<PAGE>
As filed with the Securities and Exchange Commission on March 2, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRINET GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
California (prior to
reincorporation) 7389 94-3081033
Delaware (following
reincorporation) (Primary Standard Industrial (I.R.S. Employer
(State or other jurisdiction of Classification Code Number) Identification No.)
incorporation or organization)
</TABLE>
101 Callan Avenue
San Leandro, CA 94577
(510) 352-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Martin Babinec
Chief Executive Officer
TriNet Group, Inc.
101 Callan Avenue
San Leandro, CA 94577
(510) 352-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
Christopher A. Westover, Esq. Nora L. Gibson, Esq.
Jamie E. Chung, Esq. Lindsay C. Freeman, Esq.
Virginia C. Edwards, Esq. Jeanine M. Larrea, Esq.
Jennifer J. Nam, Esq. Shelley E. Wharton, Esq.
Cooley Godward llp Brobeck, Phleger & Harrison LLP
One Maritime Plaza, 20th Floor One Market Plaza
San Francisco, CA 94111 San Francisco, CA 94105
(415) 693-2000 (415) 442-0900
</TABLE>
----------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 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 number 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,
please check the following box: [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value per share...... $57,500,000 $15,180
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) of the Securities Act of
1933, as amended.
----------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 2, 2000
[TriNet Logo]
Shares
Common Stock
TriNet Group, Inc. is offering shares of its common stock and one
of our stockholders is selling an additional shares. This is our
initial public offering and no public market currently exists for our shares.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "TRNE." We estimate that the initial public
offering price will be between $ and $ per share.
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
-----------
<TABLE>
<CAPTION>
Per
Share Total
------ -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to TriNet.......................................... $ $
Proceeds to the Selling Stockholder......................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We and our selling stockholders have granted the underwriter a 30-day option
to purchase up to an additional shares of our common stock to cover
over-allotments. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
-----------
Robertson Stephens
Dain Rauscher Wessels
Robert W. Baird & Co.
The date of this prospectus is , 2000
<PAGE>
[Description of inside front cover graphics: Art to be depicted on the
inside front cover shows graphics explaining TriNet's business structure, plus
explanatory text.]
[Banner running across top of page contains the text: "Payroll Benefits
401(k) Reporting HR Knowledge" Text is repeated all the way across the page.]
[TriNet logo with the caption: We are a leading provider of web-enabled
business process outsourcing for payroll, benefits and human resource support
to fast-growth technology companies.]
[Pictorial description of TriNet's business structure.
The first graphic depicts stick figures with the caption: Customer Employees
The stick figures are following another stick figure with the caption: Customer
Management Team
The previous graphic connects to the next graphic depicting two paths. The
first path includes a picture of a computer with the caption: Web Enabled The
other path depicts a stick figure walking toward TriNet with the
caption: Personal Contact
The previous graphic connects to the next graphic which is a picture of a
building with the caption: TriNet
From the building extends three paths. The first path leads to a platform of
four structures with the caption: TriNet's Integrated eBusiness Platform The
four central processing units are marked: Benefits, 401(k), HR, Payroll. The
path continues to another platform with the caption: Back Office Processing On
the platform are three stick figures captioned: Benefits, 401(k), Payroll. The
path continues to a final platform of four buildings with the caption: Multi
Vendor Cosolidation The four buildings are captioned: Health Companies, IRS,
Investment Managers, Banks.
The second path from the TriNet building leads to a platform with a building
and the caption: HR Knowledge The path continues to connect with the platform
from the first path labeled: TriNet's Integrated eBusiness Platform
The third path from the TriNet building leads to a platform with a building
and the caption: Recruiting]
[Bullet points centered below graphics with the following captions:
<PAGE>
Fully Integrated Service
Managers at customer companies access an integrated suite of payroll,
benefits and human resource support, as well as an array of consulting and
recruiting solutions. The service is delivered via web-enabled desktop
platform, protected by enterprise-class encryption technology. Customers may
also take advantage of personal contact with our professional and support
teams, ranging from on-site visits by our human resource managers to toll free
calls to our employee service center.
Integrated Payroll, Benefits and HR Support
We manage the flow of payroll, benefits and human resource data for our
customers. This business-to-business solution is our core competency, and it
allows technology companies to expand their workforce quickly.
HR Knowledge
Over a 10-year history serving fast-growth technology companies, we have
accumulated specialized knowledge of human resource issues. We deploy human
resource expertise in both ongoing service arrangements and consulting
engagements. Our eBusiness platform enhances this expertise for functions such
as cash and equity compensation, organizational development, training and
international services.
Recruiting
Our recruiting service, Venture Talent, specializes in finding the unique
individuals who survive and flourish within the fast paced environment of a
venture-backed startup. Venture Talent offers full service and contingency
staffing solutions to help companies meet aggressive hiring targets.
Third Party Data
We act as a single point for contact for our customers. By consolidating
multiple vendors, from health and benefit companies to banks and the Internal
Revenue Service, we reduce administrative headcount and provide a completely
scalable solution. Our personnel handle the day-to-day back-office processing
of benefits, 401(k), payroll and selected areas of legal compliance for our
customer companies.
[Banner running across bottom of page contains the text: "Payroll Taxes
Direct Deposit Management Reporting Payroll Remittance Online Benefits
Enrollment Flexible Spending Accounts Cobra Government Reporting Online
Employee Records HIPPA Online Employee Handbook"]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, references
to "TriNet," "we," "us" and "our" refer to TriNet Group, Inc.
Until , all dealers that buy, sell or trade our common stock, 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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 33
Management............................................................... 53
Related Party Transactions............................................... 64
Principal and Selling Stockholders....................................... 65
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 71
Underwriting............................................................. 73
Legal Matters............................................................ 75
Experts.................................................................. 75
Where You Can Find Additional Information................................ 76
Index to Financial Statements............................................ F-1
</TABLE>
----------------
The "TriNet" name and logo and the names of our products and services
mentioned in this prospectus are our trademarks, registered trademarks, service
marks or registered service marks. Other service marks, trademarks and trade
names referred to in this prospectus are the property of their respective
owners.
3
<PAGE>
SUMMARY
You should read this summary together with the entire prospectus, especially
"Risk Factors" and the financial statements and related notes, before deciding
to invest in shares of our common stock. Unless otherwise indicated, the
information contained in this prospectus assumes the underwriters do not
exercise their over-allotment option and gives effect to the conversion of all
outstanding shares of our preferred stock into common stock, which will occur
before the closing of this offering. Information in this prospectus gives
effect to our reincorporation in Delaware and a stock split, both
of which will occur before the closing of this offering.
We are a leading provider of web-enabled business process outsourcing, or
BPO, of payroll, benefits and human resource support and technology to fast-
growth technology companies in North America. With significant web delivery
capabilities already enabled, and others in development, we believe that we
offer the first fully integrated end-to-end e-commerce solution for payroll,
benefits and human resource transactions. With over 10 years of industry
experience, we have developed an eBusiness platform that currently services
over 375 customers who collectively employ more than 10,000 people. Our typical
client is characterized by rapid headcount growth, outside equity financing and
a highly skilled, technically savvy work force.
Our systems and services allow our customers to focus on their respective
core business functions by outsourcing their human resource technology or
entire human resource functions to us without losing real-time access to
critical data. With an integrated technology platform, back-office processing
and a wide breadth of service offerings, we help to alleviate administrative
burdens commonly encountered by firms which must coordinate transactions
between multiple outsourcing providers. In addition, we serve as an exchange
between our customers and a variety of benefit plan and financial service
providers, creating economies of scale and efficiencies in the procurement,
set-up and on-going maintenance of vendor relationships involving the full
range of payroll, benefits and human resource processes. We provide fast-growth
technology companies with access to enterprise-class technology, benefits
packages and employee self-service offerings to implement and maintain these
complex functions.
According to Dataquest, the human resource outsourcing industry is forecast
to grow from $13.9 billion in 1999 to $37.7 billion in 2003, representing a
compound annual growth rate of 28.3%. Payroll, benefits and human resource
processes have become increasingly complex, cumbersome, expensive and highly
inefficient. As a result, companies are increasingly turning to BPO to address
these needs that were formerly handled in-house.
The data and transaction intensive nature of payroll, benefits and human
resource functions combine to form a complex undertaking for a company that
wishes to integrate all related processes to a single information system. The
processes necessary to implement such a system consist of two basic components,
commonly referred to as the "front-end" and "back-end" processes. The front-end
includes processes and interfaces to collect, update, effect and communicate
changes in employee data. The back-end involves high volume information
processing of functions that are sufficiently standardized across all companies
to permit specialized systems to receive, store and transact routine and
repetitive functions involving payroll, benefits and human resources.
With the widespread implementation of intranets and the adoption of the
Internet as a business communications platform, organizations can now automate
enterprise-wide and interorganizational human resource transactions. The
availability of this technology creates a significant market opportunity for
Internet-based business-to-business e-commerce solutions for payroll, benefits
and human resources.
4
<PAGE>
Payroll, benefits and human resource transactions lend themselves to
Internet processing because these transactions are information-based and do not
require delivery of durable goods at the point of payment. However, payroll,
benefits and human resource functions involve confidential information, complex
and interrelated data elements and ongoing data management between multiple
organizations, unlike other e-commerce opportunities such as making travel
reservations or purchasing merchandise.
Currently, there are mature outsourcing providers for selected back-office
processes involving payroll and benefits and an emerging number of web-based
front-end solutions that must interface with back-end providers. We believe an
optimal e-commerce solution for payroll, benefits and human resources can only
exist if there is seamless end-to-end integration of the front- and back-end
processes on a single information systems platform that is scalable for large
volume transaction processing.
We believe our approach delivers the first end-to-end business-to-business
e-commerce solution, giving our customers access to enterprise-class technology
for payroll, benefits and human resource functions. Our solution integrates a
web-based front-end for self-directed transactions with back-end processes that
include electronic interfaces to our service providers and offers the following
key benefits:
. provide an advanced integrated solution that allows customers to focus on
their core business;
. provide human resource solutions tailored to fast-growth technology
companies' employees;
. provide an easily scalable and integrated solution; and
. provide customers with economies of scale and efficiencies.
Our objective is to be the leading provider of web-enabled business process
outsourcing of payroll, benefits and human resource support and related
technology to fast-growth technology companies worldwide. Key elements of our
strategy to achieve this objective are:
. continue to develop and improve our end-to-end e-commerce solution for a
complete range of payroll, benefits and human resource transactions;
. leverage our existing customer base for internal growth and referrals;
. enhance TriNet brand recognition in the middle market;
. pursue key strategic relationships and develop new product offerings to
further enhance our revenue streams, customer base and solutions; and
. expand geographically to new markets.
We were incorporated in California in 1988 under the name TriNet Employer
Group, Inc. We plan to change our name to TriNet Group, Inc. in connection with
our reincorporation in Delaware. Our principal executive offices are located at
101 Callan Avenue, San Leandro, California 94577, and our telephone number is
(510) 352-5000. Our web site address is www.trinetvco.com. The information on
our web site is not part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by TriNet.................... shares
Common stock offered by the selling stockholder... shares
Common stock to be outstanding after the
offering.......................................... shares
Use of proceeds................................... To repay indebtedness and
for general corporate
purposes, including working
capital, sales and
marketing expenditures,
development of new products
and services, investments
in technology
infrastructure and possible
acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol..................... TRNE
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the total number of shares outstanding as of , 2000. This
excludes:
. shares of common stock issuable upon exercise of outstanding options
at a weighted average exercise price of $ ; and
. shares reserved for future issuance under our employee benefit
plans.
6
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The following table is a summary of the financial data for our business. You
should read this information together with our financial statements and the
related notes appearing at the end of this prospectus and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Service revenues (net of direct costs
billed of $79,077, $117,026,
$241,917, $386,221, $712,945,
respectively)........................ $2,515 $3,139 $7,749 $12,443 $19,127
Research and development expense...... 180 194 488 719 2,353
Other operating expenses.............. 2,801 3,075 6,273 9,975 16,580
------ ------ ------ ------- -------
Operating income (loss)............... (466) (130) 988 1,749 194
Net income (loss)..................... (465) (157) 760 982 (103)
Net income (loss) available to common
stockholders......................... (466) (217) (347) 455 (133)
Basic net income (loss) per common
share................................ $(0.14) $(0.07) $(0.10) $ 0.07 $ (0.02)
Basic weighted average shares
outstanding.......................... 3,260 3,323 3,599 6,303 6,340
Diluted net income (loss) per common
share................................ $(0.14) $(0.07) $(0.10) $ 0.07 $ (0.02)
Diluted weighted average shares
outstanding.......................... 3,260 3,323 3,599 6,593 6,340
</TABLE>
The pro forma as adjusted balance sheet data give effect to:
. the conversion of all outstanding shares of our preferred stock into
542,304 shares of common stock before the closing of this offering; and
. the sale of shares of common stock offered by us at an
assumed initial public offering price of $ per share and our
receipt of the net proceeds from the sale of those shares, after
deducting estimated underwriting discounts and commissions and offering
expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $16,777 $
Working capital............................................. 113
Total assets................................................ 35,791
Long-term obligations....................................... 2,851
Redeemable convertible preferred stock...................... 500
Total stockholders' equity.................................. 4,816
</TABLE>
See Note 6 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and other information in this prospectus, including
our financial statements and the related notes, before making a decision to buy
our common stock. If any of the events or circumstances described in the
following risks actually occurs, our business, operating results or financial
condition would likely suffer. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
Fluctuations in our quarterly operating results may cause our stock price to
decline.
It is likely that our quarterly operating results in one or more quarters
may be below the expectations of investors, and as a result the price of our
common stock could decline. Our expenses are relatively fixed in the near and
medium terms and are based in part on our expectations of future revenues,
which may vary significantly. If we do not achieve expected revenue targets, we
may be unable to adjust our spending quickly enough to offset any revenue
shortfall, which could harm our operating results. Factors that may cause our
quarterly operating results to fluctuate include:
. the number and size of new customers initiating service;
. the decision of one or more customers to delay implementation or cancel
ongoing services;
. our ability to design, develop and introduce new services and features
for existing services on a timely basis;
. costs associated with strategic acquisitions and alliances or investments
in technology;
. expenses incurred for geographic and service expansion;
. a reduction in the number of employees of our customers; and
. acquisitions of our customers by other companies.
Further, our customer agreements generally do not include penalties for
cancellation. As a result, any decision by a customer to cancel our services
may cause significant variations in operating results in a particular quarter
and could result in losses for that quarter. As we secure larger customers, any
cancellation of services by a larger customer likely would result in larger
fluctuations in operating results than historically experienced.
We have recently experienced net losses, we expect continuing losses and we may
never achieve profitability.
We incurred net losses of approximately $103,000 for the year ended December
31, 1999 and we may be unable to achieve or maintain significant revenues or
profitability. We expect to continue to incur significant development, sales
and marketing and other operational expenses in connection with our business.
We may also incur expenses in connection with acquisitions or other strategic
relationships. As a result of these expenses, we will need to generate
significant quarterly revenue increases to achieve and maintain profitability.
We expect that we will incur net losses for the foreseeable future.
8
<PAGE>
If we fail to effectively expand our sales and marketing efforts in order to
penetrate the middle market, our profitability may be harmed.
In January 1999, we initially launched Enterprise Employer Services to
expand our customer base from emerging companies to larger, more established
middle-market companies. To date, we have six middle-market customers, and our
business strategy and revenue goals depend on growing this customer base. We
intend to increase our sales and marketing expenditures to penetrate the middle
market. However, we have little experience marketing to middle-market
companies, and we may find that we are unable to achieve our Enterprise
Employer Services' goals or that achieving such goals requires significant
unanticipated expenditures in sales and marketing that could harm our
profitability.
The lengthy sales cycle for Enterprise Employer Services products and services
may cause us to incur substantial expenses and expend management time without
generating corresponding revenues, which would affect our cash flow.
A prospective customer's decision whether or not to implement our Enterprise
Employer Services products and services requires us to dedicate a substantial
amount of time, expense and other resources. The Enterprise Employer Services
sales cycle varies in length from a few weeks to several months. If at the end
of a sales effort a prospective customer does not purchase our products or
services, we may have incurred substantial expenses and expended management
time that cannot be recovered and that will not generate corresponding
revenues. As a result, our cash flow and our ability to fund expenditures
incurred during the sales cycle may be impaired.
We are growing rapidly and must effectively manage and support our growth in
order for our business strategy to succeed.
We have grown rapidly in a relatively short period of time and will need to
continue to grow in all areas of operation in order to execute our business
strategy. Since 1995, we have expanded in response to significant customer
growth and industry trends in favor of using outsourced business solutions.
Managing and sustaining our growth has placed, and will continue to place,
significant demands on our management as well as on our administrative,
operational and financial systems and controls. If we are unable to manage our
growth effectively, we may be unable to devote the necessary management and
revenue resources to accomplish continued growth of our business and
implementation of our business strategy.
Key vendors are essential to maintaining our business systems.
Our success depends in part on our ability to forge and maintain
arrangements and relationships with key vendors who supply us with integral
components of our software architecture. A substantial portion of the software
that is integrated into our products and services is licensed from third
parties, including PeopleSoft, Inc. and Concur Technologies, Inc. If we are
unable to maintain these relationships, or if we are required to make
significant changes in the terms and conditions of these arrangements, our
business systems could be harmed. Our agreements with our software vendors are
non-exclusive. Our vendors may choose to compete with us directly. Our vendors
may also enter into strategic relationships with our competitors. These
relationships may take the form of strategic investments, or marketing or other
contractual arrangements. Our competitors may also license and use the same
technology in competition with us. We cannot guarantee that the vendors of
technology used in our products and services will continue to support their
technology. Financial or other difficulties experienced by our vendors may
adversely affect the technologies incorporated into our products and services.
If these technologies become unavailable, we may be unable to find suitable
alternatives.
9
<PAGE>
We also rely on third parties such as Hewlett-Packard Company, Sun
Microsystems, Inc. and Cisco Systems, Inc. to supply servers, routers,
firewalls, encryption technology and other key components of our
telecommunications and network infrastructure. If any of our vendors fail to
provide necessary products or services in a timely fashion or at an acceptable
cost, our business could be harmed. A disruption in telecommunications capacity
could prevent us from maintaining our standard of service. Some of the key
components of our systems and network are available only from sole or limited
sources in the quantities and quality we require.
Our success depends upon our ability to provide new and enhanced products and
services that meet customer expectations.
Our success will continue to depend upon our ability to provide new and
enhanced products and services that address the needs of the market. Failure to
develop and introduce new and enhanced products and services in accordance with
customers' expectations could prevent us from maintaining existing customer
relationships, gaining new customers or expanding our markets.
Any failure in our systems could reduce the quality of our business services,
which could harm our reputation and the success of our business and expose us
to liability.
Our business systems rely on the complex integration of numerous hardware
and software subsystems to manage the transactions involved in acquiring the
customer relationship through the processing of employee, payroll and benefits
data. Any delay or failure in our systems, such as obstructions in our ability
to communicate electronically with customers, employees or vendors, or in our
ability to process data, could harm our reputation and the success of our
business. We have from time to time experienced operational errors in these
systems, which have caused errors in employee data, paychecks and benefits
processing. The efficient operation of our systems is essential to customer
acceptance of our products and services. If we are unable to meet customer
demands or service expectations, we may be unable to forge and maintain the
customer relationships that lead to recurring revenues. In addition, errors in
our products and services, such as the improper denial of healthcare benefits
or delays in making payroll, could expose our customers to liability for which
we are contractually obligated to provide indemnification. Operational "bugs"
may arise from one or more factors, including electro-mechanical equipment
failures, computer server or systems failures, network outages, software
performance problems, vendor performance problems and power failures. We expect
bugs to continue to occur from time to time, any of which could cause our
business to suffer.
Our operations are dependent on each of our data centers being able to
successfully provide back-up processing capability if we are unable to protect
our computer and network systems against damage from a major catastrophe such
as an earthquake or other natural disaster, fire, power loss, security breach,
telecommunications failure or similar event. The precautions that we have taken
to protect ourselves against these types of events may prove to be inadequate.
If we suffer damage to our data or operations center, experience a
telecommunications failure or experience a security breach, our operations
could be seriously interrupted. Any interruption or other loss may not be
covered by our insurance and could harm our reputation.
In addition, we depend on the efficient operation of Internet and network
connections among our systems, customers, benefit plans, plan administrators,
financial institutions and regulatory entities. These connections in turn are
based on the efficient operation of data exchange tools, web browsers, Internet
service providers and Internet backbone service providers. Any disruption in
Internet access provided by third parties could harm our business.
10
<PAGE>
We must keep pace with rapid technological change in order to succeed.
Our business depends upon the use of rapidly developing software, hardware,
networking and Internet technologies. To succeed, we will need to effectively
integrate new technologies as they become available to improve our products and
services commensurate with customer requirements. In particular, we rely on
enterprise software applications licensed from third parties that are upgraded
from time to time. We may experience difficulties in adapting new technologies
or product upgrades to our systems that could harm our performance or delay or
prevent the successful development, introduction or marketing of new products
and services. New products or upgrades may not be released according to
schedule, or may contain defects when released. Difficulties in integrating new
technologies could result in adverse publicity, loss of sales, delay in market
acceptance of our products or services, or customer claims against us, any of
which could harm our business. We could also incur substantial costs if we need
to modify our services or infrastructure to adapt to these changes. In
addition, we could lose market share if our competitors develop technologically
superior products and services.
The software that we have integrated into our products and services may have
defects that could harm our reputation or decrease market acceptance of our
products and services.
Any interruptions caused by unknown defects in our software could damage our
reputation, cause our customers to initiate product liability suits against us,
cause us to lose revenue or delay market acceptance of the outsourced business
service that is based on this software. Our software may contain errors or
defects, particularly when new versions or enhancements are released. We may
not discover software defects that affect our current software or enhancements
until after they are incorporated into our systems, which could harm our
business.
The software applications that we license from PeopleSoft, Concur and other
third parties and integrate into our service offerings may contain defects when
introduced or when new versions or enhancements are released. If our products
and services incorporate software that has defects and these defects impair our
service offerings, our business may be harmed.
Our executive officers and key technical employees are critical to our business
and they may not remain with us in the future.
Our future success will depend to a significant extent on the continued
services of our executive officers and those of our technical employees who are
skilled in transactional technology, database and networking. The loss of
services of any of our executive officers and key technical employees could
cause us to incur increased operating expenses and divert other senior
management time in seeking replacements. The loss of their services could also
harm our reputation as our customers could become concerned about our future
operations.
We must continually attract and retain highly skilled personnel or we will be
unable to execute our business strategy.
Our future success also will depend on our ability to attract, hire, train
and retain highly skilled technical, sales and marketing and support personnel,
particularly with expertise in outsourced solutions and the technology
platforms that we deploy today and will deploy in the future. Qualified
personnel are in great demand throughout the Internet and business process
outsourcing industries. Our failure to attract and retain the appropriate
personnel may limit the rate at which we can expand our business, including
developing new products and services and attracting new customers.
11
<PAGE>
Acquisitions could result in dilution, operating difficulties and other harmful
consequences.
We may, from time to time, pursue acquisitions that could provide new, or
enhance existing, products or services, additional industry expertise, a
broader customer base or an expanded geographic presence. We may pay for
acquisitions by issuing additional common stock and this would dilute our
stockholders. We may also use significant amounts of cash or incur debt or
amortization expenses associated with goodwill and other intangible assets, any
one of which could harm our business. In addition, acquisitions involve
numerous risks, including:
. difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
. diversion of management's attention from other business concerns;
. entering markets in which we have no prior experience and may not
succeed; and
. potential loss of key employees of the acquired company.
There are currently no active negotiations, commitments or agreements with
respect to any such acquisition.
Current and potential competitors could decrease our market share and harm our
business.
Our industry is intensely competitive, evolving rapidly and subject to
technological change. Increased competition in the business process outsourcing
industry could result in price reductions, reduced gross margins or loss of
market share, any of which could decrease our revenues and profitability and
harm our reputation. We expect competition to intensify in the future in each
of the following principal competitive factors in this market:
. human capital expertise;
. data integration and transfer technology;
. service integration technology;
. customer service and support; and
. product and service fees.
We currently compete and face potential competition for customers with a
number of companies, including the following:
. human resource and information systems departments of companies that
perform their own administration of benefits, payroll and human
resources;
. business process outsourcers with high-volume transaction and
administrative capabilities, such as Automatic Data Processing, Inc. and
ProBusiness Services, Inc.;
. benefits exchanges, such as eBenefits and SmartBenefits;
. providers of web-enabled human resource applications, such as Simpata,
Inc. and Workscape, Inc.; and
. application service providers, such as Corio, Inc., Employease Inc. and
Usinternetworking, Inc.
As the market evolves, we expect increased competition from new market
entrants. Some of our current and future competitors are significantly larger,
have greater name recognition and have greater financial, marketing and other
resources than we do. We may be unable to compete successfully against current
and future competitors.
12
<PAGE>
Our business and reputation may be harmed if we are unable to protect customer
and employee privacy.
Our information systems and Internet communications may be vulnerable to
physical break-ins, attacks by computer vandals or similar intrusions. A third
party may attempt to breach our security and gain access to confidential
customer, employee, benefit plan or payroll information, or our own
confidential information. We may be liable to our customers for any breach in
our security and any breach could harm our business and reputation. We rely on
encryption technology licenses from third parties. We may be required to expend
significant capital and other resources to license additional encryption
technology and other technologies to protect against security breaches or to
alleviate problems caused by any security breach.
Our products and services are targeted at early stage and middle-market
companies, which may be more volatile than well-established companies. As a
result, we may experience greater customer turnover than if we targeted more
mature companies.
Our products and services are targeted at early stage and middle-market
companies, which may be more likely to be acquired or to cease operations than
other companies. As a result, our customer base may be more volatile than the
customer bases of companies that have greater emphasis on more established
companies. If we experience greater than expected customer turnover, either
because our customers are acquired or cease operations or for any other reason,
our business could be harmed.
We must establish and maintain strategic partnerships to increase revenue
growth.
We believe that our future revenue growth depends in part on the successful
forging and maintenance of relationships with strategic partners that can add
value to our customer offering. We would like to partner with portal and other
service providers such as banks and travel agencies to offer online services
targeted to our customers. To date, we have established only a limited number
of these relationships. Failure to maintain these relationships or establish
new partnerships may slow our revenue growth.
Economic downswings in the Northern California/Silicon Valley area would likely
harm our business.
While we presently maintain offices in seven markets, a significant portion
of our business is concentrated in the Northern California/Silicon Valley area.
As a result, negative economic and industry trends in this area could reduce
the demand for business process outsourcing and harm our business.
If the Financial Accounting Standards Boards, or FASB, were to reverse its
current position on the issuance of stock options in a shared employer
relationship, Venture Employer Services could experience significant customer
loss.
Whether or not a company can elect the intrinsic value method of accounting
for stock options as specified in Accounting Principles Board, or APB, Opinion
No. 25, depends on several factors, including whether the stock options are
granted to employees of the grantor. When the grantor's employees are employed
by the grantor as reflected on the grantor's payroll, the grantor can generally
successfully elect the intrinsic value method of accounting. However, if stock
options are granted to temporary employees or non-employee Board members, the
FASB requires that the grantor account for the stock options under the
standards specified in Statement of Financial
13
<PAGE>
Accounting Standards No. 123, which would result in the grantor taking a charge
to earnings. The effect of this distinction on shared employees where the
grantor's employees were on the payroll of a business outsourcing provider such
as Venture Employer Services was uncertain until the FASB began to clarify the
issue in 1998.
On March 31, 1999, the FASB released an Exposure Draft entitled "Proposed
Interpretation Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25," which sought to clarify
this and other related issues. In that interpretation, the FASB concluded that
the issuance of stock options in a shared employer relationship does qualify
for APB Opinion No. 25 accounting treatment so long as certain criteria are
met. In August and October of 1999, the FASB reiterated this position. We
believe that our customer contracts comply with this criteria and that our
customers may use APB Opinion No. 25 when accounting for the issuance of stock
options. However, if the FASB were to reverse its position, we would expect to
experience significant Venture Employer Services customer loss.
Through Venture Employer Services we may be subject to liability for customer
and employee activities.
Our Venture Employer Services offering delivers services through a shared
employer arrangement. A number of legal issues remain unresolved with respect
to these arrangements, including uncertainties concerning the ultimate
liability for violations of employment and discrimination laws. The Venture
Employer Services customer service agreement establishes the contractual
division of responsibilities between us and our customers for various matters
arising out of the employment relationship, including compliance with and
liability under various laws and regulations. We may be subject to liability
for violations of these or other laws and regulations despite these contractual
provisions, even if we do not participate in such violations. We have
historically been, and expect to continue to be in the future, named as a co-
defendant in employment practices liability lawsuits against our Venture
Employer Services customers. Generally, federal and state laws that apply to
the employer-employee relationship do not specifically address the obligations
and responsibilities of shared employers like us. If these or other federal or
state laws are ultimately applied to our customer relationships in a manner
adverse to us, our business could be harmed. In addition, Venture Employer
Services employees may be deemed our agents by legal authorities, which would
subject us to liability for their violations.
Although the Venture Employer Services customer service agreement provides
that the customer indemnifies us for any liability attributable to the conduct
and activities of the customer or its employees, we may be unable to collect on
a contractual indemnification claim and thus may be responsible for satisfying
these liabilities. In addition, although we carry insurance that is intended to
cover us in the event of an agency finding or an adverse determination with
respect to our liability for the conduct of our customers' employees, our
insurers may deny coverage for the full amount of our submitted claims, and any
claims submissions could result in cost increases in our insurance premiums.
Implementation of new government regulations or changes in existing government
regulations could significantly affect the cost of our operations.
Our operations are governed by numerous federal, state and local laws
relating to labor, tax and employment matters. However, most jurisdictions do
not regulate the provision of outsourced human resources in a shared employer
relationship. If federal, state or local jurisdictions were to change their
regulatory framework related to outsourced human resources, or if additional
jurisdictions
14
<PAGE>
implemented laws governing our industry that were materially different from
existing
laws, we could be required to make significant changes in our methods of doing
business which could increase our cost of operations.
In addition, state regulatory authorities generally require licenses for
companies that do business in their states as insurance agents or third party
administrators, or TPAs. Insurance and TPA regulation covers a host of
activities, including sales, underwriting, rating, claims payments and record
keeping by companies and agents. If regulatory authorities were to determine
that the nature of our business requires that we be licensed as an insurance
agent or as a TPA, we would incur substantial increased costs and become
subject to greater restrictions, which could harm our business. Further,
because the application of e-commerce to the payroll, benefits and human
resource fields is relatively new, the impact of current or future laws and
regulations on our business is difficult to anticipate.
Increases in premiums for insurance policies used by Venture Employer Services
could harm our financial condition.
A significant benefit offered by Venture Employer Services is maintaining
health and workers compensation insurance plans that cover customer worksite
employees. Any disruption in our relationship with the vendors who provide our
health and workers compensation insurance or any failure to maintain cost-
effective health and workers compensation plans could harm our business.
Health insurance premiums, state unemployment taxes and workers compensation
rates for Venture Employer Services are in part determined by our claims
experience and comprise a significant portion of our direct costs billed. Each
of these costs represents overhead items for Venture Employer Services. We
employ extensive risk management procedures in an attempt to control claims
incidence and ultimate cost. These measures include in-house staff, regular
training, partnerships with skilled brokers and like strategies. Should we
experience a large increase in claim activity, unemployment taxes, health
insurance premiums or workers compensation insurance rates may increase. We may
be unable to or delayed in incorporating these increases into service fees to
customers. As a result, these increases could have a material adverse effect on
our financial condition.
An increase in bad debt expenses could harm our financial condition.
The Venture Employer Services customer service agreement establishes a
shared employer relationship with worksite employees and obligates us to assume
payment of salaries, wages and related benefit costs and payroll taxes of these
employees. Our direct obligation to these employees requires that we pay their
salaries and wages regardless of whether the customer company makes timely
payment to us of the associated service fee. We also must provide benefit plans
to these employees even if the costs we incur exceed the fees paid by the
customer company. We address this risk by requiring all customers to execute
electronic funds transfer authorizations in our favor and by collecting payment
for health insurance and payroll charges in advance of disbursement to the
employees and carriers. We also secure surety bond coverage for the fees that
are owed to us by our customers. During the period from January 1, 1994 through
December 31, 1999, we have recorded approximately $298,000 in bad debt expense
on approximately $1.6 billion of total payroll and insurance costs billed. In
the event there are changes in the business markets that adversely affect the
financial condition of large numbers of our customers at once, our protective
measures may be insufficient and we may incur substantial liability for
worksite employee payroll and benefits costs that would harm our financial
condition.
15
<PAGE>
If we are unable to protect our intellectual property, or if we infringe on the
intellectual property rights of others, our business may be harmed.
Our success depends in part on intellectual property rights to products and
services that we develop. We rely on a combination of contractual rights,
including non-disclosure agreements, trade secrets, copyrights and trademarks
to establish and protect our intellectual property rights in our names,
products, services and related technologies. Loss of intellectual property
protection, or the inability to secure intellectual property protection on any
of our names, confidential information, or technology could harm our business.
We currently have no registered patents or pending patent applications
covering any of our technology. We have received U.S. trademark registrations
for TriNet Employer Group, TriNet Employer Group, Inc. (and Design) and Venture
Talent. Our registrations may be unenforceable or ineffective in protecting our
marks. We also claim common law rights in the Triangle Logo, and the marks
TriNet, ePowered HR for Fast Companies, HR Passport, Passport Portal and
Digital Human Resources.
We typically enter into non-disclosure and confidentiality agreements with
our employees and consultants with access to sensitive information. These
agreements may be inadequate to protect our intellectual property rights or
prevent misappropriation of our technology. Products and services with features
similar to our products and services may be independently developed.
Although we believe that none of our intellectual property infringes on the
rights of others, third parties may nevertheless assert infringement claims
against us in the future. We may be required to modify our products, services,
internal systems, or technologies, or obtain a license to permit our continued
use of those rights. We may be unable to do so in a timely manner, or upon
reasonable terms and conditions. Failure to do so could harm our business. In
addition, future litigation over these matters could result in substantial
costs and resource diversion. Adverse determinations in any litigation or
proceedings of this type could subject us to significant liabilities to third
parties and could prevent us from using some of our products, services,
internal systems or technologies. Our name and marks may be unenforceable in
countries outside of the United States, which may adversely affect our ability
to use our name and marks outside of the United States.
We invest funds transferred to us by our customers for use in servicing their
business until needed for the applicable service. We are liable for any losses
ensuing from this investment activity, and our business could be harmed by
unexpected fluctuations in interest rates.
We invest funds transferred to us by customers, such as wage, benefits and
tax funds, until needed for the applicable service, such as remitting the
payroll tax funds to tax authorities when due. We typically invest these funds
in short-term financial instruments such as overnight U.S. government direct
and agency obligations repurchase agreements, commercial paper rated A-1 and/or
P-1 and money market funds with an underlying credit quality of AA or better.
These investments are exposed to credit risks from the possible inability of
the borrowers to meet the terms of their obligations under the financial
instruments. We are liable for any losses on these investments. In addition,
interest income earned from investing these funds represents a portion of our
revenues. As a result, our business could be significantly impacted by interest
rate fluctuations.
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<PAGE>
There are many risks associated with international operations.
We are actively engaged in business in Canada and are targeting efforts to
further diversify internationally. Our expansion into international markets
will subject us to a number of risks, including:
. costs of customizing products and services for foreign countries;
. laws and business practices favoring local competition;
. dependence on local vendors;
. compliance with multiple, conflicting and changing governmental laws and
regulations;
. longer sales cycles;
. greater difficulty in collecting accounts receivable;
. import and export restrictions and tariffs;
. difficulties staffing and managing foreign operations; and
. political and economic instability.
Our future revenue growth depends in part on the development and growth of the
Internet and e-commerce.
Rapid growth in the use of the Internet and the development of e-commerce is
a recent phenomenon. The use of our Internet-related services, which will
affect our future revenue growth, may not grow if Internet use in general does
not continue to grow. Internet acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Varying factors
could inhibit future growth in Internet usage, including:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost effective, high speed service.
We face risks in connection with the year 2000.
Many installed computer systems and software products were programmed to
accept only two digits in the date code field. As of January 1, 2000, it became
necessary for these code fields to accept four digit entries to distinguish
years beginning with "19" from those beginning with "20."
We have assessed all of our internal computer systems and software products,
tested those systems and products and remedied any known problems. We have
communicated with our key suppliers to assess whether or not the products,
services, networks and technologies of these suppliers are year 2000 compliant.
We have also completed an assessment of whether our networks that depend upon
third parties for telecommunications services and power are year 2000
compliant. In the fourth quarter of 1999, we completed our year 2000
assessment, testing and remediation efforts.
We have a contingency plan for handling year 2000 problems that were not
detected and corrected prior to their occurrence, and we are continuing to
assess any exposure areas in order to determine what additional steps are
advisable. We are prepared to use backup systems and have developed other
alternative contingency plans for other critical functions where computer
systems are essential. To date, we have not experienced any material year 2000
problems. However, if all of our potential year 2000 problems were not properly
identified or if adequate assessment and remediation are not timely effected
with respect to any year 2000 problems, our business could be harmed. Moreover,
any year 2000 compliance problems facing our suppliers or vendors could also
harm our business.
17
<PAGE>
Risks Related to Our Offering
Our stock price may be volatile.
We expect our stock price to be subject to wide fluctuations in response to
a variety of factors, including factors beyond our control. These broad market
and industry factors could harm the market price of our common stock,
regardless of our performance. These factors include:
. actual or anticipated quarterly variations in our operating results;
. changes in expectations as to our future financial performances or
changes in financial estimates, if any, of securities analysts;
. announcements of new human resources products, services or technological
innovations;
. announcements relating to strategic relationships and transactions;
. customer relationship developments;
. regulatory changes;
. success of our operating strategy;
. competition;
. additions or changes in key personnel;
. sales of substantial amounts of our common stock or other securities on
the open market; and
. the operating and stock price performance of comparable companies.
In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the prices of many Internet and
e-commerce companies and which have often been unrelated to the operating
performance of these companies. These market fluctuations may cause a decline
in the market price of our common stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. We may
become involved in this type of litigation in the future. Litigation is often
expensive and diverts management's attention and resources, which could harm
our business.
An active public market for our common stock may not develop.
An active public market for our common stock may not develop or be sustained
after this offering. The initial public offering price for the shares has been
determined by negotiations between us and the representatives of the
underwriters and does not necessarily relate to any established criteria of
value. As a result, our stock price may trade at prices below our offering
price.
The allocation of proceeds from this offering may not yield significant returns
for our stockholders.
We have not yet allocated a substantial portion of the net proceeds of this
offering to specific uses. Management will have broad discretion as to the
application of the offering proceeds. Pending the use of such proceeds for
general corporate purposes and acquisitions, such proceeds will be placed in
short-term, interest-bearing, investment-grade debt securities, certificates of
deposit or direct or guaranteed obligations of the United States. It is
possible that the return on such investments will be less than that which would
be realized were we immediately to use such funds for other purposes.
18
<PAGE>
A large number of shares becoming eligible for sale after this offering could
cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public
market following this offering, or the perception that sales could occur, could
cause the market price of our common stock to decline. See "Shares Eligible for
Future Sale."
Our directors, executive officers and principal stockholders will be able to
exert significant influence over us.
After this offering, our directors, executive officers and our stockholders
who currently own over 5% of our common stock will beneficially own
approximately % of our outstanding common stock. These stockholders, if
they vote together, will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of us.
You will incur immediate and substantial dilution in the net tangible book
value of the stock you purchase.
The initial public offering price is substantially higher than the net
tangible book value of $ per share that our outstanding common stock will
have immediately after this offering. Accordingly, if you purchase shares of
our common stock, you will incur immediate and substantial dilution of $
per share. If the holders of outstanding options exercise those options, you
will suffer further dilution. See "Dilution."
Our undesignated preferred stock may inhibit potential acquisition bids for us,
cause the market price for our common stock to fall and diminish the voting
rights of the holders of our common stock.
If our board of directors issues preferred stock, potential acquirors may
not make acquisition bids for us, our stock price may fall and the voting
rights of existing stockholders may diminish as a result. Our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
in one or more series. Our board of directors can fix the price, rights,
preferences, privileges and restrictions of the preferred stock without any
further vote or action by our stockholders. See "Description of Capital Stock--
Preferred Stock."
We have anti-takeover defenses and employment agreements that could delay or
prevent an acquisition of our company.
Provisions of our certificate of incorporation and bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. In addition, we have employment
agreements with our executive officers that provide for the payment of certain
benefits, the acceleration of vesting of stock options and the rights of these
officers to require us to purchase their stock at a premium if these officers
are terminated within a specified period following the occurrence of a change
of control event. These agreements may make it more difficult for a third party
to acquire us. See "Management--Employment Agreements" and "Description of
Capital Stock."
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<PAGE>
We may need to raise additional capital to achieve our business objectives.
We may need to raise additional capital to continue to develop our business.
Additional financing may not be available on favorable terms or at all. If
adequate funds are not available or are not available on acceptable terms, we
would be unable to achieve one or more of our business objectives, including:
. continue to develop our business;
. take advantage of acquisition opportunities;
. develop or enhance our products and services;
. increase our revenues; or
. respond to competitive pressures.
FORWARD-LOOKING STATEMENTS
This prospectus, including the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" sections,
contains forward-looking statements that involve risks and uncertainties. The
statements relate to future events or our future financial performance. In many
cases, you can identify forward-looking statements by the use of words such as
may, will, should, expects, plans, anticipates, believes, estimates, predicts,
potential or continue, or the negative of these terms or other comparable
terminology. Our actual results could be materially different from those
anticipated in these forward-looking statements as a result of a number of
factors, including the risks we face described above and elsewhere in this
prospectus. Before you decide to invest in our common stock, you should be
aware that if any of the events described in the "Risk Factors" section and
elsewhere in this prospectus occur, they could have an adverse affect on our
business, financial condition and results of operations. We are not obligated
to update any forward-looking statements.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of
the shares of common stock offered by us will be $ million. Our
calculation of the net proceeds assumes an initial public offering price of
$ per share and is net of the estimated underwriting discounts and
commissions and offering expenses payable by us. We will not receive any
proceeds from shares sold by the selling stockholder.
We intend to use approximately $ million of the net proceeds of this
offering to discharge our loan from Sanwa Bank California. The interest rate on
this debt is either LIBOR plus 3.6% or the bank's reference rate plus 1.0%, at
our option, and the line of credit that we have with the bank converts into a
term loan on March 31, 2000 that matures on March 31, 2003. We borrowed this
money to develop our software systems and licensing and to purchase computer
hardware. The remaining net proceeds of this offering will be used for general
corporate purposes, including working capital, sales and marketing expenditures
and development of new products and services, and we may also use a portion of
the net proceeds to acquire or invest in complementary businesses,
technologies, products or services, although we have no present agreement or
understanding with respect to any material acquisition or investment. We have
not determined the amount of net proceeds to be used specifically for each of
the foregoing purposes. Accordingly, our management will have broad discretion
to spend flexibly in applying most of the net proceeds of this offering.
Pending their use we intend to invest the net proceeds of this offering in
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings to finance the growth and
development of our business, and we do not expect to pay any cash dividends in
the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding
preferred shares into 542,304 shares of common stock, which will occur
before the closing of this offering; and
. on a pro forma as adjusted basis to reflect the pro forma adjustment and
our sale of shares of common stock in this offering at an
assumed initial offering price of $ per share and our receipt of the
net proceeds from the sale of those shares, after deducting estimated
underwriting discounts and commissions and offering expenses payable by
us.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- ----------- -----------
(unaudited) (unaudited)
(in thousands, except share
data)
<S> <C> <C> <C>
Long-term debt................................ $ 1,767 $ 1,767 $
Deferred income taxes......................... 1,084 1,084
Redeemable convertible preferred stock,
Series E, $40 stated value, 75,000 shares
authorized; 12,500 shares outstanding
(actual); no shares outstanding (pro forma
and pro forma, as adjusted).................. 500 --
Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000,000
shares authorized; no shares outstanding
(actual, pro forma and pro forma as
adjusted)................................... -- --
Common stock, $0.0001 par value; 100,000,000
shares authorized; 6,385,394 shares
outstanding (actual); 6,927,698 shares
outstanding (pro forma); and shares
outstanding (pro forma as adjusted)......... 6,620 7,120
Deferred compensation......................... (1,073) (1,073)
Accumulated deficit........................... (725) (725)
Accumulated other comprehensive loss.......... (6) (6)
------- ------- ----------
Total stockholders' equity.................. 4,816 5,316
------- ------- ----------
Total capitalization....................... $ 8,167 $ 8,167 $
======= ======= ==========
</TABLE>
The above information excludes as of December 31, 1999:
. 689,627 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $4.82; and
. shares reserved for future issuance under our employee benefit
plans.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $
million, or $ per share of common stock. Pro forma net tangible book value
per share is determined by dividing the amount of pro forma tangible assets
less total liabilities, by the pro forma number of shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the pro forma net tangible book value per share of our common
stock immediately after this offering. After giving effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us, our adjusted pro
forma net tangible book value as of December 31, 1999 would have been
$ million, or $ per share. This amount represents an immediate increase
in pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to investors in this offering. The
following table illustrates this dilution of net tangible book value per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $
Pro forma net tangible book value per share as of December 31,
1999.......................................................... $
Increase per share attributable to new investors...............
----
Pro forma as adjusted net tangible book value per share after
this offering...................................................
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table summarizes as of December 31, 1999, on the pro forma
basis discussed above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and by the investors purchasing shares of common stock in
this offering, at an assumed initial public offering price of $ per share,
before deducting estimated underwriting discounts and commissions and offering
expenses payable by us. Shares to be sold by the selling stockholder are
excluded from the shares purchased by the new investors and included in shares
purchased by the existing stockholders in this table.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
---- ----- ----- -----
Total.......................... 100.0% $ 100.0%
==== ===== ===== =====
</TABLE>
Sales by the selling stockholder in this offering will have the following
effects:
. it will reduce the shares held by existing stockholders to
shares, or % of the total shares outstanding after this offering; and
. it will increase the shares held by new investors to , or
% of the total shares outstanding after this offering.
The exercise of the underwriters' over-allotment in full will have the
following effects:
. it will reduce the shares held by existing stockholders to
shares, or % of the total shares outstanding after this offering; and
. it will increase the shares held by new investors to , or
% of the total shares outstanding after this offering.
The above information excludes 689,627 shares of common stock issuable upon
the exercise of options outstanding as of December 31, 1999 at a weighted
average exercise price of $4.82 per share. If any of those options are
exercised, new investors will incur further dilution.
23
<PAGE>
SELECTED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the selected financial data below in conjunction
with our financial statements and the related notes included elsewhere in this
prospectus and in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The following selected financial data as of December 31, 1998 and
1999 and for the years ended December 31, 1997, 1998 and 1999, have been
derived from, and are qualified by reference to, our audited financial
statements and notes thereto, which are included elsewhere in this prospectus.
The selected financial data as of December 31, 1995, 1996 and 1997 and for the
years ended December 31, 1995 and 1996 were derived from our audited financial
statements, which do not appear in this prospectus. Historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Service revenues (net of direct
costs billed of $79,077, $117,026,
$241,917, $386,221, $712,945,
respectively)...................... $2,515 $3,139 $ 7,749 $12,443 $19,127
Operating expenses:
Cost of providing services......... 1,586 1,687 4,120 6,379 10,102
Client acquisition costs........... 521 635 1,078 1,102 2,541
General and administrative......... 582 614 846 1,783 2,543
Research and development........... 180 194 488 719 2,353
Depreciation....................... 112 139 229 565 743
Stock-based compensation........... -- -- -- 146 651
------ ------ ------- ------- -------
Total operating expenses.......... 2,981 3,269 6,761 10,694 18,933
------ ------ ------- ------- -------
Operating income (loss)............. (466) (130) 988 1,749 194
Interest income (expense), net...... (19) (26) 19 38 64
Foreign exchange gain (loss)........ -- -- -- (26) 38
(Provision) benefit for income
taxes.............................. 20 (1) (247) (779) (399)
------ ------ ------- ------- -------
Net income (loss)................... $ (465) $ (157) $ 760 $ 982 $ (103)
====== ====== ======= ======= =======
Net income (loss) available to
common stockholders................ (466) (217) (347) 455 (133)
Basic net income (loss) per common
share.............................. $(0.14) $(0.07) $ (0.10) $ 0.07 $ (0.02)
Basic weighted average shares
outstanding........................ 3,260 3,323 3,599 6,303 6,340
Diluted net income (loss) per common
share.............................. $(0.14) $(0.07) $ (0.10) $ 0.07 $ (0.02)
Diluted weighted average shares
outstanding........................ 3,260 3,323 3,599 6,593 6,340
Pro forma basic and diluted net
(loss) per common share
(unaudited)........................ $ (0.01)
Pro forma basic and diluted weighted
average shares outstanding
(unaudited)........................ 6,883
<CAPTION>
December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........... $2,470 $4,807 $ 7,927 $ 8,585 $16,777
Working capital..................... 550 418 251 1,005 113
Total assets........................ 4,797 8,528 14,758 20,092 35,791
Long-term obligations............... 176 66 -- 531 2,851
Redeemable convertible preferred
stock.............................. 959 1,455 -- 500 500
Total stockholders' equity
(deficit).......................... (10) (411) 2,943 4,068 4,816
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by forward-looking information due to
factors discussed under "Risk Factors," "Business" and elsewhere in this
prospectus.
Overview
We provide web-enabled business process outsourcing, or BPO, of payroll,
benefits and human resource support to fast growth technology companies in
North America. In 1990, we introduced Venture Employer Services targeted to
emerging fast-growth technology companies. In January 1999, we initially
launched Enterprise Employer Services, an integrated outsourced payroll and
benefits administration service for middle-market companies.
