGE>
19. The EDI message and transaction processing systems and
infrastructure
20. The Thin Server framework and application concepts
-2-
<PAGE>
SCHEDULE 2.1.5
ICS TRADEMARKS, SERVICE MARKS AND APPLICATIONS THEREOF
A. Subject to the Assignment of Marks dated March 26, 1998, all right,
title and interest in and to the following trademarks, service marks and
applications thereof, together with all goodwill appertaining thereto:
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO REGISTRATION NO.
- ------------------ ----------------------
<S> <C>
CYBERSOURCE 2,006,769
UNITED STATES MARK USPTO APPLICATION SERIAL NO.
- ------------------ ----------------------------
CYBERSOURCE 75/411012
IVS 75/310542
COMMERCEEZ 75/240894
COMMERCEFLEX 75/240895
SMARTCERT 75/417912
</TABLE>
B. All right, title and interest in and to the following trademarks,
service marks and applications thereof, together with all goodwill appertaining
thereto:
<TABLE>
<CAPTION>
INTERNATIONAL MARK
APPLICATION NO. COUNTRY
- ------------------ ------- -------
<S> <C> <C>
CYBERSOURCE European Union (CTM)
000678391
CYBERSOURCE Canada
0869935
SMARTCERT European Union (CTM)
000728253
SMARTCERT Canada
0869936
</TABLE>
<PAGE>
SCHEDULE 2.1.5
ICS TRADEMARKS, SERVICE MARKS AND APPLICATIONS THEREOF
A. Subject to the Assignment of Marks dated March 26, 1998, all right,
title and interest in and to the following trademarks, service marks and
applications thereof, together with all goodwill appertaining thereto:
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO REGISTRATION NO.
- ------------------ ----------------------
<S> <C>
CYBERSOURCE 2,006,769
UNITED STATES MARK USPTO APPLICATION SERIAL NO.
- ------------------ ----------------------------
CYBERSOURCE 75/411012
IVS 75/310542
COMMERCEEZ 75/240894
COMMERCEFLEX 75/240895
SMARTCERT 75/417912
</TABLE>
B. All right, title and interest in and to the following trademarks,
service marks and applications thereof, together with all goodwill appertaining
thereto:
<TABLE>
<CAPTION>
INTERNATIONAL MARK
APPLICATION NO. COUNTRY
- ------------------ ------- -------
<S> <C> <C>
CYBERSOURCE European Union (CTM)
000678391
CYBERSOURCE Canada
0869935
SMARTCERT European Union (CTM)
000728253
SMARTCERT Canada
0869936
</TABLE>
<PAGE>
SCHEDULE 2.2.1
CACHE MANAGER
All right, title, interest, and benefit (including to make, use, or sell
under patent law; to copy, adapt, distribute, display, perform, transmit and
access under copyright law; and to use and disclose under trade secret law) in
and to all United States and foreign patents and patent applications, patent
license rights, patentable inventions, trade secrets, trademarks, service marks,
trade names (including, in the case of trademarks, service marks and trade
names, all goodwill appertaining thereto), copyrights, technology licenses,
know-how, confidential information, shop rights, and all other intellectual
property rights owned or claimed in the following (excluding the SmartCert
Technology, which is owned by ICS):
That software, in object code and source code, called Cache
Manager by the parties, which works in conjunction with the
SmartCert software to enable a cache of downloaded software at
locations inside a customer's firewall. Cache Manager enables the
distribution of caches of software to locations within an
enterprise, ensuring a large enterprise that the current release
of software programs is available to staff with minimal
management intervention.
<PAGE>
SCHEDULE 2.2.2
CUSTOMER DATABASE
All right, title and interest in the information gathered by software.net
related to its customers and which information has been used by ICS in its fraud
detection and verification system as of April 23, 1998.
<PAGE>
SCHEDULE 2.2.3
THE STORE ENGINE
All right, title and interest in the software and digital content
superstore software systems (the "Store Engine" systems) which are operated by
software.net as of the date of this Agreement, except as otherwise specified in
Section 2.1 of this Agreement, including without limitation:
The computer software, in object code and source code, which is
based on a distributed transaction processing model that runs the
entire software.net site, excluding any ownership rights to
software that is licensed by ICS or third parties to
software.net.
Any and all software (source and object) related to the webpages
produced by either or both parties since its inception
appertaining to the software.net URL.
<PAGE>
SCHEDULE 2.2.4
SOFTWARE.NET THIRD PARTY SOFTWARE
All rights to the licenses from third parties for products which are
used by software.net in its operations, including without limitation:
1. Netscape web servers
2. Any and all operating system and development tools software
licensed for machines owned by software.net
3. All software licensed from Microsoft under the internal use
agreement between Microsoft and software.net
4. Such other business applications resident on systems owned by
software.net
5. Solomon accounting software
6. Quickbooks accounting software
<PAGE>
SCHEDULE 2.2.5
SOFTWARE.NET TRADEMARKS, SERVICE MARKS AND APPLICATIONS THEREOF
All right, title and interest in and to the following trademarks,
service marks and applications thereof, together with all goodwill appertaining
thereto:
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO SERIAL NO.
- ------------------ ----------------
<S> <C>
SOFTWARE.NET 74/565186
SOFTWARE.NET plus DESIGN 75/304973
SOFTWARE TV 75/371655
DIGITAL GEAR 75/442168
</TABLE>
<PAGE>
SCHEDULE 2.3
JOINTLY OWNED UTILITY TOOLS
Any and all internally written tools to monitor the correct operation of
web servers, routers and other network equipment created by either or both
parties on or before the date of this Agreement.
<PAGE>
EXHIBIT 10.11
INTERNET COMMERCE SERVICES AGREEMENT
This Internet Commerce Services Agreement (the "Agreement") is entered
into as of April 23rd 1998 between Internet Commerce Services Corporation, a
California corporation ("ICS"), and software.net, a California corporation (the
"Customer").
The Customer desires to obtain and ICS is willing to supply certain
electronic commerce support services on the terms and subject to the conditions
set forth in this Agreement.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, ICS and the Customer hereby agree as follows:
1. The Internet Commerce Services.
(a) ICS will provide the Customer with the Internet Commerce Services set forth
on Annex 1 to this Agreement (the "Services"). Customer will remit to ICS
the setup fee set forth in Annex 2 upon execution of this Agreement.
(b) ICS will deliver to Customer an invoice for fixed monthly subscription fees
and non-fixed monthly transaction fees relating to the Services in the
amounts set forth on Annex 2 to this Agreement on the [first (1st)]
business day of each month following the month in which the Services are
provided (the "ICS Invoice"). Customer will remit the amounts due under the
ICS Invoice on or before the thirtieth (30th) day of the month following
the month in which the Services are provided.
(c) Interest shall accrue on any unpaid fees owed by the Customer to ICS
pursuant to this Section 1 at the lower of 1.5% per month or the maximum
amount permitted by applicable law.
(d) ICS shall be entitled to revise any and all of the aforesaid monthly fees
in respect of any Additional Term (as defined in Section 2 of this
Agreement) provided that ICS gives notice to the Customer on or before the
sixtieth (60th) day (including non-business days) prior to the commencement
of any such Additional Term.
2. Term and Termination.
(a) The initial term of this Agreement shall be one (1) year from the date
hereof. Thereafter this Agreement will renew automatically for additional
terms of one (1) year (each such term hereinafter an "Additional Term")
unless (i) Customer gives written notice of termination to ICS of not less
than thirty (30) calendar days, or (ii) ICS gives notice to Customer of not
less than sixty (60) calendar days, prior to any such renewal that the
Agreement shall not so renew.
(b) The Agreement may be terminated by either party at any time in the event of
a material breach by the other party which remains uncured after thirty
(30) day written notice thereof. The parties acknowledge that non-payment
of fees constitutes a material breach of this Agreement. Failure on the
part of ICS to operate at less than 98% availability over any two week
period shall constitute material breach of this Agreement.
* Further information in this document has been omitted and filed separately
with the Securities and Exchange Commission
<PAGE>
(c) The Agreement may be terminated by Software.net in the event ICS fails to:
(i) operate at less than 98% availability over any two week period (ii)
demonstrate good faith efforts to provide 15 second transaction response
time commencing after the date of implementing direct payment processing
capability.
(d) In the event that ICS reasonably believes that Customer's conduct or
Customer's products or their contents violate applicable law, injure the
reputation of ICS, or pose a threat to ICS's systems, equipment, processes,
or Intellectual Property Rights (as defined in Section 12 of this
Agreement), ICS may discontinue providing the Services.
(e) The Agreement may be terminated be either party effective immediately and
without any requirement of notice, in the event that (i) the other party by
files a petition in bankruptcy, files a petition seeking any
reorganization, arrangement, composition, or similar relief under any law
regarding insolvency or relief for debtors, or makes an assignment for the
benefit of creditors; (ii) a receiver, trustee, or similar officer is
appointed for the business or property of such party; (iii) any involuntary
petition or proceeding under bankruptcy or insolvency laws is instituted
against such party and not stayed, enjoined, or discharged within sixty
(60) days; or (iv) the other party adopts a resolution for discontinuance
of its business or for dissolution.
3. Intellectual Property Rights.
Except to the extent set forth in Annex 2 of this Agreement, neither
party will acquire any ownership interest in the other's Intellectual Property
Rights. All Intellectual Property Rights not specifically granted in this
Agreement are reserved by the parties. The Customer agrees that all
Intellectual Property Rights created by ICS in connection with this Agreement
and all the documentation therefor and all renewals and extensions thereof,
shall be entirely ICS's property, free of any claims whatsoever by the
Customer. ICS shall have the sole and exclusive right to register such
Intellectual Property Rights.
4. Confidential Information.
(a) Each party acknowledges and agrees that any Confidential information
received from the other party will be the sole and exclusive property of
the other party and may not be used or disclosed except as necessary to
perform the obligations required under this Agreement.
(b) Upon termination of this Agreement, each party shall promptly return all
information, documents, manuals and other materials belonging to the other
party except as otherwise provided in this Agreement.
5. Promotional Materials/Press Release.
Each party shall submit to the other for approval (which approval
shall not be unreasonably withheld), marketing, advertising, press releases, and
other promotional materials related to the Services and referencing, as the
case may be, the Customer or ICS; provided, however, that each shall be
permitted to disclose the existence of the Agreement without the consent of the
other.