Service revenues for Venture Employer Services, Enterprise Employer
Services, Venture Talent and Venture Management Resources consist of fees
charged for services and vary based on the level of services provided.
Customers of Venture Employer Services enter into a customer service
agreement that establishes a shared employer relationship between us and the
customer. The agreement provides for an initial one-year term, subject to
cancellation on 30 days' notice by either us or the customer. Direct costs
billed that are associated with the gross payroll of each employee, the
estimated costs of employment related taxes, and health and welfare benefit
plan premiums are not included in service revenue. These fees are invoiced
along with each periodic payroll processed.
Each customer service agreement obligates us to provide the benefits and
services enumerated in that agreement as well as to pay the direct costs billed
associated with these benefits and services regardless of whether the customer
makes timely payments to us. The most significant direct costs associated with
each customer service agreement are the salaries and wages of employees that
generally are disbursed promptly after the applicable customer service fee is
received.
Investment revenue is earned during the period between collecting customer
funds and the payment of applicable wages and the remittance of funds to the
applicable taxing authorities as well as other regulatory and insurance
entities. Investment revenue by Venture Employer Services and Enterprise
Employer Services is included in service revenues.
Cost of providing services consists primarily of salaries and wages from our
payroll, benefits and human resource departments as well as the overhead
relating to these functions. As we expand our operations to service additional
customers and employees, we expect these expenses will continue to increase.
Client acquisition costs consist primarily of salaries, commissions and
wages associated with our sales force, marketing department and client
implementation services. In addition to these costs, costs relating to the
marketing programs supporting us are included within client acquisition costs.
We intend to pursue additional sales and marketing campaigns and therefore
expect these expenses to increase in the future.
25
<PAGE>
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. As we add
personnel and incur additional costs related to the growth of our business and
assume the responsibilities and costs associated with becoming a public
company, we expect that general and administrative expenses will also
increase.
Research and development expenses consist primarily of salaries and related
personnel expenses, consultant fees relating to the design, development,
testing and enhancement of our back-end software and processes as well as
employee and management interfacing applications. We believe that continued
investment in research and development is critical to attaining our stated
objectives. We expect these expenses to increase significantly in the future
as we continue to develop and enhance our service offerings.
In connection with the grant of certain options to employees, we recorded
non-cash stock-based compensation charges of approximately $1.4 million for
the year ended December 31, 1999 and $503,000 for the year ended December 31,
1998, representing the difference between the exercise price of these options
and the deemed fair value of our common stock as of the date of grant. These
amounts are being amortized over the respective vesting periods of the options
using a graded method. As of December 31, 1999, the remaining deferred
compensation was scheduled to be amortized at the rate of $674,000 for the
year ending December 31, 2000, $279,000 for the year ending December 31, 2001,
$106,000 for the year ending December 31, 2002 and $14,000 for the year ending
December 31, 2003. The actual amount of stock-based compensation expense to be
recognized in future periods could decrease if options for which deferred
compensation has been recorded are terminated before they vest.
Our provision for income taxes exceeds the U.S. statutory rate of 34% and
is expected to continue to exceed the statutory rate primarily due to state
income taxes and the amortization of nondeductible stock-based compensation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting purposes and the amounts used for income tax purposes. Significant
items resulting in deferred income taxes include software development costs,
depreciation and accrued expenses. Changes in these items are reflected in our
financial statements through our deferred income tax provision.
We believe that period-to-period comparisons of our operating results
should not be relied upon as indicative of future performance. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. We may not
succeed in addressing these risks and difficulties. Although we have
experienced revenue growth in the past, this growth may not continue.
26
<PAGE>
Results of Operations
The following table sets forth statement of operations data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service revenues (net of direct costs billed).... 100.0 % 100.0 % 100.0 %
------- ------- -------
Operating expenses:
Cost of providing services...................... 53.2 51.3 52.8
Client acquisition costs........................ 13.9 8.8 13.3
General and administrative...................... 10.9 14.3 13.3
Research and development........................ 6.3 5.8 12.3
Depreciation.................................... 3.0 4.5 3.9
Stock-based compensation ....................... -- 1.2 3.4
------- ------- -------
Total operating expenses....................... 87.3 85.9 99.0
------- ------- -------
Operating income................................. 12.7 14.1 1.0
Interest income (expense), net................... 0.2 0.3 0.3
Foreign exchange gain (loss)..................... -- (0.2) 0.2
(Provision) benefit for income taxes............. (3.1) (6.3) (2.0)
------- ------- -------
Net income (loss)................................ 9.8 % 7.9 % (0.5)%
======= ======= =======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Service Revenues. Our service revenues increased $6.7 million to $19.1
million in 1999 from $12.4 million in 1998, representing an increase of 53.7%.
This increase was primarily due to the introduction of Enterprise Employer
Services, an increase in the number of customers and related increases in the
number of employees processed under Venture Employer Services and increases in
placement fees generated by Venture Talent. Prior to 1999, we had no service
revenues from Enterprise Employer Services.
Cost of Providing Services. Our cost of providing services increased $3.7
million to $10.1 million in 1999 from $6.4 million in 1998, representing an
increase of 58.4%. The increase was due to increases in the number of personnel
in payroll, benefits and human resource administration functions relating to
providing services to our customers.
Client Acquisition Costs. Client acquisition costs increased by $1.4 million
to $2.5 million in 1999 from $1.1 million in 1998, representing an increase of
130.5%. This increase was primarily attributable to salaries and commissions
associated with newly hired personnel as a result of expanding into new
geographic markets and new marketing programs.
General and Administrative Expense. General and administrative expense
increased by $761,000 to $2.5 million in 1999 from $1.8 million in 1998,
representing an increase of 42.7%. The increase primarily resulted from
salaries associated with newly hired personnel and related operational costs
required to manage our growth.
Research and Development Expense. Research and development expense increased
$1.6 million to $2.4 million in 1999 from $719,000 in 1998, representing an
increase of 227.4%. The
27
<PAGE>
increase in research and development expense reflects our additional
expenditures for the development of front-end and back-end software
applications.
Depreciation Expense. Depreciation expense increased $178,000 to $743,000 in
1999 from $565,000 in 1998, representing an increase of 31.5%. This is due to
an increase in capitalized information technology equipment and capitalized
licensed software as a result of additional development of front-end and back-
end software applications.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Service Revenues. Our service revenues increased $4.7 million to $12.4
million in 1998 from $7.7 million in 1997, representing an increase of 60.6%.
This increase was primarily due to an increase in the number of customers and
related increases in the number of employees processed under Venture Employer
Services as well as increases in placement fees generated by Venture Talent.
Cost of Providing Services. Our cost of providing services increased $2.3
million to $6.4 million in 1998 from $4.1 million in 1997, representing an
increase of 54.8%. The increase was due to increases in the number of personnel
in payroll, benefits and human resource administration functions relating to
providing services to our customers.
Client Acquisition Costs. Client acquisition costs remained consistent
between 1998 and 1997 at approximately $1.1 million. The amount remained
constant as a result of no net increase in personnel costs during 1998 and
1997.
General and Administrative Expense. General and administrative expense
increased by $1.0 million to $1.8 million in 1998 from $846,000 in 1997,
representing an increase of 110.6%. The increase primarily resulted from
salaries associated with newly hired personnel and related operational costs
required to manage our growth.
Research and Development Expense. Research and development expense increased
by $231,000 to $719,000 in 1998 from $488,000 in 1997, an increase of 47.1%.
The increase in research and development expense reflects our additional
expenditure for the development of front-end and back-end software
applications.
Depreciation Expense. Depreciation expense increased $336,000 to $565,000 in
1998 from $229,000 in 1997, an increase of 147.1%. This was due to an increase
in capitalized information technology equipment and capitalized licensed
software as a result of additional development of front-end and back-end
software applications.
28
<PAGE>
Quarterly Results of Operations
The following tables represent unaudited statement of operations data for
our most recent eight quarters. The first table contains revenue and expense
data expressed in dollars, while the second table contains the same data
expressed as a percentage of our revenue for the periods indicated. You should
read the following table in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus. We have
prepared this unaudited information on a basis consistent with the audited
consolidated financial statements contained in this prospectus and includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for the quarters presented. Our quarterly results have been in the
past, and in the future may be, subject to fluctuations. As a result, we
believe that results of operations for the interim periods are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
Mar. 31 June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service revenues (net of
direct costs).......... $2,724 $2,819 $3,321 $3,579 $4,160 $4,360 $4,779 $5,828
Cost of providing
services............... 1,468 1,548 1,614 1,749 2,093 2,210 2,600 3,199
Client acquisition
costs.................. 277 267 243 315 474 574 562 931
General and
administrative ........ 433 418 438 494 613 565 577 788
Research and development
....................... 215 126 159 219 363 358 477 1,155
Depreciation ........... 136 139 141 149 168 180 188 207
Stock-based compensation
....................... 2 7 63 74 90 121 216 224
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 2,531 2,505 2,658 3,000 3,801 4,008 4,620 6,504
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. 193 314 663 579 359 352 159 (676)
Other income (expense):
Interest income, net... 9 9 12 8 11 12 13 28
Foreign exchange gain
(loss)................ (8) (8) (10) -- (22) 15 2 43
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision for income
taxes.................. 194 315 665 587 348 379 174 (605)
(Provision) benefit for
income taxes........... (81) (131) (297) (270) (504) (544) (267) 916
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 113 $ 184 $ 368 $ 317 $(156) $ (165) $ (93) $ 311
====== ====== ====== ====== ====== ====== ====== ======
As a percentage of total
revenues:
Service revenues (net of
direct costs).......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of providing
services............... 53.9 54.9 48.6 48.9 50.3 50.7 54.4 54.9
Client acquisition
costs.................. 10.2 9.5 7.3 8.8 11.4 13.2 11.8 16.0
General and
administrative ........ 15.9 14.9 13.2 13.8 14.7 12.9 12.1 13.5
Research and development
....................... 7.9 4.5 4.8 6.1 8.7 8.2 10.0 19.8
Depreciation ........... 5.0 4.9 4.2 4.1 4.1 4.1 3.9 3.6
Stock-based compensation
....................... 0.0 0.2 1.9 2.1 2.2 2.8 4.5 3.8
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 92.9 88.9 80.0 83.8 91.4 91.9 96.7 111.6
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. 7.1 11.1 20.0 16.2 8.6 8.1 3.3 (11.6)
Other income (expense):
Interest income, net... 0.3 0.3 0.4 0.2 0.3 0.3 0.3 0.5
Foreign exchange gain
(loss)................ (0.3) (0.3) (0.4) 0.0 (0.5) 0.3 0.1 0.7
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision for income
taxes.................. 7.1 11.1 20.0 16.4 8.4 8.7 3.7 (10.4)
(Provision) benefit for
income taxes........... (3.0) (4.6) (8.9) (7.5) (12.1) (12.5) (5.6) 15.7
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... 4.1 % 6.5 % 11.1 % 8.9 % (3.7)% (3.8)% (1.9)% 5.3 %
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
29
<PAGE>
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future as a result of a number of
factors, many of which are outside of our control, including:
. the number and size of new customers initiating service;
. the decision of one or more customers to delay implementation or cancel
ongoing services;
. our ability to design, develop and introduce new services and features
for existing services on a timely basis;
. costs associated with strategic acquisitions and alliances or investments
in technology;
. expenses incurred for geographic and service expansion;
. a reduction in the number of employees of our customers; and
. acquisitions of our customers by other companies.
Our expenses are relatively fixed in the near and medium terms and are based
in part on our expectations of future revenues, which may vary significantly.
Our expectations regarding future revenues may not be accurate. If we do not
achieve expected revenue targets, we may be unable to adjust our spending
quickly enough to offset any revenue shortfall, which could harm our operating
results.
Liquidity and Capital Resources
Since our inception we have funded our operations primarily through private
sales of convertible preferred equity securities resulting in aggregate net
proceeds of $7.25 million and cash from operations. We have also funded our
operations through a debt agreement with Sanwa Bank California that provides us
with up to $4.0 million in financing. We had drawn down $2.4 million on this
line of credit as of December 31, 1999.
Net cash provided by operating activities for 1999 was $11.6 million as a
result of a net loss of $103,000 and an increase in accrued compensation and
related expenses relating to timing differences in receiving and remitting
funds to insurance carriers and taxing authorities of customer payrolls of
$10.7 million. Net cash provided by operating activities was $2.2 million in
1998 and $4.2 million in 1997. This decrease resulted from the timing of
payrolls at the end of the reporting periods and the associated accruals.
Net cash used in investing activities was $4.7 million for 1999 as a result
of purchases of equipment and the capitalization of development costs relating
to the migration of our back-office processing systems to our new PeopleSoft
platform. Net cash used in investing activities was $1.9 million in 1998 and
$2.2 million in 1997 and was related to investments in infrastructure for
expansion of long-term operations, including software development costs.
Net cash provided by financing activities was $1.4 million for 1999,
primarily as a result of borrowing $1.2 million from Sanwa Bank California. Net
cash provided by financing activities was $427,000 during 1998 and $1.2 million
during 1997, primarily due to the issuance of $500,000 in preferred stock in
1998 as compared with $1.0 million in preferred stock in 1997.
30
<PAGE>
We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities as well as planned capital expenditures will constitute a
substantial use of our cash resources. In addition, we may utilize cash
resources to fund acquisitions or investments in complementary businesses,
technologies or products. We believe that the net proceeds from this offering,
together with our current cash and cash equivalents and cash generated from
operations will be sufficient to meet our anticipated cash requirements for
working capital and capital expenditures for the next 12 months. During or
after this period, if cash generated by operations is insufficient to satisfy
our operating requirements, we will be required to seek additional debt or
equity financing. We may be unable to obtain any financing on terms acceptable
to us, if at all. If we sell additional equity securities, our stockholders'
holdings could be diluted.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using 00 as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using computer programs or hardware, including among
other things, a temporary inability to process data or engage in normal
business activities. As a result, many companies' computer systems may need to
be upgraded or replaced in order to avoid Year 2000 issues.
State of Readiness. We have completed our assessment of any potential Year
2000 issues for our internal computer applications, including embedded control
systems in equipment to determine whether they will function for the Year 2000
and beyond and what modifications would be required to ensure their continuing
functionality. We implemented a new financial accounting system in May of 1998
that is Year 2000 compliant. Our legacy human resource information system has
been upgraded to be Year 2000 compliant and we are migrating all customers to
our new human resource information system that is also Year 2000 compliant. We
performed backups of the existing and previous versions of our legacy human
resource information system so that in the event our new human resource
information system and related hardware do not function properly we can
continue to operate under our legacy system.
We are unable to control whether systems operated by our suppliers of goods
and services are Year 2000 compliant. The failure of systems operated by our
suppliers could cause us to incur significant expenses to remedy any problems
or otherwise seriously damage our business. We have communicated with suppliers
to assess the risk of Year 2000 issues. Based on these results, we do not
expect any material Year 2000 issues regarding our dealings with our suppliers.
We do not believe that Year 2000 issues will have a material impact on our
business, financial condition or results of operations.
Budget. Our costs of Year 2000 compliance have been immaterial.
Reasonably Likely Worst Case Scenario. If we or our suppliers of goods and
services fail to remedy any Year 2000 issues, the reasonably likely worst case
scenario would be the interruption of our services to our customers, which
could harm our business. We are unable to estimate the duration and extent of
any interruption, or estimate the effect such interruption may have on our
future results of operations.
31
<PAGE>
Contingency Plans. We have adopted contingency measures to ensure the
uninterrupted operation of our business, including:
. creation of an additional processing facility to reduce the dependency on
a single facility;
. off-site storage of tape backup;
. paper archive copies of critical data; and
. availability of information systems staff to correct any isolated
problems.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," or FAS 133. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction, and, if so, the type of hedge transaction. In June
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," or FAS 137, which amends FAS 133 to
be effective for all fiscal quarters or all fiscal years beginning after June
15, 2000 or January 1, 2001 for us. We do not expect that adoption of FAS 137
will have a material impact on our reported results of operations.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. We are subject to market risk from exposure to changes
in interest rates based on our investing and cash management activities. We use
overnight investments that may include U.S. government agency and other
corporate debt and securities. Our current borrowings from Sanwa Bank bear
interest at a variable rate and on March 31, 2000 will convert to a fixed rate
term note. Accordingly, we believe there is currently minimal exposure to
interest rates.
Foreign Currency Exchange Rate Risk. To date, substantially all of our
service revenues have been denominated in U.S. dollars and generated primarily
from customers in the United States, and our exposure to foreign currency
exchange rates has been immaterial. We expect, however, that future service
revenues may also be derived from international operations where service
revenues may be denominated in currency of the applicable market. We do not
currently use or anticipate using financial hedging techniques to attempt to
minimize fluctuations in exchange rates.
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<PAGE>
BUSINESS
Introduction
We are a leading provider of web-enabled business process outsourcing, or
BPO, of payroll, benefits and human resource support and technology to fast-
growth technology companies in North America. With significant web delivery
capabilities already enabled, and others in development, we believe that we
offer the first fully integrated end-to-end e-commerce solution for payroll,
benefits and human resource transactions. Our systems and services allow our
customers to focus on their respective core business functions by outsourcing
their human resource technology or entire human resource functions to us
without losing real-time access to critical data. In addition, we serve as an
exchange between our customers and a variety of benefit plan and financial
service providers, creating economies of scale and efficiencies in the
procurement, set-up and on-going maintenance of vendor relationships involving
the full range of payroll, benefits and human resource processes.
We have over 10 years of industry experience in providing BPO services to
fast-growth technology companies in North America. We target "fast companies"
that are characterized by rapid headcount growth, outside equity financing and
highly skilled, technically savvy work forces. The complexities of managing
rapid growth make fast companies receptive to value-added outsourcing
relationships. We provide fast companies with access to enterprise-class
technology, benefits packages and employee self-service offerings while
alleviating time-consuming administrative tasks associated with the
implementation and maintenance of these complex functions. Our market focus has
created a large and growing referral network among venture investors and also
provides an opportunity for us to achieve compounding internal growth as our
customers expand their employee headcount.
Industry
Overview of Business Process Outsourcing for Payroll, Benefits and Human
Resources
According to Dataquest, the human resource outsourcing industry is forecast
to grow from $13.9 billion in 1999 to $37.7 billion in 2003, representing a
compound annual growth rate of 28.3%. Companies are increasingly turning to BPO
to address a range of needs, such as payroll, benefits and human resource
processes, that were formerly handled in-house. In a PricewaterhouseCoopers
study performed by Yankelovich Partners of global top decision makers on BPO,
42% of surveyed executives indicated a company-wide shift toward using BPO. The
study reported that the 10 business processes most likely to be outsourced to
external service providers are payroll, benefits management, real estate
management, tax compliance, claims administration, applications processing,
human resources, internal auditing, sourcing/procurement and
finance/accounting. The Yankelovich study reported that 90% of the top decision
makers selected a BPO service provider based on its track record and business
process specialization.
The market for BPO of payroll, benefits and human resource processes has
grown significantly in part due to the difficulties of managing these
activities internally. Within a company, these processes are complex,
cumbersome, expensive and highly inefficient. This is caused by a number of
factors, including:
. complex, voluminous and constantly changing government regulations
involving payroll, benefits and human resources;
. substantial liability that employers face for non-compliance and
employee-initiated claims;
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. the need for a verifiable audit trail to provide precision in payroll,
benefits and human resource transactions;
. the practice of larger employers in the United States to provide multiple
benefit plan options allowing employees to make choices that suit their
individual need;
. the dedication of technology resources to mission critical activities
involving product development and sales, causing human resource processes
to remain on largely inefficient platforms; and
. the expense associated with creating an integrated platform and quick
obsolescence of these platforms.
In addition, for many small and middle-market employers, the functions of
payroll, benefits and human resources are typically outsourced to multiple
vendors, which specialize in a specific category. The following vendor
relationships are typically established:
. payroll service provider;
. insurance broker for benefits such as health, life and disability plans;
. casualty insurance broker for workers compensation;
. insurance carriers and health plan providers;
. cafeteria plan administrator for claims, enrollments and records
involving flexible benefits;
. 401(k) securities advisor; and
. 401(k) plan administrator.
Growth in Applications Outsourcing
The data and transaction intensive nature of payroll, benefits and human
resource functions combine to form a complex undertaking for a company that
wishes to integrate all related processes to a single information system.
Fortune 1000 companies may streamline and integrate aspects of related business
processes through implementing enterprise resource planning, or ERP, systems
such as PeopleSoft, SAP AG or Oracle Corporation. However, the long
implementation time and high cost of an ERP system precludes many middle-market
companies, or companies with 200 to 5,000 employees, and most emerging growth
companies, or companies with up to several hundred employees, from pursuing
this option. Recently, a number of companies, known as application service
providers, or ASPs, began providing integrated ERP applications that are hosted
by the ASP and accessed by the customer through the Internet. Growing
prominence of the Internet as a platform to host and distribute ERP
applications has contributed to the Forrester Report's prediction that the
applications outsourcing industry will grow from $17 billion in 1997 to reach
$21 billion by 2001.
Growth of Outside Equity Financed Technology Companies
The challenges and complexities of payroll, benefits and human resource
functions are heightened for companies characterized by high growth and intense
competition for qualified employees. These companies need processes that are
easily integrated and scalable and can offer them a competitive advantage in
the tight labor market. One segment of these companies is technology firms
whose rapid growth is fueled by outside equity investment such as venture
capital, corporate partnerships or the public market. As a result of the
increasing availability of private and
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public financing, the number of fast-growth technology companies has increased
in the recent past and continues to increase. According to
PricewaterhouseCoopers, the number of companies funded by venture capital for
1999 was 4,006 firms, a 41% increase from 1998. PricewaterhouseCoopers also
reported that the total amount of venture capital invested rose from $14.2
billion in 1998 to $35.6 billion in 1999 of which $10.8 billion in 1998 and
$32.4 billion in 1999 was invested in technology companies. According to
PricewaterhouseCoopers, the average deal size for all venture capital
investments increased from $5.2 million in 1998 to $8.9 million in 1999.
Payroll, Benefits and Human Resource Processes
The payroll, benefits and human resource processes consist of two basic
components commonly referred to as the "front-end" and "back-end" processes.
The front-end includes processes and interfaces to collect, update, effect
and communicate changes in employee data. Front-end transactions include the
processing of personal and employment life event changes such as new hires,
family members, salary, address and termination, and require interactions
between the employee, manager or human resources administrator. Unless
automated, these changes typically involve a lengthy period of time for these
parties to initiate, approve and post transactions to one or more information
systems. While employees, managers and administrators all require access to
human resource information, the confidential nature of this information
requires adequate safeguards to prevent unauthorized disclosure. Automation of
front-end processes has historically been difficult to achieve as access and
approval must conform to, and evolve with, a company's unique organizational
structure. Front-end processes include:
. obtaining information about an employee's current status or historical
transactions involving payroll, benefits or human resources;
. accessing management reporting for company-wide or work unit information
appropriate to the manager's or administrator's position in the
organization;
. enrollment in, on-going communication related to, and changes to all
employee benefit plans offered in the organization;
. initiating and approving the full range of payroll, benefits and human
resource transactions including routine personal and employment life
event changes; and
. communicating customized company policy information and processes
involving payroll, benefits and human resources.
The back-end involves high volume information processing of functions that
are sufficiently standardized across all companies to permit specialized
systems to receive, store and transact routine and repetitive functions
involving payroll, benefits and human resources. Portions of the back-end
functions may be performed through a company's internal human resource
information system. For fast growth technology companies, these functions are
more typically outsourced to specialized third party providers. Back-end
processes include:
. data storage of all historical transactions covering payroll, benefits
and human resource transactions;
. calculation, withholding and electronic remittance of payroll taxes to
taxing authorities nationwide;
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. calculation, deduction, and electronic remittance of payment transactions
with exchange partners such as benefit plan and financial service
providers; and
. exchange systems that transfer data involving eligibility, enrollment,
life event and related transactions to benefit plan and financial service
providers.
Limitations of Traditional Outsourcing Alternatives
Each service or benefit plan provider has its own information system and
separate reporting requirements for the employer to inform the provider of
routine personal and employment life event changes such as new hires, family
members, salary, address and termination. As the information systems of the
different service and benefit plan providers do not interface with each other,
an employer's in-house staff must coordinate the processing of each change with
all related vendors. In addition, the collection, storage and transmission of
this data to vendors remains a labor-intensive, paper-based and error-prone
process. If an employer fails to accurately update eligibility or financial
data in a timely fashion, an employee may be denied health care coverage or
receive an incorrect salary deposit. Errors increase administrative costs and
impair employee morale.
Except for organizations deploying an ERP system for payroll, benefits and
human resources, the front-end processes for these functions are accomplished
in most companies through a combination of paper and e-mail based processes, or
direct contact between a manager or employee with the company's human resources
administrator. As a result of recent developments in web-based technology,
several front-end solutions are emerging in the marketplace for payroll,
benefits and human resources. However, front-end only solutions are limited in
their ability to provide access to all of the relevant data desired by the
customer as they are dependent upon back-end providers like payroll processing
firms and third party administrators to perform transactions and store data. In
addition, most front-end solution providers rely upon manual and bridged data
transfers between multiple and redundant software applications, or entirely
outsourced functional areas, which decrease the flexibility and scalability of
these solutions.
We believe that back-end providers such as payroll processing firms and
third party administrators are currently not significantly involved in
integrating the functions of payroll, benefits and human resources to a single
information system. We are unaware of any back-end providers that offer web-
based front-ends that extend to the employee and manager desktops for
initiation and approval of self-directed transactions involving payroll,
benefits and human resources. Because most back-end providers market their
services to companies across a broad spectrum of industries, we believe their
user populations are not yet consistently web-enabled to warrant the
significant investment required to develop and deploy a web-based front-end
that extends across the entire workforce of their customer companies. In
addition, the lack of integration and data warehousing restricts these back-end
providers' ability to increase operational efficiency and develop personalized
technology for targeted service deliveries in specific markets.
While ASPs have evolved as a means for companies to outsource the
procurement, hosting, implementation and maintenance of ERP systems, we believe
that ASPs do not currently perform transaction processing or provide the
functional expertise to manage the operation of technology related to the
integration of the payroll, benefits and human resource functions.
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Opportunity for an Integrated Business-to-Business E-Commerce Solution
With the widespread implementation of intranets and the adoption of the
Internet as a business communications platform, organizations can now automate
enterprise-wide and interorganizational human resource transactions. The
availability of this technology creates a significant market opportunity for
Internet-based business-to-business e-commerce solutions for payroll, benefits
and human resources.
Payroll, benefits and human resource transactions lend themselves to
Internet processing because these transactions are information-based and do not
require delivery of durable goods at the point of payment. However, payroll,
benefits and human resource functions involve confidential information, complex
and interrelated data elements, and ongoing data management between multiple
organizations, unlike other e-commerce opportunities such as making travel
reservations or purchasing merchandise.
Currently, there are mature outsourcing providers for selected back-office
processes involving payroll and benefits. There are an emerging number of web-
based front-end solutions that must interface with back-end providers. We
believe an optimal e-commerce solution for payroll, benefits and human
resources can only exist if there is seamless end-to-end integration of the
front- and back-end processes on a single information systems platform that is
scalable for large volume transaction processing.
TriNet Solution
We believe our approach delivers the first end-to-end business-to-business
e-commerce solution for payroll, benefits and human resources. Our solution
integrates a web-based front-end for self-directed transactions with back-end
processes that include electronic interfaces to our service providers.
Our solution provides the following key benefits:
Provide an advanced integrated solution that allows customers to focus on
their core business. From providing BPO to 58 companies in 1995 to over 375
customers in 1999, we have built systems and services that enable customers to
integrate payroll, benefits and human resources to a single information systems
platform, as well as outsource related back-end transaction processing
functions. We are committed to providing our customers with the most advanced
applications and systems available. To allow our customers to avail themselves
of Internet technology for human resources, we provide a user-friendly,
intranet or extranet-based system that links employees, managers and
administrators with an integrated global network. By accessing our human
resource information systems infrastructure and using our enterprise level
business processes, customers can outsource major portions of their human
resource needs and focus on their own core business functions.
Provide human resource solutions tailored to fast growth technology
companies' employees. We provide fast-growth technology companies with rapid
deployment of our products and services, with an average of two weeks from
engagement to implementation. Once implemented, our system streamlines the
payroll, benefits and human resource processes. In addition, employees of these
companies typically have desktop Internet access and can take full advantage of
our web-based front-end solutions to fulfill self-directed transactions.
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Provide an easily scalable and integrated solution. The business environment
created by outside equity financing of technology companies also prompts a
rapid and continuous growth in employee headcount, creating a variety of
specialized needs within the category of human resources that are suitable for
outsourcing. Time and growth pressures fueled by the outside equity investor
model create special needs for scalable and integrated human resource
solutions. Our modular and integrated solution is capable of handling many
aspects of a company's growing payroll, benefits and human resource needs from
a company's inception through its growth into the middle market.
Provide customers with economies of scale and efficiencies. Because we serve
as an exchange between our customers and a variety of benefit plan and
financial service providers, we provide customers with economies of scale and
efficiencies in the procurement, set-up and on going maintenance of vendor
relationships involving the full range of human resource functions. Our system
takes advantage of an organization's existing investments in information
technologies by working with and connecting to multiple systems, including the
company's financial and internal reporting processes. Our aggregation of
customers serviced by our system permits us to offer to emerging growth and
middle-market companies enterprise-class solutions that are otherwise cost
prohibitive to all but the largest companies.
TriNet Strategy
Our objective is to be the leading provider of web-enabled business process
outsourcing of payroll, benefits and human resource support and related
technology to fast-growth technology companies worldwide. Key elements of our
strategy to achieve this objective are:
Continue to develop and improve our end-to-end e-commerce solution for a
complete range of payroll, benefits and human resource transactions. Our
existing web-enabled front-end is being enhanced with applications currently
being implemented and others now in development. These advances will add
significant value to our customer service, as well as increase internal
operating efficiencies and improve our solution's scalability to address the
needs of middle-market companies. We plan to create multiple layers of customer
dependency by increasing the penetration of our complementary products such as
comprehensive recruitment solutions and consulting services. In addition, we
will continually enhance our services through initiatives integral to our
quality management program installed and implemented pursuant to the
international ISO 9001 certification of this program.
Leverage our existing customer base for internal growth and referrals. A
common characteristic of technology firms whose growth is fueled by venture
capital and public financing is their rapid growth. Because a majority of our
services are provided on a fee per employee basis, our customers' growth
results in increased revenue opportunities for us. Because many of these fast-
growth technology companies have obtained their equity financing from many of
the same entities, through our relationships with our customers, we have been
able to build a network of referral sources. In addition, many of our customers
are venture capital firms and service providers who support these "fast
companies." We intend to aggressively pursue referral opportunities generated
by these customers as well as joint partnerships with customers. As we develop
complementary products, we will take advantage of our cross-selling
opportunities to increase revenue growth from existing customer relationships.
Enhance TriNet brand recognition in the middle market. While we will
continue to preserve a leadership position in the market of fast-growth
technology companies with up to several hundred
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employees, our strategy includes attaining a similar level of recognition and
revenue generation among middle-market fast-growth technology companies with
200 to 5,000 employees. We estimate that we have approximately an 85% retention
rate of total serviced employees in the United States. However, as many of our
earlier stage customers grow, they no longer need to aggregate their employees
with us in order to enjoy economies of efficiency and scale. To address our
maturing customer base, we have begun implementing a new product offering
targeted to the middle market. As of January 31, 2000, we had entered into
agreements with six middle-market customers. Our services offer middle-market
companies a scalable and integrated platform that they can use for payroll,
benefits and human resource functions.
Pursue key strategic relationships and develop new product offerings to
further enhance our revenue streams, customer base and solutions. We intend to
pursue key strategic relationships, including partnerships, joint ventures and
acquisitions. These strategic relationships could include companies that
provide additional business development opportunities and service offerings of
interest to our customers, including 401(k) plan administration, asset
management, stock option administration, electronic banking and human resource
consulting. We also intend to use our market knowledge and experience to
develop new products that will leverage the market channels created by the
deployment of our technology. Based on the nexus between our business customers
and individual employees to whom we provide service, we plan to create a
network effect that will build on the strengths of both the business-to-
business and business-to-consumer delivery models. For example, by mining data,
we can help our portal partners deliver their marketing messages on a more
targeted basis. We also plan to expand our revenue generating opportunities by
mining and offering portions of our data online. Through a human resource e-
commerce portal, we will help organizations obtain knowledge about fast-growth
technology companies, their practices and the people who work for them.
Expand geographically to new markets. We intend to pursue additional market
development activities in both new and developed markets, and evaluate other
geographic areas where there are demonstrated concentrations of firms fitting
our fast-growth technology company target profile in both emerging and middle
markets. We currently have sales offices in six of the top 10 venture-funded
geographical areas cited by the PricewaterhouseCoopers' Quarterly Moneytree
survey for the third quarter of 1999. We opened three of these sales offices in
the last six months and we intend to open additional offices in key technology
centers. As existing customers request the services of foreign employees in
other countries, we anticipate targeting our resources and systems capabilities
towards our goal of becoming the first global provider of BPO for payroll,
benefits and human resources.
Products and Services
We provide web-enabled business process outsourcing of payroll, benefits and
human resource support using an integrated information systems platform that is
supported by our back-office transaction processing capabilities. For over a
decade, our market focus has been devoted exclusively to fast-growth technology
companies that are characterized by rapid headcount growth, outside equity
financing and highly skilled, technically savvy work forces. Our systems
infrastructure and transaction processing are supplemented by optional layers
of fee-based human resource management expertise including employer related
risk management, recruitment, international employer services and management
consulting. The combination of our service modules permits customers to engage
us for services that would otherwise typically involve from five to a dozen
different vendor relationships.
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Our decade-long focus on fast companies has facilitated the development of a
range of human resource products and services based on a single technology
platform. We have tailored each offering to meet the specialized needs of
companies fitting our customer profile.
[SINGLE TECHNOLOGY PLATFORM GRAPHIC APPEARS HERE]
SINGLE TECHNOLOGY PLATFORM WITH CUSTOMIZED SERVICE SUITE
TriNet's eBusiness Platform
. Payroll
. Benefits
. Call Center
. HR Information System
. HR Passport--Sell-directed
Web-based Transactions
<TABLE>
<S> <C>
Venture Employer Services Enterprise Employer Services
. Emerging companies . Middle market companies
. TriNet is employer of record . Customer is employer of record
TriNet payroll ID# Customer payroll ID#
TriNet benefit plans* Customer benefit plans
TriNet workers comp policy Customer workers comp policy
TriNet shares employer risk Customer keeps all employer risk
. TriNet provides scalable levels of . Customer builds own HR team
HR management
</TABLE>
* except for 401(k) and incentive stock option plans sponsored by customer
Venture Employer Services, our largest and most mature business unit, is
targeted to emerging fast-growth technology companies of up to several hundred
employees and leverages our eBusiness platform to integrate functions of
payroll, benefits and human resource support to a single information system. We
aggregate the employees of smaller fast-growth technology companies into a
single employer group with TriNet serving as employer of record for payroll
taxes, selected benefit plans and related employer compliance requirements.
This aggregation permits us to offer the customer economies of scale in
purchasing benefits, as well as economies of efficiency in the administration
of various employer requirements ranging from payroll tax deposits to workers
compensation and government reporting. Venture Employer Services includes
scalable levels of on-site human resource management support and, as our
flagship business service, represents the largest of our business units. Our
Venture Employer Services customer base increased from 58 customers as of
January 31, 1995 to over 370 customers as of January 31, 2000, which
represented 84% of our total serviced employees.
Enterprise Employer Services, targeted to middle-market fast-growth
technology companies with 200 to 5,000 employees, uses our eBusiness platform
to integrate selected functions of payroll, benefits and human resource support
to a single information system. These services are also supported by our back-
office processing capabilities. In January 1999, we initially launched
Enterprise Employer Services to offer an upward migration path for Venture
Employer Service customers, particularly those growing to several hundred or
more employees. However, our continued development and deployment of web
technology has made the model attractive for any fast-growth
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technology company that no longer needs to aggregate employees with us in order
to enjoy economies of efficiency and scale, but still values a web-enabled,
scalable and integrated offering. Our Enterprise Employer Services customer
base increased to six customers as of January 31, 2000, which represented 16%
of our total serviced employees.
Venture Talent, launched in 1996, targeted to fast-growth technology
companies of up to several hundred employees, provides comprehensive and
integrated staffing and recruitment solutions such as Internet delivered
automation tools, on-site recruitment staff, off-site research and candidate
development and an applicant tracking system. By combining multiple candidate
sources, including Venture Talent generated resumes, web posting responses,
resumes from online databases, employee referrals and recruitment agency
candidates, this service enables customers to meet their critical hiring needs
faster than if they used any one of these sources individually. Venture Talent
offers a range of service solutions customized to meet the needs of fast-growth
technology companies throughout their growth cycle, and allows them to benefit
from our growing network of referral sources and business relationships. The
length and scope of engagements for Venture Talent vary based upon customer
need. Our Venture Talent customer base increased from 10 customers as of
January 31, 1997 to 45 customers as of January 31, 2000.
Venture Management Resources, our consulting service which we initially
launched in 1998, is targeted to emerging and middle-market fast-growth
technology companies. Venture Management Resources is empowered with easy
access to our extensive database of information involving human resource
practices of fast-growth technology companies, including those derived from
data mining of our payroll, benefits and human resource transactions processed
through our Venture and Enterprise Employer Services. Using a combination of
data analysis and a decade long history of working with management issues
specific to fast-growth technology companies, Venture Management Resources
provides fee-for-service consulting and administrative services involving pay
and performance, change management, training, international employment, policy
development, employee relations, pre-employment screenings and employee
communications. The length and scope of engagements for Venture Management
Resources vary based upon customer need. Our Venture Management Resources
customer base consisted of 29 customers in the 12 months ended January 31,
2000.
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Representative Functions Performed by TriNet's eBusiness Platform
<TABLE>
<CAPTION>
Payroll Benefits Human Resources
- ---------------------------------------------------------------------------------
<S> <C> <C>
Calculation and End-to-end, online Government mandated
remittance of payroll enrollment for benefit reporting for all
taxes plans employers
- ---------------------------------------------------------------------------------
Calculation and Online access to benefit Online access to
withholding of all plan information individual employee
benefit plan deductions records
- ---------------------------------------------------------------------------------
Direct deposit of Total administration of Online new hire processing
paychecks flexible spending accounts
- ---------------------------------------------------------------------------------
Customized management Administration of Online access for human
reporting to reflect Consolidated Omnibus resource related guidance
customer's cost center Budget Reconciliation Act for managers
and organization (COBRA) and Health
structure Insurance Portability and
Accounting Act (HIPAA)
- ---------------------------------------------------------------------------------
Remittance of payments Reconciliation of benefit Online access to employee
to all benefit plan and plan payments with all handbook and company
financial service enrollment, change and policy
vendors termination transactions
- ---------------------------------------------------------------------------------
Employment verifications Annual open enrollment Posting service for job
involving employee communications and openings at client
income administration companies
- ---------------------------------------------------------------------------------
Wage garnishments and Liaison with benefit plan Online access to
related reporting providers for employee information on products
service issues and services where we have
negotiated volume
discounts
</TABLE>
Customers and Partners
We tailor our services to meet the specific needs of fast-growth technology
companies. As a leader in providing BPO to the fast-growth technology company
market niche, we have developed specialized knowledge of the products and
services important to these organizations.
We qualify customer prospects based on the following fast-growth technology
company profile:
. Fast headcount growth. The headcount growth rate is a significant part of
our economic model as pricing of our core services for Venture and
Enterprise Employer Services is based on the number of employees we
service for the customer. Every time a customer adds a new person to its
total employee headcount, we compound our revenue stream. Our historical
average over the last five years has shown a rate of "internal growth,"
net of new sales activity, to be in excess of 3% per month.
. Outside equity financing. We seek customers that have received
substantial outside equity financing from professional investors.
Servicing outside equity-financed companies provides us with customers
who have low credit risk and the ability to meet aggressive hiring
targets,
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and allows us to leverage a growing network of referral sources and
business relationships with various venture capitalists and corporate
financiers. Currently, over 85% of our customers either have received
outside equity financing in the form of venture capital, sophisticated
angel investors, corporate financing or the public market or are venture
capital firms.
. Highly compensated, professional/technical workforce. Our customers'
employees averaged $89,000 per year in salary as of the quarter ended
December 31, 1999. A highly compensated workforce helps ensure our
customers have a consistent employee profile and can take advantage of
both our web-enabled service delivery platform and full service suite,
including Venture Talent and Venture Management Resources. For Venture
Employer Services, consistency in the highly compensated
professional/technical workforce reduces our risk in managing aspects of
serving as employer of record.
Through Venture Employer Services, we have historically targeted emerging
fast-growth technology companies with up to several hundred employees. In
response to the maturing of these emerging fast-growth technology companies
into middle-market companies with 200 to 5,000 employees, we introduced
Enterprise Employer Services specifically to target these middle-market
companies.
As of January 31, 2000, our over 375 customers had employees in 47 U.S.
states, as well as Canada and the United Kingdom. We are also providing
expatriate services to customers with employees in Brazil, Germany, the
Netherlands, Taiwan and the United Kingdom. As of January 31, 2000, while 58%
of our customers were based in Silicon Valley, our fastest growing regional
offices have been in the southeastern and southwestern United States. In the
year ended December 31, 1999, no customer contributed more than 3.5% to our
service revenues and our top five customers combined for a total of 11.1% of
our service revenues.
Representative Customer Profiles
The following are a representative sample of our "customer-oriented"
solutions:
Entrust Technologies Inc.
Entrust Technologies Inc. (NASDAQ: ENTU) is a global leader in providing
products and services that allow eBusinesses to manage trusted, secure
electronic transactions and communications over today's advanced networks,
including the Internet, extranets and intranets.
Opportunity: Entrust was founded in 1997 as a corporate spin-off from Nortel
Networks. The founding team included a number of management and technical staff
who left their positions at Nortel to launch Entrust. As a new company with
defined expectations from an existing base of employees, Entrust sought to
establish a full corporate benefits and human resource system to transition
from Nortel as well as facilitate its planned rapid growth.
Solution: Entrust selected Venture Employer Services as a platform to launch
its payroll, benefits and human resource functions when the company was formed.
We currently service the entire Entrust U.S.-based workforce of 90 employees as
of January 31, 2000 in 8 states. We have also incorporated Entrust's patented
encryption technology into our eBusiness platform to ensure confidentiality of
our customer and employee information for web-enabled transactions and
management reporting.
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Interliant, Inc.
Interliant, Inc. (NASDAQ:INIT), which had received venture funding from
SoftBank, is a leading ASP. Interliant's solutions enable companies of all
sizes to capitalize on the latest web-based technologies and packaged software
applications quickly and cost effectively.
Opportunity: Interliant needed a cost-effective human resource outsourcing
provider that could support its acquisition growth strategy. Acquisitions
enable a company to grow rapidly but challenge a company's ability to deliver
consistent employee support to disparate and geographically diverse entities.
Interliant sought a unified human resource infrastructure that could quickly
support large employee increases.
Solution: We began working with Interliant on January 1, 2000 and rapidly
implemented our Enterprise Employer Services in each of 12 Interliant locations
in the United States with approximately 840 employees nationwide as of January
31, 2000. Interliant continues to grow via acquisitions, and enjoys integrated
multistate compliant service for all acquired units. We currently service
Interliant's locations in California, Florida, Maryland, Massachusetts, New
Jersey, New York, Texas and Virginia.
MobileForce Technologies, Inc.
Funded by Capstone Ventures, GECC, Oak Hill Ventures and VantagePoint
Venture Partners, MobileForce provides broadband operational support system
solutions for the cable, telecommunications and Internet provider industries.
Its "Nvision" software provides innovative field service automation with
wireless communications enabled by an intuitive browser-based user interfaces.
Opportunity: MobileForce needed to tap the technology labor pool available
in the United States and Canada to gain a significant competitive advantage for
furthering its technology and bringing its product to market. To solve the
compliance and employee equity challenges of having employees dispersed in the
United States and Canada, MobileForce sought a single-source provider that
could establish and maintain specialized payroll, benefits and human resources
processes required to service its employees in multiple U.S. states and Canada.
Solution: We began our strategic relationship with MobileForce in early
1998. We have provided MobileForce with scaleable human resource as the
company's employees have expanded to multiple locations in the United States
and Canada. As of January 31, 2000, MobileForce had 72 employees in California,
Colorado, Massachusetts, New Jersey, Texas and Canada.
Symbian, Inc.
Symbian owns, licenses, develops and supports leading software, user
interfaces, application frameworks and development tools for wireless
information devices such as communicators and smartphones. Symbian aims to
promote standards for the interoperability of wireless information devices with
wireless networks, content services, and messaging and enterprise-wide
solutions. Headquartered in London, England,Symbian has offices in Tokyo and
Kanazawa, Japan; Ronneby, Sweden; Cambridge, England and the San Francisco Bay
Area. Symbian is owned by Ericsson, Inc., Matsushita Electric Industrial Co.,
Ltd., Motorola, Inc., Nokia Corp. and Psion PLC.
Opportunity: Because Symbian was the product of a joint venture between
well-established corporations, we serve a workforce that, although belonging to
a "startup" company, had expectations of corporate-level payroll, benefits and
human resource support. Furthermore, Symbian
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was headquartered outside the United States and consequently had little
experience with employment issues and potential liabilities in the United
States. Because of this, the company sought assistance in modifying its
corporate structure and human capital management for both competitive and
compliance reasons.
Solution: Seeking to compete in a high-growth space, in 1999 Symbian
selected our single source solution by engaging a full suite of services to aid
its United States market penetration. As of January 31, 2000, Symbian had nine
employees in the United States. Venture Employer Services addresses Symbian's
human resource needs in the areas of payroll processing, benefits
administration, human resource information system support, risk control and
human resource management. Our Venture Management Resources group helped
Symbian develop United States compliant and labor market sensitive job
descriptions, compensation plans and corporate human resource policies and
practices. Symbian selected full-service staffing solutions from our Venture
Talent division and with its assistance has hired candidates for key positions
throughout the organization.
Webvan Group, Inc.
Webvan Group, Inc. (NASDAQ: WBVN) is a full service online grocery and drug
store with free delivery for orders over $50. Orders can be placed 24 hours a
day, seven days a week, with delivery the same day or up to seven days later
within a 30-minute window specified by the user.
Opportunity: Founded in 1996, the company launched with a handful of
employees and a contract with us to handle all of its human resource needs.
Though small, Webvan needed a solution that would deliver employee support
services during its entire lifecycle. Webvan also needed a selection of
national, AAA-rated benefits plans to attract and retain employees, thereby
expediting its aggressive growth strategy.
Solution: Webvan selected Venture Employer Services to support its long-term
growth and national expansion. Headquartered in the Bay Area in Foster City,
California, Webvan reached a total of 343 corporate employees during 1999 and
became a publicly-traded company late in 1999. After raising more than $375
million in its initial public offering, Webvan signed a service agreement
extending Venture Employer Services for an additional 12 months.
Marketing and Provider Relationships
We have entered into a number of strategic marketing and provider
relationships with companies that are recognized in their respective fields as
market leaders.
Bessemer Venture Partners
Bessemer Venture Partners is a venture capital firm which through its funds,
Bessemer Ventures V L.P., Bessec Ventures V L.P. and BVE LLP, has made an
equity investment in us. Bessemer is among the oldest venture capital firms,
and it invests about $200 million annually in a portfolio that includes
companies who are our customers. We are providing services to a new company
recently formed by Bessemer to capitalize and accelerate business-to-business
e-commerce ventures. We anticipate referrals to new ventures capitalized by
this new company.
45
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Select Appointments (Holdings) PLC
Select Appointments (Holdings) PLC is a wholly owned subsidiary of Vedior NV
(AEX:VDOR). Vedior NV is the world's third largest publicly traded
international staffing and outsourced human resource firm. Our equity financing
and strategic relationship with Select enable us to access its portfolio
companies in 28 countries. Through our sister-relationship with other companies
in the Select portfolio, we have obtained local country management support and
transaction processing as a service to our customers who hire foreign employees
in other countries.
SoftBank Venture Capital
One of the largest venture capital groups with more than $900 million under
management, SoftBank's investments include E*TRADE Group, Inc., Yahoo! Inc.,
ZDNet Group, Critical Path, Inc., E-Loan Inc. and GeoCities. We are the only
business process outsourcer for human resources to enjoy a preferred provider
relationship with SoftBank's incubator unit and have the opportunity to be
referred to each company that flows through the incubator's portfolio. Our
services help SoftBank portfolio companies meet their aggressive growth
targets.
Silicon Valley Bank
Silicon Valley Bank, or SVB, is a leading provider of financial services to
emerging growth outside equity financed technology companies. With a similar
target market profile, SVB has an office in each geographic area of the United
States where we maintain a branch office. We enjoy a formal referral
relationship with SVB where both parties share in business development
opportunities. Additionally, we are a member of SVB's partnership program,
eSource, and contribute human resource content to the eSource extranet on an
ongoing basis.
United HealthCare
Our largest health care insurance carrier vendor is United HealthCare, which
treats us as a national account. Because of our relationship with United
HealthCare, we are able to structure an array of benefits offerings which
reflects the preferences of our fast-growth technology company target market.
We supplement this offering with our own fully staffed Benefits Department and
Call Center, allowing us to provide a sophisticated benefits service suite.
Sales and Marketing
We currently market and sell our service suite through a direct sales force
of 14 regional managers and three sales executives, supported by a sales
administration staff of three persons. In the fourth quarter 1999 and the first
quarter 2000, we expanded our sales force from seven to 14 sales professionals
for Venture Employer Services, with three sales executives focused on major
account sales for Enterprise Employer Services. Our sales offices are located
in six of the top 10 markets for investment of venture capital in the United
States according to PricewaterhouseCoopers' Quarterly Moneytree Survey for the
third quarter of 1999.