<PAGE>
6. Limitation of Liability.
(a) UNDER NO CIRCUMSTANCES SHALL (i) EITHER PARTY BE LIABLE TO THE OTHER PARTY
OR ANY THIRD PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES), ARISING FROM THE USE OR INABILITY TO USE THE SERVICES OR
ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS, COSTS OF DELAY, ANY
FAILURE OF DELIVERY, COSTS OF LOST OR DAMAGED DATA OR DOCUMENTATION, OR
LIABILITIES TO THIRD PARTIES ARISING FROM ANY SOURCE OR (ii) ICS BE LIABLE
TO THE CUSTOMER OR ANY THIRD PARTY FOR ANY DAMAGES ARISING OUT OF THE
SERVICES OR OTHERWISE ARISING OUT OF THIS AGREEMENT IN EXCESS OF THE AMOUNT
OF FEES ACTUALLY PAID TO ICS BY THE CUSTOMER PURSUANT TO SECTION 1 OF THIS
AGREEMENT.
(b) THE CUSTOMER SHALL BEAR (i) ALL COLLECTION RISK (INCLUDING, WITHOUT
LIMITATION, CREDIT CARD FRAUD AND ANY OTHER TYPE OF CREDIT FRAUD) WITH
RESPECT TO SALES OF ITS PRODUCTS AND (ii) ALL RESPONSIBILITY AND LIABILITY
FOR THE PROPER PAYMENT OF ALL TAXES WHICH MAY BE LEVIED OR ASSESSED
(INCLUDING, WITHOUT LIMITATION, SALES TAXES) WHICH MAY BE LEVIED IN RESPECT
OF SALES OF ITS OR ITS CUSTOMERS' PRODUCTS.
(c) Except as set forth in the Annexes to this Agreement, the Customer is
solely responsible for maintaining complete backup records of all
information relating to its customers' orders, inquiries and purchases and
any other customer information once such information has been provided to
the Customer by ICS.
(d) ICS has no obligation to attempt to monitor or regulate the content of the
Products and Customer agrees to hold ICS harmless in the event that the
content of any of the Products is illegal. The Customer hereby represents
and warrants to ICS that the Products do not infringe on or violate the
Intellectual Property Rights of any third party and will not contain any
content which violates any applicable law, regulation or third party right.
7. No Additional Warranties.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ICS HEREBY
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE SERVICES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
8. Relationship of Parties.
The parties shall perform all of their duties under this Agreement as
independent contractors. Nothing in this Agreement shall be construed to give
either party the power to direct or control the daily activities of the other
party, or the constitute the parties as principal and agent, employer and
employee, franchisor and franchisee, partners, joint venturers, co-owners, or
otherwise as participants in a joint undertaking. The parties understand and
agree that, except as specifically provided in this Agreement, neither party
grants the other party the power or authority to make or give any agreement,
statement, representation, warranty, or other commitment on behalf of the other
party, or to enter into any contract or otherwise incur any liability or
obligation, express or implied, on behalf of the other party; or to transfer,
release, or waive any right, title, or interest of
<PAGE>
such other party.
9. Entire Agreement.
This Agreement (including the Annexes hereto) constitutes and contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any prior oral or written agreements. Each party acknowledges
and agrees that the other has not made any representations, warranties or
agreements of any kind, except as expressly set forth herein.
10. Modifications, Amendments, and Waivers.
This Agreement may not be modified or amended, including by custom, usage
of trade, or course of dealing, except by an instrument in writing signed by
duly authorized officers of both of the parties hereto.
11. Counterparts.
This Agreement may be executed in counterparts each of which shall be
deemed an original and all such counterparts shall constitute one and the same
agreement.
12. Certain Definitions.
The following definitions shall apply to this Agreement and each of the
Annexes to this Agreement.
"Confidential Information" Any data or information, oral or written,
treated as confidential that relates to either party's (or, if either party is
bound to protect the confidentiality of any third party's information, such
third party's) past, present, or future research, development or business
activities, including any unannounced product(s) and service(s), any information
relating to services, developments, inventions, processes, plans, financial
information, forecasts, and projections and the financial terms of this
Agreement. Notwithstanding the foregoing, Confidential Information shall not be
deemed to include information if: (i) it was already known to the receiving
party prior to the date of this Agreement as established by documentary
evidence; (ii) it is in or has entered the public domain through no breach of
this Agreement or other wrongful act of the receiving party; (iii) it has been
rightfully received by the receiving party from a third party and without breach
of any obligation of confidentiality of such third party to the owner of the
Confidential Information; (iv) it has been approved for release by written
authorization of the owner of the Confidential Information; (v) demographic,
product purchasing data or similar market analysis information derived by ICS
from the information described in the preceding sentence; or (v) it is required
to be disclosed pursuant to final binding order of a governmental agency or
court of competent jurisdiction, provided that the owner of the Confidential
Information has been given reasonable notice of the pendency of such an order
and the opportunity to contest it.
"Intellectual Property Rights." All (a) copyrights (including, without
<PAGE>
limitation, the exclusive right to reproduce, distribute copies of, display and
perform the copyrighted work and to prepare derivative works), copyright
registrations and applications, trademark rights (including, without limitation,
registrations and applications), patent rights, trade names, mask-work rights,
trade secrets, moral rights, author's rights, algorithms, rights in packaging,
goodwill and other intellectual property rights, and all renewals and extensions
thereof, regardless of whether any of such rights arise under the laws of the
United States or any other state, country or jurisdiction; (b) intangible legal
rights or interests evidenced by or embodied in any idea, design, concept,
technique, invention, discovery, enhancement or improvement, regardless of
patentability, but including patents, patent applications, trade secrets, and
know-how; and (c) all derivatives of any of the foregoing.
"Products" Those products and/or services of the Customer in respect of
which the Services will be utilized.
13. Export Screening.
In completing the Services ICS will use reasonable efforts to (i) obtain
the credit card statement mailing address in addition to all other information
supplied by the prospective customers and their browsers, (ii) deny shipments
to any countries to which exports are prohibited by United States law, and
(iii) deny shipments to parties listed on the United States list of Specially
Designated Nationals or the Table of Denial Orders.
14. Governmental Law; Consent to Jurisdiction.
This Agreement will be deemed entered into in California and will be
governed by and interpreted in accordance with the laws of the State of
California, excluding (i) that body of law known as conflicts of law, and (ii)
the United Nations Convention on Contracts for the Sale of Goods. The parties
agree that any dispute arising under this Agreement will be resolved in the
state or federal courts in Santa Clara County, California, and the parties
hereby expressly consent to jurisdiction therein.
15. Assignment.
This Agreement may not be transferred or assigned by either party other
than by operation of law or to either party's lenders for collateral security
purposes, without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Any attempt by either party to assign any
of its rights or delegate any of its duties hereunder without the prior written
consent of the other party shall be null and void.
16. Survival.
The provisions of this Agreement relating to payment of any fees or other
amounts owed, payment of any interest on unpaid fees, confidentiality and
warranties and indemnities shall survive any termination or expiration of this
Agreement.
17. Headings.
The headings in this Agreement are intended for convenience of reference
and shall not affect its interpretation.
<PAGE>
18. Force Majeure.
Neither party shall be responsible for delays or failures in performance
resulting from acts beyond its control, such as acts of God, acts of war,
computer viruses, epidemics, power outages, fire, earthquakes and other
disasters.
19. Notices.
Any notice, approval, request, authorization, direction or other
communication under this Agreement shall be given in writing at the address set
forth below and shall be deemed to have been delivered and given for all
purposes (i) on the delivery date it delivered personally to the party to whom
the same is directed; (ii) one (1) business day after deposit with a commercial
overnight carrier, with written verification of receipt, and (iii) upon
completion of transmission if sent via telecopier with an confirmation of
successful transmission.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ICS CORPORATION
550 S. Winchester Boulevard, Suite 301
San Jose, CA 95128-2545
(408)556-9100 Fax: (408)241-8270
Attn: GREGORY T. QUINN
--------------------------------
Phone: 408-260-6091
-------------------------------
By: /s/ GREGORY T. QUINN
---------------------------------
(signature of authorized ICS
employee)
Name:
CUSTOMER:
Software.net 3031 Tisch Way
- - -------------------------------------
San Jose, CA 95328
- - -------------------------------------
Attn: John Pettitt
--------------------------------
Phone: 408-490-3011
-------------------------------
Fax:
---------------------------------
By: /s/ JOHN PETTITT
----------------------------------
(signature of authorized employee)
Name: John Pettitt
--------------------------------
(print)
Title: LTO
-------------------------------
<PAGE>
ANNEX 1
INTERNET COMMERCE SERVICES
MERCHANT SETUP AND ACTIVATION
Activation Fees: See Software.net pricing schedule Annex 2
This section describes the specific Merchant setup deliverables for Internet
Commerce Services.
INTERNET COMMERCE SERVICES CORPORATION (ICS) SCMP ACCESS SOFTWARE
1. Access to download the SCMP libraries or the appropriate plugin and
documentation.
2. Single run time license for the merchant to issue commerce transactions
using SCMP libraries, scripts and programs.
SUPPORT, TESTING AND ACTIVATION
1. Setup of single SCMP client merchant account in the ICS system to access the
ICS Commerce servers.
2. Setup of public/private key pairs for the merchant.
3. Support during initial testing of ICS transactions on the ICS test server.
The ICS test server is used to validate operation of the SCMP client
merchant account with the ICS ICS servers and validate a proper return
result message from ICS. A test server is available 7x24. There is no charge
for test transactions.
4. Setup of customer support screens to use ICS Customer support interface.
Setup and testing of customer support interface.
5. Testing of credit card merchant account with a Technical Support
representative to validate proper communication with the bank and payment
processors.
IMPORTANT-Establishing the credit card merchant account is the
responsibility of merchant. ICS has relationships with many different
merchant banks and credit card service providers. A referral can be
provided as requested.
6. Full-cycle system testing to verify ability of complete system to process a
transaction from the start to finish. Availability to test will be
configured within two business days from request. Merchant notifies its
assigned Technical Support Representative via email and requests being moved
to the production servers. ICS updates its database and clears out all test
<PAGE>
transactions in order to begin billing. At that point, ICS considers the
merchant "live" and all transactions are billable.
7. Technical Support phone support time is covered under this agreement for up
to sixty (60) days from the signing of the agreement. Additional time is
available if required. See Annex 2 for pricing.
NOTE: The Technical Support time is dedicated to helping the merchant do all
the proper testing prior to going public. Tech support will not help with code
development, business rules, or any other requests that are outside the scope
of setting up a merchant to use our services. Should a merchant require other
services, ICS will gladly recommend a systems Integrator.
MERCHANT SERVICES MONTHLY SUBSCRIPTION FEE
1. Maintenance of account to access the specific ICS services
DIGITAL COMMERCE TRANSACTIONS
TRANSACTIONS FEES: See Software.net pricing schedule Annex 2
AVAILABLE SERVICES: The following services are available in response to
each transaction request from the Merchant.
1. RISK MANAGEMENT AND TERRITORY MANAGEMENT SERVICES
(a) IVS(TM) Fraud Screen-In addition to real-time bank validation, every
transaction is checked, analyzed, and cross-checked by over 150 operations
for assessment of fraud risk. A score is applied based on the findings and
the resulting score is then returned via an SCMP message to the merchant for
an accept or decline order decision.
(b) US Government Export Compliance-Each transaction is checked and analyzed to
comply with the restricted countries list and the restricted individual
parties list from the United States State Department and Treasury
Department.
<PAGE>
(c) Territory Management - Each transaction is checked against the Merchant's
pre-defined territory restrictions. This enables the Merchant to set rules
that disallow sales to specific countries in order to keep a stable price
model or honor special distribution agreements within a country.
2. DIGITAL PRODUCTS DELIVERY SERVICES
(a) Digital Product Managed Download - ICS will dynamically generate a URL for
downloading purchased digital products from the ICS BOB servers. IMPORTANT
- Before requesting this service, you will need to register your digital
products with ICS and host them on the ICS download servers.
(b) Issue Key - Pay First model - ICS will dynamically build an Electronic
License Certificate (ELC) with the end-users information and rights to the
product and send that ELC directly to the end-user. If the merchant selects
one of the other offered technologies, ICS will issue the appropriate unlock
key based on the merchants selected technology. See the appropriate product
data sheet for the specifics of how the key is generated and delivered.
Credit Card pre-authorization.
<PAGE>
(c) Issue Key - Try before you buy (TBYB) model - ICS will issue the appropriate
unlock key based on the merchants selected TBYB technology. See the
appropriate product data sheet for the specifics of how the key is
generated and delivered.
(d) Rights Revocation - Return Key/ELC - ICS will accept a return key/ELC
request from the merchant. In the case of an GRR issued ELC, the request
will need to be followed by a Letter of Destruction (LOD) signed by the
end user sent to the Merchant before the return will be reported to the IP
owner.
3. DIGITAL PRODUCT PACKAGING AND WAREHOUSING
(a) Digital Delivery Preparation Options - ICS will digitally "package" each
product with the merchant's selected packaging technology (See Annex 2 for
available packaging options). This includes digitally preparing the gold
master code into Bag of Bits (BOB), testing of the unpack process for
complete file decryption, and initialization of the install process. ICS
will turnaround a prepared digital product within 7 working days from
receipt of golden master and all information required for packing and
distribution. Rush charges may apply for requested shorter turnaround (see
Annex 2).
COMMERCIAL SERVICES AND PHYSICAL FULFILLMENT TRANSACTIONS
Transactions Fees: See Software.net pricing schedule Annex 2
AVAILABLE SERVICES:
1. PAYMENT PROCESSING
(a) Credit Card pre-authorization - (this includes the banks Address
Verification Service (AVS) if available). Bank confirmation that the card
is a valid number and has the appropriate amount of funds for the
transaction. AVS checks the billing address provided matches the billing
address on record with the bank.
(b) Credit Card settlement (Bill) - billing and posting of pre-authorized
funds to merchant account.
(c) Credit/Return - process a credit to the credit card holder's account.
Merchants can credit a transaction that has already been billed in the
event of a product return.
2. SALES TAX PROCESSING
(a) Tax Calculation - Use of Vertex tax tables for calculation of sales tax. ICS
will calculate tax based on the merchant defined nexus and product category
selections, ICS will return the tax value as a separate line item in the
SCMP name/value pair format. ICS will also provide tax as a separate line
item in the daily and monthly reports. IMPORTANT - it is the responsibility
of the merchant to capture and store this tax data in their own database
systems for proper reporting and filing of taxes. ICS does not provide any
special tax reports.
<PAGE>
3. FULFILLMENT HOUSE MESSAGING
a) Ship order message to Fulfillment house - ICS will send a ship product
message to a Fulfillment House for pick, pack and ship of an order. ICS
supports a standard message. Merchant can select the desired delivery
methods: email, PGP email, SCMP, or EDI messaging. If Merchant wishes
Fulfillment House to process card settlement for merchant after the order
has been shipped, the message sent from ICS to the Fulfillment house must
be encrypted to protect customer's credit card data. Some of the noted
options may require additional setup charges (see Annex 2). Set-up of the
Fulfillment House must be completed prior to transacting business at the
site.
4. STANDARD REPORTING FROM MERCHANT SERVICES CONSISTS OF THE FOLLOWING:
- Reports: 1 daily; 1 monthly.
- Formats: std. ASCII text tab delimited.
- Reports are sent as email attachments.
The reports will consist of a Tab delimited file containing full
information on all attempted orders. Important - these reports are NOT
intended for individual service transaction reconciliation (e.g.,
IVS score, ics bill). They are order level details of all order
processed through ICS.
<PAGE>
ANNEX 2: U.S. PRICE LIST FOR SOFTWARE.NET 4/22/98
<TABLE>
<CAPTION>
<S>
<C>
Internet Commerce Services Corporation (ICS)
CommerceFLEX Implementation (SCMP)
[*]
Merchant Set-up & Activation (additional TIDs)
Transaction Pricing (see attached for listing of services and exclusions)
Global Rights Registry Services
[*]
Intellectual Property Rights Management
Required for all IP Owners utilizing Global Rights Registry Services. Covers
property rights management services for 50 SKU's. Secure, global, rights
registration, property rights protection, record retention (24 months following
date of registration), and quarterly rights reporting. Includes property rights
protection services to prevent unauthorized access; and secure record storage
on redundant servers, geographically located to comply with don protection
regulations. Digital warehousing of associated digital content and maintenance
of SKU archive for 24 months following date of last request is provided at no
additional charge.
</TABLE>
*Further information on this page has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
Intellectual Property Registration & Preparation
[*]
Sm@rtCert
Sm@rtCert Auto-Registration
Registration of one SmartCert SKU, any associated content, and processing for
distribution. IP Owner manages all registration via online form. IP Owner
may modify the SmartCert and associated content within 30 days of initial
registration without additional charge. Changes subsequent to 30 days will be
treated as a new registration. SmartCerts not requiring validation (such as
promotional SmartCerts) are considered final when released for registration;
any modification is considered a new registration.
Fees are billable monthly, based on annual committed registration volume.
[*]
ICS Assisted Sm@rtCert Registration
[*]
Registration of one SmartCert SKU and any associated content and processing for
distribution. Customer supplies ICS with physical master and graphics. ICS
handles administration. IP Owner may modify the SmartCert and associated content
within 30 days of initial registration without additional charge. Charges
subsequent to 30 days will be treated as a new registration. SmartCerts not
requiring validation (such as promotional SmartCerts) are considered final when
released for registration; any modification is considered a new registration.
Portland Software v1.5 Preparation & Registration
[*]
Includes all services necessary to brand the product, conduct QA procedures on
the branding process, and prepare it for distribution. Once tested, the
preparation and registration process is considered complete. Normal turnaround
96 hrs M-F. Guarantee 48 hr delivery M-F, add $200 to packing fee.
Packing Maintenance Services
1 year maintenance for 2 additional re-packs
1 year maintenance for 4 additional re-packs
Preview TimeLOCK v3.0 Preparation & Registration
[*]
TimeLOCK 3.0 - Distribution Ready Client Build
This option completely builds and brands a product for distribution. Customer
may purchase the builder tool from Preview or ICS. If customer has already
'built' product, only the registration fee is applies. Optionally, the customer
may have ICS provide the labor to build the product. Guarantee 48hr delivery,
add $350
TimeLOCK 3.0 - Channel Branding
[*]
This option brands a product for distribution previously registered by a
publisher with the Global Rights Registry. Customer may purchase the branding
tool from Preview or ICS. Customer may have ICS provide the labor to brand the
product. Guarantee 48hr delivery, add $350.
Rights Revocation Services
[*]
Rights Revocation
Includes processing Letters of Destruction (digitally submitted only) and
adjustment of all records to revoke rights in the event of returns or requests
for revocation.
- - --------------------
(c) 1998 ICS Corporation, Prices subject to change without notice.
* Further information on this page has been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
TRANSACTION SERVICES
ADDENDUM TO SOFTWARE.NET PRICE LIST 4/22/98
<TABLE>
<CAPTION>
<S>
<C>
BUNDLED TRANSACTION PRICING
Bundled Transaction Pricing
[*]
Risk Management & Distribution Control Services
[*]
IVS(TM) Fraud Protection Services
Territory Management
DIGITAL RIGHTS ISSUANCE, VALIDATION, AND DIGITAL DELIVERY SERVICES
SM@RTCERT
Sm@rtCert Issuance and Validation
Fee charged for each valid access request, not to exceed number of rights
issued on certificate. Includes issuance, U.S. Government export compliance and
2 year proof of purchase retention.
Promotional Sm@rtCert Issuance
Issuance of promotional SmartCerts. e.g. those not requiring validation after
issuance.
PORTLAND SOFTWARE v1.5 digital unlock key delivery
[*]
includes U.S. Government export compliance and Portland Software unlock key
PREVIEW SOFTWARE v3.01 digital unlock key delivery
includes U.S. Government export compliance, credit card pre-authorization and
settlement, IVS, sales tax calculation, and Preview Software unlock key
SECURE DIGITAL PRODUCT DELIVERY
includes successful download guarantee, 2 year reissue guarantee, U.S.
Government export compliance
COMMERCIAL SERVICES
[*]
Tax Calculation
PAYMENT PROCESSING
[*]
Credit card pre-authorization
Credit card settlement (bill)
Credit/return
FULFILLMENT MESSAGING
Ship order notification to 3rd party fulfillment house (email)
EDI to trading partners currently established as of 4/1/98
ADDITIONAL SERVICES NOT INCLUDED IN BUNDLED PRICE
CREDIT CARD RETURN
[*]
AUTOMATED LICENSE/RIGHTS CANCELLATION
CUSTOM FULFILLMENT MESSAGING
PGP key exchange set-up
[*]
EDI or custom message setup
(applies to trading partners not currently supported as of 4/1/98 or used
expressly to support software.net business)
</TABLE>
*Further information on this page has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
Amendment No. One to
Internet Commerce Services Agreement
As Between Internet Commerce Services Corporation
And software.net Corporation
Dated April 23, 1998
This Amendment No. One (hereafter "Amendment") to the Internet Commerce
Services Agreement as between Internet Commerce Services Corporation and
software.net Corporation dated April 23, 1998 (the "Services Agreement") is
hereby entered into as between Internet Commerce Services Corporation ("ICS")
and software.net Corporation ("software.net" or "Customer").
WITNESSETH:
WHEREAS the parties did enter into the Services Agreement, which under its
terms was made effective as of April 23, 1998.
WHEREAS the parties now wish to amend the above-mentioned Services
Agreement to include certain mutual intellectual property infringement
indemnification.