Our sales process has demonstrated increased efficiency at leveraging the
rapid pace of decision making in our target market of fast-growth technology
companies. In 1999, with almost the same number of sales professionals as the
prior year, we nearly doubled the number of new customers acquired. Our sales
professionals tap into a highly developed referral relationship and lead
exchange program comprised of venture capitalists and other trusted advisors to
our target market decision makers.
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<PAGE>
We deploy sales personnel in technology centers and areas with high levels
of formal venture capital or private equity investment in accordance with our
target market of fast-growth technology companies. We employ a "pull" expansion
strategy in which we initially sell in a new area on a remote basis and, upon
reaching a target operating volume of customers, make an investment in opening
a new branch office to further leverage referral contacts from local customers,
venture capitalists and trusted business advisors. We recruit sales personnel
from outsourced human resource services, payroll services, insurance brokerage
and legal practices and focus on people who are trained in a customer-centered
consultative sales approach.
Most leads are generated for Venture Employer Services customers through the
tight knit referral community that incubates venture capital backed companies.
As of January 31, 2000, our customers had received financing from more than 200
venture capital firms, providing a deep network of relationships that we
continue to develop. With approximately 40 venture capital firms and their
employees on our payroll as of January 31, 2000, we are a larger employer of
venture capital professionals than any firm currently listed with the National
Venture Capital Association. We have steadily built these relationships, along
with those of trusted advisors in the venture-backed community, over time to
produce an ongoing flow of new business development opportunities in our target
market of fast-growth technology companies.
Our relationship-selling model and narrowly defined target market of fast-
growth technology companies enable a lean, but highly focused marketing effort.
In 1999 we had three marketing professionals. We recently added a marketing
vice president and are currently recruiting additional marketing staff.
Our limited marketing resources and a decade of experience in marketing to
fast-growth technology companies have allowed us to gain experience in
carefully pinpointing the customer decision makers we seek and how to attract
them. As a result, we intend to build our brand and attract new middle-market
customers through carefully targeted print and online advertising, direct
e-marketing, event sponsorship, public relations campaigns and an active public
web site with content of interest to fast-growth technology companies. We plan
to continue to pursue our target market through local and regional advertising
and technology and venture capital-related associations and events.
As we continue to extend our market focus from emerging to middle-market
companies, we plan to target our larger Venture Employer Services customers as
candidates for Enterprise Employer Services. With the deployment of significant
enhancements to our web-enabled product suite, our sales and marketing efforts
have expanded to include those middle-market firms that are not necessarily
customers of Venture Employer Services. Our inexperience in marketing to this
new segment, and the difference in the sales cycle from our historical niche of
emerging fast growth technology companies make it difficult for us to predict
the adoption rate by middle-market companies of Enterprise Employer Services.
Systems and Technology
Systems. Our information systems platform is a combination of licensed
applications from leading enterprise software companies and proprietary
applications that both integrate licensed applications and perform functions
that are specific to our business model and customer preferences. The following
chart provides a listing of licensed and proprietary systems and their state of
implementation as of January 31, 2000:
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Product Chart And Technology Development
<TABLE>
<CAPTION>
Front/
Capability Purpose Status Platform Back-End
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Enterprise Human resource In service-- Proprietary Back-end
HRIS information system Corporate and licensed
platform supporting payroll since software
international and 1998, all (PeopleSoft
domestic payroll, Enterprise HRIS)
benefits and advanced customers since
human resource functions 1999, Venture
customers
throughout 2000
- ------------------------------------------------------------------------------------
Enroll Now! Web enabled benefits In service Proprietary Front-end
information base and
enrollment application
- ------------------------------------------------------------------------------------
TriNet VSales Online capture of In service Proprietary Front-end
(Venture proposal requests,
Sales) automated production of
proposal and contract
material
- ------------------------------------------------------------------------------------
TriNet CSLi Track all In service Proprietary Back-end
(Customer customer/employee
Service Log-- transactions for follow-
intranet) up, quality and
consistency of service
response and customer
service analysis
- ------------------------------------------------------------------------------------
Carrier Data On line transmission of In service-- Proprietary Back-end
Exchange enrollment data to expanding to
health plan providers new vendors
and insurance carriers throughout 2000
- ------------------------------------------------------------------------------------
Venture Data warehouse of fast Portions in Proprietary Back-end
Company Data growth technology service,
(VCOD) company customer upgrading of
business information to data mining
support management functionality
consulting and strategic by Q3 2000
partner channel
relationships
- ------------------------------------------------------------------------------------
Setup and Automated capture of Portions in Proprietary Front-end
Migration customer setup service, and licensed and
Wizards information and expanding software Back-end
conversion of data from functionality (NEON Convoy)
other human resource throughout 2000
platforms
- ------------------------------------------------------------------------------------
HR Passport Full suites of self- Selective Proprietary Front-end
directed human resource customer and licensed
transactions including rollout Q1 2000 technology
employee and management (Concur
actions, view payroll, Technologies)
human resource and
organizational
information online
- ------------------------------------------------------------------------------------
Report Mart Deliver all reports over Selective Proprietary Front-end
the web in a variety of customer and licensed
formats suitable for rollout Q1 2000 technology
interfacing to customer (Brio
systems, and with online Technology)
analytical processing,
or OLAP, capability
- ------------------------------------------------------------------------------------
Strong Digital certificates Selective Licensed Front-end
Security available for all customer technology and
employees enabling rollout Q2 2000 (Entrust Back-end
paperless employee Technology)
transactions through
digital certificates
- ------------------------------------------------------------------------------------
Intranet Link our services to Selective Proprietary Front-end
Portals customer intranet, customer and licensed
provide intranet service rollout in Q2 technology
to customer base 2000,
- ------------------------------------------------------------------------------------
Benefits Expert system for Call center use Proprietary Front-end
Knowledgebase answering inquiries in Q2 2000, web and licensed and
about benefit plan rules rollout in Q3 software Back-end
and coverage 2000 (Authoria)
</TABLE>
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<PAGE>
Technology Platform
We have effectively integrated the customer facing front-end of our web-
enabled delivery with back-end systems that seamlessly link our service
providers, suppliers and customers into our online operations. Through our
technology platform, we offer:
Integrated, web-enabled payroll and human resource platform. Our human
resource information system platform combines enterprise class software
applications and proprietary technology to deliver a fully web-enabled,
integrated, end-to-end solution for delivering employer services that would be
difficult for an emerging or middle-market company to deliver on its own. Our
back-end systems link to our health insurance providers, our 401(k) providers,
and tax and regulatory agencies to provide data interchange on customer
initiated transactions.
Scalable architecture. We developed our technology platform by selecting
highly scalable components such as Human Resource ERP solutions from
PeopleSoft, systems from Sun Microsystems, Hewlett-Packard, and Compaq Computer
Corporation, database tools from Oracle, and web tools from enterprise class
providers such as Concur Technologies, Brio and Authoria. We have negotiated
software licensing agreements tailored to our business model, deviating from
traditional, enterprise-class models that are not based on outsourcing.
System backup and disaster recovery. The major components of our network are
located in our corporate headquarters in San Leandro, California, our secondary
processing facility in Reno, Nevada, and at AboveNet Communication's Data
Center in San Jose, California. AboveNet provides Internet co-location services
for Internet businesses. Its facility provides the benefit of a highly peered,
Internet service provider with a "hardened" data center for our customer, web-
based systems. Our other primary processing facilities have data replication,
backup power, fire retardation and offsite data storage providing redundant
business continuity.
Strong authentication and security. Confidentiality of information is of the
utmost importance in our technology architecture. Our web site has offered
transaction processing under Secure Socket Layer security since 1997, and moved
to Entrust SSL certification in 1999 to ward off browser authentication
problems caused by other expiring trust authorities. In 2000, we intend to
introduce digital certificates across our customer base to provide strong
authentication and the basis for paperless employer/employee transactions.
Physical security in the data centers is enhanced by restricted card access to
the data centers. Web security is managed through firewalls, encryption and
access controls.
Technology Agreements
In developing our products and services, we have contracted with some of the
leading technology providers to license to us and support the essential
applications that underlie our e-business platform.
Authoria. We have a licensing agreement with Authoria to license its
Authoria Benefits knowledgebase. This agreement allows for servicing a growing
employee base with a proportionally decreasing cost per employee in perpetuity.
Brio Technology. We have a perpetual agreement with Brio Technology (NASDAQ:
BRYO) under which we license its enterprise information portal product, Brio
Portal. This agreement allows us to support our total customer base with a set
number of central processing units.
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<PAGE>
Concur Technologies. We have an agreement with Concur (NASDAQ: CNQR) under
which we license its Concur eWorkplace human resource product suite. This five-
year agreement does not limit the number of employees accessing the system.
Entrust Technologies. We have an agreement with Entrust (NASDAQ: ENTU) under
which we license its Entrust PKI products for digital certification. This
agreement allows for servicing a growing employee base with a proportionally
decreasing cost per employee in perpetuity.
New Era of Networks, Inc. We have a perpetual licensing agreement with New
Era of Networks (NASDAQ: NEON) under which we license its Convoy software for
moving data from foreign systems into our PeopleSoft human resource information
system database.
PeopleSoft. Our enterprise HRIS and Financial applications are licensed from
PeopleSoft (NASDAQ: PSFT).
Competition
The market for our solution is intensely competitive, evolving quickly and
subject to rapid technological change. Competitors vary in size, scope and
breadth of products and services offered. Many of our existing and potential
competitors have announced or introduced products and/or services that compete,
at least in part, with our solution. Some of our current and future competitors
may be significantly larger and have greater name recognition and financial,
marketing and other resources than we do. Increased competition is expected and
may result in reduced prices and service revenue on a per customer basis.
We believe the principal competitive factors in our market at this time are:
scalable data-integration and transfer technology, breadth and depth of
offering, critical-mass of installed reference customers, data warehousing for
personalization of technology, strategic relationship management, domain
expertise depth across all functional areas, sales professionalism and quality
customer support. We believe that we currently compete favorably with respect
to these factors.
We encounter competition with respect to different components of our
solution from benefits consultants, in-house human resource and information
systems departments, single and multiple competency human resource outsourcers,
insurance aggregators and application service providers. Our competitors most
typically have primary competency in a single function, such as benefits
procurement, payroll, human resource information systems or web delivery. Among
multi-function human resource outsourcers and ASPs, we believe that we compete
favorably based upon breadth and depth of offering, scalable data-integration
and transfer technology and data warehousing capabilities. As other outsourcers
attempt entry to the fast company market niche, we have occasionally lost
customers to competitors based on price or other incentives that we were not
willing to match.
As the market evolves, we expect increased competition from new market
entrants. It is possible that current and future competitors have or may form
cooperative alliances among themselves or with third parties that would have a
material and adverse effect on our ability to compete, service revenue and
operating margins. If we fail to compete in any one of the competitive areas,
we may lose existing and potential customers. Additionally, we may not be able
to maintain a competitive position against competitors with significantly
greater financial, marketing, service, support, technical and other resources
or with larger installed customer bases.
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Intellectual Property
Our success depends significantly on our ability to protect our trademarks,
trade secrets and certain proprietary technology. To accomplish this, we rely
on a combination of copyrights, trademarks and trade secret laws and
contractual restrictions to protect our proprietary rights in products and
services. We also require that our employees and consultants sign
confidentiality and nondisclosure agreements. We generally regulate access to
and distribution of our documentation and other proprietary information.
Despite these efforts, it may be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization or
to develop similar technology independently. We cannot be certain that we will
succeed in preventing the misappropriation of our trade name and trademarks.
Any steps we take to protect our intellectual property may be inadequate, time
consuming and expensive. In addition, the laws of some foreign countries do not
protect proprietary rights to as great an extent as the laws of the United
States.
We depend on technology that we license from third parties, including
software that is integrated with internally developed software. If we are
unable to continue to license any of this software on reasonable terms, we will
face delays in releases of our technology until suitable replacements can be
identified or developed. Should they occur, these delays may have a serious
adverse impact on our business.
We do not believe that our products infringe the intellectual property
rights of third parties. However, third parties may in the future assert
infringement claims against us, which may result in costly litigation or
require us to obtain a license to third-party intellectual property rights. We
cannot assure you that such licenses would be available on reasonable terms, or
at all, which could harm our business.
Employees
As of January 31, 2000, we had 233 full-time employees, including 37 in
information technology, 91 in operations, 31 in account management, 29 in
sales, marketing and new account set-up, 25 in consulting and 20 in
administration and executive management. We have never had a work stoppage and
none of our employees are represented under collective bargaining agreements.
We consider our relations with our employees to be good.
Facilities
We maintain two primary facilities. Our corporate headquarters are located
in the Bay Area in San Leandro, California under a lease that expires in
September 2002. This location includes approximately 33,000 square feet of
leased space in which our executive offices, corporate staff, data-processing
center, training facilities and all other corporate functions are housed. Our
other primary facility is located in Reno, Nevada under a lease that expires in
September 2004. This 12,500 square foot leased facility, which became
operational in December 1999 serves as an additional processing facility and
the backup recovery site in case the primary process facility is unable to
process transactions. We also lease six other facilities in Irvine, California,
Louisville, Colorado, Cambridge, Massachusetts, McLean, Virginia, Seattle,
Washington and Ontario, Canada that serve as local service offices for sales
and human resource personnel. We believe our existing facilities are adequate
for the purposes for which they are intended and that our headquarters have
sufficient additional capacity to accommodate our foreseeable expansion plan.
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<PAGE>
Legal Proceedings
We are not a party to any material pending legal proceedings other than
ordinary routine litigation incidental to our business that we believe would
not have a material adverse effect on our business.
52
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information regarding our directors,
executive officers and certain other key employees as of February 15, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Martin Babinec(1)....... 44 President, Chief Executive Officer and Chairman of the Board
Douglas P. Devlin....... 38 Chief Financial Officer, Secretary, Treasurer and Director
Gregory L. Hammond...... 44 Vice President and General Counsel
Steven H. Carlson....... 46 Chief Information Officer
Craig A. McGannon....... 35 Divisional President, Venture Employer Services
Deisy G. Bach........... 42 Divisional President, Enterprise Employer Services
John K. Younger......... 37 Divisional President, Venture Talent
Marie-Jeanne Juilland... 39 Vice President, Marketing
Lyle E. DeWitt, C.P.A... 40 Vice President, Finance and Operations
Anthony F. Zuanich...... 31 Vice President, Sales
James P. Hanson, 54 Director
C.P.A.(2)(3)...........
H. Lynn Hazlett, 63 Director
D.B.A.(2)(3)...........
Anthony V. Martin(1).... 60 Director
T. Joe Willey, 62 Director
Ph.D.(3)...............
</TABLE>
- --------
(1) Member of the nominating committee
(2) Member of the compensation committee
(3) Member of the audit committee
Martin Babinec has served as our president, chief executive officer and
chairman of the board since founding TriNet in November 1988. From 1980 to
1988, Mr. Babinec's was a human resource generalist for Navy Exchanges. During
this period a majority of his assignments involved international labor
relations while residing in Europe and Asia. Mr. Babinec is a 1996 recipient of
Silicon Valley Service Entrepreneur of the Year award and serves in various
industry and entrepreneurial leadership capacities, including serving on the
board of advisors for the Kauffman Foundation's Center for Entrepreneurial
Leadership. Mr. Babinec holds a B.S. in business administration from
Shippensburg University and has earned the accreditation of senior professional
in human resources through the Human Resources Certification Institute.
Douglas P. Devlin has served as our chief financial officer since April 1993
on a full-time basis and prior to that on a part-time basis since 1989. Mr.
Devlin has served as secretary and director since November 1997 and treasurer
since April 1993. In 1988, Mr. Devlin founded and then managed until 1992
Integrated Health Care Technology Group, Inc., an International Business
Machines business partner providing advanced accounting systems. Mr. Devlin
holds a B.S. in business administration from California State University, Chico
and an M.B.A. in finance from Golden Gate University.
Gregory L. Hammond has served as our vice president and general counsel
since November 1997. Mr. Hammond manages our employer risk for both employee
relations and insurance purposes. Mr. Hammond joined us from Hammond &
Kazaglis, L.P.A., which he founded in 1989. From 1989 to 1996, Mr. Hammond
worked as our retained counsel. From 1987 to 1991, Mr. Hammond was general
counsel to the National Association of Professional Employer Organizations. Mr.
Hammond holds a B.A. summa cum laude in history and political science from
Mercer University and a J.D. from the University of Chicago School of Law.
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<PAGE>
Steven H. Carlson has served as our chief information officer since August
1998. From January 1997 to August 1998, Mr. Carlson served as our director,
information systems and from January 1995 to January 1997, Mr. Carlson served
as our vice president, information technology. In 1989, Mr. Carlson founded,
and then managed until 1995 CBI, Inc., a regional systems integration company.
Prior to this, Mr. Carlson held several management positions with General
Electric Information Services Company. Mr. Carlson holds a B.S. in computer
science from the University of California at Santa Cruz.
Craig A. McGannon has served as our divisional president, Venture Employer
Services since September 1998. From March 1998 to September 1998, Mr. McGannon
served as our vice president, sales. Mr. McGannon joined us in October 1997 as
regional manager in the Raleigh/Durham office. From October 1996 to October
1997, Mr. McGannon was the chief executive officer of ESG, an information
technology staffing company and from February 1995 to October 1996, Mr.
McGannon was the risk manager of The Byrnes Group, a staffing and human
resource and sourcing company. Mr. McGannon has also served as managing partner
of North American Claims Management, L.L.P., a U.K.-based reinsurance/legal
consulting firm from January 1992 to September 1999. Mr. McGannon holds a B.A.
in American studies from Providence College, a J.D. from Pace University and an
M.B.A. summa cum laude in marketing from the University of San Moritz.
Deisy G. Bach has served as our divisional president, Enterprise Employer
Services since November 1998. From November 1997 to November 1998, Ms. Bach
served as our vice president, product development. From July 1995 to November
1997, Ms. Bach served as our vice president, operations. Ms. Bach joined us in
1991 as our operations manager. From November 1988 to November 1991, Ms. Bach
was with the law firm Hallgrimson, McNichols, McCann & Inderbitzen, where she
was an administrator and managed operations, marketing, finance and human
resources. She is a member of the Society of Human Resources Management. Ms.
Bach holds a B.A in political science from Montclair State University and is an
ABA-certified paralegal.
John K. Younger has served as our divisional president, Venture Talent since
November 1996 when we acquired Younger Consulting, a recruitment optimization
and automation firm, which Mr. Younger founded in 1994 and subsequently served
as president. From January 1987 to May 1994, Mr. Younger was with Bank of
America, most recently as vice president of human resources. Mr. Younger is a
co-founder and director of the Northern California Technical Recruiter Network.
Mr. Younger holds a B.S. in mathematics and computer science from the
University of Notre Dame.
Marie-Jeanne Juilland has served as our vice president, marketing since
February 2000. From November 1999 to January 2000, Ms. Juilland served as our
interim vice president, marketing. In 1993, Ms. Juilland founded and then,
through January 2000, managed, the Juilland Group, a strategic marketing
organization that specialized in serving fast-growth technology companies. From
1991 to 1993, Ms. Juilland served as communications manager for Robert Half
International, a staffing and outsourced human resource company. From 1986 to
1991, Ms. Juilland served as west coast bureau chief for Venture magazine. Ms.
Juilland holds a B.A. in political science from Stanford University.
Lyle E. DeWitt has served as our vice president, finance and operations
since September 1999. From June 1994 to September 1999, Mr. DeWitt served as
our controller. From April 1990 to June 1994, Mr. DeWitt was in public
accounting at Armanino, McKenna, LLP, a public accounting firm. Mr. DeWitt
holds a B.S. in business administration from the University of California,
Berkeley and is a certified public accountant.
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<PAGE>
Anthony F. Zuanich has served as our vice president, sales since April 1999.
From October 1997 to April 1999, Mr. Zuanich served as our director of sales
for the east coast. Mr. Zuanich joined us in December 1995 as a district sales
manager. From June 1992 to November 1995, Mr. Zuanich was regional sales
manager for ADP, a payroll processing outsourcing company. Mr. Zuanich holds a
B.A. in marketing from New Mexico State University.
James P. Hanson has served as our director since November 1990. Since 1987,
Mr. Hanson has been president of James P. Hanson Accountancy Corporation, a
provider of financial services to small businesses and individuals. Mr. Hanson
holds a B.S. magna cum laude in accounting from California State University,
Fresno and is a certified public accountant and registered investment advisor.
H. Lynn Hazlett has served as our director since February 1998. From
February 1997 to December 1998, Dr. Hazlett served as chief executive officer
and president of QRS Corporation, a publicly traded, e-commerce solutions
provider. From 1995 until February 1997, Dr. Hazlett served as a consultant to
QRS. From January 1994 to February 1997, Dr. Hazlett owned and operated Supply
Chain Associates, a retail supply chain consultancy firm. From 1989 to January
1995, Dr. Hazlett served as vice president, business systems at VF Corporation,
a global apparel manufacturer. Dr. Hazlett holds a B.S. in industrial
management from the Georgia Institute of Technology, an M.B.A. in financial
management and a D.B.A. from George Washington University.
Anthony V. Martin has served as our director since July 1995 as a result of
his position from 1992 to the present time as Chairman with Select Appointments
(Holdings) PLC, a wholly owned subsidiary of Vedior N.V., and Select's
investment in July 1995 in TriNet. Since December 1999, Mr. Martin has also
been vice-chairman and member of the board of Vedior N.V., a Netherlands based
staffing and outsourced human resource company. From 1985 to 1992, Mr. Martin
held various executive positions with Adia S.A. (now Adecco S.A.), a Swiss-
based recruitment company, most recently as director of its European division.
Mr. Martin holds certificates of education from the combined boards of Oxford
and Cambridge Universities and a postgraduate degree from the University of
Southern California, Los Angeles.
T. Joe Willey has served as our director since June 1994. From 1991 to 1994,
Dr. Willey founded and then served as the chief executive officer of Staffing
Services, Inc., an employer support services group. In June 1986, Dr. Willey
founded and currently serves as the president of The Aegis Group, a software
consulting and business development organization for the human resource
outsourcing industry. Dr. Willey holds a B.S. and an M.A. in biology from Walla
Walla College and a Ph.D. from the University of California, Berkeley.
Board Composition
Upon the completion of this offering, we will have authorized six directors.
In accordance with the terms of our certificate of incorporation and bylaws,
each of which will become effective upon the completion of this offering, the
board of directors will be divided into three classes, Class I, Class II and
Class III, with each class serving staggered terms. Upon the completion of this
offering, the members of the classes will be divided as follows:
. Messrs. Babinec and Martin will be designated as Class I directors whose
initial term will expire at the annual meeting of stockholders to be held
in 2001;
. Messrs. Devlin and Hazlett will be designated as Class II directors whose
initial term will expire at the annual meeting of stockholders to be held
in 2002; and
. Messrs. Hanson and Willey will be designated as Class III directors whose
initial term will expire at the annual meeting of stockholders to be held
in 2003.
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<PAGE>
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following the election or special meeting held in lieu thereof.
Board Committees
The audit committee of the board of directors consists of Messrs. Hanson,
Hazlett and Willey. The audit committee assists the board in fulfilling its
financial and accounting oversight responsibilities by reviewing the financial
information that will be provided to stockholders and others, the systems of
internal controls regarding finance, accounting, legal compliance and ethics
that management and the board have established, and our auditing, accounting
and financial reporting processes generally.
The compensation committee of the board of directors consists of Messrs.
Hanson and Hazlett. The compensation committee makes recommendations to the
board of directors concerning salaries and incentive compensation for our
officers and employees and administers our employee benefit plans.
The nominating committee of the board of directors consists of Messrs.
Babinec and Martin. The nominating committee makes recommendations to the board
of directors regarding persons to be nominated for election to the board of
directors.
Director Compensation
Non-employee directors, except Anthony V. Martin, receive $5,000 in annual
compensation and are reimbursed for their reasonable expenses in attending
board meetings. All directors are eligible to participate in our 2000 Equity
Incentive Plan and employee directors will be eligible to participate in our
2000 Employee Stock Purchase Plan. See "--Stock Option Plans" for additional
information relating to these plans.
In January 1999, Messrs. Hanson, Hazlett and Willey were each granted an
option to purchase 463 shares of common stock at a price of $7.22 per share. In
May 1999, Messrs. Hanson, Hazlett and Willey were each granted an option to
purchase 463 shares of common stock at a price of $7.22 per share. In June
1999, Messrs. Hanson, Hazlett and Willey were each granted an option to
purchase 368 shares of common stock at a price of $9.03 per share. In September
1999, Messrs. Hanson, Hazlett and Willey were each granted an option to
purchase 368 shares of common stock at a price of $9.03 per share.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee of the board of directors
has at any time been one of our officers or employees. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving on our board of
directors or compensation committee. The compensation committee of the board of
directors was formed in 1998, and currently consists of Messrs. Hanson and
Hazlett. Prior to the formation of the compensation committee, compensation
decisions were made and approved by our board of directors.
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<PAGE>
Executive Compensation
The following table presents the compensation earned by our chief executive
officer and our other four most highly compensated executive officers whose
salary and bonus for the year ended December 31, 1999 were in excess of
$100,000, referred to as the named executive officers. In accordance with the
rules of the Securities and Exchange Commission, the compensation described in
this table does not include medical, group life insurance or other benefits
received by the named executive officers that are available generally to all
our salaried employees and certain perquisites and other personal benefits
received by the named executive officers, which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus contained in the table.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation for Long-Term
Fiscal Year 1999 Compensation Awards
---------------- -------------------
Securities
Name and Principal Position Salary Bonus Underlying Options
- --------------------------- -------- ------- -------------------
<S> <C> <C> <C>
Martin Babinec........................... $155,718 $25,000 --
President, Chief Executive Officer and
Chairman of the Board
Douglas P. Devlin........................ $150,024 $25,000 15,000
Chief Financial Officer, Secretary,
Treasurer and Director
Gregory L. Hammond....................... $143,588 $39,525 25,000
Vice President and General Counsel
Craig A. McGannon........................ $149,790 $57,575 25,000
Divisional President, Venture Employer
Services
John K. Younger.......................... $122,283 $80,328 94,211
Divisional President, Venture Talent
</TABLE>
57
<PAGE>
Option Grants in 1999
The following table presents each grant of stock options made to each of the
named executive officers during the year ended December 31, 1999. These options
vest ratably over four years commencing on the first anniversary of the date of
grant and the exercise price per share of each option was equal to the fair
market value of the common stock on the date of grant, as determined by our
board of directors. In the year ended December 31, 1999, we granted to our
employees options to purchase a total of 261,286 shares of our common stock.
Potential realizable value is calculated assuming that the stock price on
the date of grant appreciates at the indicated rate compounded annually until
the option is exercised and sold on the last day of its term for the
appreciated stock price. The 5% and 10% assumed rates of appreciation are
required by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of the future common stock price. Based on
an assumed initial offering price of $ per share, the actual appreciation
exceeds these values.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options Employees Price Expiration ---------------------
Name Granted in Fiscal Year ($/Sh) Date 5% 10%
- ---- ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin Babinec.......... -- -- -- -- -- --
Douglas P. Devlin....... 15,000 5.7% $9.03 06/21/04
Gregory L. Hammond...... 25,000 9.6% $9.03 06/21/04
Craig A. McGannon....... 25,000 9.6% $9.03 06/21/04
John K. Younger......... 84,211 32.2% $7.22 01/28/04
10,000 3.8% $9.03 06/21/04
</TABLE>
Option Exercises and Year End Option Values
The following table presents option exercises and the value realized from
those exercises during 1999, as well as unexercised options that were held at
the end of 1999 by each named executive officer. The value realized represents
the aggregate market value of the underlying securities on the exercise date,
as determined by the board of directors, minus the aggregate exercise price
paid for those shares. Also presented is the value of the in-the-money options,
which is based upon a value of $ per share, the assumed initial public
offering price, minus the aggregate exercise price payable for those shares.
Aggregated Option Exercises in 1999 and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End (#) at FY-End ($)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Babinec.......... -- $ -- -- -- -- --
Douglas P. Devlin....... 6,000 37,320 27,175 30,125
Gregory L. Hammond...... 1,100 4,488 11,450 37,500
Craig A. McGannon....... -- -- 5,050 40,000
John K. Younger......... -- -- 131,562 71,038
</TABLE>
58
<PAGE>
Employment Agreements
A change of control is generally defined as a merger in which we are not the
surviving corporation or after which our stockholders do not own a majority of
the stock of the surviving corporation, or the acquisition of 40% or more of
our stock or a sale of all or substantially all of our assets.
In May 1999, we entered into an employment agreement with Martin Babinec to
serve as our chief executive officer at a base salary of $155,000 a year with a
discretionary bonus of $25,000. In the event of a change of control, if Mr.
Babinec is involuntarily terminated without cause or by constructive
termination within six months following the change of control, he is entitled
to a lump sum payment of $2.0 million. Further, all stock options granted to
Mr. Babinec will fully vest and he may compel us to repurchase any stock he
owns at the then prevailing market value plus 25%.
In May 1999, we entered into an employment agreement with Douglas P. Devlin
to serve as our chief financial officer at a base salary of $150,000 a year,
with a discretionary bonus of $25,000 and up to 15,000 incentive stock options
to purchase common stock subject to the vesting schedule, terms and conditions
of our 1990 Stock Option Plan. In the event of a change of control, if Mr.
Devlin is involuntarily terminated without cause or by constructive termination
within six months following the change of control, he is entitled to a lump sum
payment of $2.0 million. Further, all stock options granted to Mr. Devlin will
fully vest and he may compel us to repurchase any stock he owns at the then
prevailing market value plus 25%.
In May 1999, we entered into an employment agreement with Gregory L. Hammond
to serve as our vice president and general counsel at a base salary of $150,000
a year, with a discretionary bonus of $25,000 and up to 25,000 incentive stock
options to purchase common stock subject to the vesting schedule, terms and
conditions of our 1990 Stock Option Plan. In the event of a change of control,
if Mr. Hammond is involuntarily terminated without cause or by constructive
termination within six months following the change of control, he is entitled
to a lump sum payment of $2.0 million. Further, all stock options granted to
Mr. Hammond will fully vest and he may compel us to repurchase any stock he
owns at the then prevailing market value plus 25%.
In May 1999, we entered into an employment agreement with Craig A. McGannon
to serve as our divisional president, Venture Employer Services, at a base
salary of $150,000 a year, with a discretionary bonus of $25,000 and up to
25,000 incentive stock options to purchase common stock subject to the vesting
schedule, terms and conditions of our 1990 Stock Option Plan. In the event of a
change of control, if Mr. McGannon is involuntarily terminated without cause or
by constructive termination within six months following the change of control,
he is entitled to a lump sum payment of $2.0 million. Further, all stock
options granted to Mr. McGannon will fully vest and he may compel us to
repurchase any stock he owns at the then prevailing market value plus 25%.
In May 1999, we entered into an employment agreement with John K. Younger to
serve as our divisional president, Venture Talent, at a base salary of $132,000
a year. In the event of a change of control, if Mr. Younger is involuntarily
terminated without cause or by constructive termination within six months
following the change of control, all stock options granted to Mr. Younger will
fully vest and he may compel us to repurchase any stock he owns at the then
prevailing market value plus 25%.
Stock Option Plans
2000 Equity Incentive Plan. Our board of directors will adopt the 2000
Equity Incentive Plan and seek stockholder approval prior to the effective date
of this offering. The 2000 Equity Incentive Plan is intended to replace and
supersede our 1990 Stock Option Plan.
59
<PAGE>
Share Reserve. We intend to reserve a total of shares of our
common stock for issuance under the incentive plan. On each ,
starting with and continuing through and including
, the share reserve automatically will be increased by a number of
shares equal to the least of:
. % of our then outstanding shares of common stock;
. shares; or
. a lesser number determined by our board.
If the recipient of a stock award does not purchase the shares subject to
such stock award before the stock award expires or otherwise terminates, the
shares that are not purchased will again become available for issuance under
the incentive plan.
Administration. The board will administer the incentive plan unless it
delegates administration to a committee. The board will have the authority to
construe, interpret and amend the incentive plan. The board also will have the
authority to determine the recipients of stock awards under the incentive plan
and the terms of such stock awards, including the number of shares subject to
the stock awards, the vesting and/or exercisability schedule applicable to the
stock awards and the exercise price of the stock awards.
Eligibility and Types of Stock Awards. The board may grant incentive stock
options that qualify under Section 422 of the Internal Revenue Code to our
employees and to the employees of our affiliates. The board also may grant
nonstatutory stock options, stock bonuses and restricted stock purchase awards
to our employees, directors and consultants as well as to the employees,
directors and consultants of our affiliates.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date and nonstatutory stock options with an exercise price as low
as 85% of the fair market value of a share on the grant date. Incentive stock
options granted to persons who, at the time of the grant, own or are deemed to
own stock possessing more than 10% of our total combined voting power or the
total combined voting power of one of our affiliates must have an exercise
price of at least 110% of the fair market value of the stock on the grant date
and a term of five or fewer years. For other options, the maximum term is 10
years. Generally, fair market value means the closing sales price (rounded up
where necessary to the nearest whole cent) for such shares (or the closing bid,
if no sales were reported) as quoted on the Nasdaq National Market on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal.
Automatic Grants. Upon the completion of this offering, each non-employee
director will automatically be granted an option to purchase shares of
common stock. Any individual who becomes a non-employee director after this
offering will automatically receive this initial grant upon being elected to
the board of directors. Any person who is a non-employee director on the day
following each annual meeting of our stockholders will be granted an additional
option to purchase shares of common stock on that day. Any director who
has not served as a non-employee director for the entire period since the
preceding annual meeting of stockholders will have his or her automatic
additional grant for that year reduced pro rata for each full quarter prior to
the date of grant during which that person did not serve as a non-employee
director.
60
<PAGE>
Vesting. Initial option grants to non-employee directors will vest at a rate
of each month on the last day of each month following the date of grant.
Annual grants will also vest at a rate of each month beginning on of
each year.
No employee may receive incentive stock options that exceed the $100,000 per
year fair market value limitation set forth in Section 422(d) of the Internal
Revenue Code. To determine whether the $100,000 per year limitation has been
exceeded, we will calculate the fair market value of the aggregate number of
shares under all incentive stock options granted to an employee that will
become exercisable for the first time during a calendar year. Under the
incentive plan, options covering stock in excess of the $100,000 limitation
will be automatically converted into nonstatutory stock options.
The board may provide for exercise periods of any length following an
optionholder's termination of service in individual options. Generally, options
will provide that they terminate three months after the optionholder's service
to us and our affiliates terminates. In the case of an optionholder's
disability or death, the exercise period generally is extended to 12 months or
18 months, respectively.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
rights will pass to his or her heirs by will or the laws of descent and
distribution.
Section 162(m) of the Internal Revenue Code denies a deduction to publicly-
held corporations for compensation paid to the corporation's chief executive
officer and its four highest compensated officers in a taxable year to the
extent that the compensation for each such officer exceeds $1,000,000. In order
to qualify options granted under the incentive plan for an exemption for
performance based compensation provided under Section 162(m), no employee may
be granted options under the incentive plan covering an aggregate of more than
shares in any calendar year.
Terms of Other Stock Awards. The board will determine the purchase price of
other stock awards, which may not be less than 85% of the fair market value of
our common stock on the grant date. However, the board may award stock bonuses
in consideration of past services without a cash purchase price. Shares that we
sell or award under the incentive plan may, but need not be, restricted and
subject to a repurchase option in our favor in accordance with a vesting
schedule that the board determines. The board, however, may accelerate the
vesting of such stock awards.
Corporate Transactions. Transactions not involving our receipt of
consideration, such as a merger, consolidation, reorganization, stock dividend,
or stock split, may change the class and number of shares subject to the equity
incentive plan and to outstanding stock awards. Following such a transaction,
the board will appropriately adjust the incentive plan (including the 162(m)
limitation) as to the class and the maximum number of shares subject to the
incentive plan. It also will adjust outstanding stock awards as to the class,
number of shares and price per share applicable to such awards.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to such event. Upon certain change in control transactions,
the surviving corporation may assume all outstanding stock awards under the
incentive plan or substitute other awards therefor. If the surviving
corporation does not so assume or substitute, then the vesting and
exercisability of all stock awards held by persons who are then providing
services to us will accelerate, and all stock awards
61
<PAGE>
outstanding under the incentive plan will terminate immediately prior to the
occurrence of the change in control.
Plan Termination. The incentive plan will terminate in 2010 unless the board
terminates it sooner.
1990 Stock Option Plan. Our stock option plan will terminate as of the
effective date of this offering. The termination of the stock option plan will
have no effect on the options that have been granted thereunder. However,
following the termination of the stock option plan, no new stock options may be
granted under it.
Corporate Transactions. Transactions not involving our receipt of
consideration, such as a merger, consolidation, reorganization, stock dividend,
or stock split, may change the class and number of shares subject to the stock
option plan and to outstanding options. Following such a transaction, the board
will appropriately adjust the stock option plan as to the class and the maximum
number of shares subject to the stock option plan. It also will adjust
outstanding options as to the class, number of shares and price per share
applicable to such options.
If we dissolve, then outstanding stock options will terminate prior to such
dissolution. In the event of a merger or consolidation as a result of which our
shares are converted into securities of another company or into other property,
then the outstanding stock options will be treated differently. In such
situations, the board may determine that the outstanding stock options will be
assumed by a surviving corporation and thereafter pertain to the stock or other
property of the surviving corporation. Alternatively, the board may determine
that the vesting and exercisability of the outstanding options shall accelerate
and such options shall terminate if not exercised prior to the effective date
of the merger or consolidation.
Stock Options Granted. As of January 31, 2000, we had issued 259,967 shares
upon the exercise of options under the stock option plan and options to
purchase 900,741 shares at a weighted average exercise price of $10.60 were
outstanding.
2000 Employee Stock Purchase Plan. Our board will adopt the 2000 Employee
Stock Purchase Plan and seek stockholder approval prior to the effective date
of the offering.
Share Reserve. We will authorize the issuance of shares
of our common stock pursuant to purchase rights granted to eligible employees
under the purchase plan. On each , starting with
and continuing through and including , the share
reserve will automatically be increased by a number of shares equal to the
least of:
. % of our then outstanding shares of common stock;
. shares; or
. a lesser number determined by our board.
Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We will implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our full-
time employees and full-time employees of our affiliates incorporated in the
United States may participate in offerings under the purchase plan. However, no
employee may participate in the
62
<PAGE>
purchase plan if, immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock.
General Terms of the Plan. Under the purchase plan, the board may specify
offerings of up to 27 months. Unless the board otherwise determines, common
stock will be purchased for accounts of participating employees at a price per
share equal to the lower of:
. 85% of the fair market value of a share on the first day of the offering;
or
. 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date
of this initial public offering will be the price per share at which our shares
are first sold to the public as specified in the final prospectus with respect
to this initial public offering. Otherwise, fair market value generally means
the closing sales price (rounded up where necessary to the nearest whole cent)
for such shares (or the closing bid, if no sales were reported) as quoted on
the Nasdaq National Market on the trading day prior to the relevant
determination date, as reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of 85% of the fair market value
of a share on the day they began participating in the purchase plan or 85% of
the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 15% of their base compensation for the purchase of stock
under the purchase plan. Generally employees may end their participation in the
offering at any time before a purchase period ends. Their participation ends
automatically on termination of their employment or loss of full-time status.
The board may grant eligible employees purchase rights under the purchase
plan only if the purchase rights, together with any other purchase rights
granted under other employee stock purchase plans established by us or by our
affiliates, if any, do not permit the employee's rights to purchase our stock
to accrue at a rate that exceeds $25,000 of fair market value of our stock for
each calendar year in which the purchase rights are outstanding.
Corporate Transactions. Upon a change in control, a surviving corporation
may assume outstanding purchase rights or substitute other purchase rights
therefor. If the surviving corporation does not assume or substitute the
purchase rights, the offering period will be shortened and our stock will be
purchased for the participants immediately before the change in control.
Description of 401(k) Plan. We maintain a retirement and deferred savings
plan for our U.S. employees. The retirement and deferred savings plan is
intended to qualify as a tax-qualified plan under Section 401 of the Internal
Revenue Code. The retirement and deferred savings plan provides that each
participant may contribute up to % of his or her pre-tax compensation (up
to a statutory limit, which is $10,500 in calendar year 2000). Under the plan,
each employee is fully vested in his or her deferred salary contributions.
Employee contributions are held and invested by the plan's trustee. The
retirement and deferred savings plan also permits us to make discretionary
contributions and matching contributions, subject to established limits and a
vesting schedule. To date, we have not made any discretionary contributions or
matching contributions to the retirement and deferred savings plan on behalf of
participating employees.
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<PAGE>
RELATED PARTY TRANSACTIONS
Other than the transactions described below and in the "Management--
Employment Agreements" section, since January 1, 1997 there has not been nor is
there currently proposed any transaction or series of similar transaction to
which we were or will be a party:
. in which the amount involved exceeded or will exceed $60,000; and
. in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
Preferred Stock Financing
From February 1997 to January 1998, we issued and sold an aggregate of
25,000 shares of Series E preferred stock for proceeds of approximately $1.0
million to Select Appointments North America Inc., or Select. Anthony Martin,
one of our directors, is chairman of the board of Select. In December 1997,
Select converted 62,500 shares of Series E preferred stock into 2,678,773
shares of common stock. The remaining 12,500 shares of Series E preferred stock
are currently convertible into 542,304 shares of common stock.
In consideration for Select's agreement in December 1997 to convert its
shares of Series E preferred stock into common stock, we entered into a letter
agreement with Select dated December 30, 1997 pursuant to which we agreed to
issue to Select one share of common stock for each additional security we
issued, subject to certain conditions. On February 24, 2000, we and Select
agreed to terminate this letter agreement and on February 29, 2000, we issued
to Select an aggregate of 217,256 shares of common stock in full satisfaction
of our obligations to Select under the letter agreement.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of January 31, 2000 by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. the named executive officers;
. all executive officers and directors as a group; and
. the selling stockholder.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. All options exercisable within 60 days of January 31, 2000
are reported as currently exercisable. The shares issuable under these options
are treated as if outstanding for computing the percentage ownership of the
person holding these options but are not treated as if outstanding for the
purposes of computing the percentage ownership of any other person. Percentage
ownership is based on 6,932,803 shares of common stock outstanding as of
January 31, 2000, assuming the conversion of all outstanding shares of
preferred stock into common stock, and shares of common stock outstanding
immediately following the completion of this offering.
Except as otherwise indicated, the stockholders listed in the tables have
sole voting and investment powers over the common stock owned by them, subject
to community property laws where applicable. Unless otherwise specified, the
address of each of the individuals or entities named below is: c/o TriNet
Group, Inc., 101 Callan Avenue, San Leandro, California 94577.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Before the Number Owned After the
Offering of Shares Offering
----------------- Being -----------------
Number Percent Offered Number Percent
--------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
5% Stockholders
Select Appointments North
America Inc. (1)............... 3,938,333 57.0%
Zigguart Grosvenor Road
St. Albans
Hertfordshire, AL13 HW
United Kingdom
Directors and Executive Officers
Martin Babinec(2)............... 1,928,500 28.0% -- 1,928,500
Douglas P. Devlin(3)............ 329,597 4.8% -- 329,597
Gregory L. Hammond(4)........... 12,550 * -- 12,550 *
Craig A. McGannon(5)............ 5,050 * -- 5,050 *
James P. Hanson(6).............. 214,244 3.1% -- 214,244
H. Lynn Hazlett(7).............. 3,120 * -- 3,120 *
Anthony V. Martin(8)............ 3,938,333 57.0%
T. Joe Willey(7)................ 15,444 * -- 15,444 *
Directors and executive officers
as a group (8 persons)(9)...... 6,446,838 92.3% --
</TABLE>
- --------
* Represents beneficial ownership at less than 1% of the outstanding shares of
our common stock.
65
<PAGE>
(1) Includes 44,110 shares held by Ogier Trustee Limited, a fund established
for the benefit of Select Appointments North America Inc., or Select,
employees and administered by a trustee and 217,256 shares Select has the
right to acquire within 60 days of January 31, 2000 and did acquire on
February 29, 2000.
(2) Shares are held by Martin and Krista Babinec, Trustees of the Babinec
Family Trust dated 7/16/95.
(3) Includes 33,425 shares issuable upon exercise of options exercisable within
60 days of January 31, 2000.
(4) Includes 11,450 shares issuable upon exercise of options exercisable within
60 days of January 31, 2000.
(5) Includes 5,050 shares issuable upon exercise of options exercisable within
60 days of January 31, 2000.
(6) Includes 195,681 shares held by James P. and Kristy L. Hanson, husband and
wife as community property, 18,450 shares held by James P. and Kristy L.
Hanson Accountancy Corporation Profit Sharing Plan #1 and 113 shares
issuable upon exercise of options exercisable within 60 days of January 31,
2000.
(7) Includes 113 shares issuable upon exercise of options exercisable within 60
days of January 31, 2000.
(8) Includes 3,894,223 shares held by Select and 44,110 shares held by Ogier
Trustee Limited, a fund established for the benefit of Select employees and
administered by a trustee and 217,256 shares Select has the right to
acquire within 60 days of January 31, 2000 and did acquire on February 29,
2000. Anthony V. Martin, one of our directors, is chairman of the board of
Select and disclaims beneficial ownership of these shares.
(9) See footnotes (2) through (8) above, as applicable.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and material provisions of
our certificate of incorporation and bylaws, which will become effective upon
the completion of this offering, is a summary only and is qualified in its
entirety by the complete provisions of the certificate of incorporation and
bylaws, which have been filed as exhibits to the registration statement, of
which this prospectus is a part.
Upon completion of this offering and the filing of our amended and restated
certificate of incorporation, our authorized capital stock will consist of
100,000,000 shares of common stock, $0.0001 par value, and 5,000,000 shares of
preferred stock, $0.0001 par value.
Common Stock
As of January 31, 2000, there were 6,932,803 shares of common stock
outstanding that were held of record by approximately 40 stockholders after
giving effect to the conversion of our preferred stock into common stock. There
will be shares of common stock outstanding (assuming no exercise of
the outstanding options) after giving effect to the sale of the shares of
common stock offered by this prospectus.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Unless Section
2115 of the California Corporations Code is applicable to us, holders of common
stock are not entitled to cumulative voting rights with respect to the election
of directors and, as a consequence, minority stockholders will not be able to
elect directors on the basis of their votes alone. Upon a liquidation,
dissolution or winding-up of TriNet, the assets legally available for
distribution to stockholders are distributable ratably among the holders of the
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors. Each outstanding share of
common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding). The board of directors may authorize
the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of the common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or preventing a
change in control of TriNet and may adversely affect the market price of the
common stock and the voting and other rights of the holders of common stock.
67
<PAGE>
Registration Rights of Stockholders
Upon the earlier of July 30, 2001 or 12 months after this offering holders
of an aggregate of 150,263 shares of our common stock, and beginning 180 days
after this offering holders of an aggregate of 3,894,223 shares of our common
stock, will be entitled to register these shares under the Securities Act.
These rights are provided under the amended and restated investor's rights
agreement by and among us, Select Appointments North America Inc., Bessemer
Venture Partners V L.P., Bessec Ventures V L.P. and BVE LLP dated March 2,
2000. If we propose to register any of our securities under the Securities Act,
either for our own account or for the account of others, the holders of these
shares are entitled to notice of the registration and are entitled to include,
at our expense, their shares of common stock in the registration and any
related underwriting, provided, among other conditions, that the underwriters
may limit the number of shares to be included in the registration and in some
cases, including this offering, exclude these shares entirely. In addition, the
holders of these shares may require us at our expense to register their shares
on Form S-3 when this form becomes available.
Anti-Takeover Provisions of Delaware Law and Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
. prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and by employee stock plans in which
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or subsequent to that date, the business combination is approved by
the board of directors and is authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
68
<PAGE>
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of the provisions of the Section 203. The statute could
prohibit or delay mergers or other takeover or change-in-control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Charter Provisions
Our certificate of incorporation requires that upon completion of this
public offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Additionally, our
certificate of incorporation:
. eliminates cumulative voting in the election of directors;
. provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
. authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares.
Our bylaws provide that candidates for director may be nominated only by our
board of directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. Our board of directors currently
consists of six members divided into three classes with staggered terms. Our
board of directors may appoint new directors to fill vacancies or newly created
directorships. Our bylaws also limit who may call a special meeting of
stockholders.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which could
depress the market price of our common stock.
Limitation of Liability and Indemnification
Our certificate of incorporation, which will become effective upon the
closing of this offering, contains provisions permitted under Delaware law
relating to the liability of directors. These provisions eliminate a director's
personal liability for monetary damages resulting from a breach of fiduciary
duty, except in circumstances involving wrongful acts, such as:
. any breach of the director's duty of loyalty;
. acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
. payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law; or
. any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
69
<PAGE>
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may limit the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive
officer in connection with any proceeding initiated by such person or any
proceeding by such person against us or our directors, officers, employees or
other agents, unless indemnification is expressly required to be made by law or
the proceeding was authorized by our board of directors.
We intend to enter into indemnity agreements with each of our current
directors and certain of our executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
for which indemnification is sought, nor are we aware of any threatened
litigation that may result in claims for indemnification.
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
We plan to obtain directors' and officers' liability insurance.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank,
Minnesota N.A.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and a
significant public market for our common stock may not develop or be sustained
after this offering. As described below, shares currently outstanding
will be available for sale immediately after this offering due to certain
contractual and securities law restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock. Of these shares, all of the shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by our "affiliates," as that
term is defined in Rule 144 under the Securities Act. In general, affiliates
include officers, directors or 10% stockholders. The remaining 6,932,803 shares
outstanding are "restricted securities" within the meaning of Rule 144. These
restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below. Sales of the
restricted securities in the public market, or the availability of these shares
for sale, could adversely affect the market price of our common stock.