WHEREFORE, the parties agree to amend the Services Agreement as follows:
AMENDMENT
1. Intellectual Property Indemnification by software.net. The parties
agree to add the following to the end of section 6(d) of the Services Agreement:
"Notwithstanding any provisions to the contrary in this Agreement,
Customer will defend, at its expense, any claim, suit or action ("Claims
against ICS") brought against ICS resulting from the breach of the
representations and warranties contained in this subsection 6(d), and Customer
further agrees to pay all damages and costs finally awarded against ICS
attributable to any such Claim against ICS and all amounts paid in settlement
of any such Claim against ICS; provided that Customer shall have sole control
of the defense and settlement of any such Claim against ICS, and further
provided that ICS notifies Customer promptly in writing of such Claim against
ICS and gives Customer all authority, information and assistance, at Customer's
expense, reasonably necessary to settle or defend such Claim against ICS.
Customer's indemnification liability under this section 6(d) shall not exceed
$100,000."
<PAGE>
2. Intellectual Property Indemnification by ICS. The parties agree to
add a new section 6(e) to the Services Agreement as follows:
"(e) Notwithstanding any provisions to the contrary in this
Agreement, ICS will defend, at its expense, any claim, suit or action ("Claim
against Customer") brought against Customer based upon an allegation that the
Services or the use of any software provided by ICS in connection with the
Services infringe any patent, copyright, trademark, trade secret or other
intellectual property right of any third party, and ICS further agrees to pay
all damages and costs finally awarded against Customer attributable to any such
Claim against Customer and all amounts paid in settlement of any such Claim
against Customer; provided that ICS shall have sole control of the defense and
settlement of any such Claim against Customer, and further provided that
Customer notifies ICS promptly in writing of such Claim against Customer and
gives ICS all authority, information and assistance, at ICS's expense,
reasonably necessary to settle or defend such Claim against Customer. ICS's
indemnification liability under this section 6(e) shall not exceed $100,000."
3. The parties further agree that the effective date of the Services
Agreement shall be as of December 31, 1997.
4. Except as expressly set forth herein, all other terms of the Services
Agreement shall remain in full force and effect.
5. This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized representatives.
Date: May 20, 1998 Internet Commerce Services Corporation
By: /s/ [ILLEGIBLE]
------------------------------------
Its: EXECUTIVE VICE PRESIDENT
------------------------------------
Date: May 20, 1998 software.net Corporation
By: /s/ [ILLEGIBLE]
------------------------------------
Its: VICE PRESIDENT, BUSINESS OPERATIONS
------------------------------------
<PAGE>
Amendment No. Two to
Internet Commerce Services Agreement
As Between Internet Commerce Services Corporation
And software.net Corporation
Dated April 23, 1998
This Amendment No. Two (hereafter "Amendment") to the Internet Commerce
Services Agreement as between Internet Commerce Services Corporation and
software.net Corporation dated April 23, 1998 (the "Services Agreement") is
hereby entered into as between Internet Commerce Services Corporation ("ICS")
and software.net Corporation ("software.net" or "Customer").
WITNESSETH:
WHEREAS the parties did enter into the Services Agreement, which under its
terms was made effective as of April 23, 1998.
WHEREAS the parties did enter into Amendment No. 1 to amend the
above-mentioned Services Agreement to include certain mutual intellectual
property infringement indemnifications and to make the Services Agreement
effective as of December 31, 1997.
WHEREAS the parties desire to clarify the Amendment No. 1 to indicate that
the parties agreed that the commencement date for the initial one-year term of
the Services Agreement shall be the same as the effective date of the Services
Agreement, that is, December 31, 1997.
WHEREFORE, the parties agree to amend the Services Agreement as follows:
AMENDMENT
1. Notwithstanding any provisions to the contrary in the Services
Agreement and amendments thereof, the parties agree that the commencement date
for the initial one-year term of the Services Agreement and the effective date
of the Services Agreement shall be December 31, 1997.
2. Except as expressly set forth herein, all other terms of the Services
Agreement and amendments thereof shall remain in full force and effect.
3. This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives.
Date: May 21, 1998 Internet Commerce Services Corporation
By: /s/ SIGNATURE
-----------------------------------
Its: Executive Vice President
-----------------------------------
Date: May 21, 1998 software.net Corporation
By: /s/ SIGNATURE
-----------------------------------
Its: Vice President, Business Operations
-----------------------------------
<PAGE>
EXHIBIT 10.12
CYBERSOURCE CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
made as of the 21st day of October, 1998, by and among CyberSource Corporation,
a Delaware corporation (formerly Internet Commerce Services Corporation, the
"Company"), William S. McKiernan ("McKiernan") (solely with respect to Sections
1.1-1.17, 2.6, and 2.7 hereof) and the Company A Holders, Company B Holders,
Company C Holders, Company D Holders and Company E Holders, each as defined
below.
RECITALS
WHEREAS, the Company and CyberSource Corporation, a California corporation
("CyberSource"), are parties to that certain Conveyance Agreement (the
"Conveyance Agreement") dated December 31, 1997;
WHEREAS, in consideration of the transfer of the Assets (as defined in the
Conveyance Agreement) of CyberSource to the Company, the Company agreed to (x)
assume, perform and fully discharge all of the Liabilities (as defined in the
Conveyance Agreement) of CyberSource, and (y) issue (the "Initial Company Stock
Issuance") to (i) the holders of the Series A Preferred Stock of CyberSource
("CyberSource A Holders"), 1,985,520 shares of the Series A Preferred Stock of
the Company ("Company Series A," and each holder thereof, a "Company A Holder"),
(ii) the holders of the Series B Preferred Stock of CyberSource ("CyberSource B
Holders"), 2,037,038 shares of Series B Preferred Stock of the Company ("Company
Series B," and each holder thereof, a "Company B Holder"), (iii) the holders of
the Series C Preferred Stock of CyberSource ("CyberSource C Holders,"
collectively with the CyberSource A Holders and CyberSource B Holders, the
"CyberSource Preferred Holders", and each a "CyberSource Preferred Holder"),
3,000,000 shares of Series C Preferred Stock of the Company ("Company Series C,"
and each holder thereof, a "Company C Holder"), and to the holders of the
CyberSource Common Stock ("CyberSource Common Holders"), 9,070,000 shares of the
common stock of the Company ("Common Stock" and each holder thereof, a "Company
Common Holder"), with each such issuance to be on a same percentage basis with
respect to each stockholder's stockholdings in CyberSource and with the same
preferential characteristics for the Company's preferred stockholders as those
which existed for the CyberSource stockholders;
WHEREAS, in connection with its entry into the Conveyance Agreement and the
Initial Company Stock Issuance, the Company agreed to provide (in addition to
the preferential characteristics set forth in the Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate")) to the Company A
Holders, Company B Holders and Company C Holders (collectively, with the Company
D Holders and Company E Holders as defined below, the "Company Preferred
Holders") certain stockholders' rights commensurate with stockholders' rights of
the CyberSource Preferred Holders;
1
<PAGE>
WHEREAS, in connection with the closing of that certain Series D Preferred
Stock Purchase Agreement dated as of March 18, 1998, the Company issued
1,851,850 shares of Series D Preferred Stock (the "Company Series D") to various
purchasers (each a "Company D Holder");
WHEREAS, in connection with (i) the closing of that certain Series E
Preferred Stock Purchase Agreement (or Agreements, as described therein)
contemporaneously with the execution of this Agreement, the Company will issue
up to approximately 11,049,724 shares of Series E Preferred Stock to various
purchasers (the "Purchasers"), and (ii) the entering into certain strategic
alliance agreements, the Company will issue warrants to purchase Series E
Preferred Stock (such shares described in (i) and (ii), the "Company Series E")
to certain of the Purchasers (collectively, with the Purchasers, the "Company E
Holders," and each, a "Company E Holder") and the Company and all Company
Preferred Holders desire to memorialize certain rights of the Company Preferred
Holders as set forth herein; and
WHEREAS, this Agreement sets forth the agreement between the Company and
the Company Preferred Holders with respect to the stockholder's rights to be
granted to the Company Preferred Holders by the Company.
AGREEMENT
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the Company and Company Preferred Holders covenant and
agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Company Series A, Company Series
B, Company Series C, Company Series D and Company Series E (including all
shares of Company Series E issued after the date hereof) (collectively, the
"Company Preferred Shares"), (ii) all Common Stock owned by McKiernan (or
transferred by McKiernan to his ancestors, descendants or spouse or to
trusts for the benefit of such persons) (the "McKiernan Common Stock"),
(iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a stock split, a dividend or other distribution with respect to,
or in exchange for or in replacement of, such Company Preferred Shares,
excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his registration rights are not assigned,
and (iv) all shares of Common Stock which the Company Preferred Holders and
their permitted assignees may hereafter purchase (or shares of Common Stock
issuable
2
<PAGE>
upon exercise or conversion of securities hereafter purchased) pursuant to
their rights of first refusal or otherwise.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to the exercisable or convertible securities which are exercisable
or convertible into, Registrable Securities.
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(e) The term "Securities Act" means the Securities Act of 1933,
as amended.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive (i) at any time following the
first to occur of December 31, 2001 or the date that is six (6) months
after the date of consummation of the Company's sale of its Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act (a "Qualifying IPO") a
written request from Holders holding at least fifty percent (50%) of the
Registrable Securities then outstanding (the "First Initiating Holders")
that the Company file a registration statement under the Securities Act
covering the registration in an underwritten public offering of the sale of
Registrable Securities then outstanding having an anticipated aggregate
offering price, net of underwriting discounts and commissions, equal to or
more than $5,000,000 (the "Initial Demand Registration"); or (ii) at any
time after the consummation of the Initial Demand Registration, a written
request from Holders holding at least twenty five percent (25%) of the
Registrable Securities then outstanding (the "Second Initiating Holders")
that the Company file a registration statement under the Securities Act
covering the registration in an underwritten public offering of the sale of
at least 25% of the Registrable Securities then outstanding having an
anticipated aggregate offering price, net of underwriting discounts and
commissions, equal to or more than $1,000,000 (the "Second Demand
Registration"); or (iii) at any time after the consummation of the Second
Demand Registration a written request from Holders holding at least fifty
percent (50%) of the Registrable Securities then outstanding (the "Third
Initiating Holders" collectively with the First Initiating Holders and the
Second Initiating Holders, the "Initiating Holders") that the Company file
a registration statement under the Securities Act covering the registration
in an underwritten public offering of the sale of at least 50% of the
Registrable Securities then outstanding having an anticipated aggregate
offering price, net of underwriting discounts and commissions, equal to or
more than $1,000,000, then the Company shall, within twenty-one (21) days
of the receipt thereof, give written notice of such request to all Holders,
and shall, subject to the limitations of subsection 1.2(b), file as soon as
practicable a registration statement under the Securities Act covering all
Registrable Securities which
3
<PAGE>
the Holders request to be registered within twenty (20) days of the mailing
of such notice by the Company in accordance with Section 3.5.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action to effect any such registration pursuant to
this Section 1.2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, unless the Company is
already subject to service in such jurisdiction and except as may
be required by the Securities Act; or
(ii) if the Company shall have initiated three (3)
registrations pursuant to this Section 1.2 and the applicable
registration statement has been declared effective by the SEC and
remained effective until the earlier of (A) such time as all of
the Registrable Securities included by the Holders in such
registration have been sold or disposed of by them or (B) the
expiration of the period described in Section 1.4(a). In
addition, a request for registration shall not be deemed to
constitute a registration for purposes of this subparagraph if:
(I) the conditions to closing specified in the purchase agreement
or underwriting agreement entered into in connection with such
registration are not satisfied other than by reason of some act
or omission by the Holders requesting such registration; (II) the
Company voluntarily takes any action that would result in the
Holder not being able to sell such Registrable Securities covered
thereby during the period during which the registration statement
must be kept effective; or (III) if, after it has become
effective, such registration becomes subject to any stop order,
injunction or other order or requirement of the SEC or other
governmental agency or court and such order, injunction or
requirement is not promptly withdrawn or lifted, and such
registration has not otherwise remained effective for the
relevant period (including effective periods both before and
after the order, injunction or requirement is made or imposed).
(c) Subject to the foregoing paragraph 1.2(b), the Company shall
file a registration statement as soon as possible after receipt of the
request or requests of the Initiating Holders under this Section 1.2;
provided, however, that if the Company shall furnish to such Initiating
Holders within sixty (60) days of receipt of such request a certificate
signed by the President of the Company stating that in the good faith
judgment of the Board of Directors of the Company (as evidenced by a board
resolution) it would be significantly detrimental to the Company and its
stockholders for such registration statement to be filed on or before the
date filing would be required and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to
defer such filing to a date not later than one hundred twenty (120) days
after receipt of such request, provided that the Company will not exercise
this right more than once in any twelve-month period.
4
<PAGE>
(d) The underwriting shall be managed by an underwriter or
underwriters of national reputation selected by the Initiating Holders,
which selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld. The right of any Holder to
registration pursuant to Section 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting. The Company shall
(together with all Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected as above provided.
Notwithstanding any other provision of this Section 1.2, if the
underwriters advise the Initiating Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten and that the total amount of securities that all Holders
(initiating and non-initiating) request pursuant to this Section 1.2(d) to
be included in such offering exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the
offering, the Company shall so advise all Holders and all of the shares to
be included in the registration shall be allocated among all Holders
requesting inclusion (initiating and non-initiating) pro rata according to
the total amount of securities entitled to be included in such registration
owned by each Holder requesting inclusion (initiating or non-initiating) or
in such other proportions as shall be mutually agreed by such selling
stockholders; provided, however, that in the event of such an allocation
McKiernan may not include more than twenty percent (20%) of the shares to
be included in such registration statement by all selling stockholders (but
in no event greater than McKiernan's pro-rata portion of such allocation)
without the consent of the holders of the majority of the shares requesting
inclusion in the registration. For the purposes of this Section 1.2(d) and
Section 1.8 of this Agreement, the language in such sections referring to
McKiernan's right to participate as a selling stockholder at the twenty
percent (20%) level means that all Common Stock owned by McKiernan (or
transferred by McKiernan to his ancestors, descendants or spouse or to
trusts for the benefit of such persons) (the "McKiernan Shares") included
in such a registration, whether held by McKiernan or a transferee of
McKiernan, shall be counted against such twenty percent (20%) limit. In
addition, the language in Section 1.2(d) and Section 1.8 referring to the
ability of the holders of a majority of the shares requesting inclusion in
a registration to waive such twenty percent (20%) limit means that only the
holders of a majority of such shares, calculated without regard to any
McKiernan Shares, may effect such a waiver.
If any person does not agree to the terms of any such underwriting, he
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 be withdrawn from such registration.
If shares are so withdrawn from the registration, 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 pro rata according to the total amount of securities
entitled to be included in such registration owned by each such person or
in such other proportions as shall be mutually agreed by such selling
stockholders.
5
<PAGE>
1.3 Company Registration. If (but without any obligation to do so)
--------------------
at any time after the date hereof the Company proposes to register (including
for this purpose a registration effected by the Company for stockholders other
than the Holders of Registrable Securities except a registration in which the
Holders have the right to include Registrable Securities under Section 1.2) any
of its stock or other securities under the Securities Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, or a registration relating to shares to be issued in connection with the
acquisition of another company, or a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities),
the Company shall, at such time, promptly give each Holder of Registrable
Securities written notice of such registration. Upon the written request of
each Holder of Registrable Securities given within twenty (20) days after the
effectiveness of such notice by the Company in accordance with Section 3.5, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Securities Act all of the Registrable Securities that each such Holder
of Registrable Securities has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (but in no event later than
one hundred twenty (120) days after the initial request for registration),
and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement
effective for up to one hundred twenty (120) days, plus a period equal to
any period during which the Holders are prohibited from making sales
because of any stop order, injunction or other order or requirement of the
SEC or any other governmental agency or court or a period during which the
happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference
untrue or misleading in any material respect until a curative amendment or
supplement is filed and furnished to the Holders; provided, however, that
-------- -------
before filing a registration statement or prospectus or any amendments or
supplements thereto (including documents that would be incorporated or
deemed to be incorporated therein by reference) the Company will furnish to
the Holders of the Registrable Securities covered by such registration and,
the underwriters, and any attorney, accountant or other agent retained by
the Holders of Registrable Securities covered by such registration
statement or underwriters copies of all such documents proposed to be
filed, which documents will be subject to the review and timely comment of
such Holders, such counsel and underwriters, if any, and the Company will
not file any registration statement or any amendment thereto or any
prospectus or any supplement thereto filed in connection with a
registration pursuant to Section 1.2 (including such documents incorporated
by reference and proposed to be filed after the initial filing of the
registration statement) to which the Holders of a majority of the
Registrable Securities covered by such registration statement or the
underwriters, if any, shall reasonably and timely object.
6
<PAGE>
(b) Prepare and file with the SEC 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 to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus and all amendments and
supplements thereto, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as shall be reasonably requested by the
Holders of Registrable Securities, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions; and
(e) Enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of
such offering. Each Holder of Registrable Securities participating in such
underwriting shall also enter into and perform its obligations under such
an agreement.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 that
the selling Holders of Registrable Securities shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements (not to exceed $35,000) of one counsel for the
selling Holders shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders (initiating and non-
initiating) holding a majority of the Registrable Securities to be registered
(in which case all participating Holders shall bear such expenses), unless the
Holders of at least 66-2/3% of the Registrable Securities agree to forfeit their
right to initiate one demand registration pursuant to Section 1.2. (provided
that if immediately prior to the time of such withdrawal, the Holders have
learned of a materially adverse change in the condition, business or prospects
of the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any such expenses and shall retain
their rights pursuant to Section 1.2).
7
<PAGE>
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel (not to exceed $35,000)
for the selling Holders selected by them, but excluding underwriting discounts
and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
Registrable Securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in an offering (other than a registration effected
pursuant to Section 1.2) exceeds the amount of securities sold other than by the
Company that the underwriters reasonably believe compatible with the success of
the offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders). The underwriters, pursuant to the
preceding sentence, may completely exclude the Holder's Registrable Securities
from such underwriting if no other selling stockholders' securities are so
included.
If any person does not agree to the terms of any such underwriting, he 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 be withdrawn from such registration. If shares are so
withdrawn from the registration, 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 pro rata according to the total amount
of securities entitled to be included in such registration owned by each such
person or in such other proportions as shall be mutually agreed by such selling
stockholders.
For purposes of the immediately preceding parenthetical concerning
apportionment, for any selling stockholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners, and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder," and
any pro rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
8
<PAGE>
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless: (i) each Holder, the officers, directors, agents,
partners and legal counsel of each Holder of Registrable Securities, and
(ii) each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the officers, directors, agents, partners and legal
counsel of such control person, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, rule or
regulation insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a
"Violation"): (A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (C) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act,
any state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer, agent, director, partner,
legal counsel, underwriter or controlling person of each Holder and each
officer, director, agent, partner and legal counsel of each such
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided,
however, that the indemnity agreement contained in this subsection 1.10(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 shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it primarily arises out of
or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, officer, partner,
director, agent, legal counsel or controlling person.
(b) To the extent permitted by law, each selling Holder will,
severally but not jointly, indemnity and hold harmless (i) the Company;
each of its officers, directors, agents, partners and legal counsel; and
(ii) each person, if any, who controls the Company within the meaning of
the Securities Act and the officers, directors, agents, partners and legal
counsel of such control person, and any other Holder selling securities in
such registration statement or any of such other Holder's officers,
directors, agents, partners, legal counsel or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any officer, director,
9
<PAGE>
agent, partner, legal counsel, or controlling person, or other such Holder
or director, officer, legal counsel or controlling person of such other
Holder may become subject, under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions. in respect thereto) primarily arise out of or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any officer,
director, agent, partner, legal counsel, controlling person, other Holder,
or officer, director, agent,, partner, legal counsel or controlling person
of such other Holder in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided. however, that the
indemnity agreement contained in this subsection 1.10(b) 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 Holder
(which consent shall not be unreasonably withheld) and provided further
----------------
that in no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the proceeds (net of the
payment of underwriting discounts and commissions payable by such selling
Holder) received by any such selling Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain
its own counsel at its own expense if it so desires. Notwithstanding the
foregoing, if the indemnified party and the indemnifying party have
conflicting interests with respect to the action so that joint counsel for
them would be inappropriate, (as determined by counsel to the indemnified
party and counsel to the indemnifying party), then the indemnifying party
shall pay reasonable fees and expenses of one counsel to the indemnified
party. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if it
materially adversely effects the ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party
under this Section 1.10, but the omission to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.10. No
indemnifying party, in the defense of any such action, shall, except with
the consent of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from liability in respect of such action.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party, then, except to
10
<PAGE>
the extent that contribution is not permitted under Section 11(f) of the
Securities Act, each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party 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. The parties hereto
agree that it would not be just and equitable if contribution pursuant to
this Section 1.10(d) were determined by pro rata allocation or by any other
--------
method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 1.10(d), no indemnifying
party that is a selling Holder shall be required to contribute any amount
in excess of the amount by which the net proceeds received by such selling
Holder from the sale of Registrable Securities exceeds the amount of any
damages that such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission.
Notwithstanding anything to the contrary herein, no party shall be liable
for contribution under this Section 1.10(d) except to the extent and under
the circumstances as such party would have been liable to indemnify under
Section 1.10(a) or Section 1.10(b), as the case may be, if such
indemnification were enforceable under applicable law. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The indemnity and
contribution agreements contained in this Section 1.10 are in addition to
any liability that the indemnifying parties may have to the indemnified
parties.