All of our directors and officers and a majority of our stockholders and
option holders have entered into lock-up agreements in connection with this
offering generally providing that they will not offer, sell, contract to sell
or grant any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock owned by them
for a period of 180 days after the date of this prospectus without the prior
written consent of FleetBoston Robertson Stephens Inc.
Taking into account these lock-up agreements, and assuming FleetBoston
Robertson Stephens Inc. does not release stockholders from their agreements,
the following shares will be eligible for sale in the public market at the
following times:
. no shares will be eligible for sale upon completion of this offering;
. 6,845,130 shares will be eligible for sale upon the expiration of lock-up
agreements, beginning 180 days after the date of this prospectus;
. 87,673 of the remaining shares may be sold under Rule 144 or 144(k) once
they have been held for the required time.
Additionally, of the shares that may be issued upon the exercise of options
outstanding as of January 31, 2000, approximately shares will be vested and
eligible for sale 180 days after completion of this offering.
In general, under Rule 144 as currently in effect, after expiration of the
lock-up agreements, a person who has beneficially owned restricted securities
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
71
<PAGE>
Sales under Rule 144 must comply with the requirements with respect to
manner of sale, notice and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers and
directors or consultants who purchased shares under a written compensatory plan
or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Commencing 90 days after the date of
this offering, Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirement and permits non-
affiliates to sell these shares in reliance on Rule 144 without complying with
the holding period, public information, volume limitation or notice provisions
of Rule 144.
Registration Rights. Upon the earlier of July 30, 2001 or twelve months
after this offering the holders of an aggregate of 150,263 shares of our common
stock, and beginning 180 days after this offering holders of an aggregate of
3,894,223 shares of our common stock, will be entitled to rights with respect
to the registration of their shares under the Securities Act. Registration of
their shares under the Securities Act would result in these shares becoming
freely tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of this
registration.
In addition, we intend to file, immediately after the effectiveness of this
offering, a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our 2000 Equity
Incentive Plan and our 2000 Employee Stock Purchase Plan. Shares registered
under this registration statement would be available for sale in the open
market in the future, providing there is compliance with Rule 144 restrictions,
in the case of affiliates, and the contractual restrictions described above.
72
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated and Robert W.
Baird & Co. Incorporated, have agreed with us and the selling stockholders,
subject to conditions in the underwriting agreement, to purchase from us and
the selling stockholders the number of shares of common stock listed opposite
their names below. The underwriters are committed to purchase and pay for all
shares if any are purchased.
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
Robert W. Baird & Co. Incorporated..........................
------
Total.....................................................
======
</TABLE>
The representatives have advised us and our selling stockholders that the
underwriters propose to offer the shares of common stock to the public at the
public offering price on the cover page of this prospectus. The underwriters
may sell shares to dealers at that price less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers.
After this offering, the public offering price, concession and reallowance to
dealers may be reduced by the representatives, but any reduction will not
change the amount of proceeds to be received by us or the selling stockholder.
The common stock is offered by the underwriters on the terms discussed in this
prospectus, subject to receipt and acceptance by them, and subject to their
right to reject any order.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
No Public Market. Before this offering, there has been no public market for
our common stock. Consequently, the public offering price for the common stock
offered by this prospectus will be determined through negotiations among the
representatives and us. Among the factors considered in these negotiations will
be prevailing market conditions, our financial information, market valuations
of other companies that we and the representatives believe to be comparable to
us, estimates of our business potential and the present state of our
development.
Over-Allotment Option. We and our selling stockholders have granted the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to additional shares of common stock
solely to cover any over-allotments, at the public offering price less the
underwriting discount on the cover page of this prospectus. If the underwriters
exercise their over-allotment option to purchase any of the additional
shares of common stock, they have agreed, subject to specified
conditions, to purchase approximately the same percentage of these additional
shares as the number of shares to be purchased by each of them bears to the
total number of shares of common stock in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those
on which the shares offered in this offering are being sold. We and our selling
stockholders will be obligated to sell shares to the underwriters to the extent
the over-allotment option is exercised.
73
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us and our selling stockholders:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us.............................................. $ $ $
Underwriting discounts and commissions payable by
the selling stockholders........................ $ $ $
</TABLE>
We estimate the expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $ .
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, us and the selling stockholders against civil liabilities,
including liabilities under the Securities Act.
Lock-Up Agreements. Holders of % of our outstanding stock and all of
our officers and directors have signed lock up agreements with the
underwriters. Under these agreements, these parties have agreed, during the
period of 180 days after the date of this prospectus and subject to various
exceptions, not to offer to sell, contract to sell, or transfer any shares of
common stock they own or later acquire, other than shares purchased in the
public markets. These agreements contain similar terms for options or warrants
to purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release any portion of the securities subject to lock-up agreements. There are
no existing agreements between the representatives and any of our stockholders
who have executed a lock-up agreement providing consent to the sale of shares
before the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
consent to the disposition of any shares held by stockholders subject to lock-
up agreements before the expiration of the lock-up period, or issue, sell,
contract to sell, or dispose of, any shares of common stock, any options or
warrants to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock. However, the
following are examples of exceptions to this agreement:
. our sale of shares in this offering;
. the issuance of our common stock upon the exercise of outstanding options
or warrants; and
. the issuance of options under existing stock option and incentive plans,
provided that those options do not vest before the expiration of the
lock-up period.
Listing. We have applied to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "TRNE."
Stabilization. The representatives have advised us that, under Regulation M
of the Exchange Act, some persons participating in the offering may engage in
any of the following transactions:
. stabilizing bids, which are bids for the purchase of common stock on
behalf of the underwriters that are intended to fix or maintain the price
of the common stock;
74
<PAGE>
. syndicate covering transactions, which are bids for the purchase of
common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering; a short
position results when an underwriter sells more shares than it has
committed to purchase; and
. penalty bids, which are arrangements that permit the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with the offering if the common stock
originally sold by the underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction, and has not been
effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market and, if
commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved up to
shares of common stock to be issued by us and offered for sale, at
the initial public offering price, to our directors, officers, employees,
business associates and related persons. The number of shares of common stock
available for sale to the general public will be reduced to the extent that
these individuals purchase all or a portion of these reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same terms as the shares of common stock offered in
this offering.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by Cooley Godward LLP, San Francisco, California. Legal
matters related to the offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999, and 1998, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
75
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to offer shares of our common
stock. This prospectus is only a part of the registration statement and does
not contain all of the information included in the registration statement.
Further information about us and our common stock can be found in the
registration statement. The rules and regulations of the Securities and
Exchange Commission allow us to omit various information from the prospectus
that is included in the registration statement. Statements made in this
prospectus about the contents of any contract, agreement or other documents are
summaries. If we filed any of those documents as exhibits to the registration
statement, you may read the document itself for a complete description of its
terms.
The registration statement and the related exhibits and schedules filed by
us with the Securities and Exchange Commission can be inspected and copies
obtained at prescribed rates from the public reference facilities maintained by
the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
You may obtain information on the operation of the public reference room by
calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains a website that
contains reports, proxy and information statements and other information about
registrants that file electronically with the Securities and Exchange
Commission, like us, at http://www.sec.gov.
76
<PAGE>
TriNet Group, Inc.
Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Audited Financial Statements
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
TriNet Group, Inc.
We have audited the accompanying consolidated balance sheets of TriNet
Group, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of TriNet Group, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Walnut Creek, California
February 18, 2000, except for paragraph 2 of Note 4, as to which the date is
February 29, 2000
F-2
<PAGE>
TriNet Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------------ December 31,
1998 1999 1999
----------- ----------- -------------
Assets (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 8,584,563 $16,777,235
Accounts receivable, net of allowance
for doubtful accounts of $7,157 in
1998 and $100,000 in 1999............ 1,676,753 3,637,345
Unbilled revenues..................... 4,667,940 4,781,704
Refundable income tax prepayments..... 390,817 1,376,802
Prepaid expenses...................... 428,727 534,322
Deferred income taxes................. 147,400 322,500
Other current assets.................. 100,845 308,216
----------- -----------
Total current assets................ 15,997,045 27,738,124
Property and equipment, net............ 4,005,578 7,979,264
Other assets........................... 88,890 74,009
----------- -----------
$20,091,513 $35,791,397
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................... $ 375,933 $ 733,769
Subscriber prepayments................ 6,002,250 6,942,570
Accrued compensation and related
expenses............................. 8,614,294 19,359,530
Current portion of borrowings under
bank financing arrangements.......... -- 588,910
----------- -----------
Total current liabilities........... 14,992,477 27,624,779
Borrowings under bank financing
arrangements.......................... -- 1,766,728
Deferred income taxes.................. 531,100 1,084,200
Commitments and contingencies
Redeemable convertible preferred stock,
1,000,000 shares authorized:
Series E, $40 stated value; 75,000
shares authorized; 12,500 shares
issued and outstanding at December
31, 1998 and 1999, and none pro forma
(aggregate liquidation preference of
$500,000)............................ 500,000 500,000 $ --
Stockholders' equity:
Common stock, no stated value;
authorized: 50,000,000 shares; issued
and outstanding: 6,316,675 shares at
December 31, 1998, 6,385,394 shares
at December 31, 1999 and
6,927,698 shares, pro forma.......... 5,026,754 6,619,545 7,119,545
Deferred compensation................. (356,542) (1,072,861) (1,072,861)
Accumulated deficit................... (592,049) (725,182) (725,182)
Accumulated other comprehensive loss.. (10,227) (5,812) (5,812)
----------- ----------- -----------
Total stockholders' equity.......... 4,067,936 4,815,690 $ 5,315,690
----------- ----------- ===========
$20,091,513 $35,791,397
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
TriNet Group, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Service revenues......................... $7,748,608 $12,442,924 $19,127,780
(Net of direct costs billed and
incurred of $241,917,033, $386,220,552,
and $712,944,848, respectively)
Operating expenses:
Cost of providing services............. 4,119,822 6,378,814 10,101,829
Client acquisition costs............... 1,077,607 1,102,352 2,541,173
General and administrative............. 846,395 1,782,603 2,543,574
Research and development............... 488,475 718,692 2,353,295
Depreciation........................... 228,668 565,008 742,943
Stock-based compensation............... -- 146,458 650,681
---------- ----------- -----------
Total operating expenses............. 6,760,967 10,693,927 18,933,495
---------- ----------- -----------
Operating income......................... 987,641 1,748,997 194,285
Other income (expense):
Interest income........................ 41,651 49,177 73,503
Interest expense....................... (22,981) (10,760) (9,340)
Foreign exchange gain (loss)........... -- (25,584) 37,719
---------- ----------- -----------
Income before provision for income
taxes................................... 1,006,311 1,761,830 296,167
Provision for income taxes............... (246,800) (779,400) (399,300)
---------- ----------- -----------
Net income (loss)........................ $ 759,511 $ 982,430 $ (103,133)
========== =========== ===========
Net income (loss) available to common
stockholders............................ $ (347,640) $ 454,978 $ (133,133)
========== =========== ===========
Basic net income (loss) per common
share................................... $ (0.10) $ 0.07 $ (0.02)
========== =========== ===========
Diluted net income (loss) per common
share................................... $ (0.10) $ 0.07 $ (0.02)
========== =========== ===========
Shares used to compute basic net income
(loss) per common share................. 3,599,463 6,303,081 6,340,357
========== =========== ===========
Shares used to compute diluted net income
(loss) per common share................. 3,599,463 6,593,448 6,340,357
========== =========== ===========
Pro forma basic and diluted net loss per
common share (unaudited)................ $ (0.01)
===========
Shares used to compute pro forma basic
and diluted net income per common stock
share (unaudited)....................... 6,882,661
===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TriNet Group, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Note Other
--------------------- Receivable Deferred Accumulated Comprehensive
Shares Amount for Stock Compensation Deficit Loss Total
--------- ---------- ---------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... 3,597,125 $ 537,632 $(250,000) $ -- $ (699,387) $ -- $ (411,755)
Repurchase of common
stock.................. (848) (3,876) -- -- -- -- (3,876)
Discount on issuance of
preferred stock........ -- 1,000,000 -- -- -- -- 1,000,000
Accretion of preferred
stock discount......... -- -- -- -- (1,000,000) -- (1,000,000)
Payment of note
receivable............. -- -- 250,000 -- -- -- 250,000
Exercise of stock
options................ 5,525 1,509 -- -- -- -- 1,509
Conversion of
redeemable preferred
shares into common
stock.................. 2,678,773 2,454,764 -- -- -- -- 2,454,764
Dividend payable....... -- -- -- -- (107,151) -- (107,151)
Net income and
comprehensive income... -- -- -- -- 759,511 -- 759,511
--------- ---------- --------- ----------- ----------- -------- -----------
Balance at December 31,
1997.................... 6,280,575 3,990,029 -- -- (1,047,027) -- 2,943,002
Repurchase of common
stock.................. (5,005) (9,309) -- -- -- -- (9,309)
Discount on issuance of
redeemable preferred
stock.................. -- 500,000 -- -- -- -- 500,000
Accretion of preferred
stock discount......... -- -- -- -- (500,000) -- (500,000)
Exercise of stock
options................ 41,105 43,034 -- -- -- -- 43,034
Deferred compensation
related to grant of
stock options.......... -- 503,000 -- (503,000) -- -- --
Amortization of
deferred compensation.. -- -- -- 146,458 -- -- 146,458
Dividend payable....... -- -- -- -- (27,452) -- (27,452)
Net income............. -- -- -- -- 982,430 -- 982,430
Foreign currency
translation
adjustment............. -- -- -- -- -- (10,227) (10,227)
-----------
Comprehensive income... -- -- -- -- -- -- 972,203
--------- ---------- --------- ----------- ----------- -------- -----------
Balance at December 31,
1998.................... 6,316,675 5,026,754 -- (356,542) (592,049) (10,227) 4,067,936
Repurchase of common
stock.................. (1,493) (10,780) -- -- -- -- (10,780)
Exercise of stock
options................ 70,212 196,367 -- -- -- -- 196,367
Deferred compensation
related to grant of
stock options.......... -- 1,367,000 -- (1,367,000) -- -- --
Amortization of
deferred compensation.. -- -- -- 650,681 -- -- 650,681
Income tax benefit of
stock option
exercises.............. -- 40,204 -- -- -- -- 40,204
Dividend payable....... -- -- -- -- (30,000) -- (30,000)
Net loss............... -- -- -- -- (103,133) -- (103,133)
Foreign currency
translation
adjustment............. -- -- -- -- -- 4,415 4,415
-----------
Comprehensive loss..... -- -- -- -- -- -- (98,718)
--------- ---------- --------- ----------- ----------- -------- -----------
Balance at December 31,
1999.................... 6,385,394 $6,619,545 $ -- $(1,072,861) $ (725,182) $ (5,812) $ 4,815,690
========= ========== ========= =========== =========== ======== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TriNet Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income (loss)...................... $ 759,511 $ 982,430 $ (103,133)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.......................... 228,668 565,008 742,943
Stock-based compensation.............. -- 146,458 694,411
Provision for doubtful accounts....... 7,157 29,510 236,053
Deferred income taxes................. 210,900 359,600 378,000
Changes in assets and liabilities:
Accounts receivable.................. (1,646,832) 95,086 (2,196,645)
Unbilled revenues.................... 137,157 (2,644,067) (113,764)
Refundable income tax prepayments.... (108,739) (485,765) (945,781)
Prepaid expenses..................... (232,991) (195,736) (105,595)
Other current assets................. 120,728 (20,498) (207,371)
Other noncurrent assets.............. -- (50,878) 14,881
Accounts payable..................... 267,962 (163,233) 1,472,288
Subscriber prepayments............... 2,482,831 1,652,151 940,320
Accrued compensation and related
expenses............................ 1,935,959 1,887,516 10,745,236
----------- ----------- -----------
Net cash provided by operating
activities............................ 4,162,311 2,157,582 11,551,843
Investing activities
Purchase of property and equipment..... (2,230,084) (1,916,402) (4,716,629)
Financing activities
Borrowings under bank financing
arrangements.......................... -- -- 1,238,638
Dividends paid on preferred stock...... (60,000) (107,151) (27,452)
Repurchase of common stock............. (3,876) (9,309) (10,780)
Issuance of common stock............... 1,509 43,034 152,637
Issuance of preferred stock............ 1,000,000 500,000 --
Payment of note receivable............. 250,000 -- --
----------- ----------- -----------
Net cash provided by financing
activities............................ 1,187,633 426,574 1,353,043
----------- ----------- -----------
Effect of exchange rate changes on
cash.................................. -- (10,227) 4,415
----------- ----------- -----------
Net increase in cash and cash
equivalents........................... 3,119,860 657,527 8,192,672
Cash and cash equivalents at beginning
of year............................... 4,807,176 7,927,036 8,584,563
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 7,927,036 $ 8,584,563 $16,777,235
=========== =========== ===========
Supplemental disclosures of cash flow
information
Interest paid.......................... $ 14,069 $ 10,760 $ 9,340
=========== =========== ===========
Income taxes paid...................... $ 178,466 $ 853,500 $ 1,239,475
=========== =========== ===========
Supplemental schedule of noncash
financing activities
Dividends declared but not paid........ $ 107,151 $ 27,452 $ 30,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. Description of Business and Significant Accounting Policies
Description of Business
TriNet Group, Inc. (the "Company") is a provider of web-enabled business
process outsourcing of payroll, benefits and human resources support to
technology companies in North America. The Company's systems and services
enable customers to integrate human resources, benefits and payroll processes
to a single information systems platform, as well as outsource related
transaction processing functions to TriNet's consolidated back-office
operation.
Segment Reporting
The Company operates in one reportable segment under FASB Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("FAS
131"). The Company uses a centralized structure to deliver web-enabled business
process outsourcing of payroll, benefits and human resource transactions to its
customers. The Company's management has determined the operating segment based
upon how the business is managed and operated.
Principles of Consolidation
The consolidated financial statements include the accounts of TriNet Group,
Inc. and its wholly owned subsidiary. Intercompany accounts and transactions
have been eliminated.
Revenue Recognition
The Company's revenues consist primarily of service fees paid by its
customers in consideration for the Company's payment of the customer's direct
payroll costs including salaries, wages, employee benefits and payroll taxes.
Service revenues, which are presented net of direct payroll costs incurred and
billed, are recognized in the period in which the customer's serviced employees
earn salaries and wages. Service revenues related to salaries and wages earned
by serviced employees but not paid during the current period are recognized as
unbilled revenues and the related direct payroll costs are accrued as a
liability in the period in which the salaries and wages are earned by the
employees. Subsequent to each period end, such accrued direct payroll costs are
paid and the related service revenues are billed. Unbilled revenues at December
31, 1998 and 1999 are net of prepayments received prior to year end of $481,130
and $1,651,534, respectively. The Company also derives revenues from other
services provided to its customers and this revenue is recognized when the
related services are performed.
The Company generally requires its payroll and benefits outsourcing
customers to pay no later than one day prior to the applicable payroll date via
electronic funds transfer. Interest earned on cash balances resulting from
timing differences between the collection of payments from customers and the
remittance of wages, taxes and payments to outside parties is included in
service revenues in the accompanying consolidated statements of operations.
Interest included in service revenues for the years ended December 31, 1997,
1998 and 1999 totaled $403,000, $490,000 and $650,000, respectively.
F-7
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk include cash and cash equivalents and accounts receivable. The Company
maintains its cash in a domestic financial institution and performs periodic
evaluations of the relative credit standing of this institution.
The Company currently provides services primarily to early stage technology
companies in Northern California and conducts ongoing credit evaluations of its
customers. Under the terms of its customer agreements, the Company is required
to pay its serviced employees' salaries and wages regardless of whether the
customer makes timely payment to the Company. The Company has historically
experienced insignificant credit losses.
The Company generally requires payment from its customers no later than one
day prior to the applicable payroll date. From certain of its customers, the
Company requires a performance assurance payment ("PAP") in an amount equal to
the total payroll and service fee for one average payroll period and such
amounts are recorded as subscriber prepayments in the accompanying consolidated
balance sheets. Should the PAP fall below the required amount, the customer is
required to pay an amount sufficient to establish the required PAP level. In
the event of a termination, the Company refunds remaining PAP amounts within 30
days, provided all obligations of the customer have been fulfilled.
Cash and Cash Equivalents
Cash and cash equivalents include bank demand deposits and short-term,
highly liquid investments. Investments with original maturity dates of three
months or less are considered cash equivalents. Since the Company generally
requires its customers to pay no later than one day prior to the applicable
payroll date, the Company's cash and cash equivalents can vary significantly
based on the timing of funds transferred by customers and the timing of funds
disbursed by the Company for applicable services.
Property and Equipment, net
Property and equipment are recorded at cost and depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Leasehold improvements are depreciated over the
shorter of the life of the asset or the remaining term of the lease. The cost
of maintenance and repairs is expensed as incurred; renewals and betterments
are capitalized.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets
F-8
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Software Development and Enhancements
Through the end of 1997, the Company expensed as incurred certain costs to
develop and enhance its internal computer programs and software. Expenditures
for vendor-provided software were capitalized and amortized using the straight-
line method over estimated useful lives ranging from 3 to 5 years. In March
1998, the Accounting Standards Executive Committee issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP requires the capitalization of internal use
computer software costs if certain criteria are met, including all external
direct costs for materials and services and certain payroll and related fringe
benefit costs. The Company early-adopted SOP 98-1 as of January 1, 1998. As a
result, the Company capitalizes internal use software costs with an expected
useful life over one year and expenses amounts not meeting the criteria of SOP
98-1. Capitalized software costs are amortized on the straight line basis over
estimated useful lives ranging from 2 to 4 years.
Fair Value of Financial Instruments
The carrying value of accounts receivable, unbilled revenues, accounts
payable, subscriber prepayments and accrued compensation and related expenses
approximates fair value due to the short-term maturities of these assets and
liabilities. The carrying value of borrowings under bank financing arrangements
approximates fair value since the interest rate is variable and resets
frequently.
Advertising
All advertising costs are expensed as incurred. Advertising costs, which are
included in client acquisition costs, were approximately $130,000, $290,000 and
$610,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires the use of the liability method in
accounting for income taxes. Under this method, deferred tax liabilities and
assets are measured based upon differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Stock-Based Compensation
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").
F-9
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Translation of Foreign Currencies
All assets and liabilities that are denominated in foreign currencies are
translated into U.S. dollars at year-end exchange rates and all revenue and
expense accounts are translated using the average monthly exchange rates.
Translation adjustments are included in the Accumulated Other Comprehensive
Loss component of stockholders' equity.
Computation of Net Income (Loss) Per Common Share
The Company computes net income (loss) per common share based on Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128").
In accordance with FAS 128, basic net income (loss) per common share is
calculated as net income (loss) available to common stockholders divided by the
weighted-average number of common shares outstanding. Diluted net income (loss)
per common share is computed using the weighted-average number of common shares
outstanding and dilutive common stock equivalents outstanding during the period
unless the effect of including such shares is anti-dilutive. Common equivalent
shares result from stock options (using the treasury stock method) and
convertible preferred stock (using the as-if-converted method).
Pro forma net income (loss) per common share has been computed as described
above and also gives effect, under Securities and Exchange Commission guidance,
to the conversion of preferred shares not included above that will
automatically convert to common shares upon completion of the Company's initial
public offering, using the if-converted method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction, and, if so, the type of hedge transaction.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133" ("FAS 137"), which
amends FAS 133 to be effective for all fiscal quarters or all fiscal years
beginning after June 15, 2000, or January 1, 2001 for the Company. Management
does not currently expect that adoption of FAS 137 will have a material impact
on the Company's financial position or results of operations.
F-10
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. Property and Equipment, Net
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Software......................................... $ 2,266,960 $ 4,969,493
Office equipment including data processing
equipment....................................... 1,729,900 2,977,038
Furniture, fixtures and equipment................ 637,036 955,142
Leasehold improvements........................... 536,299 986,686
----------- -----------
5,170,195 9,888,359
Accumulated depreciation......................... (1,164,617) (1,909,095)
----------- -----------
$ 4,005,578 $ 7,979,264
=========== ===========
</TABLE>
3. Bank Financing Arrangements
In September 1999, the Company entered into a non-revolving line of credit
agreement with a bank to finance qualifying expenditures on computer systems
projects. Under the terms of this agreement, the Company may borrow up to
$4,000,000 through March 31, 2000. Interest accrues on outstanding borrowings
at either LIBOR plus 3.6% (10.1% at December 31, 1999) or the bank's reference
rate plus 1% (9.5% at December 31, 1999), and is payable monthly. Among other
provisions, the agreement requires the Company to maintain certain net worth
levels and financial ratios. Borrowings under the agreement are secured by
substantially all of the Company's assets.
At December 31, 1999, the Company had incurred and included in accounts
payable $1,117,000 of costs eligible for financing under the agreement.
Subsequent to December 31, 1999, the Company financed these costs under the
agreement and accordingly has included such amounts in bank borrowings in the
accompanying balance sheet. On March 31, 2000, any outstanding borrowings are
to be converted to a note payable with a term of 36 months. At December 31,
1999, outstanding borrowings of $1,766,728 have been included in long term
liabilities since repayment will occur after December 31, 2000.
Outstanding borrowings at December 31, 1999 are due as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000.......................................................... $ 588,910
2001.......................................................... 785,213
2002.......................................................... 785,213
2003.......................................................... 196,302
----------
2,355,638
Less: current portion............................................ 588,910
----------
Long-term portion................................................ $1,766,728
==========
</TABLE>
F-11
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. Redeemable Convertible Preferred Stock
Pursuant to terms specified in the Amended Series E Preferred Stock Purchase
Agreement (Preferred Stock Agreement) with an existing common stockholder and
upon meeting certain financial milestones, the Company issued to the common
stockholder, 25,000 shares of Series E redeemable convertible preferred stock
(Series E) at $40 per share in 1997 and 12,500 shares of Series E at $40 per
share in 1998. All shares of Series E covered under the Preferred Stock
Agreement were issued as of December 31, 1998.
Shares of Series E may, at the option of the holder, be converted at any
time into common stock at a conversion price of $1.00 per common share, subject
to adjustment based on anti-dilution provisions outlined in the Preferred Stock
Agreement (conversion price of $0.921992 per common share at December 31,
1999). Upon issuance of Series E in 1997 and 1998, the aggregate fair value of
the common stock the holder would receive upon conversion exceeded the proceeds
to be received from conversion and such difference has been accounted for as a
discount on preferred stock in both 1997 and 1998. Since the Series E is
immediately convertible, the $1,000,000 and $500,000 discount related to the
1997 and 1998 issuance of Series E was accreted to retained earnings in 1997
and 1998, respectively. At December 31, 1997, all of the then outstanding
shares of Series E were converted into 2,678,773 shares of common stock. In
consideration for the December 1997 agreement to convert the Series E into
common stock, the Company entered into an agreement to issue the holder of
Series E the right to receive one share of common stock for each additional
equity security issued by the Company, subject to certain conditions. On
February 29, 2000, the Company issued 217,256 shares of common stock in full
satisfaction of its obligations under this agreement.
Shares of Series E accrue a 6% cumulative dividend, payable annually.
Dividends of $107,151, $27,452 and $30,000 were accrued for the years ended
December 31, 1997, 1998, and 1999, respectively. Subsequent to September 30,
2000, Series E is subject to redemption at any time at the option of the holder
at the original issue price of $40 per share. In the event the Company is not
able to redeem the Series E in accordance with a request for redemption from
the holder, the dividend rate will increase from 6% to 12%. The holder of
Series E has no voting rights but has the right to elect one member to the
Company's Board of Directors.
The holder of Series E is entitled to receive the stated liquidation value
of $40 per share, plus accrued but unpaid dividends, in the event of any
liquidation, dissolution or winding up of the Company.
5. Stockholders' Equity
Pursuant to the July 1995 Shareholders Agreement, all existing common
stockholders have retained a right of first refusal, on a pro rata basis, to
purchase additional shares offered for sale by the Company. Issuances of shares
from a specified pool of shares reserved for the issuance of stock options are
excluded from this right.
Proposed Public Offering of Common Stock
On December 21, 1999, the Board authorized the Company to proceed with an
initial public offering of its common stock. If the offering is consummated as
presently anticipated, all of the
F-12
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
outstanding redeemable convertible preferred stock will automatically convert
to common stock. The unaudited pro forma stockholders' equity at December 31,
1999 gives effect to the conversion of all outstanding shares of redeemable
convertible preferred stock at that date into 542,304 shares of common stock
upon the completion of the offering.
Stock Option Plan
Pursuant to the Company's 1990 Stock Option Plan (the "Plan"), an aggregate
of 965,033 shares of common stock has been reserved for issuance upon the
exercise of options granted to qualified employees, directors, and consultants
of the Company. The Board of Directors, directly or through committees,
administers the Plan and establishes the terms of option grants. The exercise
price per share of all incentive stock options granted under the Plan must be
at least equal to the fair market value of the shares at the date of grant as
determined by the Board. The options generally vest at a rate of 25% after each
year and have a maximum term of five years.
Stock option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding options
--------------------
Weighted
Options Number average
available of Price per exercise
for grant shares share price
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... 680,450 407,050 $0.08-1.60 $1.15
Granted........................... (109,398) 109,398 3.40-4.95 4.16
Exercised......................... -- (5,525) 0.08-1.00 0.27
Cancelled......................... 2,900 (2,900) 1.00 1.00
-------- ------- ----------- -----
Balance at December 31, 1997....... 573,952 508,023 $1.00-4.95 $1.81
Granted........................... (110,165) 110,165 3.69-5.83 5.43
Exercised......................... -- (41,105) 3.69-5.83 5.23
Cancelled......................... 60,612 (60,612) 1.00-5.83 2.33
-------- ------- ----------- -----
Balance at December 31, 1998....... 524,399 516,471 $1.00-5.83 $2.27
Granted........................... (261,286) 261,286 7.22-25.73 8.58
Exercised......................... -- (70,212) 3.69-25.73 8.23
Cancelled......................... 17,918 (17,918) 1.00-25.73 4.21
-------- ------- ----------- -----
Balance at December 31, 1999....... 281,031 689,627 $1.00-25.73 $4.82
======== ======= =========== =====
</TABLE>
The weighted-average remaining contractual life of all outstanding options
at December 31, 1999 is 2.85 years.
F-13
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------- ------------------------
Ranges
of Weighted average
exercise remaining Weighted average Weighted average
prices Shares contractual life exercise price Shares exercise price
-------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 185,350 1.10 $ 1.00 133,476 $1.00
$1.60 75,000 1.77 1.60 59,270 1.60
$3.40-
3.81 60,105 2.55 3.52 41,720 3.53
$4.95-
5.83 114,222 3.24 5.40 42,222 5.35
$7.22 92,250 4.07 7.22 43,650 7.22
$9.03 159,400 4.49 9.03 -- --
$25.73 3,300 4.97 25.73 -- --
------- ---- ------ ------- -----
$1.00-
25.73 689,627 2.85 $ 4.82 320,338 $2.86
======= ==== ====== ======= =====
</TABLE>
Shares Reserved for Future Issuance
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Redeemable convertible preferred stock............... -- 500,000 542,304
Stock options outstanding............................ 508,023 516,471 689,627
Stock options, available for grant................... 573,952 524,399 281,031
</TABLE>
Deferred Compensation
The Company has recorded deferred stock compensation charges of $503,000 and
$1,367,000 during the years ending December 31, 1998 and 1999 respectively,
representing the difference between the exercise price of the stock option and
the fair value of common stock as of the date of grant. These amounts are being
amortized by charges to operations, using the graded method, over the vesting
periods of the individual stock options, which are 4 years.
F-14
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
Pro Forma Disclosures of the Effect of Stock Based Compensation
Pro forma information regarding net income and net income per common share
is required by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"), and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of FAS 123. For purposes of pro forma disclosures, the estimated fair
value of the stock option is amortized to expense over the option's vesting
period. The fair value of these stock options was estimated at the date of
grant using the Black-Scholes option pricing valuation model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................ 6 % 6 % 6 %
Dividend yield................................. 0 % 0 % 0 %
Volatility factor.............................. 0.5 0.5 0.5
Expected option term life in years............. 5 5 5
</TABLE>
The weighted-average fair value of these options granted was $1.08, $1.41
and $4.26 for 1997, 1998 and 1999, respectively.
Option valuation models were developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
Option valuation models require the input of highly subjective assumptions,
including expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, subjective input assumptions can materially affect the fair value
estimate.
Had compensation costs for the Company's stock option plan been determined
using the fair value at the grant dates for awards under that plan consistent
with the method of FAS 123, the Company's historical net income (loss)
applicable to common shareholders and basic and diluted net income (loss) per
common share would have been decreased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Net income (loss) applicable to common
shareholders:
As reported............................... $(347,640) $454,978 $(133,133)
Pro forma................................. $(389,408) $379,591 $(453,316)
Basic net income (loss) per common share:
As reported............................... $ (0.10) $ 0.07 $ (0.02)
Pro forma................................. $ (0.11) $ 0.06 $ (0.07)
Diluted net income (loss) per common share:
As reported............................... $ (0.10) $ 0.07 $ (0.02)
Pro forma................................. $ (0.11) $ 0.05 $ (0.07)
</TABLE>
The pro forma impact of options on the results for the years ended December
31, 1997, 1998, and 1999 is not representative of the effects on results for
future years, as future years will include the effects of additional years of
stock option grants.
F-15
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
6. Net Income (Loss) Per Common Share
The calculation of historical basic and diluted net income (loss) per
common share is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1997 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Historical:
Numerator:
Net income (loss).................... $ 759,511 $ 982,430 $ (103,133)
Less: preferred stock dividends and
discount accretion.................. (1,107,151) (527,452) (30,000)
------------ ---------- ----------
Numerator for basic and dilutive net
income (loss) per common share--net
income available to common
stockholders........................ $ (347,640) $ 454,978 $ (133,133)
============ ========== ==========
Denominator:
Denominator for basic net income
(loss) per common share--weighted-
average shares of common stock
outstanding......................... 3,599,463 6,303,081 6,340,357
Effect of dilutive securities:
Employee stock options.............. -- 290,367 --
------------ ---------- ----------
Denominator for dilutive net income
(loss) per common share--adjusted
weighted-average shares and assumed
conversions......................... 3,599,463 6,593,448 6,340,357
============ ========== ==========
Basic net income (loss) per common
share............................... $ (0.10) $ 0.07 $ (0.02)
============ ========== ==========
Diluted net income (loss) per common
share............................... $ (0.10) $ 0.07 $ (0.02)
============ ========== ==========
</TABLE>
For the years ended December 31, 1997 and 1999, if the Company had reported
net income per common share, the calculation of historical diluted net income
per common share would have included approximately an additional 200,000 and
330,000 common equivalent shares, respectively, related to outstanding stock
options not included above (determined using the treasury stock method). In
addition, if the Company had reported net income for the year ended December
31, 1999, the calculation of historical diluted net income per common share
would have included approximately an additional 542,000 common equivalent
shares, related to the conversion of preferred shares using the if-converted
method. For the years ended December 31, 1997 and 1998, the effect of the
convertible preferred stock is anti-dilutive.
F-16
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
6. Net Income (Loss) Per Common Share (continued)
For the year ended December 31, 1999, the calculation of pro forma basic and
diluted net loss per common share is as follows:
<TABLE>
<S> <C>
Net loss....................................................... $ (103,133)
==========
Weighted-average shares used in computing basic net income per
common share.................................................. 6,340,357
Adjustment to reflect the effect of the assumed conversion of
preferred stock from beginning of year........................ 542,304
----------
Weighted-average shares used in computing pro forma basic and
diluted net income per common share........................... 6,882,661
==========
Pro forma basic and dilutive net loss per common share
(unaudited)................................................... $ (0.01)
==========
</TABLE>
7. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ 176,900 $331,200 $ 12,100
State......................................... 46,000 88,600 9,200
--------- -------- --------
222,900 419,800 21,300
Deferred:
Federal....................................... 165,900 276,500 297,800
State......................................... 45,000 83,100 80,200
--------- -------- --------
210,900 359,600 378,000
--------- -------- --------
433,800 779,400 399,300
Change in valuation allowance.................. (187,000) -- --
--------- -------- --------
$ 246,800 $779,400 $399,300
========= ======== ========
</TABLE>
F-17
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued expenses................................... $ 69,000 $ 256,300
State income taxes................................. 61,700 62,000
Other.............................................. 17,700 4,600
--------- -----------
148,400 322,900
Deferred tax liabilities:
Depreciation and amortization...................... (127,500) (186,800)
Software development costs......................... (404,600) (897,800)
--------- -----------
Total deferred tax liabilities...................... (532,100) (1,084,600)
--------- -----------
Net deferred tax liability.......................... $(383,700) $ (761,700)
========= ===========
Net current deferred tax assets..................... $ 147,400 $ 322,500
Net noncurrent deferred tax liabilities............. (531,100) (1,084,200)
--------- -----------
Net deferred tax liability.......................... $(383,700) $ (761,700)
========= ===========
</TABLE>
The reconciliation of income tax computed at the United States federal
statutory tax rates to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate.................................. 34% 34% 34%
State income taxes, net federal benefit..................... 6 6 20
Non-deductible stock-based compensation..................... -- 3 75
Meals and entertainment..................................... -- 1 4
Change in valuation allowance............................... (18) -- --
Other....................................................... 2 -- 2
--- --- ---
24% 44% 135%
=== === ===
</TABLE>
F-18
<PAGE>
TriNet Group, Inc.
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies
Leases
The Company leases office facilities for its headquarters and other
facilities under noncancelable operating leases which require the Company to
pay certain maintenance and all insurance costs.
As of December 31, 1999, minimum payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000.......................................................... $ 731,000
2001.......................................................... 737,000
2002.......................................................... 623,000
2003.......................................................... 269,000
2004.......................................................... 206,000
----------
Total minimum lease payments..................................... $2,566,000
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999 was
$201,000, $374,000 and $591,000, respectively.
Contingencies
While currently the Company is not aware of any significant pending
litigation, the Company may from time to time become involved in various
litigation arising in the ordinary course of business and the resolution of
these matters could have a material effect on the Company's financial position
or results of operations.
Due to the nature of the Company's relationship with its serviced employees,
the Company could be subject to liability for federal and state law violations
even if the Company does not participate in such violations. While the
agreements with customers contain indemnification provisions related to the
conduct of the customers, the Company historically has not encountered
situations requiring enforcement of these indemnification provisions.
Beginning in 1998, the Company entered into a retroactively rated workers'
compensation premium arrangement with an insurance carrier. At the end of each
plan year, subject to minimum and maximum limits, the actual premium due is
adjusted according to the period's claims experience. The Company records
premium expense throughout the year based on projections from actual claims
experience. Actual workers' compensation premiums may differ from the estimates
recorded by the Company, and such differences could have a material effect on
the Company's financial position or results of operations in a particular
period.
F-19
<PAGE>
[Description of inside back cover graphics: Art to be depicted on the inside
front cover shows five graphics explaining TriNet's position at the center of
four trends, plus explanatory text.]
Title: Strategically Positioned at the Center of Four Major Trends
[In the center of the page is the TriNet logo with the caption: TriNet
ePowered HR for Fast Companies]
[One graphic has the following caption in a box with an arrow pointing to
the TriNet logo: Growth in Business to Business eCommerce Three additional
boxes contain the following captions with arrows pointing to the above
described box: Hosted Enterprise Resource Planning Systems, Rapid Growth of
Internet Usage, Digital Signatures]
[Another graphic has the following caption in a box with an arrow pointing
to the TriNet logo: Spread of Venture Capital Three additional boxes contain
the following captions with arrows pointing to the above described box:
Startups Seeking Financing, Substantial Increases in Venture Investment, Public
Offerings and Acquisitions Result in Increased Liquidity]
[Another graphic has the following caption in a box with an arrow pointing
to the TriNet logo: Desire to Work at Fast-Growth Companies Three additional
boxes contain the following captions with arrows pointing to the above
described box: Availability for Competitive Benefit Packages, Desire for Fast
Track Career, Potential Wealth Through Stock Options]
[Another graphic has the following caption in a box with an arrow pointing
to the TriNet logo: Demand for Outsourcing Three additional boxes contain the
following captions with arrows pointing to the above described box: Web-based
Transactions Provide Scalability, Pressure to Get to Market, Legal Compliance
Requirements]
<PAGE>
TRINET LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by TriNet
in connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $15,180
NASD filing fee..................................................... 6,250
Nasdaq National Market filing fee...................................
Accounting fees and expenses........................................
Legal fees and expenses.............................................
Printing and engraving expenses.....................................
Blue sky fees and expenses.......................................... 10,000
Transfer agent and registrar fees and expenses...................... 15,000
Miscellaneous.......................................................
-------
Total............................................................. $
=======
</TABLE>
ITEM 14. Indemnification of Directors and Officers.
Section 145 of Delaware General Corporation Law provides for the
indemnification of directors and officers. Our amended and restated certificate
of incorporation contains provisions permitted under Delaware law relating to
the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty,
except in circumstances involving wrongful acts, such as:
. any breach of the director's duty of loyalty;
. acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
. any transaction from which the director derives an improper personal
benefit; and
. payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws require us to indemnify our directors and executive officers to
the fullest extent not prohibited by the Delaware law. We may limit the extent
of such indemnification by individual contracts with our directors and
executive officers. Further, we may decline to indemnify any director or
executive officer in connection with any proceeding initiated by such person or
any proceeding by such person against TriNet or its directors, officers,
employees or other agents, unless such indemnification is expressly required to
be made by law or the proceeding was authorized by our board of directors.
II-1
<PAGE>
We intend to enter into indemnity agreements with each of our current
directors and certain of our executive officers to give these directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of TriNet
for which indemnification is sought, nor are we aware of any threatened
litigation that may result in claims for indemnification.
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
TriNet plans to obtain directors' and officers' liability insurance.
ITEM 15. Recent Sales of Unregistered Securities
In the three fiscal years preceding the filing of this registration
statement, the Registrant has issued the following securities that were not
registered under the Securities Act:
(1) From January 1997 to February 11, 2000, TriNet has granted stock
options to purchase 697,488 shares of common stock, at a weighted
average exercise price of $13.66, to employees, consultants and
directors pursuant to its 1990 Stock Option Plan. Of these stock
options, 81,080 have been cancelled, 122,467 shares have been
exercised, 850 shares of which have been repurchased and 493,091 shares
remain outstanding.
(2) From February 1997 to January 1998, TriNet issued 25,000 shares of
Series E preferred stock to one accredited investor at $40.00 per
share. In December 1997, 62,500 shares of Series E preferred stock were
converted into 2,678,773 shares of common stock. In consideration for
the holder of the Series E preferred stock agreeing to elect such
conversion, TriNet agreed to issue additional shares of common stock to
such holder. In February 2000, in full satisfaction of its agreement,
TriNet issued to such investor an aggregate of 217,256 shares of common
stock. The remaining 12,500 shares of Series E preferred stock are
convertible into an aggregate of 542,304 shares of common stock.
(3) In February 2000, TriNet issued 150,263 shares of Series F preferred
stock to three accredited investors at $26.62 per share for an
aggregate purchase price of $4,000,001.06. Shares of Series F preferred
stock are convertible into shares of common stock at the rate of one
share of common stock for each share of Series F preferred stock
outstanding.
No underwriters were involved in the foregoing sales of securities. Except
as noted, such sales were deemed to be exempt under the Securities Act in
reliance upon Section 4(2) thereof relative to sales by an issuer not involving
any public offering, or, in the case of options to purchase common stock, Rule
701 under the Securities Act. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Articles of Incorporation, as amended.
3.02* Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of the offering.
3.03 Bylaws.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
3.04* Form of Amended and Restated Bylaws to be in effect upon the closing
of the offering.
4.01* Form of Specimen Stock Certificate.
5.01* Opinion of Cooley Godward llp.
10.01 1990 Stock Option Plan.
10.02* 2000 Equity Incentive Plan.
10.03* 2000 Employee Stock Purchase Plan.
10.04 Lease Agreement dated July 22, 1999 between Registrant and KBK
Properties, Inc.
10.05 Lease Agreement dated July 9, 1999 between Registrant and Incline
Capital Group, LLC.
10.06 Credit Agreement dated September 21, 1999 between Registrant and Sanwa
Bank California.
10.07+ Volume License Agreement dated August 12, 1999 between Registrant and
Concur Technologies, Inc.
10.08+ Software License and Services Agreement dated September 24, 1997
between Registrant and PeopleSoft, Inc.
10.09+ Software License Agreement dated October 6, 1999 between Registrant
and Authoria, Inc.
10.10 Annual Support and Maintenance Agreement dated October 21, 1999
between Registrant and Authoria, Inc.
10.11+ Software License Agreement dated September 29, 1999 between Registrant
and Brio Technology, Inc.
10.12+ Consulting Services Agreement dated November 11, 1999 between
Registrant and Brio Technology, Inc.
10.13 Form of Steering Committee Employment Agreement.
10.14 Form of Executive Committee Employment Agreement.
10.15 Employment Agreement dated July 22, 1995 between Registrant and Martin
Babinec.
23.01 Consent of Cooley Godward llp. Reference is made to Exhibit 5.01.
23.02 Consent of Ernst & Young LLP, independent auditors.
24.01 Powers of Attorney.
27.01 Financial Data Schedule.
</TABLE>
- --------
+Confidential Treatment Requested
*To be filed by amendment
(b) No financial statement schedules are provided because the information
called for is not required or is shown either in the consolidated
financial statements or the notes thereto.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and
II-3
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at 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, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of San
Francisco, State of California, on the 2nd day of March, 2000.
TriNet Group, Inc.
By: /s/ Martin Babinec
------------------
Martin Babinec
Chief Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Martin Babinec and Douglas P. Devlin, and each of them, his or her true and
lawful attorneys-in-fact and agents with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his, her or their substitute or substitutes, may lawfully do or cause
to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Martin Babinec President, Chief Executive March 2, 2000
______________________________________ Officer and Director
Martin Babinec (Principal Executive
Officer)
/s/ Douglas P. Devlin Chief Financial Officer and March 2, 2000
______________________________________ Director (Principal
Douglas P. Devlin Financial and Accounting
Officer)
/s/ Anthony V. Martin Director March 2, 2000
______________________________________
Anthony V. Martin
/s/ H. Lynn Hazlett Director March 2, 2000
______________________________________
H. Lynn Hazlett, Ph.D.
/s/ T. Joe Willey Director March 2, 2000
______________________________________
T. Joe Willey, Ph.D.
/s/ James P. Hanson Director March 2, 2000
______________________________________
James P. Hanson
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Articles of Incorporation, as amended.
3.02* Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of the offering.
3.03 Bylaws.
3.04* Form of Amended and Restated Bylaws to be in effect upon the closing
of the offering.
4.01* Form of Specimen Stock Certificate.
5.01* Opinion of Cooley Godward llp.
10.01 1990 Stock Option Plan.
10.02* 2000 Equity Incentive Plan.
10.03* 2000 Employee Stock Purchase Plan.
10.04 Lease Agreement dated July 22, 1999 between Registrant and KBK
Properties, Inc.
10.05 Lease Agreement dated July 9, 1999 between Registrant and Incline
Capital Group, LLC.
10.06 Credit Agreement dated September 21, 1999 between Registrant and Sanwa
Bank California.
10.07+ Volume License Agreement dated August 12, 1999 between Registrant and
Concur Technologies, Inc.
10.08+ Software License and Services Agreement dated September 24, 1997
between Registrant and PeopleSoft, Inc.
10.09+ Software License Agreement dated October 6, 1999 between Registrant
and Authoria, Inc.
10.10 Annual Support and Maintenance Agreement dated October 21, 1999
between Registrant and Authoria, Inc.
10.11+ Software License Agreement dated September 29, 1999 between Registrant
and Brio Technology, Inc.
10.12+ Consulting Services Agreement dated November 11, 1999 between
Registrant and Brio Technology, Inc.
10.13 Form of Steering Committee Employment Agreement.
10.14 Form of Executive Committee Employment Agreement.
10.15 Employment Agreement dated July 22, 1995 between Registrant and Martin
Babinec.
23.01 Consent of Cooley Godward llp. Reference is made to Exhibit 5.01.
23.02 Consent of Ernst & Young LLP, independent auditors.
24.01 Powers of Attorney.
27.01 Financial Data Schedule.
</TABLE>
- --------
+Confidential Treatment Requested
*To be filed by amendment
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
TRINET EMPLOYER GROUP, INC.
Martin Babinec and Douglas P. Devlin hereby certify that:
One: They are the duly elected and acting President and Secretary,
respectively, of Trinet Employer Group, Inc., a California corporation (the
"Corporation" or the "Company").
Two: The Articles of Incorporation of the Corporation are hereby amended
and restated to read in their entirety as follows:
ARTICLE I
The name of the corporation is Trinet Employer Group, Inc.
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 51,000,000
shares, 50,000,000 shares of which shall be Common Stock (the "Common Stock")
and 1,000,000 shares of which shall be Preferred Stock (the "Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in these Restated Articles, to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
the liquidation preferences of any wholly unissued series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
C. 75,000 shares of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). 150,200 shares
of the authorized shares of
1.
<PAGE>
Preferred Stock are hereby designated "Series F Preferred Stock" (the "Series F
Preferred" and, together with the "Series E Preferred," the "Preferred").
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series E Preferred and the Series F Preferred are as follows:
1. Dividend Rights.
(a) Holders of Series E Preferred, in preference to the
holders of any other stock of the Company except the Series F Preferred ("Junior
Stock"), shall be paid when and as declared by the Board of Directors, but only
out of funds that are legally available therefor, cash dividends at the rate of
six percent (6%) of the "Series E Original Issue Price" per annum on each
outstanding share of Series E Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares). The Series E Original Issue Price of the Series E Preferred shall be
$40.00. Such dividends shall be payable on March 31 of each year beginning on
March 31, 1997, but only when and as declared by the Board of Directors and
shall be cumulative beginning on January 1, 1996 whether or not declared.
Accrued but unpaid dividends shall not bear interest. In the event that the
Company does not redeem the Series E Preferred under Section 5 after receipt of
a request for redemption from the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the then outstanding shares of Series E Preferred
subsequent to September 30, 2000, then the dividend rate shall be increased from
six percent (6%) to twelve percent (12%).
(b) Holders of Series F Preferred, in preference to the
holders of any Junior Stock and the holders of the Series E Preferred, shall be
paid when and as declared by the Board of Directors, but only out of funds that
are legally available therefor, cash dividends at the rate of $1.61 per annum on
each outstanding share of Series F Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares). The right to receive dividends on shares of Series F Preferred
shall not be cumulative, and no right to such dividends shall accrue to holders
of Series F Preferred by reason of the fact that dividends on said shares are
not declared or paid in any year.
(c) So long as any shares of Series E Preferred and Series
F Preferred shall be outstanding, no dividend, whether in cash or property,
shall be paid or declared, nor shall any other distribution be made, on any
Junior Stock, nor shall any shares of any Junior Stock of the Company be
purchased, redeemed, or otherwise acquired for value by the Company (except for
acquisitions of Common Stock by the Company pursuant to agreements which permit
the Company to repurchase such shares upon termination of services to the
Company or in exercise of any right of first refusal upon a proposed transfer)
until all dividends (set forth in Sections 1(a) and 1(b) above) on the Series E
Preferred and the Series F Preferred shall have been declared and paid. The
provisions of this Section 1(c) shall not, however, apply to (i) a dividend
payable in Common Stock, or (ii) any repurchase of any outstanding securities of
the Company that is approved by the Company's Board of Directors and at least
one (1) director elected by holders of the shares of Series E Preferred.
2. Voting Rights.
2.
<PAGE>
(a) General Rights. Except as otherwise provided herein or
as required by law, holders of Series E Preferred shall have no right to vote
with respect to matters upon which the shareholders of the Company are entitled
to vote. Except as otherwise provided herein or as required by law, holders of
Series F Preferred shall have the number of votes equal to the number of shares
of Common Stock into which each share of Series F Preferred could be converted
at the record date for determination of the shareholders entitled to vote on
such matters, or, if no such record date is established, at the date such vote
is taken or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of stock of the Company having general
voting power and not separately as a class.
(b) Separate Vote of Series E Preferred. For so long as any
shares of Series E Preferred remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding Series
E Preferred shall be necessary for effecting or validating the following
actions:
i. Any amendment, alteration, or repeal of any
provision of the Restated Articles or the Bylaws of the Company that alters or
affects the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series E Preferred;
ii. Any increase or decrease (other than by
redemption or conversion) in the authorized number of shares of Common Stock or
Preferred Stock, including shares of Series E Preferred and Series F Preferred;
iii. Any creation, whether by reclassification or
otherwise, of any class of shares or series of equity securities of the Company
ranking on a parity with or senior to the Series E Preferred in right of
redemption, liquidation preference, voting or dividends;
iv. Any redemption, repurchase, payment of
dividends or other distributions with respect to Junior Stock (except for
acquisitions of Common Stock by the Company pursuant to agreements which permit
the Company to repurchase such shares upon termination of services to the
Company or in exercise of any right of first refusal upon a proposed transfer);
v. Any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the Company or any
consolidation or merger involving the Company or any reclassification or other
change of any stock, or any recapitalization, or any dissolution, liquidation or
winding up, of the Company, or any other Acquisition (as defined in Section
3(c)), or any agreement or obligation so to do;
vi. Any action that results in the payment or
declaration of a dividend on any shares of Common Stock or Preferred Stock;
vii. Any increase or decrease in the authorized
number of members of the Company's Board of Directors; or
3.
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viii. Any issuance of any equity security of the
Company or any security convertible into any equity security of the Company or
any right or option for the purchase of any equity security of the Company
(other than the options and shares excluded from the definition of Additional
Shares of Common Stock (as hereafter defined)).
(c) Separate Vote of Series F Preferred. For so long as any
shares of Series F Preferred remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series F Preferred shall be necessary
for effecting or validating the following actions:
i. Any amendment, alteration, or repeal of any
provision of the Restated Articles or the Bylaws of the Company that alters or
affects the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series F Preferred;
ii. Any increase or decrease (other than by
redemption or conversion) in the authorized number of shares of Common Stock or
Preferred Stock, including shares of Series E Preferred and Series F Preferred;
iii. Any creation, whether by reclassification or
otherwise, of any class of shares or series of equity securities of the Company
ranking senior to the Series F Preferred in right of redemption, liquidation
preference, voting or dividends; or
iv. Any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the Company or any
consolidation or merger involving the Company or any reclassification or other
change of any stock, or any recapitalization, or any dissolution, liquidation or
winding up, of the Company, or any other Acquisition (as defined in Section
3(c)), or any agreement or obligation so to do.
(d) Election of Board of Directors. So long as any shares
of Series E Preferred remain outstanding, then the holders of Series E Preferred
shall be entitled to elect one (1) member of the Board of Directors at each
meeting or pursuant to each consent of the Company's shareholders for the
election of directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any other outstanding capital stock, (i) the
holders of Series F Preferred shall be entitled to be paid out of the assets of
the Company an amount per share of Series F Preferred equal to $26.64 (the
"Series F Original Issue Price") plus all declared and unpaid dividends on such
shares of Series F Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) for each
share of Series F Preferred held by them and (ii) the holders of Series E
Preferred shall be entitled to be paid out of the assets of the Company an
amount per share of Series E Preferred equal to the Series E Original Issue
Price plus all accrued and unpaid, cumulated dividends, whether or not declared,
on such
4.
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shares of Series E Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) for each
share of Series E Preferred held by them. If, upon any liquidation,
distribution, or winding up, the assets of the Company shall be insufficient to
make payment in full to all holders of Series F Preferred and Series E Preferred
of the liquidation preferences set forth herein, then such assets shall be
distributed among the holders of shares of Series F Preferred and Series E
Preferred at the time outstanding, ratably in proportion to the full amounts to
which they would otherwise be respectively entitled.
(b) After the payment of the full liquidation preference of
the Series F Preferred and the Series E Preferred as set forth in Section 3(a),
the remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of any Junior Stock.
(c) Upon the election by the holders of at least a majority
of the then outstanding Series F Preferred and at least sixty-six and two-thirds
percent (66 2/3%) of the then outstanding Series E Preferred, the following
events shall be considered a liquidation under this Section 3:
i. any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the shareholders of the Company immediately
prior to such consolidation, merger or reorganization, own less than 50% of the
Company's voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions in which in
excess of forty percent (40%) of the Company's voting power is transferred (an
"Acquisition"); or
ii. a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
4. Conversion Rights.
The holders of the Series E Preferred and the Series F
Preferred shall have the following rights with respect to the conversion of the
Series E Preferred and the Series F Preferred, respectively, into shares of
Common Stock (the "Series E Conversion Rights" and the "Series F Conversion
Rights"):
(a) Optional Conversion. Subject to and in compliance with
the provisions of this Section 4, any shares of Series E Preferred and Series F
Preferred may, at the option of the holder, be converted at any time into fully
paid and nonassessable shares of Common Stock. The number of shares of Common
Stock to which a holder of Series E Preferred shall be entitled upon conversion
shall be the product obtained by multiplying the "Series E Conversion Rate" then
in effect (determined as provided in Section 4(b)) by the number of shares of
Series E Preferred being converted. The number of shares of Common Stock to
which a holder of Series F Preferred shall be entitled upon conversion shall be
the product obtained by multiplying the "Series F Conversion Rate" then in
effect (determined as provided in Section 4(b)) by the number of shares of
Series F Preferred being converted.
5.
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(b) Series E Conversion Rate; Series F Conversion Rate. The
conversion rate in effect at any time for conversion of the Series E Preferred
(the "Series E Conversion Rate") shall be the quotient obtained by dividing the
Series E Original Issue Price of the Series E Preferred by the "Series E
Conversion Price," calculated as provided in Section 4(c). The conversion rate
in effect at any time for conversion of the Series F Preferred (the "Series F
Conversion Rate") shall be the quotient obtained by dividing the Series F
Original Issue Price of the Series F Preferred by the "Series F Conversion
Price," calculated as provided in Section 4(c).
(c) Conversion Price. The conversion price for the Series
E Preferred shall initially be $25.00 (the "Series E Conversion Price"). The
conversion price for the Series F Preferred shall initially be $26.64 (the
"Series F Conversion Price"). Such initial Series E Conversion Price and Series
F Conversion Price shall be adjusted from time to time in accordance with this
Section 4. All references to the Series E Conversion Price and the Series F
Conversion Price herein shall mean the applicable conversion price as so
adjusted.
(d) Mechanics of Conversion. Each holder of Series E
Preferred or Series F Preferred who desires to convert the same into shares of
Common Stock pursuant to this Section 4 shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Preferred, and shall give written notice to the Company
at such office that such holder elects to convert the same. Such notice shall
state the number of shares of Series E Preferred or Series F Preferred being
converted. Thereupon, the Company shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and shall promptly pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board of
Directors in good faith as of the date of such conversion), with respect to the
Series E Preferred, any accrued but unpaid cumulated dividends, whether or not
declared, on the shares of Series E Preferred being converted and, with respect
to the Series F Preferred, any declared but unpaid dividends on the shares of
Series F Preferred being converted. Such conversion shall be deemed to have been
made at the close of business on the date of such surrender of the certificates
representing the shares of Series E Preferred or Series F Preferred to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. As to the
Series E Preferred, any reference herein to the "Original Issue Date" shall mean
the date that the first share of Series E Preferred was issued, and as to the
Series F Preferred, any reference herein to the "Original Issue Date" shall mean
the date that the first share of Series F Preferred was issued. If the Company
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series E Conversion Price and
the Series F Conversion Price in effect immediately before that subdivision
shall be proportionately decreased. Conversely, if the Company shall at any time
or from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares, the Series E Conversion
Price and the Series F Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
6.
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(f) Adjustment for Common Stock Dividends and
Distributions. If the Company at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series E
Conversion Price and the Series F Conversion Price that is then in effect shall
be decreased as of the time of such issuance or, in the event such record date
is fixed, as of the close of business on such record date, by multiplying the
applicable conversion price then in effect by a fraction (1) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (2) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the Series
E Conversion Price and the Series F Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series E Conversion Price and the Series F Conversion Price shall be adjusted
pursuant to this Section 4(f) to reflect the actual payment of such dividend or
distribution.
(g) Adjustments for Other Dividends and Distributions. If
the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Preferred outstanding on such record
date shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of other securities of the
Company which they would have received had their Preferred 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 conversion date,
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 with respect to the rights of the holders of the Preferred or with
respect to such other securities by their terms.
(h) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Preferred is changed into
the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than an
Acquisition or Asset Transfer as defined in Section 3(c) above or a subdivision
or combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4), in
any such event each holder of Preferred outstanding on the effective date of
such event shall have the right thereafter to convert such stock into the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Preferred could have
been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
7.
<PAGE>
(i) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original Issue Date, there
is a capital reorganization of the Common Stock or a merger or a consolidation
or a sale of assets involving the Company (other than an Acquisition or Asset
Transfer as defined in Section 3(c) above or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization or merger
or consolidation or sale of assets involving the Company, provision shall be
made so that the holders of the Preferred outstanding on the effective date of
such event shall thereafter be entitled to receive upon conversion of the
Preferred the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, subject
to adjustment in respect of such stock or securities by the terms thereof. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of
Preferred after the capital reorganization or merger or consolidation or sale of
assets involving the Company to the end that the provisions of this Section 4
(including adjustment of the Series E Conversion Price and the Series F
Conversion Price then in effect and the number of shares issuable upon
conversion of the Preferred) shall be applicable after that event and be as
nearly equivalent as practicable.
(j) Sale of Shares.
i. If at any time or from time to time after the
Original Issue Date of the Series E Preferred and before the Original Issue Date
of the Series F Preferred, the Company issues or sells, or is deemed by the
express provisions of this subsection (j) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in Section 4(f) above, and
other than a subdivision or combination of shares of Common Stock as provided in
Section 4(e) above, regardless of the price per share, then and in each such
instance the then existing Series E Conversion Price shall be reduced, as of the
opening of business on the date of such issue or sale, to a price equal to the
product obtained by multiplying the existing Series E Preferred Conversion Price
by the quotient obtained by dividing the number of shares of Common Stock deemed
to be outstanding (as defined below) immediately prior to such issue or sale by
the sum of the number of shares of Common Stock deemed to be outstanding (as
defined below) immediately prior to such issue plus the number of Additional
Shares of Common Stock. For the purposes of the preceding sentence, the number
of shares of Common Stock deemed to be outstanding as of a given date shall be
the sum of (A) the number of shares of Common Stock actually outstanding, (B)
the number of shares of Common Stock into which the then outstanding shares of
Preferred Stock other than the Series E Preferred could be converted if fully
converted on the day immediately preceding the given date, and (C) the number of
shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options and convertible equity securities on the
day immediately preceding the given date.
ii. If at any time or from time to time after the
Original Issue Date of the Series F Preferred, the Company issues or sells, or
is deemed by the express provisions of this subsection (j) to have issued or
sold, Additional Shares of Common Stock (as hereinafter defined), other than as
a dividend or other distribution on any class of stock as provided in Section
4(f) above, and other than a subdivision or combination of shares of
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Common Stock as provided in Section 4(e) above, at a price per share less than
$18.50 (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), then and in each
such instance the then existing Series F Conversion Price shall be reduced, as
of the opening of business on the date of such issue or sale, to a price equal
to the product obtained by multiplying the existing Series F Preferred
Conversion Price by the quotient obtained by dividing the number of shares of
Common Stock deemed to be outstanding (as defined below) immediately prior to
such issue or sale by the sum of the number of shares of Common Stock deemed to
be outstanding (as defined below) immediately prior to such issue plus the
number of Additional Shares of Common Stock. For the purposes of the preceding
sentence, the number of shares of Common Stock deemed to be outstanding as of a
given date shall be the sum of (A) the number of shares of Common Stock actually
outstanding, (B) the number of shares of Common Stock into which the then
outstanding shares of Preferred Stock could be converted if fully converted on
the day immediately preceding the given date, (C) the number of shares of Common
Stock which could be obtained through the exercise or conversion of all other
rights, options and convertible equity securities on the day immediately
preceding the given date and (D) the number of shares of Common Stock which the
aggregate consideration received (as defined in (iv) below) by the Company for
the total number of Additional Shares of Common Stock so issued would purchase
at the Series F Conversion Price.
If at any time or from time to time after the Original Issue Date of the
Series F Preferred, the Company issues or sells, or is deemed by the express
provisions of this subsection (j) to have issued or sold, Additional Shares of
Common Stock, other than as a dividend or other distribution on any class of
stock as provided in Section 4(f) above, and other than a subdivision or
combination of shares of Common Stock as provided in Section 4(e) above, at a
price per share at or between $18.50 and $26.64 (a "Dilution Price") (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares), then and in each such instance the then
existing Series F Conversion Price shall be reduced, as of the opening of
business on the date of such issue or sale, to a price equal to the Dilution
Price; provided, however, that such adjustment shall be made only if such
adjustment results in a Series F Conversion Price less than the Series F
Conversion Price in effect immediately prior to the taking of such action.
iii. For the purpose of making any adjustment
required under the above Section D.4(j)(ii), the consideration received by the
Company for any issue or sale of securities shall (A) to the extent it consists
of cash, be computed at the gross amount of cash received by the Company before
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or sale
and before deduction of any expenses payable by the Company, (B) to the extent
it consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as defined in
subsection (j)(iv) below) or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options
9.
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iv. For the purpose of the adjustment required
under this Section 4(j), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities"), in each case the Company shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof. No further adjustment of the
Series E Conversion Price or the Series F Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Series E Conversion Price and the Series F Conversion Price as
adjusted upon the issuance of such rights, options or Convertible Securities
shall be readjusted to the Series E Conversion Price and the Series F Conversion
Price which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of
Preferred.
v. "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this Section 4(j), whether or not subsequently reacquired or retired
by the Company other than (1) shares of Common Stock issued upon conversion of
the Preferred; (2) with respect to the Series E Preferred, up to Thirty Thousand
(30,000) shares of Common Stock and/or options, warrants or other Common Stock
purchase rights, and the Common Stock issued pursuant to such options, warrants
or other rights (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like) issued after the Original Issue Date of the
Series E Preferred to employees, officers or directors of the Company or any
subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board; (3) with respect to the Series F
Preferred, up to Nine Hundred Sixty Five Thousand Thirty Three (965,033) shares
of Common Stock and/or options, warrants or other Common Stock purchase rights,
and the Common Stock issued pursuant to such options, warrants or other rights
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like) issued after the Original Issue Date of the Series F Preferred to
employees, officers or directors of the Company or any subsidiary pursuant to
stock purchase or stock option plans or other arrangements that are approved by
the Board; (4) with respect to the Series E Preferred, shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date of the Series E Preferred; and (4)
with respect to the Series F Preferred, shares of Common Stock issued pursuant
to the exercise of options, warrants or convertible securities outstanding as of
the Original Issue Date of the Series F Preferred.
(k) No Impairment. Except as provided for in Section 2(b)
and (c) above, the Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
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terms to be observed or performed hereunder by the Company but will at all times
in good faith assist in the carrying out of all the provisions of this Section
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 against
impairment.
(l) Certificate of Adjustment. In each instance of an
adjustment or readjustment of the Series E Conversion Price or the Series F
Conversion Price or the number of shares of Common Stock or other securities
issuable upon conversion of any series of the Preferred, if such Preferred is
then convertible pursuant to this Section 4, the Company, at its expense, shall
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each registered
holder of such Preferred at the holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment, showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (1) the Series E Conversion Price or the Series F
Conversion Price, as applicable, at the time in effect, (2) the number of
Additional Shares of Common Stock and (3) the type and amount, if any, of other
property which at the time would be received upon conversion of such Preferred.
(m) Notices of Record Date. Upon (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall give
notice to each holder of Preferred at least thirty (30) days prior to the record
date specified therein specifying (1) the date on which any such record is to be
taken for the purpose of such dividend or distribution and a description of such
dividend or distribution, (2) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
(n) Automatic Conversion.
i. Each share of Series E Preferred shall
automatically be converted into shares of Common Stock, based on the then-
effective Series E Conversion Price, (A) at any time upon the affirmative
election of the holders of at least a majority of the outstanding shares of the
Series E Preferred, or (B) immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which (i) the per share price of each existing
share of Common Stock is valued at a
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minimum of $50.00 (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like), and (ii) the gross cash proceeds to the Company
(before underwriting discounts, commissions and fees) are at least $20,000,000.
Upon such automatic conversion, any accrued but unpaid cumulated dividends,
whether or not declared, shall be paid in accordance with the provisions of
Section 4(d).
ii. Each share of Series F Preferred shall
automatically be converted into shares of Common Stock, based on the then-
effective Series F Conversion Price, (A) at any time upon the affirmative
election of the holders of at least a majority of the outstanding shares of the
Series F Preferred, or (B) immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which (i) the per share price of each existing
share of Common Stock is valued at a minimum of $26.64 (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like), and (ii)
the gross cash proceeds to the Company (before underwriting discounts,
commissions and fees) are at least $20,000,000. Upon such automatic conversion,
any declared but unpaid dividends shall be paid in accordance with the
provisions of Section 4(d).
iii. Upon the occurrence of the event specified in
paragraph (i) or (ii) above, the outstanding shares of the applicable series of
Preferred shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Preferred are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Preferred, the holders of the
applicable series of Preferred shall surrender the certificates representing
such shares at the office of the Company or any transfer agent for the
Preferred. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of Preferred surrendered were convertible on
the date on which such automatic conversion occurred, and, with respect to the
Series E Preferred, any accrued but unpaid cumulated dividends, whether or not
declared, shall be paid in accordance with the provisions of Section 4(d) and,
with respect to the Series F Preferred, any declared but unpaid dividends shall
be paid in accordance with the provisions of Section 4(d).
(o) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Preferred 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 any fractional share, the Company shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's fair market value (as determined by the Board) on the date of
conversion.
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(p) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred. 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, the Company 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.
(q) Notices. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with an internationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
(r) Payment of Taxes. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Preferred, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
in a name other than that in which the shares of Preferred so converted were
registered.
5. Redemption.
(a) The Company shall be obligated to redeem the Series E
Preferred as follows:
i. At any time after September 30, 2000, the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the then
outstanding shares of Series E Preferred, voting together as a separate class,
may require the Company, to the extent it may lawfully do so, to redeem the
Series E Preferred (beginning on the first calendar quarter commencing at least
30 days after such notice) (the "Redemption Date"). The Company shall effect
such redemption on the Redemption Date by paying in cash in exchange for the
shares of Series E Preferred to be redeemed a sum equal to the Original Issue
Price per share of Series E Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) plus accrued but unpaid
cumulated dividends, whether or not declared, with respect to such shares. The
total amount to be paid for the Series E Preferred is hereinafter referred to as
the "Redemption Price."
ii. At least thirty (30) days but no more than
sixty (60) days prior to the Redemption Date, the Company shall send a notice (a
"Redemption Notice") to all holders of Series E Preferred to be redeemed setting
forth (a) the Redemption Price for the shares to be redeemed; and (b) the place
at which such holders may obtain payment of the Redemption
13.
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Price upon surrender of their share certificates. If the Company does not have
sufficient funds legally available to redeem all shares to be redeemed at the
Redemption Date then it shall redeem such shares pro rata (based on the portion
of the aggregate Redemption Price payable to them) to the extent possible and
shall redeem the remaining shares to be redeemed as soon as sufficient funds are
legally available.
(b) On or after such Redemption Date, each holder of shares
of Series E Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Company in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
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. In the event less than all the shares represented
by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after such Redemption Date, unless
there shall have been a default in payment of the Redemption Price or the
Company is unable to pay the Redemption Price due to not having sufficient
legally available funds, all dividends on the shares of Series E Preferred to be
redeemed shall cease to accrue and all rights of the holders of such shares as
holders of Series E Preferred (except the right to receive the Redemption Price
without interest upon surrender of their certificates), shall cease and
terminate with respect to such shares, provided that in the event that shares of
Series E Preferred are not redeemed due to a default in payment by the Company
or because the Company does not have sufficient legally available funds, such
shares of Series E Preferred shall remain outstanding and shall be entitled to
all of the rights and preferences provided herein.
(c) In the event of a call for redemption of any shares of
Series E Preferred, the Series E Conversion Rights (as defined in Section 4) for
such Series E Preferred shall terminate as to the shares designed for redemption
at the close of business on the second (2nd) day preceding the Redemption Date,
unless default is made in payment of the Redemption Price.
6. No Reissuance of Series E Preferred. No share or shares of
Series E Preferred acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued.
7. No Preemptive Rights. Shareholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.
8. Status of Converted or Redeemed Stock. If any shares of
Preferred are converted or redeemed pursuant to Section 4 or Section 5 above,
then the shares so converted or redeemed shall resume the status of authorized
but undesignated and unissued shares of Preferred Stock.
ARTICLE IV
A. The authorized number of members of the Board of Directors of the
Company shall be as set forth in the Bylaws of this Company. So long as any
shares of Series E Preferred remain outstanding, one (1) director shall be
elected by the holders of shares of Series E Preferred outstanding voting
together as a separate class. The remaining directors shall be
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elected by the shares of Series F Preferred and Common Stock outstanding. In the
case of any vacancy in the office of a director, the holders that previously
elected a director to that office, at a duly held meeting or by written consent,
may elect a successor to fill the vacancy. Any director may be removed either
with or without cause by, and only by, the holders that elected that director at
a duly held meeting or by unanimous written consent, and any vacancy thereby
created may be filled by such holders in the same manner. The director
previously elected by holders of shares of Series E Preferred shall continue as
a director until the expiration of the term for which such director was elected
and until a successor has been elected and qualified as if such director was
elected by shares of Common Stock outstanding, except as otherwise provided in
the Bylaws.
B. In addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of Common Stock shall be necessary
for effecting or validating any agreement by the Company or its shareholders
regarding an Asset Transfer or Acquisition (each as defined in Article
III.D.3(d))
ARTICLE V
A. The liability of the directors of the Company for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The Company is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Company and its shareholders through bylaw provisions or through
agreements with agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the General Corporation Law of California, subject
to the limits on such excess indemnification set forth in Section 204 of the
General Corporation Law of California. If, after the effective date of this
Article, California law is amended in a manner which permits a corporation to
limit the monetary or other liability of its directors or to authorize
indemnification of, or advancement of such defense expenses to, its directors or
other persons, in any such case to a greater extent than is permitted on such
effective date, the references in this Article to "California law" shall to that
extent be deemed to refer to California law as so amended.
C. Any repeal or modification of this Article shall only be prospective
and shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability."
THREE: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of the Company.
FOUR: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of Common Stock of the Company is Six Million
Three Hundred Ninety Thousand Four Hundred Ninety Nine (6,390,499) and the total
number of outstanding shares of E Preferred of the Company is (Twelve Thousand
Five Hundred) 12,500. The number of shares voting in favor of the
15.
<PAGE>
amendment equaled or exceeded the vote required. The percentage vote required
was more than fifty percent (50%) of the outstanding Common Stock and Series E
Preferred voting together, more than sixty-six and two-thirds percent (66 2/3%)
of the outstanding Series E Preferred voting separately as a class and more than
fifty percent (50%) of the outstanding Common Stock voting separately as a
class.
16.
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The undersigned further declare under penalty of perjury that the matters
set forth in the foregoing certificate are true and correct of our own
knowledge.
Executed at San Leandro, California on February ___, 2000
By:_____________________________
Martin Babinec, President
By:______________________________
Douglas P. Devlin, Secretary
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EXHIBIT 3.3
BYLAWS
OF
TriNet Employer Group, Inc.
(A CALIFORNIA CORPORATION)
Adopted June 27, 1990
Amended June ___, 1995
BYLAWS
OF
TriNet Employer Group, Inc.
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
Section 2. Other Offices. Additional offices of the corporation shall be
located at such place or places, within or outside the State of California, as
the Board of Directors may from time to time authorize.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the Board
of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
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ARTICLE III
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
Section 4. Place of Meetings. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place, within
or outside the State of California, which may be fixed either by the Board of
Directors or by the written consent of all persons entitled to vote at such
meeting, given either before or after the meeting and filed with the Secretary
of the Corporation.
Section 5. Annual Meeting. The annual meeting of the shareholders of the
corporation shall be held on any date and time which may from time to time be
designated by the Board of Directors. At such annual meeting, directors shall
be elected and any other business may be transacted which may properly come
before the meeting.
Section 6. Postponement of Annual Meeting. The Board of Directors and the
President shall each have authority to hold at an earlier date and/or time, or
to postpone to a later date and/or time, the annual meeting of shareholders.
Section 7. Special Meetings.
(a) Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of Directors,
the President, any vice president or the Secretary of the corporation by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the shareholders, such officer forthwith shall cause notice to be
given to the shareholders entitled to vote, that a meeting will be held at a
time requested by the person or persons calling the meeting, such time to be not
less than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given within twenty (20) days after receipt of
such request, the person or persons calling the meeting may give notice thereof
in the manner provided by law or in these bylaws. Nothing contained in this
Section 7 shall be construed as limiting, fixing or affecting the time or date
when a meeting of shareholders called by action of the Board of Directors may be
held.
Section 8. Notice of Meetings. Except as otherwise may be required by law
and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(see Section 15 below), by the Secretary, assistant secretary or other person
charged with that duty, not less than ten (10) (or, if sent by third class mail,
thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place and hour
of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
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(b) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 310 (relating to certain transactions
in which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 902 (relating to amending the Articles
of Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions
of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 1900 (winding up and dissolution);
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in accordance with
this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting, given in accordance with this Section, and, subject to subsection 8(d)
above, with respect to any other business as may properly come before the
meeting.
Section 9. Manner of Giving Notice. Notice of any meeting of shareholders
shall be given either personally or by first-class mail, or, if the corporation
has outstanding shares held of record by 500 or more persons (determined as
provided in California Corporations Code Section 605) on the record date for
such meeting, third-class mail, or telegraphic or other written communication,
addressed to the shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the corporation for the
purpose of notice. If no such address appears on the corporation's books or is
given, notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
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If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 9, executed by the Secretary, Assistant Secretary or
any transfer agent, shall be prima facie evidence of the giving of the notice.
Section 10. Quorum and Transaction of Business.
(a) At any meeting of the shareholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held meeting of
the shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in subsection (b) above.
Section 11. Adjournment and Notice of Adjourned Meetings. Any meeting of
shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.
In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 8
and 9 of these bylaws; provided that if any of the following three events occur,
such notice must be given:
(a) announcement of the adjourned meeting's time and place is not
made at the original meeting which it continues or
(b) such meeting is adjourned for more than forty-five (45) days
from the date set for the original meeting or
(c) a new record date is fixed for the adjourned meeting.
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<PAGE>
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes.
(a) Subject to subsection (b) of this Section, the transactions of
any meeting of shareholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote but not
present in person or by proxy signs a written waiver of notice or a consent to
holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting; provided that in the case of
proposals described in subsection (d) of Section 8 of these bylaws, the general
nature of such proposals must be described in any such waiver of notice and such
proposals can only be approved by waiver of notice, not by consent to holding of
the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at the
beginning of the meeting to transaction of any business because the meeting is
not lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters which are required
by law or these bylaws to be in such notice (including those matters described
in subsection (d) of Section 8 of these bylaws), but are not so included if such
person expressly objects to consideration of such matter or matters at any time
during the meeting.
Section 13. Action by Written Consent Without a Meeting. Any action which
may be taken at any meeting of shareholders may be taken without a meeting and
without prior notice if written consents setting forth the action so taken are
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors; provided
that any vacancy on the Board of Directors (other than a vacancy created by
removal) which has not been filled by the board of directors may be filled by
the written consent of a majority of outstanding shares entitled to vote for the
election of directors.
Any written consent may be revoked pursuant to California Corporations Code
Section 603(c) prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
Such revocation must be in writing and will be effective upon its receipt by the
Secretary.
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If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
Section 14. Voting. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 15
of these bylaws, subject to the provisions of Sections 702 through 704 of the
California Corporations Code (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). Voting at any meeting of
shareholders need not be by ballot; provided, however, that elections for
directors must be by ballot if balloting is demanded by a shareholder at the
meeting and before the voting begins.
Every person entitled to vote at an election for directors may cumulate the
votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such person's shares are entitled, and may cast said
total number of votes for one or more candidates in such proportions as such
person thinks fit; provided, however, no shareholder shall be entitled to so
cumulate such shareholder's votes unless the candidates for which such
shareholder is voting have been placed in nomination prior to the voting and a
shareholder has given notice at the meeting, prior to the vote, of an intention
to cumulate votes. In any election of directors, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Except as may be otherwise provided in the Articles of Incorporation or by
law, and subject to the foregoing provisions regarding the cumulation of votes,
each shareholder shall be entitled to one vote for each share held.
Any shareholder may vote part of such shareholder's shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 8(d) of these bylaws
unless the general nature of such business was stated in the notice of meeting
or in any written waiver of notice.
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Section 15. Persons Entitled to Vote or Consent. The Board of Directors
may fix a record date pursuant to Section 60 of these bylaws to determine which
shareholders are entitled to notice of and to vote at a meeting or consent to
corporate actions, as provided in Sections 13 and 14 of these bylaws. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day notice is given or, if notice is waived,
at the close of business on the business day next preceding the day on which the
meeting is held;
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given;
(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
Section 16. Proxies. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
Section 17. Inspectors of Election. Before any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the majority of shares represented in
person or proxy shall determine whether one (1) or three (3) inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
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These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE IV
BOARD OF DIRECTORS
Section 18. Powers. Subject to the provisions of law or any limitations
in the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
Section 19. Number of Directors. The authorized number of directors of
the corporation shall be six (6), until changed by a duly adopted amendment to
these bylaws approved by the affirmative vote of a majority of the outstanding
shares entitled to vote; provided, an amendment reducing the number of directors
to less than five (5), cannot be adopted if votes cast against its adoption at a
meeting or shares not consenting to it in the case of action by written consent
are equal to more than 16-2/3 percent of the outstanding shares entitled to
vote. No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
Section 20. Election Of Directors, Term, Qualifications. The directors
shall be elected at each annual meeting of shareholders to hold office until the
next annual meeting. Each director, including a director elected or appointed to
fill a vacancy, shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected and qualified,
or until his death, resignation or removal. Directors need not be shareholders
of the corporation.
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Section 21. Resignations. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
Section 22. Removal. The Board of Directors may declare vacant the office
of a director who has been declared of unsound mind by an order of court or who
has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
Section 23. Vacancies. A vacancy or vacancies on the Board of Directors
shall be deemed to exist in case of the death, resignation or removal of any
director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies, other than a vacancy created by the removal of a director, may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. A vacancy created by the removal of a director
may be filled only by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) or by the written consent of shareholders pursuant to Section
13 hereinabove. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent,
other than to fill a vacancy created by removal, requires the consent of a
majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the consent of all
of the outstanding shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
Section 24. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times, places and dates as fixed in these bylaws or by the
Board of Directors; provided, however, that if the date for such a meeting falls
on a legal holiday, then the meeting
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shall be held at the same time on the next succeeding full business day. Regular
meetings of the Board of Directors held pursuant to this Section 24 may be held
without notice.
Section 25. Participation by Telephone. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Such participation constitutes presence in person at such
meeting.
Section 26. Special Meetings. Special meetings of the Board of Directors
for any purpose may be called by the Chairman of the Board or the President or
any vice president or the Secretary of the corporation or any two (2) directors.
Section 27. Notice of Meetings. Notice of the date, time and place of all
meetings of the Board of Directors, other than regular meetings held pursuant to
Section 24 above shall be delivered personally, orally or in writing, or by
telephone or telegraph to each director, at least forty-eight (48) hours before
the meeting, or sent in writing to each director by first-class mail, charges
prepaid, at least four (4) days before the meeting. Such notice may be given by
the Secretary of the corporation or by the person or persons who called a
meeting. Such notice need not specify the purpose of the meeting. Notice of
any meeting of the Board of Directors need not be given to any director who
signs a waiver of notice of such meeting, or a consent to holding the meeting or
an approval of the minutes thereof, either before or after the meeting, or who
attends the meeting without protesting prior thereto or at its commencement such
director's lack of notice. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Section 28. Place of Meetings. Meetings of the Board of Directors may be
held at any place within or without the state which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.
Section 29. Action by Written Consent Without a Meeting. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
such directors.
Section 30. Quorum and Transaction of Business. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.
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Section 31. Adjournment. Any meeting of the Board of Directors, whether
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 32. Organization. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.
Section 33. Compensation. Directors and members of committees may receive
such compensation, if any, for their services, and such reimbursement for
expenses, as may be fixed or determined by the Board of Directors.
Section 34. Committees. The Board of Directors may, by resolution adopted
by a majority of the authorized number of directors, designate one or more
committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the manner
and to the extent provided in the resolution of the Board of Directors, and may
have all the authority of the Board of Directors in the management of the
business and affairs of the corporation, except with respect to:
(a) the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporations Code;
(b) the filling of vacancies on the Board of Directors or any of
its committees;
(c) the fixing of compensation of directors for serving on the
Board of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors; or
(g) the appointment of other committees of the Board of Directors
or the members thereof.
Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of
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such a meeting need be given. Such regular meetings need not be held if the
committee shall so determine at any time before or after the time when such
meeting would otherwise have taken place. Special meetings may be called at any
time in the same manner and by the same persons as stated in Sections 26 and 27
of these bylaws for meetings of the Board of Directors. The provisions of
Sections 25, 28, 29, 30, 31 and 32 of these bylaws shall apply to committees,
committee members and committee meetings as if the words "committee" and
"committee member" were substituted for the word "Board of Directors", and
"director", respectively, throughout such sections.
ARTICLE V
OFFICERS
Section 35. Officers. The corporation shall have a Chairman of the Board
or a President or both, a Secretary, a Chief Financial Officer and such other
officers with such titles and duties as the Board of Directors may determine.
Any two or more offices may be held by the same person.
Section 36. Appointment. All officers shall be chosen and appointed by
the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief Financial Officer, as
the business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under a contract of employment.
Section 37. Inability to Act. In the case of absence or inability to act
of any officer of the corporation or of any person authorized by these bylaws to
act in such officer's place, the Board of Directors may from time to time
delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
Section 38. Resignations. Any officer may resign at any time upon written
notice to the corporation, without prejudice to the rights, if any, of the
corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it effective
unless otherwise specified in such notice.
Section 39. Removal. Any officer may be removed from office at any time,
with or without cause, but subject to the rights, if any, of such officer under
any contract of employment, by the Board of Directors or by any committee to
whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
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Section 40. Vacancies. A vacancy occurring in any office for any cause
may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
Section 41. Chairman of the Board. The Chairman of the Board, if there be
such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no President is appointed, the Chairman of the Board is the general
manager and chief executive officer of the corporation, and shall exercise all
powers of the President described in Section 42 below.
Section 42. President. Subject to such powers, if any, as may be given by
the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and shall have general supervision, direction, and control
over the business and affairs of the corporation, subject to the control of the
Board of Directors. The President may sign and execute, in the name of the
corporation, any instrument authorized by the Board of Directors, except when
the signing and execution thereof shall have been expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.
Section 43. Vice Presidents. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.
Section 44. Secretary. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of the corporation's shareholders, showing the names and addresses of all
shareholders, and the number and classes of shares held by each. Such records
shall be kept in written form or any other form capable of being converted into
written form.
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(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal executive office is not in California, at
its principal business office in California, an original or copy of these
bylaws, as amended.
(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary, or one
of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
Section 45. Chief Financial Officer. The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the treasurer of
the corporation.
(b) Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositaries as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.
(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant financial
officer, or one of the assistant financial officers, if there are more than one,
in the order of their rank as fixed by the
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Board of Directors or, if they are not so ranked, the assistant financial
officer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer or in the event of such officer's
refusal to act, perform the duties and exercise the powers of the Chief
Financial Officer, and shall have such powers and discharge such duties as may
be assigned from time to time pursuant to these bylaws or by the Board of
Directors.
Section 46. Compensation. The compensation of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be prevented
from receiving such compensation by reason of the fact that such officer is also
a director of the corporation.
ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
Section 47. Execution of Contracts and Other Instruments. Except as these
bylaws may otherwise provide, the Board of Directors or its duly appointed and
authorized committee may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authorization may be general or confined
to specific instances. Except as so authorized or otherwise expressly provided
in these bylaws, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
Section 48. Loans. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
Section 49. Bank Accounts. The Board of Directors or its duly appointed
and authorized committee from time to time may authorize the opening and keeping
of general and/or special bank accounts with such banks, trust companies, or
other depositaries as may be selected by the Board of Directors, its duly
appointed and authorized committee or by any officer or officers, agent or
agents, of the corporation to whom such power may be delegated from time to time
by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
Section 50. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the
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corporation shall be signed by such officer or officers, agent or agents, of the
corporation, and in such manner, as shall be determined from time to time by
resolution of the Board of Directors or its duly appointed and authorized
committee. Endorsements for deposit to the credit of the corporation in any of
its duly authorized depositaries may be made, without counter-signature, by the
President or any vice president or the Chief Financial Officer or any assistant
financial officer or by any other officer or agent of the corporation to whom
the Board of Directors or its duly appointed and authorized committee, by
resolution, shall have delegated such power or by hand-stamped impression in the
name of the corporation.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 51. Certificate for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.
Section 52. Transfer on the Books. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
Section 53. Lost, Destroyed and Stolen Certificates. The holder of any
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corporation by making a written affidavit or
affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other
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adequate security sufficient to indemnify the corporation and its transfer agent
and/or registrar, if any, against any claim that may be made against it or them
on account of such allegedly lost, destroyed or stolen certificate or the
replacement thereof. Said bond or other security shall be in such amount, on
such terms and conditions and, in the case of a bond, with such surety or
sureties as may be acceptable to the Board of Directors or to its duly appointed
and authorized committee or any officer or officers authorized by the Board of
Directors to determine the sufficiency thereof. The requirement of a bond or
other security may be waived in particular cases at the discretion of the Board
of Directors or its duly appointed and authorized committee or any officer or
officers authorized by the Board of Directors so to do.
Section 54. Issuance, Transfer and Registration of Shares. The Board of
Directors may make such rules and regulations, not inconsistent with law or with
these bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
Section 55. Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
Section 56. Inspection by Shareholders.
(a) Inspection of Corporate Records.
(1) A shareholder or shareholders holding at least five (5%)
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of shareholders' names
and addresses and shareholdings during usual business hours upon five (5)
business days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
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(2) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(3) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and of any committees
of the Board of Directors of the corporation and of each of its subsidiaries
shall be open to inspection, copying and making extracts upon written demand on
the corporation of any shareholder or holder of a voting trust certificate at
any reasonable time during usual business hours, for a purpose reasonably
related to such holder's interests as a shareholder or as a holder of such
voting trust certificate.
(4) Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.
(b) Inspection of Bylaws. The original or a copy of these bylaws
shall be kept as provided in Section 44 of these bylaws and shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is not in California, and the
corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
Section 57. Written Form. If any record subject to inspection pursuant to
Section 56 above is not maintained in written form, a request for inspection is
not complied with unless and until the corporation at its expense makes such
record available in written form.
ARTICLE IX
MISCELLANEOUS
Section 58. Fiscal Year. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st day
of December in each calendar year.
Section 59. Annual Report.
(a) Subject to the provisions of Section 59(b) below, the Board of
Directors shall cause an annual report to be sent to each shareholder of the
corporation in the manner provided in Section 9 of these bylaws not later than
one hundred twenty (120) days after the close of the corporation's fiscal year.
Such report shall include a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. When there are more than 100 shareholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the United States Securities
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Exchange Act of 1934, that Act shall take precedence. Such report shall be sent
to shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-
five (35)) days prior to the next annual meeting of shareholders after the end
of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to the
shareholders of the corporation is hereby expressly waived.
Section 60. Record Date. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section 15 of these bylaws shall apply with
respect to notice of meetings, votes, and consents and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolutions relating
thereto, or the sixtieth (60th) day prior to the date of such other action or
event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation,
by agreement or by law.
Section 61. Bylaw Amendments. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the Board
of Directors or by the affirmative vote of a majority of the outstanding shares
entitled to vote, including, if applicable, the affirmative vote of a majority
of the outstanding shares of each class or series entitled by law or the
Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
Section 62. Construction and Definition. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X
INDEMNIFICATION
Section 63. Indemnification of Directors, Officers, Employees And Other
Agents.
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(a) Directors and Executive Officers. The corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the California General Corporation Law; provided, however, that
the corporation may limit the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the board of directors of the corporation or (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the California General Corporation Law.
(b) Other Officers, Employees and Other Agents. The corporation
shall have the power to indemnify its other officers, employees and other agents
as set forth in the California General Corporation Law.
(c) Determination by the Corporation. Promptly after receipt of a
request for indemnification hereunder (and in any event within 90 days thereof)
a reasonable, good faith determination as to whether indemnification of the
director or executive officer is proper under the circumstances because such
director or executive officer has met the applicable standard of care shall be
made by:
(1) a majority vote of a quorum consisting of directors who
are not parties to such proceeding;
(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
(3) approval or ratification by the affirmative vote of a
majority of the shares of this corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by written consent of
a majority of the outstanding shares entitled to vote; where in each case the
shares owned by the person to be indemnified shall not be considered entitled to
vote thereon.
(d) Good Faith.
(1) For purposes of any determination under this bylaw, a
director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in the best interests of the corporation
and its shareholders, and, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe that his conduct was unlawful, if his
action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(i) one or more officers or employees of the corporation
whom the director or executive officer believed to be reliable and competent in
the matters presented;
20
<PAGE>
(ii) counsel, independent accountants or other persons as
to matters which the director or executive officer believed to be within such
person's professional competence; and
(iii) with respect to a director, a committee of the Board
upon which such director does not serve, as to matters within such committee's
designated authority, which committee the director believes to merit confidence;
so long as, in each case, the director or executive officer acts without
knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in the best interests of the
corporation and its shareholders or that he had reasonable cause to believe that
his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
California General Corporation Law.
(e) Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it shall be determined ultimately that such person is not entitled to
be indemnified under this bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (f) of this bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding (or, if no such quorum exists, by independent legal counsel in a
written opinion) that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in the
best interests of the corporation and its shareholders.
(f) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in the forum in
which the proceeding is or was pending or, if such forum is not available or a
determination is made that such forum is not convenient, in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the California General
21
<PAGE>
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its board of
directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the California General Corporation Law, nor an
actual determination by the corporation (including its board of directors,
independent legal counsel or its shareholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(g) Non-Exclusivity of Rights. To the fullest extent permitted by
the corporation's Articles of Incorporation and the California General
Corporation Law, the rights conferred on any person by this bylaw shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, bylaws,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent permitted
by the California General Corporation Law and the corporation's Articles of
Incorporation.
(h) Survival of Rights. The rights conferred on any person by this
bylaw shall continue as to a person who has ceased to be a director or executive
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(i) Insurance. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) Amendments. Any repeal or modification of this bylaw shall
only be prospective and shall not affect the rights under this bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(k) Employee Benefit Plans. The corporation shall indemnify the
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) Saving Clause. If this bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the fullest extent permitted by any applicable portion of this bylaw that shall
not have been invalidated, or by any other applicable law.
(m) Certain Definitions. For the purposes of this bylaw, the
following definitions shall apply:
22
<PAGE>
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding, including expenses of
establishing a right to indemnification under this bylaw or any applicable law.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is or was serving at the request of the corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE XI
RIGHT OF FIRST REFUSAL
Section 64. Right of First Refusal. No shareholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise transfer any of
his shares of stock, then the shareholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price
23
<PAGE>
for the shares, and that is not otherwise exempted from the provisions of this
Section 64, the price shall be deemed to be the fair market value of the stock
at such time as determined in good faith by the Board of Directors. In the event
the corporation elects to purchase all of the shares or, with consent of the
shareholder, a lesser portion of the shares, it shall give written notice to the
transferring shareholder of its election and settlement for said shares shall be
made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring shareholder's notice; provided that if the terms of payment set
forth in said transferring shareholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring shareholder's
notice.
(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring shareholder's
notice, said transferring shareholder may, within the sixty-day period following
the expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
shareholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring shareholder's notice. All shares
so sold by said transferring shareholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held either
during such shareholder's lifetime or on death by will or intestacy to such
shareholder's immediate family or to any custodian or trustee for the account of
such shareholder or such shareholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother, or
sister of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(3) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of
24
<PAGE>
shares or capital reorganization of the corporate shareholder, or pursuant to a
sale of all or substantially all of the stock or assets of a corporate
shareholder.
(6) A corporate shareholder's transfer of any or all of its
shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the shareholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring shareholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the shareholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On __________, 19__; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"the shares represented by this Certificate are subject to a
right of first refusal option in favor of the Corporation and/or its
Assignee(s), as provided in the Bylaws of the Corporation."
ARTICLE XII
LOANS OF OFFICERS AND OTHERS
Section 65. Certain Corporate Loans and Guaranties. If the corporation
has outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money or
property to, or guarantee the obligations
25
<PAGE>
of, any officer of the corporation or its parent or any subsidiary, whether or
not a director of the corporation or its parent or any subsidiary, or adopt an
employee benefit plan or plans authorizing such loans or guaranties, upon the
approval of the Board of Directors alone, by a vote sufficient without counting
the vote of any interested director or directors, if the Board of Directors
determines that such a loan or guaranty or plan may reasonably be expected to
benefit the corporation. Notwithstanding the foregoing, the corporation shall
have the power to make loans permitted by the California Corporations Code.
26
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
Page
<S> <C> <C>
ARTICLE I OFFICES................................................................. 1
Section 1. Principal Office..................................................... 1
Section 2. Other Offices........................................................ 1
ARTICLE II CORPORATE SEAL.......................................................... 1
Section 3. Corporate Seal....................................................... 1
ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS................................ 2
Section 4. Place of Meetings.................................................... 2
Section 5. Annual Meeting....................................................... 2
Section 6. Postponement of Annual Meeting....................................... 2
Section 7. Special Meetings..................................................... 2
Section 8. Notice of Meetings................................................... 2
Section 9. Manner of Giving Notice.............................................. 3
Section 10. Quorum and Transaction of Business................................... 4
Section 11. Adjournment and Notice of Adjourned Meetings......................... 4
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes.......... 5
Section 13. Action by Written Consent Without a Meeting.......................... 5
Section 14. Voting............................................................... 6
Section 15. Persons Entitled to Vote or Consent.................................. 7
Section 16. Proxies.............................................................. 7
Section 17. Inspectors of Election............................................... 7
ARTICLE IV BOARD OF DIRECTORS...................................................... 8
Section 18. Powers............................................................... 8
Section 19. Number of Directors.................................................. 8
Section 20. Election Of Directors, Term, Qualifications.......................... 8
Section 21. Resignations......................................................... 9
Section 22. Removal.............................................................. 9
Section 23. Vacancies............................................................ 9
Section 24. Regular Meetings..................................................... 9
Section 25. Participation by Telephone........................................... 10
Section 26. Special Meetings..................................................... 10
</TABLE>
i
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 27. Notice of Meetings.......................................... 10
Section 28. Place of Meetings........................................... 10
Section 29. Action by Written Consent Without a Meeting................. 10
Section 30. Quorum and Transaction of Business.......................... 10
Section 31. Adjournment................................................. 11
Section 32. Organization................................................ 11
Section 33. Compensation................................................ 11
Section 34. Committees.................................................. 11
ARTICLE V OFFICERS...................................................... 12
Section 35. Officers.................................................... 12
Section 36. Appointment................................................. 12
Section 37. Inability to Act............................................ 12
Section 38. Resignations................................................ 12
Section 39. Removal..................................................... 12
Section 40. Vacancies................................................... 13
Section 41. Chairman of the Board....................................... 13
Section 42. President................................................... 13
Section 43. Vice Presidents............................................. 13
Section 44. Secretary................................................... 13
Section 45. Chief Financial Officer..................................... 14
Section 46. Compensation................................................ 15
ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND
DRAFTS........................................................ 15
Section 47. Execution of Contracts and Other Instruments................ 15
Section 48. Loans....................................................... 15
Section 49. Bank Accounts............................................... 15
Section 50. Checks, Drafts, Etc......................................... 15
ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER.................... 16
Section 51. Certificate for Shares...................................... 16
Section 52. Transfer on the Books....................................... 16
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 53. Lost, Destroyed and Stolen Certificates....................................................... 16
Section 54. Issuance, Transfer and Registration of Shares................................................. 17
ARTICLE VIII INSPECTION OF CORPORATE RECORDS..................................................................... 17
Section 55. Inspection by Directors....................................................................... 17
Section 56. Inspection by Shareholders.................................................................... 17
Section 57. Written Form.................................................................................. 18
ARTICLE IX MISCELLANEOUS....................................................................................... 18
Section 58. Fiscal Year................................................................................... 18
Section 59. Annual Report................................................................................. 18
Section 60. Record Date................................................................................... 19
Section 61. Bylaw Amendments.............................................................................. 19
Section 62. Construction and Definition................................................................... 19
ARTICLE X INDEMNIFICATION..................................................................................... 19
Section 63. Indemnification of Directors, Officers, Employees And Other
Agents........................................................................................ 19
ARTICLE XI RIGHT OF FIRST REFUSAL.............................................................................. 23
Section 64. Right of First Refusal........................................................................ 23
ARTICLE XII LOANS OF OFFICERS AND OTHERS.................................................................. 25
Section 65. Certain Corporate Loans and Guaranties........................................................ 25
</TABLE>
iii.