(e) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Exchange Act. With a view to making available to
--------------------------
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by
the Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company), the Securities Act
and the Exchange Act (at any time after it has become subject to such
11
<PAGE>
reporting requirements), and (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so
filed by the Company.
1.12. Form S-3 Registration. In case the Company shall receive
---------------------
written request or requests from Holders owning a majority of the Registrable
Securities then outstanding, that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within 20 days after effectiveness of such written
notice from the Company pursuant to Section 3.5 hereof; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 1. 12: (i) if Form S-3
is not available for such offering by the Holders; (ii) if 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) at an aggregate price to the public of
less than $1,000,000; (iii) if the Company shall furnish to the 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 and its stockholders for such
Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under this
Section 1.12; provided, however, that the Company shall not utilize this
right more than once in any 12 month period; (iv) if the Company within the
twelve month period preceding the date of such request, already has
effected two registrations on Form S-3 for the Holders pursuant to this
Section 1.12, or (v) if the Company has completed a Qualifying IPO within
the preceding one hundred eighty (180) days, or (vi) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders. All expenses, other
than underwriting discounts and commissions, incurred in connection with
requested pursuant to Section 1.12, including (without limitation) all
other registration, filing, qualification, printer's and accounting fees
shall be borne by the Company,
12
<PAGE>
including up to $35,000 of reasonable fees and disbursement for one counsel
for the selling Holders.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned by a Holder to a transferee or assignee who (i) is not a competitor of
the Company and acquires at least fifty thousand (50,000) shares (as adjusted
for stock splits, combinations, etc.) of Registrable Securities, (ii) is a
Holder as defined hereunder, or (iii) is a partner or equity holder or an
affiliate of a Holder (or a third party duly authorized to act on behalf of a
Holder or its partners or equity holders), provided that such partner or equity
holder or affiliate has appointed such Holder (or such duly authorized third
party) as its lawful attorney-in-fact to receive notices, vote and otherwise
make binding decisions under the terms of this Section 1; provided, in each
case, the Company is, within thirty days of such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.
1.14 "Market Stand-Off" Agreement. Each Holder of Registrable
----------------------------
Securities hereby agrees that it shall not, to the extent requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
sell or otherwise transfer or dispose of any securities of the Company (other
than securities registered in the offering) during a reasonable and customary
period of time (not to exceed one hundred twenty (120) days), as agreed to by
the Company and the underwriters, following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however,
that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers shares (or securities)
to be sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company, holders of 5% or
more of the Company's issued and outstanding capital stock and all other
persons with registration rights (whether or not pursuant to this
Agreement) similarly agree not to sell or transfer.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such reasonable and customary period.
1.15 Amendment of Registration Rights. Any provision of this Section
--------------------------------
1 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of at least 66-2/3% of the
Registrable Securities. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding (including securities into which
such securities are convertible), each future holder of all such securities, and
the Company.
13
<PAGE>
1.16 Rights that May be Granted to Subsequent Investors.
--------------------------------------------------
(a) Within the limitations prescribed by this paragraph (a), but
not otherwise, the Company may grant to subsequent investors in the Company
rights of incidental registration (such as those provided in Section 1.3).
Such rights may only pertain to shares of Common Stock, including shares of
Common Stock into which any other securities may be converted. Such rights
may be granted with respect to (i) registrations actually requested by
Initiating Holders pursuant to Section 1.2, but only in respect of that
portion of any such registration as remains after inclusion of all
Registrable Securities requested by Holders and (ii) registrations
initiated by the Company, but only in respect of that portion of such
registration as is available under the limitations set forth in Section 1.8
(which limitations shall apply pro-rata to all Holders) and such rights
shall be limited in all cases to sharing pro-rata in the available portion
of the registration in question with Holders, such sharing to be based on
the number of shares of Common Stock held by the respective Holders and
held by such other investors, plus the number of shares of Common Stock
into which other securities held by the Holders and such other investors
are convertible, which are entitled to registration rights. With respect
to registrations which are for underwritten public offerings, "available
portion" shall mean the portion of the underwritten shares which is
available as specified in clauses (i) and (ii) of the third sentence of
this paragraph (a). Shares not included in such underwriting shall not be
registered.
(b) The Company may not grant to subsequent investors in the
Company rights of registration upon request (such as those provided in
Section 1.2) unless (i) such rights are limited to shares of Common Stock,
(ii) all Holders are given enforceable contractual rights to participate in
registrations requested by such subsequent investors on a pro-rata basis
with such subsequent investors such participation to be on a pro-rata
basis, and subject to the limitations, described in the final three
sentences of paragraph (a) of this Section 1.16, (iii) such rights shall
not become effective prior to one hundred eighty (180) days after the
effective date of the first registration pursuant to Section 1.2 and (iv)
such rights shall not be more favorable than those granted to the Holders.
1.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 1 shall terminate with respect to each Holder of
Registrable Securities on the earlier to occur of (i) five years from the date
of consummation a Qualifying IPO or (ii) such time as such Holder is eligible to
sell all of its Registrable Securities pursuant to Rule 144 (other than pursuant
to Rule 144(k)) under the Securities Act in a single three (3) month period
provided that the Company has been continually subject to the reporting
requirements of the Exchange Act for at least two years immediately prior to the
time of such sale.
2. Covenants.
---------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Company Preferred Holder for as long as such Company Preferred Holder
(together with its affiliates) holds not less than 100,000 Preferred Shares (or
Common Stock into which such
14
<PAGE>
Preferred Shares have been converted), as adjusted for stock splits, stock
dividends, reclassifications and similar events:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company as of
the end of such year, and a cash flow statement, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP") audited by independent public
accountants of recognized national standing; and
(b) within forty-five (45) days of the end of each quarter, a
statement of operations, cash flow analysis and balance sheet for and as of
the end of such quarter, in reasonable detail; such quarterly statements
shall also compare actual performance to budget and to the prior year's
comparable period.
2.2 Inspections. On a quarterly basis, the Company shall permit each
-----------
Company Preferred Holder or its authorized representatives, at such Company
Preferred Holder's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its senior management at reasonable times as may be
requested by the Company Preferred Holder; provided, however, that the Company
shall not be obligated pursuant to this Section 2.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
2.3 Director Elected by Holders of Series C and Series D Preferred
--------------------------------------------------------------
Stock. The Company C Holders and the Company D Holders together shall consult
- -----
with the Company with respect to any director elected from time to time by the
Company C Holders and the Company D Holders and will make reasonable efforts to
elect a director reasonably acceptable to the Company; provided that any Senior
Officer of Global Retail Partners shall be acceptable to the Company.
2.4 Termination of Covenants. The covenants set forth in Section 2.1
------------------------
and 2.2 shall terminate and be of no further force or effect upon the
consummation of a Qualifying IPO or the Company first becomes subject to the
periodic reporting requirements of section 13(a) or 15(d) of the Exchange Act,
whichever event shall first occur.
2.5 Insurance. The Company shall keep and maintain in full force and
---------
effect (i) fire and casualty insurance policies, with extended coverage,
reasonably sufficient in amount to allow it to replace any of its properties
that might be damaged or destroyed and (ii) general liability insurance in
amounts customary for entities in similar business and at a similar stage of
development.
2.6 Co-Sale Rights. McKiernan agrees that during the period ending
--------------
on the consummation of a Qualifying IPO or immediately after the closing of the
sale or merger of the Company (where the Company is not the surviving entity or
where there otherwise is a change of control), he will not sell any shares of
Common Stock of the Company owned by him (the "McKiernan Common Stock") without
notifying the Company Preferred Holders twenty (20) or
15
<PAGE>
more days prior to the closing of such sale and permitting the Company Preferred
Holders to participate (through the sale of shares of Common Stock) in such sale
on a pro-rata basis. A Preferred Holders' pro-rata share shall be that number of
shares of stock equal to the product obtained by multiplying the aggregate
number of shares proposed to be sold in such transaction by a fraction, the
numerator of which is the number of shares of Common Stock then owned by such
Preferred Holder (on as as-converted basis), and the denominator of which is the
total number of shares of Common Stock then owned by McKiernan and the Company
Preferred Holders (on an as-converted basis). Each Company Preferred Holder must
notify McKiernan in writing that such Company Preferred Holder will participate
in such sale (and sell such Company Preferred Holder's shares of Common Stock in
strict accordance with the terms and conditions of such sale as described in the
notice) on or before ten (10) business days before the anticipated closing of
such sale, or such Company Preferred Holder will have no right to participate in
such sale. This Section 2.6 shall not pertain to any transfers by McKiernan to
his ancestors, descendants or spouse or to trusts for the benefit of such
persons, or any bona fide gift by McKiernan to such persons; provided, however,
any shares of McKiernan Common Stock transferred in a transaction described in
this sentence shall continue to be subject to the same co-sale obligations set
forth in this Section 2.6 as if McKiernan continued to own such shares.