<PAGE>
EXHIBIT 10.1
TRINET EMPLOYER GROUP
1990 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
reward past service by, increase incentive for, and encourage stock ownership on
the part of, selected key employees of the Company and of any other corporation
that is a Parent or Subsidiary of the Company, to attract and retain the best
available personnel for positions of substantial responsibility, and to promote
the success of the Company's business.
2. Definitions. As used herein, the following definitions apply:
-----------
2.1 Board. "Board" means the Board of Directors of the Company.
-----
2.2 Code. "Code" means the Internal Revenue Code of 1986, as
----
amended.
2.3 Common Stock. "Common Stock" means common capital stock of the
------------
Company.
2.4 Company. "Company" means TRINET EMPLOYER GROUP, INC., a
-------
California Corporation.
2.5 Committee. "Committee" means the Committee appointed by the
---------
Board of Directors in accordance with Section 4.2 of the Plan, if one is
appointed.
2.6 Employee. "Employee" means any person, including officers, and
--------
officers and employees who are also directors, who is employed by the Company or
any Parent or Subsidiary of the Company at a regular salary or rate of pay. The
payment of a director's or consulting fee shall not be sufficient to cause a
person to be an Employee. (No options to persons in co-employed relationship)
2.7 Incentive Stock Option. "Incentive Stock Option" means an Option
----------------------
qualifying as an incentive stock option within the meaning of Section 422 of the
---
Code. To the extent that an Option does not qualify as an Incentive Stock
Option, the Option shall be treated as a Non-Statutory Stock Option.
<PAGE>
2.8 Non-Statutory Stock Option. "Non-Statutory Stock Option" means
--------------------------
an Option other than an Incentive Stock Option.
2.9 Option. "Option" means an option to purchase Shares of the
------
Company granted pursuant to the Plan and a written agreement in form approved by
the Board. An Option may be either an Incentive Stock Option or a Non-Statutory
Stock Option, depending upon the terms of each individual option grant and
option agreement. Each option grant and option agreement shall clearly identify
any Option as to whether it is an Incentive Stock Option or a Non-Statutory
Stock Option, and shall specify the number of Shares covered by the Option. A
separate certificate or certificates shall be issued for Shares purchased on
exercise of each type of Option.
2.10 Optioned Shares. "Optioned Shares" means Shares covered by an
---------------
Option.
2.11 Optionee. "Optionee" means an Employee who receives an Option.
--------
2.12 Parent. "Parent" means a "parent corporation", whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
---
2.13 Plan. "Plan" means this 1990 Stock Option Plan.
----
2.14 Share. "Share" means a share of Common Stock of the Company, as
-----
adjusted in accordance with Section 11 of the Plan.
2.15 Subsidiary. "Subsidiary" means a "subsidiary corporation"
----------
whether now or hereafter existing, as defined in Section 424(f) of the Code.
---
3. Stock Subject to the Plan.
-------------------------
3.1 Shares Subject to Issuance of Options. Subject to the
-------------------------------------
provisions of Section 11.3 of the Plan, the maximum aggregate number of Shares
which may be issued under Options under the Plan is 350,000 Shares. Such Shares
-------
may be authorized, but unissued, or reacquired Shares.
3.2 Expired and Unexercisable Options. If an Option should expire
---------------------------------
or become unexercisable for any reason without having been exercised in full,
the Optioned Shares covered by such Option shall become available for issue
under other Options under the Plan.
4. Administration of the Plan.
--------------------------
<PAGE>
4.1 Administration by the Board. The Plan shall be administered by
---------------------------
the Board.
4.2 Committee. The Board may appoint a Committee consisting of one
---------
or more members of the Board to exercise all powers of the Board with respect to
administration of the Plan, subject to such terms and conditions as the Board
may prescribe. The proceedings of the Committee shall be governed by the
provisions of the bylaws of the Company pertaining to Committees appointed by
the Board. Subject to such bylaws, the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill
vacancies however caused, or abolish the Committee. Notwithstanding the
appointment of a Committee as provided herein, the Board shall have the final
power to determine all questions of policy and procedure that may arise in the
administration of the Plan.
4.3 Voting. Members of the Board who are either eligible for
------
Options or have been granted Options may vote on any matter affecting the
administration of the Plan or the grant of any Options pursuant to the Plan.
4.4 Powers of the Board. Subject to the provisions of the Plan,
-------------------
the Board shall have the authority, in its discretion:
(1) to grant Incentive Stock Options, in accordance with Section 422 of
---
the Code, and Non-Statutory Stock Options, separately or in
conjunction, provided that each type of Option shall be set forth in a
separate option agreement;
(2) to determine, upon review of relevant information and in accordance
with Section 8.3 of the Plan, the fair market value of Optioned
Shares;
(3) to determine the persons to whom, and the time or times at which,
Options shall be granted and the number of Optioned Shares under such
Options;
(4) to determine all terms and provisions of each Option granted (which
need not be identical) including, without limitation, the exercise
price per Share of each Optioned Share in accordance with Section 8.1
of the Plan, the date or dates that the Option shall become
exercisable, restrictions on transferability and/or the right to
---------------------------------------------------
retain Optioned Shares received on exercise of the Option,
----------------------------------------------------------
restrictions required by applicable securities laws, and any
---------------------------------------------------
performance criteria for exercise with respect to the Company and/or
the Optionee;
<PAGE>
(5) with the consent of the Optionee and within the terms and conditions
and limitations of this Plan, to modify, extend, renew, or amend each
Option and option agreement, including to accelerate the date the
Option may be exercised;
(6) upon cancellation of previously granted Options, to regrant Options at
a lower price, provided that, unless the Optionee consents, no such
-------------
cancellation or regrant shall alter or impair any rights or
obligations of any Option previously granted under the Plan;
(7) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously
granted by the Board;
(8) to prescribe, amend and rescind rules and regulations relating to the
Plan;
(9) to correct any defect, omission or inconsistency in the Plan or any
option agreement in a manner and to the extent the Board shall deem
necessary to make the Plan fully effective;
(10) to make all other determinations and take all other actions as the
Board deems necessary in the best interests of the Company.
4.5 Delegation to the Committee. The Board may delegate the powers
---------------------------
enumerated above to the Committee, provided that the Committee shall have no
-------------
power to amend, suspend or terminate the Plan or to take any other action
described in Section 13 of the Plan. All references to the Board in the Plan
shall also mean the Committee, to the extent of the powers delegated to it.
4.6 Vesting of Options. Optioned Shares subject to an Option may,
------------------
but need not, be allotted in periodic installments (which may but need not be
equal). From time to time during each of such installment periods, the Option
may become exercisable ("vest") with respect to Optioned Shares allotted to that
period, provided that the Option must vest at the rate of at least 20 percent
---------------------------------------------------------------------
per year over 5 years from the date the Option is granted, (unless the optionee
- ----------------------------------------------------------
is an officer, director or consultant). In the event that the Optionee is
permitted or otherwise entitled to take a leave of absence which is not a
termination of employment, the Board shall have the unilateral right to suspend
or otherwise delay the time or times at which the Option would otherwise vest.
<PAGE>
4.7 Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
4.8 Liability of the Board. No member of the Board shall be liable
----------------------
for any action, failure to act, determination or interpretation made in good
faith with respect to the Plan or any transaction thereunder.
4.9 Effect of Registration of Company Equity Securities.
---------------------------------------------------
Notwithstanding any provision in this Agreement, as of the date of the first
registration of an equity security of the Company under Section 12 of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), the Plan shall be
administered in such manner as the Board shall determine in order to assure that
the Plan complies with Rule 16b-3 of the Securities and Exchange Commission
("Rule 16b-3") if the Board shall deem such compliance necessary or desirable.
5. Eligibility. Incentive Stock Options may be granted only to Employees.
----------- ---------------------------------------------------------
Non-Statutory Stock Options may be granted to employees, directors and
- ----------------------------------------------------------------------
consultants, (may want to define these terms), as determined by the Board. A
- -----------------------------------------------------------------------------
person who has been granted an option may, if he or she is otherwise eligible,
- ------------------------------------------------------------------------------
be granted an additional Option or Options.
- --------------------------------------------
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the Shareholders as
provided in Section 19. The Plan shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 13.
7. Term of Option. The term of each Option granted under the Plan shall
--------------
be as determined by the Board, provided that such term shall not exceed ten (10)
-------------
years from the date of grant thereof, and provided further that, in the case of
---------------------
an Incentive Stock Option granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall not exceed
five (5) years from the date of grant thereof (stock owned by an Employee to
include stock owned by relatives and entities in which the Employee has an
interest, as described in Section 424(d) of the Code).
---
8. Exercise Price and Consideration.
--------------------------------
8.1 Exercise Price. The per Share exercise price for the Shares to
--------------
be issued pursuant to exercise of an
<PAGE>
Option shall be such price as is determined by the Board, but shall be subject
to the following:
8.1.1 Incentive Stock Options. In the case of an Incentive
-----------------------
Stock Option granted:
(1) to an Employee who, at the time of the grant of such Incentive
Stock Option, owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be at least one hundred ten percent (110%) of the fair
market value per Share at the time of grant (stock owned by an
Employee to include stock owned by relatives and entities in
which the Employee has an interest, as described in Section
424(d) of the Code);
---
(2) to any other Employee, the per Share exercise price shall be no
less than one hundred percent (100%) of the fair market value per
Share at the time of grant, provided, however, notwithstanding
the foregoing, an Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section
424(a) of the Code.
8.1.2 Non-Statutory Stock Option. In the case of a Non-
-------------------------- --------------------
Statutory Stock Option granted:
- -------------------------------
(1) to a person who, at the time of the grant of such Non-Statutory
- ------------------------------------------------------------------------------
Stock Option, owns stock representing more than ten percent (10%)
-----------------------------------------------------------------
of the total combined voting power of all classes of stock of the
-----------------------------------------------------------------
Company or any Parent or Subsidiary, the per Share exercise price
-----------------------------------------------------------------
shall be one hundred ten percent (110%) of the fair market value
----------------------------------------------------------------
per Share at the time of grant (stock owned by a person to
----------------------------------------------------------
include stock owned by relatives and entities in which the person
-----------------------------------------------------------------
has an interest, as described in Section 424(d) of the Code);
-------------------------------------------------------------
(2) to any other person, the per Share exercise price shall be no
- ----------------------------------------------------------------------------
less than eighty-five percent (85%) of the fair market value per
----------------------------------------------------------------
Share at the time of grant.
---------------------------
<PAGE>
8.1.2. Compliance With California Corporations Code. All
--------------------------------------------
options granted under this Plan shall be subject to receipt by the Company on
exercise of the option of adequate consideration in accordance with Section 409
of the California Corporations Code.
8.2 Method of Payment. To the extent provided by the terms of the
----------------- ------------------------------------------
option agreement, the method of payment for the Shares to be issued pursuant to
- -----------------
the exercise of an Option shall be [determined by the Board at the time the
---------------------------------------
Option is granted or exercised, and may consist of]:
- ---------------------------------------------------
(1) cash, ordinary check, or certified check;
---------------
(2) note and security agreement of Optionee payable in U.S. dollars,
bearing interest at a rate not less than the rate required to assure
that there will be no imputed interest pursuant to the Code,
(3) other Shares having a fair market value at the time of payment not
less than the aggregate exercise price of the Optioned Shares as to
which the Option is exercised, or
(4) any combination of such methods of payment, to the extent permitted
under Sections 408 and 409 of the California General Corporation Law.
8.3 Fair Market Value. The fair market value of Shares shall be
-----------------
determined by the Board in good faith, provided that if a public market exists
-------------
for Shares at the time of valuation, the fair market value shall be the average
of the closing bid and asked prices of Shares at the close of business on the
business day next preceding the date as of which fair market value is to be
determined, or if both bid and asked prices are not quoted on such day, the
average of such bid and asked prices on such preceding day that both bid and
asked prices are quoted, as reported in the Wall Street Journal, or if not
reported in the Wall Street Journal, such other reliable source as the Board may
in good faith determine.
9. Exercise of Option.
------------------
9.1 Time for Exercise. Any Option granted hereunder shall be
-----------------
exercisable at such times and under such conditions as determined by the Board
and as shall be permissible under the terms of the Plan; provided that no Option
-------------
shall be exercisable unless and until a written option agreement, as provided in
Section 16, has been executed by the Company and by the Optionee.
9.2 Fractional Shares. An Option may not be exercised for a
-----------------
fraction of a Share.
<PAGE>
9.3 Exercise Procedure. An Option shall be deemed to be exercised
------------------
when written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Optioned Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Board, be made in accordance with any method of payment allowable under
Section 8.2 of the Plan. Payment made by check shall not be deemed received
--------------------------------------------------
until the check is paid by the drawee and the Company has received funds in
- ---------------------------------------------------------------------------
connection therewith.
- --------------------
9.4 Effect of Exercise. Exercise of an Option in any manner shall
------------------
result in a decrease in the number of Shares which thereafter may be available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
9.5 Partial Exercise. If exercised in part, the unexercised portion
----------------
of an Option shall continue to be held by the Optionee and may thereafter be
exercised as provided in the option agreement and in the Plan.
9.6 Termination of Employment. If an Optionee's employment as an
-------------------------
Employee terminates other than by reason of disability as provided in Section
9.7 below, or death as provided in Section 9.8 below, the Option [may, but need
-------------
not,] shall provide that the Optionee may exercise the Option at any time within
- ---- --------------------------------------------------------------------------
three (3) months (or such lesser period of time, but not less than thirty (30)
- ------------------------------------------------------------------------------
days, as is determined by the Board) after the date of termination but only to
- ------------------------------------
the extent Optionee was entitled to exercise the Option on the date of
termination. In the event that the Optionee is permitted or otherwise entitled
to take a leave of absence, the Board shall have the unilateral right to
determine whether the leave of absence constitutes termination of employment.
9.7 Disability of Optionee. If an Optionee's employment as an
----------------------
Employee terminates as a result of total and permanent disability (as defined in
Section 422(c)(6) of the Code), the Option [may, but need not,] shall provide
--- - ------------------ -------------
that Optionee may exercise the Option at any time within twelve (12) months
- ---------------------------------------------------------------------------
following the date of termination (or such lesser period of time, but not less
- ------------------------------------------------------------------------------
than six (6) months as is determined by the Board), but only to the extent
- --------------------------------------------------
Optionee was entitled to exercise the Option on the date of termination.
9.8 Death of Optionee. In the event of the death of Optionee:
-----------------
<PAGE>
(1) while Optionee is an Employee of the Company, the Option [may, but
--------
need not,] shall provide that the Option may be exercised at any time
--------- -----------------------------------------------------------
within twelve (12) months following the date of death (or such lesser
---------------------------------------------------------------------
period of time, but not less than six (6) months as is determined by
--------------------------------------------------------------------
the Board) by the Optionee's estate or by a person who acquired the
----------
right to exercise the Option by bequest or inheritance, but only to
the extent Optionee was entitled to exercise the Option on the date of
death; or
(2) within thirty (30) days after the date of termination of Optionee's
employment as an Employee, the Option [may, but need not,] shall
------------------ ------
provide that the Option may be exercised at any time within twelve
------------------------------------------------------------------
(12) months following the date of termination (or such lesser period
--------------------------------------------------------------------
of time, but not less than six (6) months as is determined by the
------------------------------------------------------------- ---
Board) by the Optionee's estate or by a person who acquired the right
-----
to exercise the Option by bequest or inheritance, but only to the
extent Optionee was entitled to exercise the Option on the date of
termination.
9.9 Exercise Prior to Expiration. An Option must in any event be
----------------------------
exercised prior to its expiration. The Option may in no event be exercised after
the expiration of the term of the Option. The Option shall terminate to the
extent not exercised or entitled to be exercised as provided herein.
9.10 Tax Withholding. To the extent provided by the terms of the
---------------
option agreement, the Optionee may satisfy federal, state and local tax
withholding obligations relating to the exercise of the Option by any or a
combination of the following means:
(1) tendering payment in cash or cashier's check
(2) authorizing the Company to withhold from the Shares issuable on
exercise of the Option a number of Shares having a fair market value
equal to the amount of the withholding obligation;
(3) delivering to the Company owned and unencumbered Shares having a fair
market value equal to the amount of the withholding obligation.
9.11 Market Value Limitation on Exercisability of Incentive Stock
------------------------------------------------------------
Options. The aggregate fair market value of Shares with respect to which
- -------
Incentive Stock Options are exercisable for the first time by an Optionee during
any calendar year (under all plans of the Company and its Parent
<PAGE>
and Subsidiary corporations) may not exceed $100,000.00. Fair market value is
determined as of the time the Options are granted. To the extent that such
aggregate fair market value exceeds $100,000.00, such Options shall be treated
as Non-Statutory Stock Options, taking into account Options in the order in
which they were granted.
10. Non-transferability of Options. An [Incentive Stock] Option may not
------------------------------ ---------------
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Opitonee, only by the Optionee. No
transfer of an Option by will, or the laws of descent and distribution, or
otherwise, shall be effective unless the Company shall have received written
notice thereof, and such other evidence as the Board may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option, and to establish
compliance with any laws or regulations pertaining thereto.
11. Merger or Sale of Assets, Dissolution, Adjustments.
--------------------------------------------------
11.1 Merger or Consolidation of Company. In the event of the merger
-----------------------------------
or consolidation of the Company with another company as a result of which the
Shares of the Company are converted into securities of another company or other
property, all unexercised Options shall, at the election of the Board:
(1) terminate at such time as shall be determined by the Board prior to
the effective date of such transaction, if the Company gives Optionees
notice of the transaction, informs Optionees that their Options will
terminate at that time to the extent not exercised, and permits
exercise of the Options as to all or any part of the Optioned Shares
prior to that time, including Shares as to which the Options would not
otherwise be exercisable; or (Election could result in pooling of
interest concerns)
(2) pertain to securities of the other company or other property that the
Optionees would be entitled to receive if the Optionees had exercised
their Options immediately prior to the effective date of such
transaction, in which event the Options, to the extent not previously
exercised, will apply to such securities or other property on and
after such date.
11.2 Dissolution of the Company. In the event of dissolution of the
--------------------------
Company, all unexercised Options will
<PAGE>
terminate at such time prior to the effectiveness of final dissolution as shall
be determined by the Board. The Company will give Optionees reasonable notice of
----------
the dissolution, inform Optionees that their Options will terminate at that time
to the extent not exercised prior to that time, and permit the exercise of the
Options as to all or any part of Optioned Shares prior to that time, including
Shares as to which the Options would not otherwise be exercisable.
11.3 Adjustments. The Board, subject to the approval of shareholders
-----------
to the extent required by law, may make or provide for such adjustments in the
exercise price and/or the number of Shares covered by the Plan or Options
granted hereunder as the Board in its sole discretion, exercised in good faith,
may determine is legally or equitably required to prevent dilution or
----------
enlargement of the rights of Optionees that would otherwise result from any
reclassification of shares, or any stock dividend, stock split, reverse stock
- -------------------------- -------------
split, combination of shares, recapitalization, or any other subdivision or
- -----
consolidation or other increase or decrease in the number of outstanding Shares
effected without the receipt of consideration by the Company, provided that such
-------------
an adjustment does not constitute the adoption of a new plan requiring
shareholder approval under Section 422 of the Code and any regulation
---
promulgated thereunder. The issuance of Shares upon conversion of convertible
securities shall be treated as an issuance for which the Company receives
consideration for the purpose of this Section. No fractional shares will be
issued upon any exercise of an Option following an adjustment made pursuant to
this Section, and the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued. Adjustments effected pursuant to
this Section shall be final, binding and conclusive.
11.4 No restrictions On Powers of the Company. The grant of
----------------------------------------
Options pursuant to this Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
in its capital or business structure, to issue shares of its capital stock or
other securities, or to merge, consolidate, liquidate, dissolve, or sell or
transfer all or any part of its business or assets.
12. Time of Granting Options. The date of grant of an Option shall be:
------------------------ ----------------------------------------
(A) in the case of an Incentive Stock Option, the later of the date on which the
- --------------------------------------------------------------------------------
Board makes the determination granting such Option or the date of employment of
- -------------------------------------------------------------------------------
the Optionee as an Employee; and (B) in the case of a Non-Statutory Stock
- -------------------------------------------------------------------------
Option, the date on which the Board makes the determination granting such
- -------------------------------------------------------------------------
Option.
- -------
13. Amendment, Suspension and Termination.
-------------------------------------
<PAGE>
13.1 Amendment of the Plan. The Board may amend the Plan from time
---------------------
to time in such respects as the Board may deem advisable; provided that the
-------------
following revisions or amendments shall require approval of the shareholders as
provided in Section 19.3:
(1) any increase in the number of Shares subject to the Plan, other than
in connection with an adjustment under Section 11.3 of the Plan;
(2) any change in the designation of the Employees or class of Employees
--------------------------------------------------------------------
eligible to be granted Incentive Stock Options;
------------------------------------------------
(3) if the Company has a class of equity securities registered under
Section 12 of the Exchange Act and if the Board shall deem compliance
with Rule 16b-3 issued by the Securities and Exchange Commission
pursuant to the Exchange Act necessary or desirable, any revisions or
amendments that require shareholder approval under Rule 16b-3, all of
which shall be in accordance with the provisions of Rule 16b-3;
(4) any other amendment or modification as to which, in the opinion of
counsel for the Company, shareholder approval is necessary for the
Plan to satisfy the requirements of Section 422 of the Code or other
---
provisions of law.
13.2 Suspension or Termination of Plan. The Board may suspend or
---------------------------------
terminate the Plan at any time.
13.3 Effect of Amendment, Suspension or Termination. Any amendment,
----------------------------------------------
suspension or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended, suspended or terminated, unless mutually agreed otherwise between
the Optionee and the Company, which agreement must be in writing and signed by
the Optionee and the Company, or unless the amendment is necessary to enable
Incentive Stock Options to qualify as such under the Code.
14. Conditions Upon Issuance of Shares.
----------------------------------
14.1 Compliance With Securities And Other Regulations. Shares shall
------------------------------------------------
not be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including without limitation, the
Securities Act of 1933, as amended, the Exchange Act, any state securities law,
the rules and
<PAGE>
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed. Inability of the Company to obtain
authority from any regulatory body having jurisdiction, or inability to meet the
requirements of any exemption from regulatory requirements, which authority or
exemption is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell the Shares as to which such
authority shall not have been obtained or exemption shall not have been met.
Nothing herein shall be construed to require the Company to register or qualify
the issuance of Shares under applicable federal or state securities laws.
14.2 Actions of Optionee. The Company may require at the time of
-------------------
exercise of an Option, as a condition to the exercise of the Option, that the
person exercising such Option make any representation and warranty and take any
other action as may be required to assure compliance with any applicable law or
regulation.
15. Reservation of Shares. The Company will reserve and keep available
---------------------
such number of Shares as shall be sufficient to satisfy the requirements of the
Plan.
16. Option Agreement. Each Option shall be evidenced by a written option
----------------
agreement setting forth the terms and provisions of the Option, and such other
provisions, including without limitation restrictions on exercise of the Option,
restrictions on transferability and/or the right to retain Shares on exercise of
the Option, and restrictions required by applicable securities and other laws,
as the Board shall deem advisable. An option agreement may incorporate any terms
of the Plan by reference.
17. Use of Proceeds. Proceeds from the issuance and sale of Shares
---------------
pursuant to the exercise of Options shall be used for general corporate
purposes.
18. Rights as a Shareholder. An Optionee or the transferee of an
-----------------------
Optionee shall have no rights as a shareholder with respect to any Optioned
Shares until the date of exercise of that portion of the Option covering those
Optioned Shares. As to such Shares, the Optionee will have no voting rights,
rights as to dividends or distributions (whether ordinary or extraordinary, or
in cash, securities or other property), or other rights, for which the record
date is prior to the date of exercise.
19. Shareholder Approval.
--------------------
19.1 Approval for Continuance of the Plan. Continuance of the
------------------------------------
Plan shall be subject to approval by the
<PAGE>
shareholders of the Company within twelve months before or after the date the
Plan is adopted.
19.2 Certain Amendments to the Plan. Certain amendments to the Plan,
------------------------------
as provided in Section 13.1, shall be subject to approval by the shareholders of
the Company.
19.3 Procedures for Shareholder Approval. Shareholder approval may
-----------------------------------
be obtained by written consent of all of the shareholders of the Company; or,
subject to any provision in the articles or the bylaws of the Company requiring
a larger vote, by the affirmative vote of the holders of a majority of each
class of voting shares of the Company outstanding entitled to vote thereon
present or represented at a meeting duly convened and held.
20. No Right to Continued Employment. The Plan shall not confer upon any
--------------------------------
Optionee any right with respect to continuation of employment by the Company or
any Parent or Subsidiary, nor shall it interfere in any way with Optionee's
right or the Company's right to terminate Optionee's employment at any time for
any or no reason, subject to such other written agreement that Optionee and the
Company may enter.
21. Financial Information. Throughout the term of any Stock Award, the
---------------------
Company shall deliver to the holder of such Stock Award, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the term of such Stock Award, a balance sheet and an income statement.
This subsection shall not apply (i) after the Listing Date, or (ii) when
issuance is limited to key employees whose duties in connection with the Company
assure them access to equivalent information.
Additions underlined
- ---------------------
[Deletions underlined and in brackets]
- --------------------------------------
<PAGE>
EXHIBIT 10.4
OFFICE BUILDING LEASE
THIS LEASE is made and entered into this ____________day of July 1999 by and
between KBK Properties, Inc., A California Corporation (hereinafter referred to
as "Landlord") and TriNet Employer Group, Inc., a California Corporation
(hereinafter referred to as "Tenant").
For and in consideration of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Tenant, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the Premises herein
described for the term, at the rental and subject to and upon all of the terms,
covenants and agreement hereafter set forth.
1. PREMISES
1.1 DESCRIPTION. Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord those certain Premises (hereinafter referred to as "Premises")
crosshatched on Exhibit "A" containing approximately 2632 square feet on the 4th
floor of that certain office building (hereinafter referred to as "Building")
located in the City of San Leandro, County of Alameda, State of California,
commonly known as TriNet Office Building and more particularly described as 101
Callan Ave., Suite 400.
1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to perform
the work and supply the necessary materials and labor to prepare the Premises
for occupancy are set forth in detail in Exhibit "B". Tenant shall expend all
funds and do all acts required of them in Exhibit "B" and shall have the work
performed promptly and diligently in a first class workmanlike manner. Tenant
shall make all improvements to the premises at it's sole cost and expense.
2. TERM
2.1 TERM. The term of this Lease shall be for three (3) years and one (1)
month commencing September 1, 1999 and ending September 30, 2002 unless sooner
terminated Pursuant to this Lease or delayed as described in Section 21 of this
Lease.
2.2 DELAY IN COMMENCEMENT. Tenant agrees that in the event of the inability
of Landlord for any reason to deliver possession of the Premises to Tenant on
the commencement date set forth in Section 2.1, Landlord shall not be liable
for any damage thereby nor shall such inability affect the validity of this
Lease or the obligations of Tenant hereunder, but in such case Tenant shall not
be obligated to pay rent or other monetary sums until possession of the Premises
is tendered to Tenant; provided that if the delay in delivery of possession
exceeds sixty (60) days, then the expiration date of the term of the Lease shall
be extended by the period of time computed from the scheduled commencement date
to the date possession is tendered. In the event Landlord shall not have
delivered possession of the Premises within six (6) months from the scheduled
commencement date, then Tenant at its option, to be exercised within thirty (30)
days after the end of said six (6) month period, may terminate this Lease and
upon Landlord's return of any monies previously deposited by Tenant, the parties
shall have no further rights or liabilities toward each other.
Office Lease Page 1 of 20
<PAGE>
2.3 ACKNOWLEDGEMENT OF COMMENCEMENT DATE. In the event the commencement
date of the term of the Lease is other than as provided in Section 2.1, then
Landlord and Tenant shall execute a written acknowledgement of the date of
commencement and shall attach it to the Lease as Exhibit "D".
3. RENT. Tenant shall pay to Landlord as rent for the Premises in advance on
the first day of each calendar month of the term of this Lease without
deduction, offset, prior notice of demand, in lawful money of the United States,
the sum of Two thousand eight hundred and forty-two and 56/100 dollars.
($2842.56).
If the commencement date is not the first day of a month, or if the Lease
termination date is not the last day of a month, a prorated monthly installment
shall be paid at the then current rate for the fractional month during which the
Lease commences and/or terminates.
5. TAX AND BUILDING OPERATING COST INCREASES.
5.1 DEFINITIONS. For purposes of this Section, the following terms are
herein defined:
(a) Base Year: the later occurring of (1) the first calendar year in
which the Building is assessed as a completed building for tax purposes; or
(2) the calendar year in which this Lease commences.
Office Lease Page 2 of 20
<PAGE>
(b) Building Operating Costs: All costs and expenses of ownership,
operation and maintenance of the Building (excluding depreciation on the
Building, all amounts paid on loans of Landlord and expenses capitalized for
federal income tax purposes) including by way of illustration but not limited
to: real and personal property taxes and assessments and any tax in addition to
or in lieu thereof, other than taxes covered by Section 5.4, whether assessed
against Landlord or Tenant or collected by Landlord or both; utilities,
supplies, insurance, license, permit and inspection fees, cost of services of
independent contractors (including property management fees), cost of
compensation (including employment taxes and fringe benefits) of all persons who
perform regular and recurring duties connected with day to day operation,
maintenance and repair of the Building, its equipment and the adjacent walks,
malls and landscaped areas, including janitorial, scavenger, gardening,
security, parking, operating engineer, elevator, painting, plumbing, electrical,
carpentry, heating, ventilation, air conditioning, window washing, signing and
advertising (but excluding persons performing services not uniformly available
to or performed for substantially all Building tenants), and rental expense or a
reasonable allowance for depreciation of personal property used in the
maintenance, operation and repair of the Building.
(c) Net Rentable Area: The rentable area computed by measuring to the
inside finish of permanent outer building walls, to the Premises side of public
corridors and/or other permanent partitions and to the center of partitions
which separate the adjoining rentable areas with no deductions for column and
projections necessary to the Building structure. On multi-tenant floors, common
corridors and toilets, air conditioning rooms, fan rooms, janitorial closets,
electrical and telephone closets and any other areas within and exclusively
serving that floor are considered common area and for purposes of this Section
shall be allocated prorata to the tenants on the floor.
5.2 TENANT'S SHARE. In the event the Building Operating Costs incurred by
Landlord during any calendar year following the Base Year shall exceed Building
Operating Costs incurred by Landlord during the Base Year, Tenant shall pay to
Landlord an amount equal to six percent (6%) of such increases which share is
computed on the basis of the ratio between Net Rentable Area in the Premises and
Net Rentable Area in the Building.
5.3 PAYMENT. Within ninety (90) days after the end of each calendar year
following the Base Year, Landlord shall furnish Tenant a written statement
showing in reasonable detail Landlord's Building Operating Costs for the
preceding calendar year and the Base Year, and showing the amount, if any, of
any increase or decrease in the sums due from Tenant taking into account prior
increase paid by Tenant (if any).
Coincidentally with the monthly rent payment next due following Tenant's
receipt of such statement, Tenant shall pay to Landlord (in the case of an
increase), or Landlord shall credit against the next rent due from Tenant (in
the case of a decrease), an amount equal to the sum of (1) the difference
between Building Operating Costs for the preceding calendar year and the Base
Year less increases paid by Tenant (if any) and (2) one-twelfth (1/12th) said
increases for the current calendar year multiplied by the number of rent
payments (including the current one) then elapsed in such calendar year.
Thereafter the
Office Lease Page 3 of 20
<PAGE>
one twelfth (1/12th) shall be paid monthly with the rent until the adjustment
the following year pursuant hereto. In no event shall the adjustment entitle
Tenant to receive the benefit of a reduction in Building Operating Costs below
the level of the initial Base Year during the term hereof.
5.4 NEW TAXES. In addition to rent and other charges to be paid by Tenant
hereunder, Tenant shall reimburse to Landlord, within thirty (30) days of
receipt of a demand therefore, any and all taxes payable by Landlord (other than
net income taxes) whether or not now customary or within the contemplation of
the parties hereto; (a) upon allocable to or measured by this area of the
Premises or on the rent payable hereunder including without limitation any gross
income tax or excise tax levied by this State, any political subdivision
thereof, City or Federal Government with respect to the receipt of such rent; or
(b) upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof, or (c) upon or measured by the value of Tenant's personal
property, equipment or fixtures located in the Premises; or (d) upon this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises, Tenant agrees to pay before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the Premises. For the purpose of determining said
amount, figures supplied by the County Assessor as to the amount as assessed
shall be conclusive. Tenant shall comply with the provisions of any law,
ordinance or rule of the taxing authorities which require Tenant to file a
report of Tenant's property located in the Premises.
6. USE
6.1 USE. The Premises shall be used and occupied by Tenant for general
office purposes and for no other purpose without the prior written consent of
Landlord.
6.2 SUITABILITY. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the Premises or
the Building or with respect to the suitability of either for the conduct of
Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises except as provided in this Lease. The
taking of possession of the Premises by Tenant shall conclusively establish that
the Premises and the Building were at such time in satisfactory condition unless
within fifteen (15) days after such date Tenant shall give Landlord written
notice specifying in reasonable detail the respects in which the Premises or the
Building were not in satisfactory condition.
6.3 USES PROHIBITED.
(a) Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase
the existing rate or affect any fire or other insurance upon the Building
or any of its contents (unless Tenant shall pay any increased premium as a
result of such use or acts), or cause a cancellation of any insurance
policy covering said Building or any part thereof or any of its contents,
nor shall Tenant sell or permit to be kept, used or sold in or about said
Premises any articles which may be prohibited by a standard form policy of
fire insurance.
Office Lease Page 4 of 20
<PAGE>
(b) Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building or injure or annoy them or use
or allow the Premises to be used for any unlawful or objectionable purpose,
nor shall Tenant cause, maintain or permit any nuisance in or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
(c) Tenant shall not use the Premises or permit anything to be done in
or about the Premises which will in any way conflict with any law, stature,
ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force
and with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes
not relating to or affecting the condition, use or occupancy of the
Premises, or not related or afforded by Tenant's improvements or acts. The
judgement of any court or competent jurisdiction or the admission of Tenant
in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of the fact as between
Landlord and Tenant.
7. SERVICE AND UTILITIES
7.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the Premise
during reasonable hours of generally recognized business days to be determined
by Landlord, and subject to the Rules and Regulations of the Building, water,
gas and electricity suitable for the intended use of the Premises, heat and air
conditioning required in Landlord's judgement for the comfortable use and
occupancy of the premises, scavenger, janitorial and window washing service and
elevator service, customary in similar buildings in the competing geographical
areas. Landlord shall also maintain and keep lighted the common stairs, entries
and toilet rooms in the Building.
7.2 TENANT'S OBLIGATION. Tenant shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
paid by Landlord, which may be furnished to or used in, on or about the Premises
during the term of this Lease.
7.3 TENANT'S ADDITIONAL REQUIREMENTS.
(a) Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises, including but without limitation
thereto, electronic data processing machines, punch card machines and
machines using current in excess of 110 volts, which will in any way
increase the amount of electricity or water usually furnished or supplied
for use of the Premises as general office space; nor connect with electric
current, except through existing electrical outlets in the Premises, or
water pipes, any apparatus or device, for the purposes of using electric
current of water.
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(b) If Tenant shall require water or electric current in excess
of that usually furnished or supplied for use of the Premises as general
office space, Tenant shall first procure the consent of Landlord for the
use thereof, which consent Landlord may refuse and Landlord may cause a
water meter or electric current meter to be installed in the Premises, so
as to measure the amount of water and electric current consumed for any
such other use. The cost of such meters and of installation, maintenance
and repair thereof shall be paid for by Tenant and Tenant agrees to pay
Landlord promptly upon demand by Landlord for all such water and electric
current consumed as shown by said meters, at the rates charged for such
services by the City in which the Building is located or the local public
utility, as the case may be, furnishing the same, plus any additional
expenses incurred in keeping account of the water and electric current so
consumed.
(c) Wherever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the
cost of installation, operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
7.4 NON-LIABILITY. Landlord shall not be liable for, and Tenant shall not
be entitled to, any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by
accidents, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, or by any other cause similar or dissimilar,
beyond the reasonable control of Landlord. Landlord shall not be liable under
any circumstances for loss of or injury to property, however occurring, through
or in connection with or incidental to failure to furnish any of the foregoing,
except when caused by the Landlord's negligence or breach of this Lease
Agreement.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS.
(a) Landlord's Obligations. Landlord shall maintain in good order,
condition and repair the Building and all other portions of the
Premises not the obligation of Tenant or any other tenant in the
Building.
(b) Tenant's Obligations.
(i) Tenant at Tenant's sole cost and expense, except for services
furnished by Landlord pursuant to Section 7 hereof, shall maintain the
Premises in good order, condition and repair including the interior
surfaces of the ceilings, walls and floors, all doors, interior
windows, exterior windows at or below street level, all plumbing
pipes, electrical wiring, switches, fixtures and special items in
excess of building standard furnishings, and equipment installed by or
at the expense of Tenant. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Tenant
the right to make repairs at Landlord's expense or to terminate the
Lease because of Landlord's failure to keep the Premises in good
order, condition and repair.
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(ii) Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises in the same condition as received,
ordinary wear and tear and damage by fire, earthquake, act of God or
the elements alone excepted, and shall promptly remove or cause to be
removed at Tenant's expense from the Premises and the Building any
signs, notices and displays placed by Tenant.
(iii) Tenant agrees to repair any damage to the Premises or the
Building caused by or in connection with the removal of any articles
of personal property, business or trade fixtures, machinery,
equipment, cabinetwork, furniture, movable partition or permanent
improvements of additions, including without limitation thereto,
repairing the floor and patching and painting the walls where required
by Landlord to Landlord's reasonable satisfaction, all at Tenant's
sole cost and expense. Tenant shall indemnify the Landlord against any
loss or liability resulting from delay by Tenant in so surrendering
the Premises, including without limitation any claims made by any
succeeding tenant on such delay.
(iv) In the event Tenant fails to maintain the Premises in good
order, condition and repair, Landlord shall give Tenant notice to do
such acts as are reasonably required to so maintain the Premises. In
the event Tenant fails to promptly commence such work and diligently
prosecute it to completion, then Landlord shall have the right to do
such acts and expend such funds at the expense of Tenant as are
reasonably required to perform such work. Any amount so expended by
Landlord shall be paid by Tenant promptly after demand with interest
at ten percent (10%) per annum from the date of such work. Landlord
shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a result of
performing any such work.
(c) Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, regulations and
rules of any public authority relating to their respective maintenance
obligations as set forth herein.
8.2 ALTERATIONS AND ADDITIONS.
(a) Tenant shall make no alterations, additions or improvements to the
Premises or any part thereof without obtaining the prior written consent of
Landlord.
(b) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion,
including without limitation thereto, the manner in which the work is done,
a right of approval of the contractor by whom the work is to be performed,
the times during which it is to be accomplished, and the requirement that
upon written request of Landlord prior to the expiration or earlier
termination of the Lease, Tenant will remove any and all permanent
improvements or additions to the Premises installed at Tenant's expense and
all movable partitions, counters, personal property, equipment, fixtures
and furniture.
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(c) All such alterations, additions or improvements shall at the
expiration or earlier termination of the Lease become the property of
Landlord and remain upon and surrendered with the Premises, unless
specified pursuant to Section 8.2(b) above.
(d) All articles of personal property and all business and trade
fixtures, machinery and equipment, cabinetwork, furniture and moveable
partitions owned by Tenant or installed by Tenant at its expense in the
Premises shall be and remain the property of Tenant and may be removed by
Tenant at any time during the Lease term when Tenant is not in default
hereunder.
9. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right to enter the Premises to inspect the same, to supply janitor service and
any other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of non-
responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing the
entrance to the Premises shall not be blocked thereby, and further providing
that the business of Tenant shall not be interfered with unreasonably. Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Premises, excluding Tenant's vaults and
safes, and Landlord shall have the right to use any and all means which Landlord
may deem proper to open said doors in an emergency, in order to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof.
10. LIENS. Tenant shall keep the Premises and any Building of which the Premises
are a part free from any liens arising out of work performed, material
furnished, or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond, Landlord shall have in addition to all other remedies provided
herein and by law, the right, but no obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith including attorney's fees and costs shall
be payable to Landlord by Tenant on demand with interest at the rate of ten
percent (10%) per annum. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord and the Premises, and
any other party having an interest therein, from mechanics' and materialmen's
liens,
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and Tenant shall give to Landlord at least ten (10) days prior written notice of
the expected date of commencement of any work relating to alterations or
additions to the Premises.
11. INDEMNITY.
11.1 Tenant shall indemnify and hold Landlord harmless from and defend
Landlord against any and all claims of liability for any injury or damage to any
person or property whatsoever; (1) occurring in, on or about the Premises or any
part thereof, and (2) occurring in, on or about any facilities (including,
without prejudice to the generality of the term "facilities", elevators,
stairways, passageways, hallways, and parking areas), the use of which Tenant
may have in conjunction with other tenants of the Building, when such injury or
damage is caused in part or in whole by the act, neglect, fault or omission of
any duty with respect to the same by Tenant, its agents, contractors, employees
or invitees. Tenant shall further indemnify and hold Landlord harmless from and
against any and all claims arising from any breach or default in the performance
of any obligation on Tenant's part to be performed under the terms of this
Lease, or arising from any act or negligence of Tenant, or any of its agents,
contractors, employees and from and against all costs, attorney's fees, expenses
and liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon. In case any action or proceeding be brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord, shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord, provided, however, that Tenant shall not be liable for damage or
injury occasioned by the negligence or intentional acts of Landlord and its
designated agents or employees unless covered by insurance Tenant is required to
provide.
Tenant, as a material part of the consideration to Landlord, hereby assumes
all risk of damage to property or injury to persons in, upon or about the
Premises from any cause and Tenant hereby waives all claims in respect thereof
against Landlord.
11.2 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable
for injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Tenant, its employees, invitees or customers, or any
other person in or about the Premises caused by or resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or into any part of
the Premises, or from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures or the same, whether the damage or injury results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, or from other sources, unless caused by the Landlord's
negligence or breach of this Agreement. Landlord shall not be liable for any
damages arising from any act or neglect of any other tenant of the Building.
12. INSURANCE.
12.1 COVERAGE. Tenant shall, at all times during the term of this Lease,
and at its own cost and expense procure and continue in force the following
insurance coverage:
(a)Bodily Injury and Property Damage Liability Insurance with a
combined single limit for bodily injury and property damage of not less
than $500,000.00
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(b) Fire and Extended Coverage Insurance, including vandalism and
malicious mischief coverage, in an amount equal to the full replacement
value of all fixtures, furniture and improvements installed by or at the
expense of Tenant.
12.2 INSURANCE POLICIES. The aforementioned minimum limits of policies
shall in no event limit the liability of Tenant hereunder. The aforesaid
insurance shall name Landlord as an additional insured. Said insurance shall be
with companies having a rating of not less than AAA, in "Best's Insurance
Guide". Tenant shall furnish from the insurance companies or cause the insurance
companies to furnish certificates of coverage. No such policy shall be
cancelable or subject to reduction of coverage or other modification or
cancellation except after thirty (30) days prior written notice to Landlord by
the insurer. All such policies shall be written as primary policies, not
contributing with and not in excess of the coverage which Landlord may carry.
Tenant shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the premiums together with a twenty-five percent (25%) handling charge, payable
upon demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant provided such blanket policies
expressly afford coverage to the Premises and to Tenant as required by the
Lease.
12.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and
all rights of recovery against the other or against the officers, employees,
agents and representatives of the other, on account of loss or damage occasioned
to such waiving party or its property or the property of others under its
control to the extent that such loss or damage is insured against under any fire
and extended coverage insurance policy which either may have in force at the
time of such loss or damage. Tenant shall, upon obtaining the policies of
insurance required under this Lease, give notice to the insurance carrier or
carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
13. DAMAGE OR DESTRUCTION
13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the Building
are damaged by any casualty which is covered under fire and extended coverage
insurance carried by Landlord, then Landlord shall restore such damage provided
insurance proceeds are available to pay eighty percent (80%) or more of the cost
of restoration and provided such restoration can be completed within ninety (90)
days after the commencement of the work in the onion of a registered architect
or engineer appointed by Landlord. In such event this Lease shall continue in
full force and effect, except that Tenant shall be entitled to proportionate
reduction of rent while such restoration takes place, such proportionate
reduction to be based upon the extent to which the restoration efforts interfere
and damage interfered with Tenant's business in the Premises.
13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the Building
are damaged by a risk not covered by Landlord's insurance or the proceeds of
available insurance are less than eighty percent (80%) of the cost of
restoration, or if the restoration cannot be completed within ninety (90) days
after the commencement of work in the opinion of the registered architect or
engineer appointed by Landlord, then Landlord shall have the option either to
(1) repair or restore such damage, this Lease continuing in
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full force and effect, but the rent to be proportionately abated as hereinabove
provided, or (2) give notice to Tenant at any time within sixty (60) days after
such damage terminating this Lease as of a date to be specified in such notice,
which date shall be not less than thirty (30) nor more than sixty (60) days
after giving such notice. In the event of the giving of such notice, this lease
shall expire and all interest of Tenant in the Premises shall terminate on such
date so specified in such notice and the rent, reduced by any proportionate
reduction based upon the extent, if any, to which said damage interfered with
the use and occupancy of Tenant, shall be paid to the date of such termination;
Landlord agrees to refund to the Tenant any rent theretofore paid in advance for
any period of time subsequent to such date.
13.3 TOTAL DESTRUCTION. In the event the Premises are totally destroyed or
the Premises cannot be restored as required herein under applicable laws and
regulations, notwithstanding the availability of insurance proceeds, this Lease
shall be terminated effective the date of the damage.
13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the contrary
contained in this Section 13, Landlord shall not have any obligation whatsoever
to repair, reconstruct or restore the Premises when the damage resulting from
any casualty covered under this Section 13 occurs during the last twelve (12)
months of the term of this Lease or any extension thereof.
13.5 LANDLORD'S OBLIGATIONS. The Landlord shall not be required to repair
any injury or damage by fire or other causes, or to make any restoration or
replacement of any paneling, decorations, partitions, railings, floor covering,
office fixtures or any other improvements or property installed in the Premises
by Tenant or at the direct or indirect expense of Tenant. Tenant shall be
required to restore or replace same in the event of damage. Except for abatement
of rent, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of any such damage, destruction, repair or restoration; nor
shall Tenant have the right to terminate this Lease as the result of any
statutory provision now or hereafter in effect pertaining to the damage and
destruction of the Premises or the Building, except as expressly provided
herein.
14. CONDEMNATION. If all or any part of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain with or
without litigation or transferred by agreement in connection with such public or
quasi-public use, either party hereto shall have the right at its option
exercisable within thirty (30) days of receipt of notice of such taking to
terminate this Lease as of the date possession is taken by the condemning
authority, provided, however, that before Tenant may terminate this Lease by
reason of taking or appropriation as provided hereinabove, such taking or
appropriation shall be of such an extent and nature as to substantially
handicap, impede or impair Tenant's use of the Premises. If any part of the
Building other than the Premises shall be so taken or appropriated, Landlord
shall have the right at its option to terminate this Lease. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof, provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to
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Tenant for the taking of personal property and fixtures belonging to Tenant
and/or for the interruption of or damage to Tenant's business and/or for
Tenant's unamortized cost of leasehold improvements. In the event of a partial
taking which does not result in a termination of this Lease, rent shall be
abated in the proportion which the part of the Premises so made unusable bears
to the rented area of the Premises immediately prior to the taking. No temporary
taking of the Premises and/or of Tenant's rights therein or under this Lease
shall terminate this Lease or give Tenant any right to any abatement of rent
thereunder; any award made to Tenant by reason of any such temporary taking
shall belong entirely to Tenant and Landlord shall not be entitled to share
therein.
15. ASSIGNMENT AND SUBLETTING.
15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest therein,
and shall not sublet the Premises or any part thereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease.
15.2 REASONABLE CONSENT. If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant shall
submit in writing to Landlord (a) the name and legal composition of the proposed
subtenant or assignee; (b) the nature of the business proposed to be carried on
in the Premises; (c) the terms and provisions of the proposed sublease; (d) such
reasonable financial information as Landlord may request concerning the proposed
subtenant or assignee.
15.3 NO RELEASE OF TENANT. No consent by Landlord to any assignment or
subletting by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance of
rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
15.4 ATTORNEY'S FEES. In the event Landlord shall consent to a sublease or
assignment under this Section 15, Tenant shall pay Landlord's reasonable
attorney's fees not to exceed $1,000.00 incurred in connection with giving such
consent.
16. SUBORDINATION.
16.1 SUBORDINATION. This Lease at Landlord's option shall be subject and
subordinate to all ground or underlying leases which now exist or may hereafter
be executed affecting the Premises or the land upon which the Premises are
situated or both, and to the lien of any mortgages or deeds of trust in any
amount of amounts whatsoever now or hereafter placed on or against the land or
improvements or either thereof, of which the Premises are a part, or on or
against Landlord's interest or estate therein, or on or against any ground or
underlying lease without the necessity of the execution and delivery
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of any further instruments on the part of Tenant to effectuate such
subordination. If any mortgagee, trustee or ground lessor shall elect to have
this Lease prior to the lien on its mortgage, deed of trust or ground lease, and
shall give written notice thereof to Tenant, this Lease shall be deemed prior to
such mortgage, deed of trust or ground lease, whether this Lease is dated prior
or subsequent to the date of said mortgage, deed of trust or ground lease or the
date of the recording thereof.
16.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to execute and
deliver upon demand without charge therefore, such further instruments
evidencing such subordination of this Lease to such ground or underlying leases
and to the lien of any such mortgages or deeds of trust as any be required by
Landlord. Tenant hereby appoints Landlord as Tenant's attorney-in-fact,
irrevocably, to execute and deliver any such agreements, instruments, releases
or other documents.
16.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying rent and other monetary sums due under the Lease, performing its
covenants and conditions under the Lease and upon recognizing purchaser as
Landlord pursuant hereto, Tenant shall and may peaceably and quietly have, hold
and enjoy the Premises for the term, subject, however, to the terms of the Lease
and of any of the aforesaid ground leases, mortgages or deed of trust described
above.
16.4 ATTORNMENT. In the event any proceedings are brought for default under
ground or any underlying lease or in the event of foreclosure or the exercise of
the power of sale under any mortgage or deed of trust made by the Landlord
covering the Premises, the Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided said purchaser expressly agrees in writing to be bound by the
terms of the Lease.
17. DEFAULT; REMEDIES
17.1 DEFAULT. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or any other monetary sums
required to be paid hereunder (where such failure continues for five (5)
days after written notice by Landlord to Tenant);
(b) The abandonment or vacating of the Premises by Tenant;
(c) A failure by Tenant to observe and perform any other provision of
this Lease to be observed or performed by Tenant, where such failure
continues for twenty (20) days after written notice thereof by Landlord to
Tenant; provided, however, that if the nature of the default is such that
the same cannot reasonably be cured within said twenty (20) day period,
Tenant shall not be deemed to be in default if Tenant shall within such
period commence such cure and thereafter diligently prosecute the same to
completion;
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant
of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless,
in the case of a petition filed against Tenant, the same is dismissed
within sixty (60) days); the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets
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located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where seizure is not discharged within thirty (30) days.
17.2 REMEDIES. In the event of any such material default or breach by
Tenant, Landlord may, at any time thereafter without limiting Landlord in the
exercise of any right or remedy at law or in equity which Landlord may have by
reason of such default or breach:
(a) Maintain this Lease in full force and effect and recover the rent
and other monetary charges as they become due, without terminating Tenant's
right to possession irrespective of whether Tenant shall have abandoned the
Premises. In the event Landlord elects not to terminate the Lease, Landlord
shall have the right to attempt to re-let the Premises at such rent and
upon such conditions and for such a term, and to do all acts necessary to
maintain or preserve the Premises as Landlord deems reasonable and
necessary without being deemed to have elected to terminate the Lease,
including removal of all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. In the event any such re-
letting occurs, this Lease shall terminate automatically upon the new
Tenant taking possession of the Premises. Notwithstanding that Landlord
fails to elect to terminate the Lease initially, Landlord at any time
during the term of this Lease may elect to terminate this Lease by virtue
of such previous default of Tenant.
(b) Terminate Tenant's right to possession by any lawful means, in
which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord
by reason of Tenant's default, including without limitation thereto, the
following:
(i) the worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that is
proved could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that is proved could be
reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform his
obligations under this Lease or which in the ordinary course of events
would be likely to result therefrom; plus
(v) at Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by
applicable State law. Upon any such re-entry Landlord shall have the
right to make any reasonable repairs, alterations or modifications to
the Premises, which
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Landlord in its sole discretion deems reasonable and necessary. As
used in (i) above the "worth at the time of award" is computed by
allowing interest at the rate of ten percent (10%) per annum from the
date of default. As used in (ii) and (iii) the "worth at the time of
award" is computed by discounting such amount by Ten Percent (10%).
The term "rent", as used in this Section 17, shall be deemed to be and
to mean the rent to be paid pursuant to Section 3 and all other
monetary sums required to be paid by Tenant pursuant to the terms of
this Lease.
17.3 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
ten percent (10%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
17.4 DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required to Landlord within a reasonable
time, but in no event later than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premise whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty-day
period and thereafter diligently prosecutes the same to completion.
18. RELOCATION OF PREMISES
18.1 CONDITIONS. For the purpose of maintaining an economical and proper
distribution of Tenants throughout the Building acceptable to Landlord, Landlord
shall have the time to time during the term of this Lease to relocate the
Premises in the Build following terms and conditions:
(a) The rented and usable areas of the new location in the Building
are of equal size to the existing location (subject to a variation of up to
ten percent (10%) provided the amount of rent payable under this Lease is
not increased;
(b) If the then prevailing rental rate for the new location is less
than the amount being paid for the existing location, the rent shall be
reduced to equal the then prevailing rent for the new location;
(c) Landlord shall pay the cost of providing tenant improvements in
the new location comparable to the tenant improvements in the existing
location;
(d) Landlord shall pay the expenses reasonably incurred by Tenant in
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connection with such substitution of Premises, including but not limited to
costs of moving, door lettering, telephone relocation and reasonable
quantities of new stationary;
18.2 NOTICE. Landlord shall deliver to Tenant written notice of Landlord's
election to relocate the Premises, specifying the new location and the amount of
rent payable therefore at least thirty (30) days prior to the date the
relocation is to be effective. If the relocation of the is not Premises is not
acceptable to Tenant, Tenant for a period of ten (10) days after receipt of is
notice to relocate shall have the right (by delivering written notice to
Landlord) terminate this Lease effective thirty (30) days after delivery of
written notice to Landlord.
19. This item omitted.
20. MISCELLANEOUS.
20.1 ESTOPPEL CERTIFICATE.
(a) Tenant shall at any time upon not less than ten (10) days prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing
(i) certifying that this Lease is unmodified and in full force
and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and
effect) and the date to which the rent and other charges are paid in
advance, if any, and
(ii) acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder, or specifying such
defaults if any are claimed. Any such statement may be conclusively
relied upon by any prospective purchase or encumbrancer of the
Premises.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant
(i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord,
(ii) that there are no uncured defaults in Landlord's
performance, and
(iii) that not more than one month's rent has been paid in
advance.
(c) If Landlord desires to finance or refinance the Building, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of Tenant as may be reasonably required
by such lender. Such statements shall include the past three years
financial statements of Tenant. All such financial statements shall be
received by Landlord in confidence and shall be used only for the purposes
herein set forth. Nor to delivering such financial statement to the Lender,
the Landlord shall obtain the agreement of the Lender to keep such
financial statements confidential and not to use such financial statements
other than to evaluate the credit of Tenant for the purpose of financing or
refinancing the Building.
20.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale of conveyance
by Landlord of Landlord's interest in the Premises or the Building other than a
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transfer for security purposes only, Landlord shall be relieved from and after
the date specified in any such notice of transfer of all obligations and
liabilities occurring thereafter on the part of Landlord, provided that any
funds in the hands of Landlord at the time of transfer in which Tenant has an
interest, shall be delivered to the successor of Landlord. This Lease shall not
be affected by any such sale and Tenant agrees to attorn to the purchaser of
assignee provided all Landlord's obligations hereunder are assumed in writing by
the transferee.
20.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS.
(a) The captions of the paragraphs of this Lease are for convenience
only and shall not be deemed to be relevant in resolving any question of
interpretation or construction of any section of this Lease.
(b) Exhibits attached hereto, and addendum and schedules initialed by
the parties, are deemed by attachment to constitute part of this Lease and
are incorporated herein.
(c) The words "Landlord" and "Tenant", as used herein, shall include
the plural as well as the singular. Words used in neuter gender include the
masculine and feminine and words in the masculine or feminine gender
include the neuter. If there be more than one Landlord or Tenant, the
obligations hereunder imposed upon Landlord or Tenant shall be joint and
several; as to a Tenant which consists of husband and wife, the obligations
shall extend individually to their sole and separate property as well as
community property. The term "Landlord" shall mean only the owner or owners
at the time in question of the fee title or a tenant's interest in a ground
Lease of the land underlying the Building, The obligations contained in
this Lease to be performed by Landlord shall be binding on Landlord's
successor's and assigns only during their respective periods of ownership.
20.4 ENTIRE AGREEMENT. This instrument along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the premises and this Agreement and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all-prior or
contemporaneous oral agreements between and amount themselves and their agents
or representatives relative to the leasing of the Premises are merged in or
revoked by this Agreement.
20.5 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
20.6 COSTS OF SUIT.
(a) If Tenant or Landlord shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of rent or possession of
the Premises, the losing party shall pay the successful party a reasonable
sum for attorneys' fees which shall be deemed to have accrued on the
commencement of such action and shall be paid whether or not such action is
prosecuted to judgment.
(b) Should Landlord, without fault on Landlord's part, be made a party
to any litigation instituted by Tenant or by any third party against
Tenant, or by or
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against any person holding under or using the Premises by license of
Tenant, or for the foreclosure of any lien for labor or material furnished
to or for Tenant or any such other person or otherwise arising out of or
resulting from any act or transaction of Tenant or of any such other
person, Tenant covenants to save and hold Landlord harmless from any
judgment rendered against Landlord or the Premises or any part such
thereof, and all costs and expenses, including reasonable attorneys' fees,
incurred by Landlord in or in connection with such litigation.
(c) If Tenant or Landlord or their successors or assigns shall bring
an action against Broker or make Broker a party to litigation arising out
of this Lease, Broker shall be entitled to recover reasonable attorney's
fees and court costs from either Landlord or Tenant if Broker is adjudged
by court of competent jurisdiction to be without fault in such matter.
20.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and nonexclusive of any other remedy at law or in
equity.
20.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all
provisions hereof are to be construed as both covenants and conditions as though
the words importing such covenants and conditions were used in each separate
paragraph hereof. Subject to any provisions hereof restricting assignment or
subletting by Tenant and subject to Section 20.2, all of the provisions hereof
shall bind and insure to the benefit of the parties hereto and their respective
heirs, legal representative, successors and assigns. This Lease shall be
governed by the laws of the State of California.
20.9 WAIVER. No covenant, term or condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any preceding or succeeding breach of the same
or any other covenant, term or condition. Acceptance by Landlord of any
performance by Tenant after the time the same shall have become due shall not
constitute a waiver by Landlord of the breach of any covenant, term or condition
unless otherwise expressly agreed to by Landlord in writing.
20.10 SURRENDER OF PREMISES. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of the Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to it
of any or all such subleases or subtenancies.
20.11 HOLDING OVER. If Tenant remains in possession of all or any part of
the Premises after the expiration of the term hereof, with or without the
express or implied consent of Landlord, such tenancy shall be from month to
month only, and not a renewal hereof or an extension for any further term, and
in such case, rent and other monetary sums due hereunder shall be payable in the
amount and at the time specified in this Lease and such month to month tenancy
shall be subject to every other term, covenant and
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agreement contained herein. The rent during the holdover period shall be
$3000.00 per month.
20.12 SIGNS
(a) Tenant shall not place or permit to placed in or upon the
Premises, where visible from outside the Premises, or outside the Premises
or any part of the Building any signs, notices, drapes, shutters, blinds or
displays or any type without the prior written consent of Landlord.
(b) Landlord reserves the right in Landlord's sole discretion to place
and locate on the roof, exterior of the Building, and in any area of the
Building not leased to Tenant such signs, notices, displays and similar
items as Landlord deems appropriate in the proper operation of the
Building,
20.13 REASONABLE CONSENT. Except as limited elsewhere in this Lease,
wherever in this Lease Landlord or Tenant is required to give its consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld. In the event of failure to give any such consent,
the other party shall be entitled to specific performance at law and shall have
such other remedies as are reserved to it under this Lease, but in no event
shall Landlord or Tenant be responsible in monetary damages for failure to give
consent unless said consent is withheld maliciously or in bad faith.
20.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly provided, any
amount due to Landlord not paid when due shall bear interest at ten percent
(10%) per annum from the due date. Payment of such interest shall not excuse or
cure any default by Tenant under this Lease.
20.15 RULES AND REGULATIONS; PARKING.
(a) Tenant and Tenant's agents, servants, employees, visitors and
licensees shall observe and comply fully and faithfully with all reasonable
and non-discriminatory rules and regulations adopted by Landlord for the
care, protection, cleanliness and operation of the Building and its Tenants
including those annexed to this Lease as Exhibit C and any modification or
addition thereto adopted by Landlord, provided Landlord shall give written
notice thereof to Tenant. Landlord shall not be responsible to Tenant for
the non-performance by any other tenant or occupant of the Building of any
of said rules and regulations.
20.16 NOTICES. All Notices or Demands of any kind required or desired to be
given by Landlord or Tenant hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in the
United States mail, certified or registered, postage prepaid addressed to the
Landlord or Tenant respectively at the address set forth after their signatures
at the end of this Lease.
20.17 CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation Tenant shall, within thirty (30) days
after execution of this Lease, deliver to Landlord a certified copy of a
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resolution, of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
21. Landlord and Tenant hereby agree that Landlord upon receipt of a fully
executed Lease shall deliver a thirty day notice to vacate premises to each of
the three tenants (Willis Naphan, Harjeet Ghuman, and George Beckley) who now
(as of 7/12/99), occupy the suites comprising the premises. Landlord and tenant
shall mutually agree upon a reasonable term commencement date subject to the
above mentioned tenants vacating the premises.
In Witness Whereof, Landlord and Tenant have executed this Lease the date and
year as first referenced above.
Landlord: Tenant:
KBK Properties, Inc. TriNet Employer Group, Inc.
Lycette Properties, Inc. A California Corporation
By: /s/ ROBERT LYCETTE By: /s/ DOUGLAS P. DEVLIN 7/22/99
--------------------------- ------------------------------
Mr. Robert Lycette Date Mr. Douglas Devlin Date
Address: Address:
1600 El Camino Real, Suite D 101 Callan Avenue, 2nd Floor
Belmont, CA 94002 San Leandro, CA 94577
Office Lease Page 20 of 20
<PAGE>
EXHIBIT "A"
OMITTED
Exhibit A
<PAGE>
EXHIBIT "B"
OMITTED
Exhibit B
<PAGE>
EXHIBIT "C"
Landlord shall furnish to the Tenant, during the term of the leasehold granted
by this Agreement, at the Landlord's sole cost, the following services and
supplies:
A: Restrooms supplies, including soap, towels, seatcovers and toilet tissues.
B: Hot and cold water in restrooms.
C: Janitorial service, in accordance with following schedule:
5-day a week basis excluding Saturdays, Sundays and public holidays
Daily: Dust all furniture, counters, cabinets and window sills; sweep all
floors; empty all wastebaskets; dispose of all rubbish; clean and maintain in
sanitary condition all restrooms and plumbing fixtures; sweep sidewalks,
stairways and halls; replace light bulbs, tubes, ballasts and starters.
Weekly: Mop all floors and dust all venetian blinds. Vacuum carpets.
Bi-weekly: Clean all glass surfaces including glass walls and glass table
tops.
Semiannually: Wash all windows.
Exhibit C
<PAGE>
EXHIBIT 10.5
OFFICE BUILDING LEASE
This lease is made and entered into this 9th Day of July 1999, by and between
Incline Capital Group, LLC A Nevada Corporation (hereinafter "Landlord") and
TriNet Employer Group, Inc., A California Corporation (hereinafter "Tenant").
For and in consideration of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Tenant, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord, the Premises herein
described for the term, at the stated rent and subject to and upon all of the
terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 Description. Landlord hereby leases to Tenant and Tenant hereby rents from
Landlord those certain Premises (hereinafter "Premises") attached as part of
Exhibit A containing approximately 6,364+ square feet of Rentable Area, on the
-
2nd floor of that certain office building (hereinafter "Building") located in
the City of Reno, County of Washoe, Nevada, commonly known as, Park Center West,
and more particularly described as 9805 Double R Blvd., Suite 200, Reno, NV
89511.
1.2 Work of Improvement. The obligation of Landlord and Tenant to perform the
work and supply the necessary materials and labor to prepare the Premises for
occupancy are set forth in detail in Exhibit B. Landlord and Tenant shall
expend all funds and do all acts required of them in Exhibit B and shall have
the work performed promptly and diligently in a first class workmanlike manner
for the amount not to exceed $25.00 per rentable square foot of Tenant's leased
office space. Any amount exceeding $25.00 per square foot shall be paid by
Tenant at completion of work. Landlord, Tenant and Broker (CB Richard Ellis,
Inc.) shall split 1/3rd each of the cost of the HVAC VAV Box installation which
is $15,598.00 in total cost and the VAV cost split three ways shall be $5,199.34
each.
2. TERM
2.1 Term. The Term of this Lease shall be for five (5) years commencing on
October 1, 1999 and ending on September 30, 2004 unless sooner terminated
pursuant to this Lease.
2.2 Delay in Commencement. Tenant agrees that in the event of the inability of
Landlord for any reason, except reasons caused by Tenant's delay or change
orders, to deliver possession of the Premises to Tenant on the commencement date
set forth in Section 2.1, including failure for any reason to complete the work
referred to in Exhibit B, Landlord shall not be liable for any damage thereby
nor shall such inability affect the validity of this Lease or the obligations of
Tenant hereunder, but in such case Tenant shall not be obligated to pay rent or
other monetary sums until possession of the Premises is tendered to Tenant;
provided that if the delay in delivery of possession exceeds sixty (60) days,
then the expiration date of the term of the Lease shall be extended by the
period of time computed from the scheduled commencement date to the date
possession is tendered. Prior to October 1, 1999, tenant agrees to pay pro-rated
rent in the event Premises is available for occupancy.
2.3 Acknowledgement of Commencement Date. In the event the Commencement Date
of the term of the Lease is other than as provided in Section 2.1, then
Landlord and Tenant shall execute a written acknowledgement of the date of
commencement and shall attach it to the Lease as Exhibit D.
3. RENT
Tenant shall pay to Landlord as Rent for the Premises in advance on the first
day of each calendar month for the first year without deduction, offset, prior
notice or demand, in lawful money of the United States, the sum of $1.65 per
square foot of Rentable Area, modified gross full service, with Tenant being
responsible to pay all janitorial expenses within the Tenant's Premises. If the
commencement date is not the first day of a month, or if the Lease
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termination date is not the last day of a month, a prorated monthly installment
shall be paid at the then current rate for the fractional month during which the
lease commences and/or terminates.
4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit with
Landlord the sum of $1.65 per square foot of Rentable Area as Security Deposit.
Tenant agrees to deposit with Landlord the Security Deposit set forth in this
Section upon execution of this Lease, as security for Tenant's faithful
performance of its obligations under this Lease. Landlord and Tenant agree that
the Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have as reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 17 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
5. TAX AND BUILDING OPERATING COSTS INCREASES.
5.1 Definitions. For purposes of this Section, the following terms are
hereinafter defined:
(a) Base Year: the calendar year from January 1, 2000 through December 31,
2000.
(b) Building Operating Costs: All reasonable costs and expenses of
ownership, operation and maintenance of the Building (excluding depreciation on
the Building, all amounts paid an loans of Landlord and expenses capitalized for
federal income tax purposes) including by way of illustration but not limited
to: real and personal property taxes and assessments and any tax in addition to
or in lieu thereof, other than taxes covered by Section 5.4 whether assessed
against Landlord or Tenant or collected by Landlord or both; utilities;
supplies; insurance; license, permit and inspection fees; cost of services of
independent contractors (including property management fees); cost of
compensation (including employment taxes and fringe benefits) of all person who
perform regular and recurring duties connected with day-to-day operation,
maintenance and repair of the Building, its equipment and the adjacent walks,
malls and landscaped area, including janitorial, scavenger, gardening, security,
engineer, elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, signing and advertising (but
excluding persons performing services not uniformly available to or performed
for substantially all Building tenants), and rental expense or a reasonable
allowance for depreciation of personal property used in the maintenance,
operation and repair of the Building. Building Operating Costs do not include
capital costs, leasing commissions, or other tenants' improvement costs, or
costs and expenses not shared pro rata by all other tenants.
(c) Net Rentable Area: the rentable area computed by measuring to the
inside finish of permanent outer building walls, to the Premises side of public
corridors and/or other permanent partitions and to the center of partitions
which separate the adjoining rentable areas with no deductions for columns and
projections necessary to the Building structure. On multi-tenant floors, common
corridors and toilets, air conditioning rooms, fan rooms, janitorial closets,
electrical and telephone closets and any other areas within and exclusively
serving that floor are considered common areas and for purposes of this Section
shall be allocated pro rata to the tenants on the floor.
5.2 Tenant's Share. In the event the Building Operating Costs incurred by
Landlord during any calendar year following the Base Year shall exceed Building
Operating Costs incurred by Landlord during the Base Year, Tenant shall pay to
Landlord an amount equal to Tenants rentable area divided by total rentable area
of building of such
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<PAGE>
increases, which share is computed on the basis of the ratio between Net
Rentable Area in the Premises and Net Rentable Area in the Building.
5.3 Payment. Within ninety (90) days after the end of each calendar year
following the Base Year, Landlord shall furnish Tenant a written statement
showing in reasonable detail Landlord's Building Operating Costs for the
preceding calendar year and the Base Year, and showing the amount, if any, of
any increase or decrease in the sums due from Tenant taking into account prior
increases paid by Tenant (if any).
Coincidentally with the monthly rent payment next due following Tenant's receipt
of such statement, Tenant shall pay to Landlord (in the case of an increase), or
Landlord shall credit against the next rent due from Tenant (in the case of a
decrease), an amount equal to the sum of (1) the difference between Building
Operating costs for the preceding calendar year and the Base Year less increases
paid by Tenant (if any); and (2) one-twelfth (1/12th) said increases for the
current calendar year multiplied by the number of rent payments (including the
current one) then elapsed in such calendar year. Thereafter the one twelfth
(1/12th) shall be paid monthly with the rent until the adjustment the following
year pursuant hereto. In no event shall the adjustment entitle Tenant to receive
the benefit of a reduction in Building Operating Costs below the level of the
initial Base Year during the term hereof.
5.4 New Taxes. In addition to rent and other charges to be paid by Tenant
hereunder, Tenant shall reimburse to Landlord within thirty (30) days of receipt
of a demand herefore, any and all taxes payable by Landlord (other than net
income taxes) whether or not now customary or within contemplation of the
parties hereto; (a) upon, allocable to or measure by the area of the Premises or
on the rent payable hereunder, including without limitation any gross income tax
or excise tax levied by this State, any political subdivision thereof, City or
Federal Government with respect to the receipt of such rent; or (b) upon or with
respect to the possession, leasing, operation, management maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or any portion
thereof; or (c) upon or measured by the value of Tenant's personal property,
equipment or fixtures located in the Premises; or (d) upon this transaction or
any document to which Tenant is a party creating or transferring interest or an
estate in the Premises. Tenant agrees to pay, before delinquency, any and all
taxes levied or assessed and which become payable during the term hereof, upon
Tenant's equipment, furniture, fixtures and other personal property located in
the Premises. For the purpose of determining said amount, figures supplied by
County Assessor as to the amount so assessed shall be conclusive. Tenant shall
comply with provisions of any law, ordinance or rule of the taxing authorities
which require Tenant to file a report of Tenant's property located in the
Premises.
6. USE
6.1 Use. The Premises shall be used and occupied by Tenant for general office
purposes and for no other purpose without the prior written consent of Landlord.
6.2 Suitability. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the premises or
the Building or with respect to the suitability of either for the conduct of
Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises except as provided in this Lease. The
taking of possession of the Premises by Tenant shall conclusively establish that
the Premises and the Building were at such time in satisfactory condition unless
within fifteen (15) days after such date Tenant shall give Landlord written
notice specifying in reasonable detail the respects in which the Premises or the
Building were not in satisfactory condition.
6.3 Uses Prohibited
(a) Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate or affect any fire or other insurance upon the Building or any of
its contents (unless Tenant shall pay any increased premium as a result of such
use or acts), or cause a cancellation of any insurance policy covering said
Building or any part thereof or any of its contents, nor shall Tenant sell or
permit to be kept, used or sold in or about said Premises any articles which may
be prohibited by standard form policy of fire insurance.
(b) Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them or use or
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allow the premises to be used, for any unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
(c) Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance or government rule or regulation or requirement of duly constituted
public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now in force or which may hereafter be in force and with the requirements of any
board of fire underwriters or similar body now, or hereafter, constituted
relating to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not relating to or affecting the condition, use or
occupancy of the Premises, or not related or afforded by Tenant's improvements
or acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against the Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of the fact as between the
Landlord and Tenant.
7. SERVICE AND UTILITIES
7.1 Landlord's Obligations. Landlord agrees to furnish to the Premises during
reasonable hours of generally recognized business days, and subject to the Rules
and Regulations of the Building, water, gas and electricity suitable for the
intended use of the Premises, heat and air conditioning required to be mutually
acceptable to both the judgment of Landlord and Tenant for the comfortable use
and occupancy of the Premises, scavenger, janitorial and window washing service
and elevator service, and security customary in similar buildings in the
competing geographical areas. Landlord shall also maintain and keep lighted the
common stairs, entries and toilet rooms in the Building.
7.2 Tenant's Obligation. Tenant shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
paid by Landlord, which may be furnished to or used in, on or about the premises
during the term of this Lease.
7.3 Tenant's Additional Requirements.
(a) Tenant will not, without the written consent of Landlord use any
apparatus or device in the Premises, including but without limitation thereto,
electronic data processing machines, punch card machines and machines using
current in excess of 220 volts, which will in any way increase the amount of
electricity or water usually furnished or supplied for use of the Premises as
general office space; nor connect with electric current, except through existing
electrical outlets in the Premises, or water pipes, any apparatus or device for
the purpose of using electric current or water. Tenant may at Tenant's sole
expense, have space separately metered for electricity during construction of
Tenant improvements. Tenant shall install, at Tenant's sole expense, a backup
generator, enclosure and pad outside of building at a place to be mutually
agreed upon by Landlord and Tenant. The generator shall be deemed the property
of the Tenant and not permanently attached to Premises. Tenant will remove
generator upon termination of this lease and will leave enclosure, pad and
underground cabling in place. Tenant shall be responsible for the maintenance
and repair of any such generator at its sole cost.
(b) If Tenant shall require water or electric current in excess of that
usually furnished or supplied for use of the Premises as general office space,
Tenant shall first procure the consent of Landlord for the use thereof, which
consent Landlord may refuse and Landlord may cause a water meter or electric
current meter to be installed in the Premises, so as to measure the amount of
water and electric current consumed for any such other use. The cost of such
meters and of installation, maintenance and repair thereof shall be paid for by
Tenant and Tenant agrees to pay Landlord promptly upon demand by Landlord for
all such water and electric current consumed as shown by said meters, at the
rates charged for such service by the City in which the Building is located or
the local public utility, as the case may be, furnishing the same, plus any
additional expense incurred in keeping account of the water and electric current
so consumed.
(c) Wherever heat generating machines or equipment are used in the Premises
which affect the temperature otherwise maintained by the air conditioning
system, Landlord reserves the right to install supplementary air conditioning
units in the Premises and the cost thereof, including the cost of installation,
operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand of Landlord.
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7.4 Non-Liability. Landlord shall not be liable for, and Tenant shall not be
entitled to, any abatement or reduction of rent by reason of Landlord's failure
to furnish any of the foregoing when such failure is caused by accidents,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for loss of, or injury to, property, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing
except when caused by the Landlord's negligence or breach of this Lease
Agreement. If an interruption of utilities are caused by Landlord's negligence
and the Premises cannot be used substantially for the purposes leased for a
period of ten (10) consecutive days, the Tenant shall have the right to
terminate this Lease Agreement by written notice to Landlord delivered within
ten (10) days after the expiration of such ten (10) day period.
8. MAINTENANCE AND REPAIRS, ALTERATIONS AND ADDITIONS
8.1 Maintenance and Repairs
(a) Landlord's Obligations. Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not the
obligation of Tenant or any other tenant in the Building and all common areas.
Landlord will give reasonable notice, will coordinate with Tenant, and will use
reasonable means to avoid interference with Tenant's use of the Premises in
connection with repairs. If Landlord's failure to maintain or repair the
building causes, or is reasonably likely to cause, material damage to Tenant's
business, Tenant shall have the right, in addition to any other rights Tenant
may have under law or this Agreement, either (1) to terminate this Lease
Agreement upon ten (10) days written notice to the Landlord; or (2) to repair
the Premises and charge the Landlord to the extent necessary to eliminate such
material damage to Tenant's business.
(b) Tenant's Obligations.
(I) Tenant at Tenant's sole cost and expense, except for services
furnished by Landlord pursuant to Section 7 hereof, shall maintain the Premises
in good order, condition and repair including the interior surfaces of the
ceilings, walls and floors, all doors, interior windows, exterior windows at or
below street level, all plumbing pipes, electrical wiring, switches, fixtures
and special items in excess of building standard finish's and equipment
installed by or at the expense of Tenant. Tenant expressly waives the benefits
of any statute now or hereafter in effect which would otherwise afford Tenant
the right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition and
repair.
(II) Upon the expiration of earlier termination of this Lease, Tenant
shall surrender the Premises in the same condition as received, ordinary wear
and tear and damage by fire, earthquake, act of God or the elements alone
excepted, and shall promptly remove or cause to be removed at Tenant's expense
from the Premises and the Building any signs, notices and displays placed by
Tenant.
(III) Tenant agrees to repair any damage to the Premises or the
Building caused by or in connection with the removal of any articles of personal
property, business or trade fixtures, machinery, equipment, cabinetwork,
furniture, movable partition or permanent improvements or additions, including
without limitations thereto, repairing the floor and patching and painting the
walls where required by Landlord's reasonable satisfaction, all at Tenant's sole
cost and expense. Tenant shall indemnify the Landlord against any loss or
liability resulting from delay by Tenant in so surrendering the Premises,
including without limitation any claims made by any succeeding tenant founded on
such delay.
(IV) In the event Tenant fails to maintain the Premises in good
order, condition and repair, Landlord shall give Tenant notice to do such acts
as are reasonably required to so maintain the Premises. In the event Tenant
fails to promptly commence such work and diligently prosecute it to such work,
any amount so expended by Landlord shall be paid by Tenant promptly after demand
with interest at ten percent (10%) per annum from the date of such work.
(c) Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, regulations and rules
of any public authority relating to their respective maintenance obligations as
set forth herein.
8.2 Alterations and Additions
(a) Tenant shall make no alterations, additions or improvements to the
Premises or any part thereof without obtaining prior written consent of
Landlord.
(b) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion, including
without limitation thereto, the manner in which the work is done, a right of
approval of the contractor by whom the work is to be performed, not to be
unreasonably withheld, the times during
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which it is to be accomplished, and the requirement that upon written request of
Landlord prior to the expiration or earlier termination of the Lease, Tenant
will remove any and all permanent improvements or additions to the Premises
installed at Tenant's expense and all movable partitions, counters, personal
property, equipment, fixtures and furniture.
(c) All such alterations, additions or improvements shall at the
expiration or earlier termination of the Lease shall become the property of
Landlord and remain upon and surrendered with the Premises, unless specified
pursuant to Section 8.2(b) above.
(d) All articles of personal property and all business and trade fixtures,
machinery and equipment, cabinetwork, furniture and movable partitions owned by
Tenant or installed by Tenant at its expense in the Premises shall be and remain
the property of Tenant and may be removed by tenant at any time during the Lease
term when Tenant is not in default hereunder.
9. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter the
Premises to inspect the same, to supply janitor service and any other service to
be provided by Landlord to Tenant hereunder, to submit said Premises to
prospective purchasers or tenants, to post notices of non-responsibility and
"for lease" signs, and to alter, improve or repair the premises and any portion
of the Building without abatement of rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of Tenant shall not be interfered with unreasonably. Tenant hereby waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults and safes, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the premises or any portion thereof.
10. LIENS
Tenant shall keep the Premises and any building of which the Premises are a part
free from liens arising out of work performed, materials furnished, or
obligations incurred by Tenant and shall indemnify, hold harmless and defend
Landlord from any liens and encumbrances arising out of any work performed or
materials furnished by or at the direction of Tenant. In the event that Tenant
shall not, within twenty (20) days following the imposition of any such lien,
cause such lien to be released or record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but no obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All such sums paid by Landlord and all expense incurred by it in
connection therewith including attorneys' fees and costs shall be payable to
Landlord by Tenant on demand with interest at the rate of ten percent (10%) per
annum. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanics' and materialmens' liens, and
Tenant shall give to Landlord at least ten (10) business days prior written
notice of the expected date of commencement of any work relating to alterations
or additions to the Premises.
11. INDEMNITY
11.1 Indemnity. Tenant shall indemnify and hold Landlord harmless form and
defend Landlord against any and all claims of liability for any injury or damage
to any person or property whatsoever; (1) occurring in, on or about the Premises
or any part thereof; and (2) occurring in, on or about any facilities
(including, without prejudice to the generality of the term "facilities",
elevators, stairways, passageways and parking areas), the use of which Tenant
may have in conjunction with other tenants of the Building, when such injury or
damage is caused in part or in whole by the act, neglect, fault or omission of
any duty with respect to the same by Tenant, its agents, contractors, employees
or invitees. Tenant shall further indemnify and hold Landlord harmless from and
against any and all
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claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any act of negligence of Tenant, or any of its agents, contractors, employees
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon. In case any action or proceeding be brought against Landlord by reason
of any such claim, Tenant, upon notice from Landlord, shall defend the same at
Tenant's expense by counsel reasonably satisfactory to Landlord, provided,
however, that Tenant, shall not be liable for damage or injury occasioned by the
negligence or intentional acts of Landlord and its designated agents or
employees unless covered by insurance Tenant is required to provide.
Tenant as a material part of the consideration to Landlord, hereby assumes all
risk of damage to property or injury to persons in, upon or about the Premises
from any cause and Tenant hereby waives all claims in respect thereof against
Landlord.
11.2 Exemption of Landlord from Liability. Landlord shall not be liable for
injury or damage which may be sustained by the person, goods, wares, merchandise
or property of Tenant, its employees, invitees or customers, or any other person
in or about the Premises caused by or resulting from fire, steam, electricity,
gas, water or rain, which may leak or flow from or into any part of the
Premises, or from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures of the same, whether the damage or injury results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, or from other sources, unless caused by the Landlord's
negligence or breach of this Agreement. Landlord shall not be liable for damages
arising from any act or neglect of any other tenant of the Building.
12. INSURANCE
12.1 Coverage. Tenant shall, at all times during the term of this Lease, and
at its own cost and expense procure and continue in force the following
insurance coverage:
(a) Bodily Injury and Property Damage Liability Insurance with a combined
single limit for bodily injury and property damage of not less than
$1,000,000.00.
(b) Fire and Extended Coverage Insurance, including vandalism and malicious
mischief coverage, in an amount equal to the full replacement value of all
fixtures, furniture and improvements installed by or at the expense of Tenant.
12.2 Insurance policies. The aforementioned minimum limits of policies shall
in no event limit the liability of Tenant hereunder. The aforesaid insurance
shall name Landlord as an additional insured. Said insurance shall be with
companies having a rating of not less than AAA in "Best's Insurance Guide".
Tenant shall furnish from the insurance companies or cause the insurance
companies to furnish certificates of coverage. No such policy shall be
cancelable or subject to reduction of coverage or other modifications or
cancellations except after thirty (30) days prior written notice to Landlord by
the insurer. All such policies shall be written as primary policies, not
contributing with and not in excess of the coverage which Landlord may carry.
Tenant shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the premiums together with a twenty-five percent (25%) handling charge, payable
upon demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant provided such blanket policies
expressly afford coverage to the Premises and to Tenant as required by this
Lease.
12.3 Waiver of Subrogation. Landlord and Tenant each hereby waive any and all
rights of recovery against the other or against the officers, employees, agents
and representatives of the other, on account of loss or damage occasioned to
such waiving party or its property or the property of other under its control to
the extent that such loss or damage is insured against under any fire and
extended coverage insurance policy which either may have in force at the time of
such loss or damage. Tenant shall upon obtaining the policies of insurance
required under this Lease, give notice to the insurance carrier or carriers that
the foregoing mutual waiver of subrogation is contained in this Lease.
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12.4 Landlord warrants that Landlord will maintain adequate insurance to cover
any loss or damage to the Building.
13. DAMAGE OR DESTRUCTION
13.1 Partial Damage - Insured. In the event the Premises or the Building are
damaged by any casualty which is covered under fire and extended coverage
insurance carried by Landlord, then Landlord shall restore such damage provided
insurance proceeds are available to pay eighty percent (80%) or more of the cost
of restoration and provided such restoration can be completed within sixty (60)
days after the commencement of the work in the opinion of a registered architect
or engineer appointed by Landlord. In such event this Lease shall continue in
full force and effect, except that Tenant shall be entitled to proportionate
reduction of rent while such restoration takes place, such proportionate
reduction to be based upon the extent to which the restoration efforts interfere
said damage interfered with Tenant's business in the Premises.
13.2 Partial Damage - Uninsured. In the event the Premises or the Building are
damaged by a risk not covered Landlord's insurance or the proceeds of available
insurance are less than eighty percent (80%) of the cost of restoration, or if
the restoration cannot be completed within sixty (60) days after the
commencement of work in the opinion of the registered architect or engineer
appointed by Landlord, then Landlord shall have the option either to; (1) repair
or restore such damage, this Lease continuing in full force and effect, but the
rent to be proportionately abated as hereinabove provided; or (2) give notice to
Tenant at any time within thirty (30) days after such damage terminating this
Lease as of a date to be specified in such notice, which date shall not be less
than thirty (30) nor more than sixty (60) days after giving such notice. In the
event of the giving of such notice, this Lease shall expire and all interest of
Tenant in the Premises shall terminate on such date so specified in such notice
and the rent, reduced by any proportionate reduction based upon the extent if
any, to which said damage interfered with the use and occupancy of Tenant, shall
be paid to the date of such termination; Landlord agrees to refund to the Tenant
any rent theretofore paid in advance for any period of time subsequent to such
date.
13.3 Total Destruction. In the event the Premises are totally destroyed or the
Premises cannot be restored as required herein under applicable laws and
regulations, notwithstanding the availability of insurance proceeds, this Lease
shall be terminated effective the date of the damage.
13.4 Damage Near End of Term. Notwithstanding anything to the contrary
contained in this Section 13, Landlord shall not have any obligation whatsoever
to repair, reconstruct or restore the Premises when the damage resulting from
any casualty covered under this Section 13 occurs during the last twelve (12)
months of the term of this Lease or any extension thereof, provided that the
Lease shall terminate as of the date of the damage if the reconstruction process
has not begun within sixty (60) days.
13.5 Landlord's Obligations. The Landlord shall not be required to repair any
injury or damage by fire or other cause, or to make any restoration or
replacement of any panelings, decorations, partitions, railings, floor covering,
office fixtures or any other improvements or property installed in the Premises
by Tenant or at the direct or indirect expense of Tenant. Tenant shall be
required to restore or replace same in the event of damage. Except for abatement
of rent, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of any such damage, destruction, repair, or restoration; nor
shall Tenant have the right to terminate this Lease as a result of any statutory
provision now or hereafter in effect pertaining to the damage and destruction of
the Premises or the Building, except as expressly provided herein, unless caused
by Landlord's negligence or breach of this Agreement. Landlord will give
reasonable notice, will coordinate with Tenant, and will use reasonable means to
avoid interference with Tenant's use of the Premises in connection with repairs.
13.6 If the reconstruction process for damages referred to in Section 13.1 and
13.2 has not begun within sixty (60) days after the date of the damage, Tenant
shall have the right either; (1) to terminate this Lease Agreement upon ten (10)
days written notice to the Landlord delivered within ten (10) days after the
expiration of such sixty (60) day period; or (2) to repair the Premises and
charge the Landlord.
14. CONDEMNATION
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If all or any part of the Premises shall be taken or appropriated for public or
quasi-public use by right of eminent domain with or without litigation or
transferred by agreement in connection with such public or quasi-public use,
either party hereto shall have the right at its option exercisable within thirty
(30) days of receipt of notice of such taking to terminate this Lease as of the
date possession is taken by the condemning authority, provided, however, that
before Tenant may terminate this Lease by reason of taking or appropriation as
provided hereinabove, such taking or appropriation shall be of such an extent
and nature as to substantially handicap, impede or repair Tenant's use of the
Premises. If any part of the Building other than the Premises shall be so taken
or appropriated, Landlord shall have the right, at its option, to terminate this
Lease. No award for any partial or entire taking shall be apportioned, and
Tenant hereby assigns to Landlord any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same, or any part thereof; provided, however, that nothing
contained herein shall be deemed to give Landlord any interest in or to require
Tenant to assign to Landlord any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant and/or for the interruption of or
damage to Tenant's business and/or for Tenant's unamortized cost of leasehold
improvements. In the event of a partial taking which does not result in a
termination of this Lease, rent shall be abated in the proportion which the part
of the Premises so made unusable bears to the rented area of the Premises
immediately prior to the taking. No temporary taking of the Premises and/or of
Tenant's rights therein or under this Lease shall terminate this Lease or give
Tenant any right to any abatement of rent thereunder; any award made to Tenant
by reason of any such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share therein.
15. ASSIGNMENT AND SUBLETTING
15.1 Landlord's Consent Required. Tenant shall not assign, transfer, mortgage,
pledge, hypothecate or encumber this Lease or any interest therein and shall not
sublet the Premises or any part thereof, without the prior written consent of
Landlord and any attempt to do so without such consent being first had and
obtained shall be wholly void and shall constitute a breach of this Lease.
15.2 Reasonable Consent. If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant shall
submit in writing to Landlord; (a) the name and legal composition of the
proposed subtenant or assignee; (b) the nature of the business proposed to be
carried on in the Premises; (c) the terms and provisions of the proposed
sublease; (d) such reasonable financial information as Landlord may request
concerning the proposed subtenant or assignee.
15.3 No Release of Tenant. No consent by Landlord of any assignment or
subletting by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance of
rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
15.4 Attorneys' Fees. In the event Landlord shall not consent to a sublease or
assignment under this Section 15, Tenant shall pay Landlord's reasonable
attorneys' fees not to exceed One Thousand Dollars ($1,000.00) incurred in
connection with giving such consent.
16. SUBORDINATION
16.1 Subordination. This Lease at Landlord's option shall be subject and
subordinate to all ground or underlying leases which now exist or may hereafter
be executed affecting the Premises or the land upon which the Premises are
situated or both, and to the lien of any mortgages or deeds of trust in any
amount or amounts whatsoever now or hereafter placed on or against the land or
improvements either thereof, of which the Premises are a part, or on or against
Landlord's interest or estate therein, or on or against any ground or underlying
lease without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination. If any
mortgages, trustee or ground lessor shall elect to have this lease prior to the
lien of its mortgage, deed of trust or
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ground lease, and shall give written notice thereof to Tenant, this Lease shall
be deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease is dated prior or subsequent to the date of said mortgage, deed of trust,
or ground lease or the date of the recording thereof.
16.2 Subordination Agreements. Tenant covenants and agrees to execute and
deliver upon demand without charge therefore, such further instruments
evidencing such subordination of this Lease to such ground or underlying leases
and to the lien of any such mortgages or deeds of trust as may be required by
Landlord. Tenant hereby appoints Landlord as Tenant's attorney-in-fact,
irrevocably, to execute and deliver any such agreements, instruments, releases
or other documents.
16.3 Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
Tenant paying rent and other monetary sums due under the Lease, performing its
covenants and conditions under the Lease Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises for the term, subject, however, to the
terms of the lease and of any of the aforesaid ground leases, mortgages or deeds
of trust described above.
16.4 Attornment. In the event any proceedings are brought for default under
ground or any underlying lease or if the event of foreclosure or the exercise of
the power of sale under any mortgage or deed of trust made by the Landlord
covering the Premises, the Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided said purchaser expressly agrees in writing to be bound by the
terms of the Lease.
17. DEFAULT REMEDIES
17.1 Default. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or any other monetary sums
required to be paid hereunder (where such failure continues for five (5) days
after written notice by Landlord to Tenant);
(b) The abandonment or vacation of the Premises by Tenant;
(c) A failure by tenant to observe and perform any other provision of this
Lease to be observed or performed by Tenant, where such failure continuous for
twenty (20) days after written notice thereof by Landlord to Tenant; provided,
however that if the nature of the default is such that the same cannot be
reasonably cured within said twenty (20) day period, Tenant shall not be deemed
to be in default if Tenant shall within such period commence such cure and
thereafter diligently prosecute the same to completion;
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; the filing by or against Tenant of a petition to
have Tenant adjudged bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days); the appointment
of a trustee or receiver to take possession of substantially all of tenant's
assets located in the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
17.2 Remedies. In the event of any such material default or breach by Tenant,
Landlord may, at any time thereafter without limiting Landlord in the exercise
of any right or remedy at law or in equity which Landlord may have by reason of
such default breach;
(a) Maintain this Lease in full force and effect and recover the rent and
other monetary charges as they become due, without terminating Tenant's right to
possession irrespective of whether Tenant shall have abandoned the Premises. In
the event Landlord elects not to terminate the Lease, Landlord shall have the
right to attempt to relet the Premises at such rent and upon such conditions
and for such a term, and to do all acts necessary to maintain or preserve the
Premises as Landlord deems reasonable and necessary without being deemed to have
elected to terminate the Lease. Including removal of all persons and property
from the Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of the Tenant. In the event any
such re-letting occurs, this Lease shall terminate automatically upon the new
tenant taking possession of the Premises. Notwithstanding that Landlord fails to
elect to terminate the Lease initially, landlord at any time during the term of
this Lease may elect to terminate this Lease by virtue of such previous default
of Tenant.
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(b) Terminate Tenant's right to possession by any lawful means, in which
case this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event, Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including without limitation thereto, the following: (I) the
worth at the time of award of any unpaid rent which had been earned at the time
of such termination; plus (II) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that is proved could have
been reasonably avoided; plus (III) the worth at the time of award of the amount
by which the unpaid rent for the balance of the term at the time of award
exceeds the amount of such rental loss that is proved could be reasonably
avoided; plus (IV) any other amount necessary to compensate Landlord of all the
detriment proximately caused by Tenant's failure to perform his obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom; plus (V) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable State law. Upon any such re-entry Landlord shall have the right to
make any reasonable repairs, alterations or modification to the Premises, which
Landlord in its sole discretion deems reasonable and necessary. As used in (I)
above, the "worth at the time of award" is computed by discounting such amount
by ten percent (10%). The term "rent", used in this Section 17, shall be deemed
to be, and to mean, the rent to be paid pursuant to Section 3 and all other
monetary sums required to be paid by Tenant pursuant to the term of this Lease.
17.3 Late Charges. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges and late charges which may be imposed on Landlord by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be receive by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of
such overdue amount. The parties hereby agree that such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the rights and
remedies granted hereunder.
17.4 Default by Landlord. Landlord shall not be in default unless Landlord
fails to perform obligations required by Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
For the purpose of maintaining an economical and proper distribution of
Tenants throughout the Building acceptable to Landlord, Landlord shall have the
right from time to time during the term of the Lease to relocate the Premises in
the Building on the following terms and conditions;
(a) The rented usable areas of the new location in the Building are of
equal size to the existing location (subject to a variation of up to ten percent
(10%) provided the amount of rent payable under this Lease is not increased;
(b) If the then prevailing rental rate for the new location is less than
the amount being paid for the existing location, the rent shall be reduced to
equal the then prevailing rent for the new location;
(c) Landlord shall pay the cost of providing tenant improvements on the new
location comparable to the tenant improvements in the existing location;
(d) Landlord shall pay the expenses reasonably incurred by Tenant in
connection with such substitution of Premises, including but not limited to,
costs of moving, door lettering, telephone relocation and reasonable quantities
of new stationary.
Landlord shall deliver to Tenant written notice of Landlord's
election to relocate the Premises, specifying the new location and the amount of
rent payable therefore at least thirty (30) days prior to the date the
relocation is to be effective. If the relocation of the Premises is not
acceptable to Tenant, Tenant for a period of ten
11
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(10) days after receipt of Landlord's notice to relocate shall have the right
(by delivering written notice to Landlord) to terminate this Lease effective
thirty (30) days after delivery of written notice.
19. OMIT
20. MISCELLANEOUS
20.1 Estoppel Certificate
(a) Tenant shall at any time upon no less than ten (10) days prior written
notice from Landlord, execute, acknowledge and deliver to Landlord a statement
in writing; (I) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any; and (II)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults in any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant; (I) that this Lease is in full force and affect, without
modification except as may be represented by Landlord; (II) that there are no
uncured defaults in Landlord's performance; and (III) that not more than one
month's rent has been paid in advance.