2.7 Rights of First Offer on Transfers by McKiernan. McKiernan
-----------------------------------------------
agrees that during the period ending on the consummation of a Qualifying IPO or
immediately after the closing of the sale or merger of the Company (where the
Company is not the surviving entity or where there otherwise is a change of
control), he will not sell any shares of McKiernan Common Stock without
notifying the Company Preferred Holders twenty (20) or more days prior to the
closing of such sale and granting such Company Preferred Holders the right to
purchase all (but not less than all) such McKiernan Common Stock. Each Company
Preferred Holder may purchase his or its pro rata share of such McKiernan Common
Stock on the same terms and conditions as McKiernan is offering such McKiernan
Common Stock to other persons. A Preferred Holders' pro-rata share shall be
that number of shares of stock equal to the product obtained by multiplying the
aggregate number of shares proposed to be sold in such transaction by a
fraction, the numerator of which is the number of shares of Common Stock then
owned by such Preferred Holder (on as as-converted basis), and the denominator
of which is the total number of shares of Common Stock then owned by the Company
Preferred Holders (on an as-converted basis). Prior to any sale by McKiernan of
any McKiernan Common Stock subject to this right of first offer, McKiernan shall
notify the Company Preferred Holders, in writing, of his intention to sell such
McKiernan Common Stock, setting forth the terms under which he proposes to make
such sale. Within ten (10) days after receipt of such notice, each Company
Preferred Holder shall notify McKiernan as to whether he or it desires to
purchase any or all of his or its pro rata share of such McKiernan Common Stock
for the price and on the general terms specified in the notice. In the event
any Company Preferred Holder elects not to purchase his or its pro rata share of
such McKiernan Common Stock, the remaining Company Preferred Holders shall have
the right to purchase their pro rata share of such available shares on the terms
described above. McKiernan shall promptly notify the remaining Company
Preferred Holders of the shares available for purchase ("Remaining McKiernan
Shares"). If, within ten (10) days after McKiernan gives his aforesaid notice,
the Company Preferred Holders have not notified McKiernan that they desire to
purchase the Remaining McKiernan Shares upon the terms and conditions set forth
in such notice
16
<PAGE>
(in the event such shares are over subscribed each Company Preferred Holder will
be entitled to purchase on a pro-rata basis), McKiernan may, during a period of
one hundred twenty (120) days following the end of such ten (10) day period,
sell such McKiernan Shares at a price and upon terms and conditions no more
favorable to such purchasers than those set forth in such notice, subject to
compliance with the Co-Sale rights of the Company Preferred Holders set forth in
Section 2.6 hereof. If the Company Preferred Holders elect to purchase all of
the McKiernan Common Stock offered, the Company Preferred Holders so purchasing
shall pay for the McKiernan Common Stock by a wire transfer of immediately
available funds or in accordance with the notice against delivery of the
securities at the executive offices of the Corporation at the time of the
scheduled closing therefore; provided that if the notice provides
--------
for payment of non-cash consideration, then each Company Preferred Holder, at
its option, may pay the consideration in cash equal to the present fair market
value of the non-cash consideration offered, which shall be determined by mutual
agreement between the parties. McKiernan shall take all such action as may be
reasonably required by any regulatory authority in connection with the exercise
by the Company Preferred Holders of the right to purchase McKiernan Common Stock
as set forth herein. The right of first refusal contained in this Section 2.7
shall not apply to (i) securities sold by McKiernan in connection with an
underwritten offering pursuant to a registration statement filed under the
Securities Act or in connection with the sale or merger of the Company, or (ii)
any transfers by McKiernan to his ancestors, descendants or spouse or to trusts
for the benefit of such persons, or any bona fide gift by McKiernan to such
persons; provided, however, any shares of McKiernan Common Stock transferred in
a transaction described in this sentence shall continue to be subject to the
same right of first offer obligations set forth in this Section 2.7 as if
McKiernan continued to own such shares.
2.8 Qualified Small Business Status. The Company shall use its
-------------------------------
commercially reasonable efforts not to and shall not knowingly, without the
prior written consent or affirmative vote or written consent of the holders of
at least a majority of the total outstanding shares of each series of Company
Preferred Shares, voting separately as a class, take any action affecting, or
permit any action, other than a Permitted Action (as defined below), to affect,
the capital structure (including purchases of its own stock) or operation of its
business which would cause the Company Preferred Shares not to qualify as
"qualified small business stock" under Section 1202 of the Internal Revenue Code
of 1986, as amended (the "Code"). As used in this Agreement, "Permitted Action"
shall mean a merger of the Company with or into any other corporation or
corporations (other than a mere reincorporation transaction), a sale of all or
substantially all of the assets of the Company or a transaction or series of
related transactions in which the Company issues shares representing more than
50% of the voting power of the Company immediately after giving effect to such
transaction.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties, including permitted transferees of the
Company Preferred Shares and the Common Stock into which Company Preferred
Shares may be converted. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective
17
<PAGE>
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal substantive laws (but not the choice of law rules) of the
State of California. The parties hereto expressly consent to the jurisdiction
of the state and federal courts of Santa Clara County, California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Except as otherwise expressly provided herein, any
-------
notice required or permitted hereunder shall be given in writing and it or any
certificates or other documents delivered hereunder shall be deemed effectively
given or delivered (as the case may be) upon personal delivery (professional
courier permissible) or when mailed by receipted United States certified mail
delivery, five (5) business days after deposit in the United States mail. Such
certificates, documents or notice may be personally delivered or sent to the
following address: (a) if to a Company Preferred Holder, to the address set
forth with respect to such investor on the signature pages attached hereto, or
to such other address of which such investor shall have given notice pursuant
hereto the Company, or (b) if to the Company, to Internet Commerce Services
Corporation, 550 South Winchester Blvd., Suite 301 , San Jose, California 95128,
or to such other address of which the Company shall have given notice pursuant
hereto.
3.6 Finder's Fee. Each Company Preferred Stockholder severally
------------
agrees to indemnify and hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such investor or any of its officers, partners, employees or representatives is
responsible. The Company agrees to indemnify and hold harmless each Company
Preferred Holder from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
3.7 Amendments and Waivers. Except as specified in Section 1.15, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least 66-2/3% of shares of the Common Stock issued or
issuable upon conversion of the Company Preferred Shares.
3.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and
18
<PAGE>
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock. The shares of Company Series A, Company
--------------------
Series B, Company Series C, Company Series D and Company Series E (or Common
Stock issued on conversion thereof) held or acquired by affiliated entities or
persons shall be aggregated together with other shares of the same class for the
purpose of determining the availability of any rights, which are subject to a
vote of the holders of such class, by holders of such class of securities under
this Agreement.
3.10 Confidentiality Agreement. Each Company Preferred Holder and
-------------------------
any successor or assign of such Company Preferred Holder who receives from the
Company or its agents, directly or indirectly, any information which the Company
has not made generally available to the public, acknowledges and agrees that
such information is confidential and for its use only in connection with
evaluating its involvement with the Company, and further agrees that it will not
disseminate such information to any person other than its accountant, investment
advisor or attorney and that such dissemination shall be only for the purpose
described above.
3.11 Enforcement.
-----------
(a) Remedies at Law or in Equity. If the Company or any Company
----------------------------
Preferred Holder shall default in any of its obligations under this
Agreement, the Company or such Company Preferred Holder may proceed to
protect and enforce its rights, including by way of suit in equity or
action at law, whether for the specific performance of any term contained
in this Agreement or for an injunction against the breach of any such term
or in furtherance of the exercise of any power granted in this Agreement or
for damages or to enforce any other legal or equitable right of the Company
or such Company Preferred Holder (including Company Preferred Holder rights
to indemnification) or to take any one or more of such actions. In the
event such an action is brought, the prevailing party in such dispute shall
be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to
this Agreement, including without limitation such reasonable fees and
expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein is
---------------------------
intended to be exclusive, but each shall be cumulative and in addition to
any other remedy referred to above or otherwise available to the Company or
any Company Preferred Holder at law or in equity. No express or implied
waiver by the Company or any Company Preferred Holder of any default shall
be a waiver of any future or subsequent default as to such party. The
failure or delay of the Company or any party in exercising any rights
granted it hereunder shall not constitute a waiver of any such right and
any single or partial exercise of any particular right by such party shall
not exhaust the same or constitute a waiver of any other right provided
herein.
19
<PAGE>
(c) Entire Agreement. This Agreement and the other documents and
----------------
agreements delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof and supersedes any prior agreements and understandings
between the parties regarding the subject matter hereof, including, without
limitation, that certain Investors Rights Agreement dated as of March 17,
1998.
[Remainder of page intentionally left blank]
20
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
"COMPANY" VULCAN VENTURES INCORPORATED
Holder of 925,926 shares of Series B Preferred
Stock
CYBERSOURCE CORPORATION, Holder of 716,666 shares of Series C Preferred
a Delaware corporation Stock
Holder of 735,231 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
By: __________________________ By: ______________________________
Name: ________________________ Name: ____________________________
Title: _______________________ Title: ___________________________
"MCKIERNAN", solely with GLOBAL RETAIL PARTNERS, L.P.
respect to the agreements Holder of 942,865 shares of Series C Preferred
made in Section 1.1-17, Stock
2.6 and 2.7 hereof Holder of 471,390 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
_____________________________ By: GLOBAL RETAIL PARTNERS, INC.
William S. McKiernan General Partner
By: _______________________________
Name: _____________________________
Title: ____________________________
GLOBAL RETAIL PARTNERS FUNDING, INC.
Holder of 64,912 shares of Series C Preferred
Stock
Holder of 32,456 shares of Series D Preferred
Stock
Holder of ______ shares of Series E Preferred
Stock
By: _______________________________
Name: _____________________________
Title: _____________________________
21
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
"COMPANY" VULCAN VENTURES INCORPORATED
Holder of 925,926 shares of Series B Preferred
CYBERSOURCE CORPORATION, Stock
a Delaware corporation Holder of 716,666 shares of Series C Preferred
Stock
Holder of 735,231 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
By: __________________________ By: ______________________________
Name: ________________________ Name: William D. Savoy
Title: _______________________ Title: Vice President
"MCKIERNAN", solely with GLOBAL RETAIL PARTNERS, L.P.
respect to the agreements Holder of 942,865 shares of Series C Preferred
made in Section 1.1-17, Stock
2.6 and 2.7 hereof Holder of 471,390 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
_______________________________ By: GLOBAL RETAIL PARTNERS, INC.
William S. McKiernan General Partner
By: ______________________________
Name _____________________________
Title: ___________________________
GLOBAL RETAIL PARTNERS FUNDING, INC.
Holder of 64,912 shares of Series C Preferred
Stock
Holder of 32,456 shares of Series D Preferred
Stock
Holder of _____ shares of Series E Preferred
Stock
By: _______________________________
Name ______________________________
Title: ____________________________
22
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
"COMPANY" VULCAN VENTURES INCORPORATED
Holder of 925,926 shares of Series B Preferred
CYBERSOURCE CORPORATION, Stock
a Delaware corporation Holder of 716,666 shares of Series C Preferred
Stock
Holder of 735,231 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
By: __________________________ By: ______________________________
Name: ________________________ Name: ____________________________
Title: _______________________ Title: ___________________________
"MCKIERNAN", solely with GLOBAL RETAIL PARTNERS, L.P.
respect to the agreements Holder of 942,865 shares of Series C Preferred
made in Section 1.1-17, Stock
2.6 and 2.7 hereof Holder of 471,390 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
_______________________________ By: GLOBAL RETAIL PARTNERS, INC.
William S. McKiernan General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
GLOBAL RETAIL PARTNERS FUNDING, INC.
Holder of 64,912 shares of Series C Preferred
Stock
Holder of 32,456 shares of Series D Preferred
Stock
Holder of ______ shares of Series E Preferred
Stock
By: _______________________________
Name: Osamu R. Watanabe
Title: Vice President
23
<PAGE>
GRP PARTNERS, L.P.
Holder of 61,292 shares of Series C Preferred
Stock
Holder of 30,643 shares of Series D Preferred
Stock
Holder of ______ shares of Series E Preferred
Stock
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
Holder of 280,954 shares of Series C Preferred
Stock
Holder of 140,465 shares of Series D Preferred
Stock
Holder of _______ shares of Series E Preferred
Stock
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
Holder of 104,337 shares of Series C Preferred
Stock
Holder of 52,164 shares of Series D Preferred
Stock
Holder of ______ shares of Series E Preferred
Stock
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
24
<PAGE>
DLJ FIRST ESC, L.P.
Holder of 16,228 shares of Series C Preferred
Stock
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
DLJ ESC II, L.P.
Holder of 8,113 shares of Series D Preferred
Stock
Holder of _____ shares of Series E Preferred
Stock
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: ______________________________
Name: Osamu R. Watanabe
Title: Vice President
C.E. UNTERBERG TOWBIN CAPITAL PARTNERS I, L.P.
Holder of 753,131 shares of Series A Preferred
Stock
By: ______________________________
Name Steven P. Novak
Member of its General Partner, UTCM, LLC
25
<PAGE>
DLJ FIRST ESC, L.P.
Holder of 16,228 shares of Series C Preferred
Stock
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: ______________________________
Name ______________________________
Title: ______________________________
DLJ ESC II, L.P.
Holder of 8,113 shares of Series D Preferred
Stock
Holder of 18,289 shares of Series E Preferred
Stock
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: ______________________________
Name ______________________________
Title: ______________________________
C.E. UNTERBERG TOWBIN CAPITAL
PARTNERS I, L.P.
Holder of 753,131 shares of Series A Preferred
Stock
Holder of 176,796 shares of Series E Preferred
Stock
By: ______________________________
Name ______________________________
Member of its General Partner, UTCM, LLC
26
<PAGE>
UT TECHNOLOGY PARTNERS, LDC
Holder of 185,184 shares of Series C Preferred
Stock
Holder of 294,092 shares of Series D Preferred
Stock
Holder of 276,243 shares of Series E Preferred
Stock
By: ______________________________
Name ______________________________
General Partner of its Investment Manager, C.E.
Unterberg Towbin Advisors, LP
UT CAPITAL PARTNERS INTERNATIONAL, LDC
Holder of 59,914 shares of Series C Preferred
Stock
Holder of 55,249 shares of Series E Preferred
Stock
By: ______________________________
Name ______________________________
General Partner of its Investment Manager, C.E.
Unterberg Towbin Advisors, LP
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, LP
Holder of 201,961 shares of Series C Preferred
Stock
Holder of 60,583 shares of Series D Preferred
Stock
Holder of 91,050 shares of Series E Preferred
Stock
By: ______________________________
Name ______________________________
Member of its Investment General Partner, C.E.
Unterberg Towbin, LLC
27
<PAGE>
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, CV
Holder of 43,137 shares of Series C Preferred
Stock
Holder of 12,940 shares of Series D Preferred
Stock
Holder of 19,448 shares of Series E Preferred
Stock
By: ______________________________
Name ______________________________
Member of its Investment General Partner, C.E.
Unterberg Towbin, LLC
VISA INTERNATIONAL SERVICE ASSOCIATION
Holder of 828,729 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 37,037 shares of Series B Preferred
Stock
Holder of 12,745 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 37,037 shares of Series B Preferred
Stock
Holder of 12,745 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
28
<PAGE>
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, CV
Holder of 43,137 shares of Series C Preferred
Stock
Holder of 12,940 shares of Series D Preferred
Stock
Holder of 19,448 shares of Series E Preferred
Stock
By: ______________________________
Steven P. Novak
Member of its Investment General Partner, C.E.
Unterberg Towbin, LLC
VISA INTERNATIONAL SERVICE ASSOCIATION
Holder of _______ shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 37,037 shares of Series B Preferred
Stock
Holder of 12,745 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 37,037 shares of Series B Preferred
Stock
Holder of 12,745 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
29
<PAGE>
CRAIG J. DUCHOSSOIS AS TRUSTEE FOR THE CRAIG J.
DUCHOSSOIS TRUST
Holder of 46,296 shares of Series B Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RICHARD L. DUCHOSSOIS AS TRUSTEE FOR THE RICHARD
L. DUCHOSSOIS REVOCABLE TRUST
Holder of 46,296 shares of Series B Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 503,131 shares of Series A Preferred
Stock
Holder of 147,059 shares of Series C Preferred
Stock
By: Wessels, Arnold & Henderson Group, L.L.C.
its managing member
By: ______________________________
Name: ______________________________
Title: ______________________________
WILBLAIRCO ASSOCIATES, L.P.
Holder of 231,482 shares of Series B Preferred
Stock
Holder of 58,824 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
30
<PAGE>
NIEHAUS RYAN HALLER PUBLIC RELATIONS, INC.
Holder of 166,758 shares of Series A Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
GUILLAUME FRERES, An Investment Partnership
Holder of 125,000 shares of Series A Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
FARLEY INDUSTRIES, INC.
Holder of 92,593 shares of Series B Preferred
Stock
Holder of 31,863 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
FARLEY INC.
Holder of 92,593 shares of Series B Preferred
Stock
Holder of 31,863 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
31
<PAGE>
PACIFIC ASSET PARTNERS
Holder of 55,556 shares of Series B Preferred
Stock
Holder of 14,706 shares of Series C Preferred
Stock
Holder of 13,773 shares of Series D Preferred
Stock
Holder of 71,602 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
BVP INVESTORS I, LLC
Holder of 435,185 shares of Series B Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
---------------------------------------------
ROBERT C. HARRIS, JR.
Holder of 12,500 shares of Series A Preferred
Stock
---------------------------------------------
W. DANA LA FORGE
Holder of 125,000 shares of Series A Preferred
Stock
---------------------------------------------
DAVID READERMAN
Holder of 25,000 shares of Series A Preferred
Stock
---------------------------------------------
ANDREW KESSLER
Holder of 25,000 shares of Series A Preferred
Stock
32
<PAGE>
C.E. UNTERBERG TOWBIN 401k PROFIT SHARING PLAN
FBO DAVID WACHTER
Holder of 5,525 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
LINDEN PARTNERS LLC
Holder of 19,337 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
------------------------------------------------
JEFFREY MOSKOWITZ
Holder of 13,812 shares of Series E Preferred
Stock
------------------------------------------------
THOMAS I. UNTERBERG
Holder of 55,249 shares of Series E Preferred
Stock
------------------------------------------------
ANDREW ARNO
Holder of 8,287 shares of Series E Preferred
Stock
33
<PAGE>
------------------------------------------------
JAMES M. BALLENGEE
Holder of 125,000 shares of Series A Preferred
Stock
------------------------------------------------
MARTIN J. MANNION
Holder of 125,000 shares of Series A Preferred
Stock
------------------------------------------------
STANFORD C. FINNEY, JR.
Holder of 34,568 shares of Series B Preferred
Stock
Holder of 12,745 shares of Series C Preferred
Stock
------------------------------------------------
HEATHER EVANS GILKER
Holder of 2,469 shares of Series B Preferred
Stock
C.E. UNTERBERG TOWBIN LLC
Holder of 88,397 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
C.E. UNTERBERG TOWBIN 401k PROFIT SHARING PLAN
FBO ROBERT MATLUCK
Holder of 13,812 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
34
<PAGE>
CRAIG J. DUCHOSSOIS AS TRUSTEE FOR THE CRAIG J.
DUCHOSSOIS TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RICHARD L. DUCHOSSOIS AS TRUSTEE FOR THE RICHARD
L. DUCHOSSOIS REVOCABLE TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 503,131 shares of Series B Preferred
Stock
Holder of 147,059 shares of Series C Preferred
Stock
By: Wessels, Arnold & Henderson Group, L.L.C.
its managing member
By: ______________________________
Name: ______________________________
Title: ______________________________
WILBLAIRCO ASSOCIATES, L.P.
Holder of 231,482 shares of Series B Preferred
Stock
Holder of 58,824 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
35
<PAGE>
CRAIG J. DUCHOSSOIS AS TRUSTEE FOR THE CRAIG J.
DUCHOSSOIS TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RICHARD L. DUCHOSSOIS AS TRUSTEE FOR THE RICHARD
L. DUCHOSSOIS REVOCABLE TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 503,131 shares of Series B Preferred
Stock
Holder of 147,059 shares of Series C Preferred
Stock
By: Wessels, Arnold & Henderson Group, L.L.C.
its managing member
By: ______________________________
Name: ______________________________
Title: ______________________________
WILBLAIRCO ASSOCIATES, L.P.
Holder of 231,482 shares of Series B Preferred
Stock
Holder of 58,824 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
36
<PAGE>
CRAIG J. DUCHOSSOIS AS TRUSTEE FOR THE CRAIG J.
DUCHOSSOIS TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RICHARD L. DUCHOSSOIS AS TRUSTEE FOR THE RICHARD
L. DUCHOSSOIS REVOCABLE TRUST
Holder of 46,296 shares of Series BPreferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
RAINBOW TRADING PARTNERS, LTD.
Holder of 503,131 shares of Series B Preferred
Stock
Holder of 147,059 shares of Series C Preferred
Stock
By: Wessels, Arnold & Henderson Group, L.L.C.
its managing member
By: ______________________________
Name: ______________________________
Title: ______________________________
WILBLAIRCO ASSOCIATES, L.P.
Holder of 231,482 shares of Series B Preferred
Stock
Holder of 58,824 shares of Series C Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
37
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
Holder of 2,762,431 shares of Series E Preferred
Stock
By: ______________________________
Name: ______________________________
Title: ______________________________
38
<PAGE>
Exhibit 23.2
CONSENT OF ERNST &YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 18, 1999, except as to the first paragraph of Note 9, as to which the
date is April 30, 1999, in the Registration Statement (Form S-1) and related
Prospectus of CyberSource Corporation for the registration of shares of its
common stock.
Our audit also included the financial statement schedule of CyberSource
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
San Jose, California
April 30, 1999
- --------------------------------------------------------------------------------
The foregoing is in the form that will be signed upon the approval by the
Company's shareholder's of the 1 for 2 reverse stock split, as described in
Note 9 of the Notes to the Financial Statements.
/s/ Ernst &Young LLP
San Jose, California
April 30, 1999
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 11,111 7,423
<SECURITIES> 0 0
<RECEIVABLES> 1,092 1,185
<ALLOWANCES> (229) (163)
<INVENTORY> 0 0
<CURRENT-ASSETS> 411 9,091
<PP&E> 3,448 4,268
<DEPRECIATION> (1,148) (1,473)
<TOTAL-ASSETS> 14,975 12,150
<CURRENT-LIABILITIES> 4,831 5,869
<BONDS> 0 0
18,911 18,911
0 0
<COMMON> 5 6
<OTHER-SE> (9,028) (13,062)
<TOTAL-LIABILITY-AND-EQUITY> 14,975 12,150
<SALES> 0 0
<TOTAL-REVENUES> 3,384 1,713
<CGS> 3,471 1,505
<TOTAL-COSTS> 9,950 4,406
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (156) (95)
<INCOME-PRETAX> (10,085) (4,190)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,085) (4,190)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,085) (4,190)
<EPS-PRIMARY> (2.05) (0.77)
<EPS-DILUTED> 0 0
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