(c) If Landlord desires to finance or refinance the Building, or any part
thereof, Tenant hereby agrees to deliver to any lender designated by Landlord
such financial statements of Tenant as may be reasonably required by such
lender. Such statements shall include the past three years' financial statements
of Tenant. All such financial statements shall be received by Landlord in
confidence and shall be used only for the purpose herein set forth. Prior to
delivering such financial statements to the Lender, the Landlord shall obtain
the agreement of the Lender to keep such financial statements confidential and
not to use such financial statements other than to evaluate the credit of Tenant
for the purpose of financing or refinancing the Building.
20.2 Transfer of Landlord's Interest. In the event of a sale or conveyance by
Landlord of Landlord's interest in the Premises or the Building other than a
transfer for security purposes only, Landlord shall be relieved from and after
the date specified in any such notice of transfer of all obligations and
liabilities accruing thereafter on the part of Landlord, provided that any funds
in the hands of Landlord at the time of transfer in which Tenant has an
interest, shall be delivered to the successor of Landlord, and provided further
that all Landlord's obligations hereunder are assumed in writing by the
transferee. This Lease shall not be affected by any such sale and Tenant agrees
to attorn to the purchaser or assignee provided all Landlord's obligations
hereunder are assumed in writing by the transferee.
20.3 Captions, Attachments, Defined Terms
(a) The captions of the paragraph of this Lease are for convenience only
and shall not be deemed to be the relevant in resolving any question of
interpretation or construction of any section of this Lease.
(b) Exhibits attached hereto, and addenda's and schedules initialed by the
parties, are deemed by attachment to constitute part of this Lease and are
incorporated herein.
(c) The words "Landlord" and "Tenant", as used herein, shall include the
plural as well as the singular. Words used in neuter gender include masculine
and feminine and words in the masculine or feminine gender include the neuter.
If there be more than one Landlord or Tenant, the obligations hereunder imposed
upon Landlord or Tenant shall be joint and several; as to a Tenant which
consists of husband and wife, the obligations shall extend individually to their
sole and separate property as well as community property. The term "Landlord"
shall mean only the owner or owners at the time in question of the fee title or
a tenant's interest in a ground lease of the land underlying the Building. The
obligations contained in this Lease to be performed by Landlord shall be binding
on Landlord's successors and assigns only during their respective periods of
ownership.
20.4 Entire Agreement. This instrument along with any exhibits and attachments
hereto constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this Agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord and
Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves and their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this
Agreement.
12
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20.5 Severability. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and each term provision of this Lease shall be valid and be
enforceable to the fullest extent permitted by law.
20.6 Costs of Suit
(a) If Tenant or Landlord shall bring any action for any relief against the
other, declaratory or otherwise, arising out of this Lease, including any suit
by Landlord for the recovery of rent or possession of the Premises, the losing
party shall pay the successful party a reasonable sum for attorneys' fees which
shall be deemed to have accrued on the commencement of such action and shall be
paid whether or not such action is prosecuted judgment.
(b) Should Landlord, without fault on Landlord's part, be made a party to
any litigation instituted by Tenant or by any third party against Tenant, or by
or against any person holding under or using the premises by license of Tenant,
or for the foreclosure of any lien for labor or material furnished to or for
Tenant or any such other person or otherwise arising out of or resulting from
any act or transaction of Tenant or of any such person, Tenant covenants to save
and hold Landlord harmless form any judgment rendered against Landlord or the
Premises or any part thereof, and all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in or in connection with such litigation.
(c) If Tenant or Landlord or their successors or assigns shall bring an
action against Broker or make Broker a party to litigation arising out of this
Lease, Broker shall be entitled to recover reasonable attorneys' fees and court
costs from the party bringing the action if Broker is adjudged by a court of
competent jurisdiction to be without fault in such matter.
20.7 Time, Joint and Several Liability. Time is of the essence of this Lease
and each and every provision hereof, except as to the conditions relating to the
delivery of possession of the Premises to Tenant. All the terms, covenants and
conditions contained in this Lease to be performed by either party, if such
party shall consist of more than one person or organization, shall be deemed to
be joint and several, and all rights and remedies of the parties shall be
cumulative and non-exclusive of any other remedy at law or in equity.
20.8 Binding Effect, Choice of Law. The parties hereto agree that all
provisions hereof are to be construed as both covenants and conditions as though
the words importing such covenants and conditions were used in each separate
paragraph hereof. Subject to any provisions hereof restricting assignment or
subletting by Tenant and subject to Section 20.2, all of the provisions hereof
shall bind and insure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. This Lease shall be
governed by the laws of the State of Nevada.
20.9 Waiver. No covenant, term or condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver or the breach of any covenant, term or condition.
Acceptance by Landlord of any performance by Tenant after the time the same
shall have become due shall not constitute a waiver by Landlord of the breach or
default of any covenant, term or condition unless otherwise expressly agreed to
by Landlord in writing.
20.10 Surrender of Premises. The voluntary or other surrender of this Lease by
Tenant, a mutual cancellation thereof, shall not work a merger, and shall at the
option of the Landlord, terminate all or any existing subleases or subtenancies,
or may, at the option of the Landlord, operate as an assignment to it of any or
all such subleases or subtenancies.
20.11 Holding Over. If after expiration of the Term, Tenant remains in
possession of the Premises with Landlord's permission (expressed or implied),
Tenant shall become a tenant from month to month only, upon all the provisions
of this Lease (except as to term and Base Rent), but the "Monthly Installments
of Base Rent" payable by Tenant shall be increased to one hundred twenty percent
(120 %) of the Monthly Installments of Base Rent payable by Tenant at the
expiration of the Term. Such monthly rent shall be payable in advance on or
before the first day of each month. If either party desires to terminate such
month to month tenancy, it shall give the other party not less than thirty (30)
days advance written notice of the date of termination.
20.12 Signs
13
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(a) Tenant shall not place or permit to be placed in or upon the Premises,
where visible from outside the Premises or any part of the Building, any signs,
notices, drapes, shutters, blinds or displays of any type without prior written
consent of Landlord.
(b) Landlord reserves the right in Landlord's sole discretion to place and
locate on the roof, exterior of the Building, and in any area of the Building
not leased to Tenant such signs, notices, displays and similar items as Landlord
deems appropriate in the proper operation of the Building.
20.13 Reasonable Consent. Except as limited elsewhere in this Lease, wherever
in this Lease Landlord or Tenant is required to give its consent or approval to
any action on the part of the other, such consent or approval shall not be
unreasonably withheld. In the event of failure to give any such consent, the
other party shall be entitled to specific performance at law and shall have such
other remedies as are reserved to it under this Lease, but in no event shall
landlord or Tenant be responsible in monetary damages for failure to give
consent unless said consent is withheld maliciously or in bad faith.
20.14 Interest on Past Due Obligations. Except as expressly provided, any
amount due to Landlord not paid when due shall bear interest at ten percent
(10%) per annum from the due date. Payment of such interest shall not excuse or
cure any default by Tenant under this Lease.
20.15 Rules and Regulations, Parking.
Tenant and Tenant's agents, servants, employees, visitors and licensees shall
observe and comply fully and faithfully with all reasonable and non-
discriminatory rules and regulations adopted by Landlord for the care,
protection, cleanliness and operation of the Building and its Tenants including
those annexed to this Lease as Exhibit C and any modifications or additions
thereto adopted by Landlord, provided Landlord shall give written notice thereof
to Tenant. Landlord shall not be responsible to Tenant for the non-performance
by any other tenant or occupant of the Building of any said rules and
regulations.
20.16 Notices. All Notices of demands of any kind required or desired to be
given by Landlord or Tenant hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in the
United States mail, certified or registered, postage prepaid addressed to the
Landlord or Tenant respectively at the addresses set forth after their
signatures at the end of this Lease.
20.17 Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with the duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant shall, within thirty (120)
days after execution of this Lease, deliver to Landlord a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
21. PARKING
Landlord shall provide to tenant during the term of the Lease and any option
period exercised, twenty-two (22) free, unreserved surface parking spaces.
22. TERM AND OPTIONS
Provided Tenant is not then in default, Tenant shall have the option to renew
this Lease upon the expiration of the term hereof for an additional term of Five
(5) years, upon the same terms and conditions as are herein provided other than
the rent, which shall be the rent at comparable office rent, not to be less than
rent at the last month of the Lease. If Tenant desires to exercise such option,
it shall do so by giving written notice to Landlord, not less than One Hundred
Eighty (180) days prior to the expiration of the Term set forth above.
23. OPTION TO LEASE EXPANSION SPACE
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Provided Tenant is not then in default, Tenant shall have the option to lease
additional office space in the Building, as it becomes available. Landlord shall
notify Tenant of any portion of the 2nd Floor not originally included in the
Premises that is becoming available, including the market rent for such space
and the terms of the lease of such additional space. The rent to Tenant for such
available space shall be the Market rent of said space in the Building. If
Tenant desires to exercise such option, it shall do so by giving written notice
to Landlord within ten (10) days from delivery to Tenant of the notice of
availability of such space. Upon exercise of the option, the parties shall
exercise a Lease Amendment setting forth the terms and conditions of the Lease
of the additional space.
24. RESTRICTIVE COVENANTS
Throughout the Term, Landlord shall not lease any space in the building to a
Payroll or Employment business without the written consent of the Tenant.
Subject to the City of Reno's approval and Tenant leasing from Landlord in
excess of 10,000 square feet, Tenant at Tenant's sole expense shall install an
identification sign on the Building's monument sign. Landlord shall have the
right to approve or disapprove specifications of the above mentioned sign, but
consent shall not be unreasonably withheld.
26. NO LIENS
Landlord warrants that during the term of the Lease and any renewals thereof,
there will be no liens, encumbrances that will substantially impair Tenant's use
and employment of the Premises for the purposes stated in the Lease. If Landlord
does not cure any breach of this warranty within ten (10) days after written
notice of breach delivered to the Landlord, Tenant may terminate this Lease
immediately by written notice delivered to the Landlord within ten (10) days
after the expiration of such ten (10) day period. Rent shall be abated during
such impairment.
27. TAXES
The Tenant shall have the right to contest any tax, assessment, condemnation or
other law or government act that increases the cost or interference with the use
and occupancy rights of the Tenant in connection with the Premises.
28. INSPECTION OF BOOKS AND RECORDS
The Tenant shall have the right at any reasonable time on thirty (30) days
written notice to inspect the books and records of the Landlord, and any other
documents in the possession or control of the Landlord, to the extent that such
books, records or documents reflect or form the basis of any obligation of the
Tenant under this Lease Agreement.
29. QUIET POSSESSION
Tenant shall have the right of quiet possession and enjoyment of the Premises
free from any interference arising from any act or omission of the Landlord, its
agent or tenants. Landlord will maintain the common areas and access to the
Premises at all times in such manner as shall permit the Tenant to carry on its
business in the normal manner without interference or interruption.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the date and
year as first referenced above.
Landlord: Tenant:
Incline Capital Group, LLC TriNet Employer Group, Inc.
a Nevada LLC a California Corporation
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By: ___________________________ By:/s/ DOUGLAS P. DEVLIN
---------------------
(signature) (signature)
Paul Shirley Douglas P. Devlin
Chief Financial Officer
Address: Address:
875 Lakeshore Blvd. 101 Callan Avenue
Incline Village, NV 89451 San Leandro, CA 94577
(510) 297-0221
16
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease dated July 9th, 1999 is entered into this 19th day
of July, 1999, by and between Incline Capital Group, LLC a Nevada Corporation
("Landlord") and TriNet Employer Group, Inc. ("Tenant").
The parties hereto wish to amend the Lease to add (i) the Adjusted Base Rent to
the terms and conditions of the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Adjusted Base Rent. As of the Effective Date, Section 2.1 of the Lease is
-------------------
hereby amended so that the monthly Adjusted Base Rent shall be added for the
premises and shall be as follows:
Month 1 - 12: $1.65 per square foot of Rentable Area, modified gross
full service with Tenant being responsible to pay
all janitorial expenses.
Month 13 - 24: $1.69 per square foot of Rentable Area, modified gross
full service with Tenant being responsible to pay
all janitorial expenses.
Month 25 - 36: $1.73 per square foot of Rentable Area, modified gross
full service with Tenant being responsible to pay
all janitorial expenses.
Month 37 - 48: $1.77 per square foot of Rentable Area, modified gross
full service with Tenant being responsible to pay
all janitorial expenses.
Month 49 - 60: $1.82 per square foot of Rentable Area, modified gross
full service with Tenant being responsible to pay
all janitorial expenses.
2. No Change. Except as set forth herein, all of the terms and conditions
----------
of the Lease remain unchanged and in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of
the day and date first written above.
LANDLORD: TENANT:
INCLINE CAPITAL GROUP, LLC. TRINET EMPLOYER GROUP, INC
A Nevada LLC a California corporation
By: /s/ [ILLEGIBLE] SHIRLEY By: /s/ DOUGLAS P. DEVLIN, CFO
--------------------------- --------------------------
Its: Manager Its: Chief Financial Officer
-------------------------- --------------------------
By:_________________________
Its:________________________
PAGE 1
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
This Amendment to Lease dated July 9th, 1999 is entered into this 19th day of
October, 1999, by and between INCLINE CAPITAL GROUP, LLC a Nevada Limited
Liability Company ("Landlord") and TRINET EMPLOYER GROUP, INC. a California
Corporation ("Tenant").
The parties hereto wish to amend the Lease to modify (i) the Premise to the
terms and conditions of the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. PREMISES.
---------
1.1 Description. As of the Effective Date, Section 1.1 of the Lease is
-----------
hereby amended so that the Premise size shall be as follows:
The size of the Premises shall increase from 6,364+ square feet of
-
rentable area to 12,612+ square feet of rentable area.
-
1.2 Work of Improvement. As of the Effective Date, Section 1.2 of the
------------------------
Lease is hereby amended to reflect the additional Tenant Improvement
Allowance offered by Landlord caused by the increase in Premise size.
Landlord and Tenant shall expend all funds and do all acts required of
them in Exhibit B and shall have the work performed promptly and
diligently in a first class workmanlike manner for the amount not to
exceed $25.00 per 6,364 rentable square foot of Tenant's initial leased
office space and an additional $25.00 per 5,534 usable square foot in
the remainder of the expanded Premise. Any amount exceeding $25.00 per
square foot shall be paid by Tenant at completion of work. Any amount
less than $25.00 per square foot shall be to the benefit of the
Landlord. The combined rentable and usable Tenant Improvement Allowance
paid by Landlord shall not exceed $297,450.00. In addition, Landlord,
Tenant and Broker shall split 1/3rd each of the partial cost of the
HVAC VAV Box installation which is $15,598.00 and the VAV cost split
three ways shall be $5,199.34 each.
2. RENT.
-----
The Rent for the month of October, 1999 and November, 1999 shall be based on
the original Lease square footage of 6,364 square feet and Rent for the
month beginning December, 1999 through September 28, 2000 shall be based on
the square footage of 12,612 square feet.
Except as set forth herein, all of the terms and conditions of the Lease remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
day and date first written above.
LANDLORD: TENANT:
Incline Capital Group, LLC. TriNet Employer Group, Inc.
a Nevada Limited Liability Company a California Corporation
By: /s/ [ILLEGIBLE] SHIRLEY By: /s/ DOUGLAS P. DEVLIN
------------------------------ ------------------------------
Its: Manager Its: CFO
----------------------------- ------------------------------
<PAGE>
[SANWA BANK LOGO]
EXHIBIT 10.6
CREDIT AGREEMENT
(LINE OF CREDIT)
This Agreement is made and entered into as of Sept. 21, 1999, by and
between SANWA BANK CALIFORNIA (the "Bank") and TRINET EMPLOYER GROUP, INC. (the
"Borrower"), on the terms and conditions that follow:
SECTION
1
DEFINITIONS
1.1 Certain Defined Terms: Unless elsewhere defined in this Agreement, the
following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms
defined):
1.1.1 "ASP" or "Average Subscriber Payroll" shall mean the sum of payroll
disbursements to Subscriber employees divided by the total
Subscribers.
1.1.2 "Advance": shall mean an advance to the Borrower under the credit
facility (ies) described in Section 2.
1.1.3 "Business Day": shall mean a day, other than a Saturday or Sunday,
on which commercial banks are open for business in California.
1.1.4 "Cash Flow": shall mean the sum of net income after tax and
exclusive of extraordinary gains plus interest expense, plus
depreciation and amortization expense minus dividends and
distributions.
1.1.5 "Collateral": shall mean the property described in Section 3,
together with any other personal or real property in which the Bank
may be granted a lien or security interest to secure payment of the
Obligations.
1.1.6 "Current Assets": shall mean current assets as determined in
accordance with generally accepted accounting principles, less all
amounts due from affiliates, officers or employees.
1.1.7 "Current Liabilities": shall mean current liabilities as determined
in accordance with generally accepted accounting principles,
including any negative cash balance on the Borrower's financial
statement and Indebtedness for borrowed money under lines of credit
with the Bank used by the Borrower for working capital purposes.
1.1.8 "Debt": shall mean all interest bearing liabilities of the Borrower
less Subordinated Debt, if any.
-1-
<PAGE>
1.1.9 "EBITDA": shall mean earnings exclusive of extraordinary gains and
before deductions for interest expense, taxes, depreciation and
amortization expense.
1.1.10 "Effective Tangible Net Worth": shall mean the Borrower's stated
net worth plus Subordinated Debt but less all intangible assets of
the Borrower (i.e., goodwill, trademarks, patents, copyrights,
organization expense, and similar intangible items including, but
not limited to, investments in and all amounts due from affiliates,
officers or employees).
1.1.11 "Environmental Claims": shall mean all claims, however asserted, by
any governmental authority or other person alleging potential
liability or responsibility for violation of any Environmental Law
or for release or injury to the environment or threat to public
health, personal injury (including sickness, disease or death),
property damage, natural resources damage, or otherwise alleging
liability or responsibility for damages (punitive or otherwise),
cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief,
resulting from or based upon (a) the presence, placement,
discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from
property, whether or not owned by the Borrower, or (b) any other
circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
1.1.12 "Environmental Laws": shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements
with, any governmental authorities, in each case relating to
environmental, health, safety and land use matters; including the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the
Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-
to-Know Act, the California Hazardous Waste Control Law, the
California Solid Waste Management, Resource, Recovery and Recycling
Act, the California Water Code and the California Health and Safety
Code.
1.1.13 "Environmental Permits": shall have the meaning provided in Section
5.11 hereof.
1.1.14 "ERISA": shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated
thereunder.
1.1.15 "Event of Default": shall have the meaning set forth in Section 7.
1.1.16 "Expiration Date": shall mean March 31, 2000, or the date of
termination of the Bank's commitment to lend under this Agreement
pursuant to Section 8, whichever shall occur first.
1.1.17 "Hazardous Materials": shall mean all those substances which are
regulated by, or which may form the basis of liability under, any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance,
hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
1.1.18 "Indebtedness": shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price
of property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or
in respect of which the Borrower otherwise assures a creditor
against loss and (ii)
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obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported
as capital leases in respect of which the Borrower is liable,
contingently or otherwise, or in respect of which the Borrower
otherwise assures a creditor against loss.
1.1.19 "LIBOR Rate Advance": shall have the meaning provided in Section
2.1.5.
1.1.20 "LIBOR Interest Period": shall have the meaning provided in Section
2.1.5.
1.1.21 "LIBOR Rate": shall have the respective meaning provided in Section
2.1.5.
1.1.22 "Line Account": shall have the meaning provided in Section 2.2
hereof.
1.1.23 "Line of Credit": shall mean the credit facility described as such
in Section 2.
1.1.24 "Obligations": shall mean all amounts owing by the Borrower to the
Bank pursuant to this Agreement including, but not limited to, the
unpaid principal amount of Advances.
1.1.25 "Ordinary Course of Business": shall mean, with respect to any
transaction involving the Borrower or any of its subsidiaries or
affiliates, the ordinary course of the Borrower's business, as
conducted by the Borrower in accordance with past practice and
undertaken by the borrower in good faith and not for the purpose of
evading any covenant or restriction in this Agreement or in any
other document, instrument or agreement executed in connection
herewith.
1.1.26 "PAP": shall mean Performance Assurance Payments or deposits which
are made by Subscribers pursuant to a Subscriber Service Agreement
between Borrower and its Subscribers and held in a trust account
with Bank.
1.1.27 "Permitted Liens": shall mean: (i) liens and security interests
securing indebtedness owed by the Borrower to the Bank; (ii) liens
for taxes, assessments or similar charges not yet due; (iii) liens
of materialmen, mechanics, warehousemen, or carriers or other like
liens arising in the Ordinary Course of Business and securing
obligations which are not yet delinquent; (iv) purchase money liens
or purchase money security interests upon or in any property
acquired or held by the Borrower in the Ordinary Course of Business
to secure Indebtedness outstanding on the date hereof or permitted
to be incurred under Section 5.7 hereof; (v) liens and security
interests which, as of the date hereof, have been disclosed to and
approved by the Bank in writing; and (vi) those liens and security
interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the
Borrower's assets.
1.1.28 "Prior Agreement": means and refers to that certain Equipment
Purchase Line of Credit Agreement dated as of September 29, 1998,
between Bank and Borrower.
1.1.29 "Reference Rate": shall mean an index for a variable interest rate
which is quoted, published or announced by Bank as its reference
rate and as to which loans may be made by Bank at, above or below
such rate.
1.1.30 "Subordinated Debt": shall mean such liabilities of the Borrower
which have been subordinated to those owed to the Bank in a manner
acceptable to the Bank.
1.1.31 "Subscriber": shall mean an individual or firm who has entered into
a Subscriber Service Agreement with Borrower, whereby Borrower
provides certain payroll and other services to the subscriber.
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1.1.32 "Term Loan": means and refers to the term loan described in
Section 2.1.3.
1.1.33 "This Agreement": means and refers to this Agreement and all
amendments, supplements, modifications and addenda hereto,
1.1.34 "Variable Rate Advance": shall have the respective meaning as it is
defined for each facility under Section 2, hereof.
1.1.35 "Variable Rate": shall have the respective meaning as it is defined
for each facility under Section 2, hereof.
1.2 Accounting Terms: All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein
shall mean such financial statements or such items prepared or determined
in accordance with generally accepted accounting principles consistently
applied and, except where otherwise specified, all financial data submitted
pursuant to this Agreement shall be prepared in accordance with such
principles.
1.3 Other Terms: Other terms not otherwise defined shall have the meanings
attributed to such terms in the California Uniform Commercial Code.
SECTION
2
CREDIT FACILITIES
2.1 THE LINE OF CREDIT
2.1.1 The Line of Credit: On terms and conditions as set forth herein,
the Bank agrees to make Advances to the Borrower from time to time
from the date hereof to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed
$4,000,000.00 (the "Line of Credit"). Any sums repaid under the
Line of Credit may not be re-borrowed. Advances under the Line of
Credit shall be used for the only for the purposes set forth in
Exhibit 2.1.1, and in amounts not to exceed those specified for
each such purpose. The amount of any and all Advance shall be
subject to any further limitations set forth in Exhibit 2.1.1.
Bank shall have no duty to make any requested Advance hereunder if
Borrower has not provided Bank with such invoices and satisfactory
supporting documentation (including, without limitation, an
itemized list of allocated costs prior to such Advance) as Bank may
require to evidence that the requested Advance has been or will be
used by Borrower for the purposes and in the amounts specified in
such exhibit.
2.1.2 Making Line Advances: Each Advance shall be conclusively deemed to
have been made at the request of and for the benefit of the
Borrower (i) when credited to any deposit account of the Borrower
maintained with the Bank or (ii) when paid in accordance with the
Borrower's written instructions. Subject to the requirements of
Section 4 and provided such request is made in a timely manner as
provided in Section 2.1.6 below, Advances shall be made by the Bank
under the Line of Credit.
2.1.3 Repayment of Line of Credit: Unless sooner due in accordance with
the terms of this Agreement or Bank has extended the Term Loan as
contemplated herein, the Borrower hereby promises to pay in full on
the Expiration Date, the aggregate unpaid principal amount of all
Advances and then outstanding, together with all accrued and unpaid
interest thereon. Bank agrees to lend to Borrower on the Expiration
Date an amount equal to the
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outstanding amount of all Advances (the "Term Loan") provided no
----------
Event of Default has occurred or is continuing on the Expiration
Date, and provided such Term Loan is to be evidenced by and subject
to a promissory note to be in form and content safisfactory to Bank
and executed by Borrower. Interest shall accrue and be payable on
the terms set forth in the promissory note. The proceeds of Term
Loan shall be used solely to repay such Advances.
2.1.4 Repayment of the Term Loan. The Term Loan shall be repaid in 36
monthly installments, such payments to begin on the April 30, 2000,
and continue thereafter on the last day of each succeeding month to
and including February 28, 2003, with a final payment due on March
31, 2003, at which time all outstanding principal plus all accrued
and unpaid interest on such loan shall be immediately due and
payable.
2.1.5 Interest. Interest shall accrue from the date of each Advance at
one of the following rates, as quoted by the Bank and as elected by
the Borrower:
(i) Variable Rate : A variable rate per annum equivalent to an
index for a variable interest rate which is quoted,
published or announced from time to time by the Bank as its
reference rate (the "Reference Rate") and as to which loans
--------------
may be made by the Bank at, below or above such Reference
Rate plus one percent (the "Variable Rate"). Interest shall
-------------
be adjusted concurrently with any change in the Reference
Rate. Each Advance based upon the Variable Rate is
hereinafter referred to as a "Variable Rate Advance."
---------------------
(ii) LIBOR Rate. In addition to Variable Rate Advances, the Bank
hereby agrees to make one or more Advances (in the minimum
amount $250,000.00), which shall accrue interest at a fixed
rate quoted by the Bank for a minimum of three months or for
such other period of time that the Bank may elect to quote
and offer (provided that any such period of time does not
extend beyond the maturity date of the relevant Advance)
[the "LIBOR Interest Period"]. Such interest rate (the
---------------------
"LIBOR Rate") shall be a percentage approximately equivalent
----------
to 3.60% in excess of LIBOR as determined by Bank. LIBOR
means, as of the date the same is to be determined, the U.S.
dollar London Interbank Offered Rate as of such date for
a U.S. dollar deposit in an amount approximately equal to
the amount of the relevant advance or term loan and for a
period of time approximately equal to the relevant LIBOR
Interest Period, as appearing on page 3750 (or such other
page as may replace page 3750 of the Telerate screen at or
about 11:00 a.m. (London time) on the second Business Day
prior to the first day of the relevant LIBOR Interest
Period. Each Advance bearing interest at the LIBOR Rate is
hereinafter referred to as a "LIBOR Rate Advance. "
------------------
(iii) Payment of Interest. On the Advances, Borrower hereby
promises and agrees to pay interest monthly on the last day
of each month beginning September 30, 1999, and continuing
on the same date of each succeeding month thereafter. In
addition, with respect to each LIBOR Rate Advance and/or
advance bearing interest at the LIBOR Rate, Borrower
promises to pay interest on the last day of the relevant
LIBOR Interest Period pertaining thereto. Interest not paid
when due shall be added to principal and become part
thereof, and shall thereafter bear like interest. Interest
shall be computed on the basis of 360 days per year, but
charged on the actual number of days elapsed.
2.1.6 Notice of Borrowing: Upon written or telephonic notice which shall
be received by the Bank at or before 2:00 p.m. (California time) on
a Business Day, the Borrower may borrow under the Line of Credit by
requesting:
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(i) A Variable Rate Advance. A Variable Rate Advance may be made on
the day notice is received by the Bank; provided, however, that
if the Bank shall not have received notice at or before 2:00 p.m.
on the day such Advance is requested to be made, such Variable
Rate Advance may, at the Bank's option, be made on the next
Business Day.
(ii) A LIBOR Advance. Notice of any LIBOR Advance shall be received by
the Bank no later than two Business Days prior to the day (which
shall be a Business Day) on which the Borrower requests such
LIBOR Advance to be made.
2.1.7 Notice of Election to Adjust Interest Rate. Upon telephonic notice
which shall be received by the Bank at or before 2:00 p.m.
(California time) on a business day, the Borrower may elect:
(a) That interest on a Variable Rate Advance shall be adjusted
to accrued at the LIBOR Rate; provided, however, that such notice
shall be received by the Bank no later than two business days
prior to the day (which shall be a business day) on which
Borrower requests that interest be adjusted to accrue at the
LIBOR Rate.
(b) That interest on a LIBOR Rate Advance shall continue to
accrue at a newly quoted LIBOR Rate as the case may be or shall
be adjusted to commence to accrue at the Variable Rate; provided,
---------
however, that such notice shall be received by the Bank no later
---------
than two business days prior to the last day of the LIBOR
Interest Period pertaining to such LIBOR Rate Advance, as
applicable. If the Bank shall not have received notice as
prescribed herein of Borrower's election that interest on any
LIBOR Rate Advance shall continue to accrue at the LIBOR Rate,
Borrower shall be deemed to have elected that interest thereon
shall be adjusted to accrue at the Variable Rate upon the
expiration of the LIBOR Interest Period pertaining thereto.
2.1.8 Prohibition Against Prepayment of LIBOR Rate Advances.
Notwithstanding anything to the contrary, no prepayment shall be
made on any LIBOR Rate Advance except on a day which is the last
day of the LIBOR Interest Period pertaining thereto. If the whole
or any part of any LIBOR Rate Advance is prepaid by reason of
acceleration or otherwise, the Borrower shall, upon the Bank's
request, promptly pay to the Bank a prepayment premium equal to
(and shall and indemnify the Bank for) (i) all costs and expenses
incurred by the Bank and (ii) any loss deemed sustained by the Bank
as a consequence of such prepayment, including loss of future
interest income resulting from the re-employment of funds).
The Bank shall be entitled to fund all or any portion of its LIBOR
Rate Advances in any manner it may determine in its sole
discretion, but all calculations and transactions hereunder shall
be conducted as though the Bank actually funded all such through
the sale of U.S. Treasury securities in the amount of the relevant
advance or the relevant LIBOR Rate Advance and in maturities
corresponding to the then applicable LIBOR Interest Period.
2.1.9 Mandatory Conversion from LIBOR Rate to Variable Rate. In the event
that the Bank, shall at any time determine that the accrual of
interest on the basis of the LIBOR Rate (i) is unfeasible because
the Bank is unable to determine such rate due to the unavailability
of U.S. dollar deposits, contracts or certificates of deposit in an
amount approximately equal to the amount of the relevant Advance
and for a period of time approximately equal to the relevant LIBOR
Interest Period pertaining thereto; or (ii) is or has become
unlawful or unfeasible by reason of the Bank's compliance with any
new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or
order,
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<PAGE>
then the Bank shall give telephonic notice thereof (confirmed in
writing) to the Borrower, in which event any such Advance as the
case may be shall be deemed to be a Variable Advance and interest
shall thereupon immediately accrue at the Variable Rate."
2.1.10 Indemnification for LIBOR Rate Costs. During any period of time in
which interest on any Advance is accruing on the basis of the LIBOR
Rate, the Borrower shall, upon the Bank's request, promptly pay to
and reimburse the Bank for all costs incurred and payments made by
the Bank by reason of any future assessment, reserve, deposit or
similar requirements or any surcharge, tax or fee imposed upon the
Bank or as a result of the Bank's compliance with any directive or
requirement of any regulatory authority pertaining or relating to
funds used by the Bank in quoting and determining the LIBOR Rate or
at such fixed rate.
2.2 Line Account:
2.2.1 The Bank shall maintain on its books a record of account in which
the Bank shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facilities granted hereunder (the "Line Account"). The Bank shall
provide the Borrower with a statement of the Borrower's Line
Account, which statement shall be considered to be correct and
conclusively binding on the Borrower unless the Borrower notifies
the Bank to the contrary within 30 days after the Borrower's
receipt of any such statement which it deems to be incorrect.
2.2.2 The Borrower hereby authorizes the Bank to charge, from time to
time, against any or all of the Borrower's deposit accounts with
the Bank any amount so due under this Agreement, including, but not
limited to, account # 0560-53600 maintained with the Bank's Hayward
Office (BBC).
2.2.3 If any payment required to be made by the Borrower hereunder
becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day
and interest thereon shall be payable at the then applicable rate
during such extension. All payments required to be made hereunder
shall be made to the office of the Bank designated for the receipt
of notices herein or such other office as Bank shall from time to
time designate.
2.3 Late Payment: In addition to any other rights the Bank may have
hereunder, if any payment of principal or interest or any portion thereof,
under this Agreement is not paid within 5 days of when due, a late payment
charge equal to five percent (5%) of such past due payment may be assessed
and shall be immediately payable.
2.4 Prior Agreement. In consideration of the credit facility extended by
Bank to Borrower hereunder, no further loans or advances will be made by
Bank under the Prior Agreement, and the line of credit granted thereunder
is hereby cancelled and terminated.
SECTION
3
COLLATERAL
3.1 The Collateral: To secure payment and performance of all the Borrower's
Obligations under this Agreement and all other liabilities, loans,
guarantees, covenants and duties owed by the Borrower to the Bank, whether
or not evidenced by this or by any other agreement, absolute or contingent,
due or to become due, now existing or hereafter and howsoever created, the
Borrower hereby grants the Bank a security interest in and to all of the
following property ("Collateral"):
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<PAGE>
(i) Equipment All goods now owned or hereafter acquired by the
Borrower or in which the Borrower now has or may hereafter
acquire any interest, including, but not limited to, all
machinery, equipment, furniture, furnishings, fixtures, tools,
supplies and motor vehicles of every kind and description, and
all additions, accessions, improvements, replacements and
substitutions thereto and thereof (the "Equipment").
(ii) Inventory. All inventory now owned or hereafter acquired by the
Borrower, including, but not limited to, all raw materials,
work in process, finished goods, merchandise, parts and
supplies of every kind and description, including inventory
temporarily out of the Borrower's custody or possession,
together with all returns on accounts (the "Inventory").
(iii) Accounts. All accounts, contract rights and general intangibles
now owned or hereafter created or acquired by the Borrower,
including, but not limited to, all receivables, goodwill,
trademarks, trademark applications, trade styles, trade names,
patents, patent applications, copyrights and copyright
applications, customer lists, business records and computer
programs, tapes, disks and related data processing software
that at any time evidence or contain information relating to
any of the Collateral.
(iv) Documents. All documents, instruments and chattel paper now
owned or hereafter acquired by the Borrower, including, but not
limited to, warehouse and other receipts, bills of sale and
bills of lading.
(v) Monies. All monies, deposit accounts, certificates of deposit
and securities of the Borrower now or hereafter in the Bank's
or its agents' possession.
The Bank's security interest in the Collateral shall be a continuing lien and
shall include the proceeds and products of the Collateral including, but not
limited to, the proceeds of any insurance thereon.
The security interest granted to Bank in the Collateral shall not secure or be
deemed to secure any Indebtedness of the Borrower to the bank which is, at the
time of its creation, subject to the provisions of any state or federal consumer
credit or truth-in-lending disclosure statutes.
SECTION
4
CONDITIONS PRECEDENT
4.1 Conditions Precedent to the Initial Advance: The obligation of the Bank to
make the initial Advance and the first extension of credit to or on account
of the Borrower hereunder is subject to the conditions precedent that the
Bank shall have received before the date of such initial Advance and such
first extension of credit all of the following, in form and substance
satisfactory to the Bank:
(i) Authority to Borrow. Evidence that the execution, delivery and
performance by the Borrower of this Agreement and any document,
instrument or agreement required hereunder have been duly
authorized.
(ii) Fees. A loan fee of $10,000.00, such fee to be deemed to be
fully earned upon payment.
-8-
<PAGE>
(iii) Financing Statements. Executed UCC-1 financing statement(s)
describing the Collateral, which have been filed with the
Secretary of State or the county recorder as a lien of first
priority.
(iv) Audit. The Bank shall have conducted an audit of the Borrower's
books, records and operations and the Bank shall be satisfied
as to the condition thereof.
(v) Miscellaneous. Such other evidence as the Bank may request to
establish the consummation of the transaction contemplated
hereunder and compliance with the conditions of this Agreement.
(vi) Surepay Addendum. A new Addendum, in form and content
satisfaction to the Bank, to Schedule A for Surepay Services
under the Cash Management Service Master Agreement dated as of
March 27, 1995, together with a documentation fee of $750.00,
which fee shall be deemed fully earned upon payment.
4.2 Conditions Precedent to All Advances: The obligation of the Bank to make
each Advance and each other extension of credit to or on account of the
Borrower (including the initial Advance and the first extension of credit)
shall be subject to the further conditions precedent that, on the date of
each Advance or each extension of credit and after the making of such
Advance or extension of credit.
(i) Subsequent Approvals. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may
reasonably request.
(ii) Representations and Warranties. The representations contained
in Section 5 and in any other document, instrument or
certificate delivered to the Bank hereunder are true, correct
and complete.
(iii) Event of Default. No event has occurred and is continuing
which constitutes, or with the lapse of time or giving of
notice or both, would constitute an Event of Default.
(iv) Collateral. The security interest in the Collateral has been
duly authorized, created and perfected with first priority and
is in full force and effect.
The Borrower's acceptance of the proceeds of any loan, advance or extension of
credit or the Borrower's execution of any document or instrument evidencing or
creating any Obligation hereunder shall be deemed to constitute the Borrower's
representation and warranty that all of the above statements are true and
correct.
SECTION
5
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
the Bank, which representations and warranties are continuing:
5.1 Status: The Borrower is a corporation duly organized and validly existing
under the laws of the state of California and is properly licensed and is
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied with the
fictitious name statute of every jurisdiction in which the Borrower is
doing business.
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<PAGE>
5.2 Authoriy: The execution, delivery and performance by the Borrower of this
Agreement and any instrument, document or agreement required hereunder have
been duly authorized and do not and will not: (i) violate any provision of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having application to the
Borrower; (ii) result in a breach of or constitute a default under any
material indenture or loan or credit agreement or other material agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; or (iii) require any consent or
approval of its stockholders or violate any provision of its articles of
incorporation or by-laws.
5.3 Legal Effect: This Agreement constitutes, and any instrument, document or
agreement required hereunder when delivered hereunder will constitute,
legal, valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with their respective terms.
5.4 Fictitious Trade Styles: There are no fictitious trade styles used by the
Borrower in connection with its business operations. The Borrower shall
notify the Bank not less than 30 days prior to effecting any change in the
matters described herein or prior to using any other fictitious trade style
at any future date, indicating the trade style and state(s) of its use.
5.5 Financial Statements: All financial statements, information and other data
which may have been or which may hereafter be submitted by the Borrower to
the Bank are true, accurate and correct and have been or will be prepared
in accordance with generally accepted accounting principles consistently
applied and accurately represent the financial condition or, as applicable,
the other information disclosed therein. Since the most recent submission
of such financial information or data to the Bank, the Borrower represents
and warrants that no material adverse change in the Borrower's financial
condition or operations has occurred which has not been fully disclosed to
the Bank in writing.
5.6 Litigation: Except as have been disclosed to the Bank in writing, there are
no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition or operations or on the Collateral.
5.7 Title to Assets: The Borrower has good and marketable title to all of its
assets (including, but not limited to, the Collateral) and the same are not
subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
5.8 ERISA: If the Borrower has a pension, profit sharing or retirement plan
subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and continues to
comply with the requirements of ERISA.
5.9 Taxes: The Borrower has filed all tax returns required to be filed and paid
all taxes shown thereon to be due, including interest and penalties, other
than such taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
5.10 Margin Stock. The proceeds of any loan or advance hereunder will not be
used to purchase or carry margin stock as such term is defined under
Regulation U of the Board of Governors of the Federal Reserve System.
5.11 Environmental Compliance. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects
with all Environmental Laws; the Borrower has obtained all licenses,
permits, authorizations and registrations required under any Environmental
Law ("Environmental Permits") and necessary for its ordinary course
---------------------
operations, all such Environmental Permits are in good standing, and the
Borrower is in compliance with all material terms and conditions of such
Environmental Permits; neither the Borrower nor any of its present
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<PAGE>
property or operations is subject to any outstanding written order from or
agreement with any governmental authority nor subject to any judicial or
docketed administrative proceeding, respecting any Environmental Law,
Environmental Claim or Hazardous Material; there are no Hazardous
Materials or other conditions or circumstances existing, or arising from
operations prior to the date of this Agreement, with respect to any
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; provided, however, that with respect to property
---------
leased from an unrelated third party, the foregoing representation is made
to the best knowledge of the Borrower. In addition, (i) the Borrower does
not have any underground storage tanks that are not properly registered or
permitted under applicable Environmental Laws, or that are leaking or
disposing of Hazardous Materials off-site, and (ii) the Borrower has
notified all of their employees of the existence, if any, of any health
hazard arising from the conditions of their employment and have met all
notification requirements under Title III of CERCLA and all other
Environmental Laws.
5.12 Inventory:
(i) The Borrower keeps correct and accurate records. (itemizing and
describing the kind, type, quality and quantity of inventory,
the Borrower's cost therefor and selling price thereof, and the
daily withdrawals therefrom and additions thereto).
(ii) All inventory is of good and merchantable quality, free from
defects.
(iii) The inventory is not stored with a bailee, warehouseman or
similar party.
(iv) The Borrower is not a "retail merchant" as defined in the
California Uniform Commercial Code.
SECTION
6
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement, and
so long thereafter as the Borrower is indebted to the Bank under this Agreement,
the Borrower will, unless the Bank shall otherwise consent in writing:
6.1 Reporting and Certification Requirements: Deliver or cause to be delivered
to the Bank in form and detail satisfactory to the Bank:
(i) Not later than 120 days after the end of each of the Borrower's
fiscal years, a copy of the annual audited consolidated
financial report of the Borrower for such year, prepared by a
firm of certified public accountants acceptable to Bank and
accompanied by an unqualified opinion of such firm.
(ii) Not later than 45 days after the end of each quarter, the
Borrower's financial statement as of the end of such period.
(iii) Concurrently with the delivery of the financial reports
required hereunder, a compliance certificate stating that the
Borrower is in compliance with all covenants contained herein
and that no Event of Default or potential Event of Default has
occurred or is continuing, and certified to by the chief
financial officer of the Borrower.
(iv) Not later than 30 days after the end of each quarter, a report
indicating the Average Subscriber Payroll listing Subscriber's
names and average payroll per
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Subscriber.
(v) Not later than 30 days after the end of each fiscal quarter of
the Borrower, a PAP report executed by the Borrower and
detailing funds on deposit from its Subscribers.
(vi) Promptly upon the Bank's request, such other information
pertaining to the Borrower, the Collateral or any guarantor
hereunder as the Bank may reasonably request, including
evidence of Borrower's payment of payroll taxes.
6.2 Financial Condition: The Borrower promises and agrees, during the term of
this Agreement and until payment in full of all of the Borrower's
Obligations, the Borrower will maintain at all times:
(i) A minimum Effective Tangible Net Worth of at least $5,000,000.
(ii) A ratio of Current Assets to Current Liabilities of not less
than .90 to 1 through December 31, 2000 and 1.0 to 1
thereafter.
(iii) A ratio of Cash Flow to the current portion of long term Debt
plus interest expense of not less than 1.50 to 1, measured at
each fiscal year-end.
(iv) A ratio of Debt to EBITDA of not more than 1.5 to 1 at the end
of each fiscal quarter, with EBITDA based upon the immediately
preceding three fiscal quarters and the current quarter just
ended.
6.3 Preservation of Existence; Compliance with Applicable Laws: Maintain and
preserve its existence and all rights and privileges now enjoyed; and
conduct its business and operations in accordance with all applicable laws,
rules and regulations.
6.4 Maintenance of Insurance: Keep and maintain the Collateral insured for not
less than its full replacement value against all risks of loss and damage
and maintain insurance in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower operates
and maintain such other insurance and coverages as may be required by the
Bank. All such insurance shall be in form and amount and with companies
satisfactory to the Bank.
With respect to insurance covering properties in which the Bank maintains a
security interest or lien, such insurance shall name the Bank as loss payee
pursuant to a loss payable endorsement satisfactory to the Bank and shall
not be altered or canceled except upon 10 days' prior written notice to the
Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the
original policy or binder of all such insurance.
6.5 Maintenance of Collateral and Other Properties: Except for Permitted Liens,
keep and maintain the Collateral free and clear of all levies, liens,
encumbrances and security interests (including, but not limited to, any
lien of attachment, judgment or execution) and defend the Collateral
against any such levy, lien, encumbrance or security interest; comply with
all laws, statutes and regulations pertaining to the Collateral and its use
and operation; execute, file and record such statements, notices and
agreements, take such actions and obtain such certificates and other
documents as necessary to perfect, evidence and continue the Bank's
security interest in the Collateral and the priority thereof; maintain
accurate and complete records of the Collateral which show all sales,
claims and allowances; and property care for, house, store and maintain the
Collateral in good condition, free of misuse, abuse and deterioration,
other than normal wear and tear. The Borrower shall also maintain and
preserve all its properties in good working order and condition in
accordance with the general practice of other businesses of similar
character and size, ordinary wear and tear excepted.
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6.6 Payment of Obligations and Taxes: Make timely payment of all assessments
and taxes and all of its liabilities and obligations including, but not
limited to, trade payables, unless the same are being contested in good
faith by appropriate proceedings with the appropriate court or regulatory
agency. For purposes hereof, the Borrower's issuance of a check, draft or
similar instrument without delivery to the intended payee shall not
constitute payment. Borrower agrees to pay all payroll taxes as they become
due and upon the request of Bank, to provide Bank with evidence of such
payments.
6.7 Inspection Rights and Accounting Records: The Borrower will maintain
adequate books and records in accordance with generally accepted accounting
principles consistently applied and in a manner otherwise acceptable to
Bank, and, at any reasonable time and from time to time, permit the Bank or
any representative thereof to examine and make copies of the records and
visit the properties of the Borrower and discuss the business and
operations of the Borrower with any employee or representative thereof. If
the Borrower shall maintain any records (including, but not limited to,
computer generated records or computer programs for the generation of such
records) in the possession of a third party, the Borrower hereby agrees to
notify such third party to permit the Bank free access to such records at
all reasonable times and to provide the Bank with copies of any records
which it may request, all at the Borrower's expense, the amount of which
shall be payable immediately upon demand.
6.8 Redemption or Repurchase of Stock: Not redeem or repurchase any class of
the Borrower's stock now or hereafter outstanding.
6.9 Additional Indebtedness: Not, after the date hereof, create, incur or
assume, directly or indirectly, any additional Indebtedness other than (i)
Indebtedness owed or to be owed to the Bank or (ii) Indebtedness to trade
creditors incurred in the Ordinary Course of Business.
6.10 Liens and Encumbrances: Not create, assume or permit to exist any security
interest, encumbrance, mortgage, dead of trust, or other lien (including,
but not limited to, a lien of attachment, judgment or execution) affecting
any of the Borrower's properties, or execute or allow to be filed any
financing statement or continuation thereof affecting any of such
properties except for Permitted Liens or as otherwise provided in this
Agreement.
6.11 Transfer Assets: Not, after the date hereof, sell, contract for sale,
convey, transfer, assign, lease or sublet, any of its assets (including,
but not limited to, the Collateral) except in the Ordinary Course of
Business and, then, only for full, fair and reasonable consideration.
6.12 Change in Nature of Business: Not make any material change in its
financial structure or the nature of its business as existing or conducted
as of the date hereof.
6.13 Compensation of Employees: Compensate its employees for services rendered
at an hourly rate at least equal to the minimum hourly rate prescribed by
any applicable federal or state law or regulation.
6.14 Notice: Give the Bank prompt written notice of any and all (i) Events of
Default; (ii) litigation, arbitration or administrative proceedings to
which the Borrower is a party and in which the claim or liability exceeds
$50,000.00 or which affects the Collateral; (iii) other matters which have
resulted in, or might result in a material adverse change in the Collateral
or the financial condition or business operations of the Borrower, and (iv)
any enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against the Borrower or any of
its properties.
6.15 Environmental Compliance: The Borrower shall conduct its operations and
keep and maintain all of its property in compliance with all Environmental
Laws and, upon the written request of the Bank,the Borrower shall submit to
the Bank, at the Borrower's sole cost and expense, at reasonable
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intervals, a report providing the status of any environmental, health or
safety compliance, hazard or liability.
6.16 Inventory:
(i) Except as provided herein below, the Borrower's inventory
shall, at all times, be in the Borrower's physical possession,
shall not be held by others on consignment, sale on approval,
or sale or return and shall be kept only at: 101 Callan Avenue,
3rd Floor, San Leandro, CA 94577 and
______________________________________________________________.
(ii) The Borrower shall keep correct and accurate records.
(iii) All inventory shall be of good and merchantable quality, free
from defects.
(iv) The inventory shall not at any time or times hereafter be
stored with a bailee, warehouseman or similar party without the
Bank's prior written consent and, in such event, the Borrower
will concurrently therewith cause any such bailee, warehouseman
or similar party to issue and deliver to the Bank, in form
acceptable to the Bank, warehouse receipts in the Bank's name
evidencing the storage of inventory.
(v) At any reasonable time and from time to time, allow Bank to
have the right, upon demand, to inspect and examine inventory
and to check and test the same as to quality, quantity, value
and condition and the Borrower agrees to reimburse the Bank for
the Bank's reasonable costs and expenses in so doing.
6.17 Location and Maintenance of Equipment.:
(i) The Equipment shall at all times be in the Borrower's physical
possession, shall not be held for sale or lease, and shall be
kept only at the following location(s): 101 Callan Avenue, 3rd
Floor, San Leandro, CA 94577 and
______________________________________________________________.
(ii) The Borrower shall not secrete, abandon or remove, or permit
the removal of, the Equipment, or any part thereof, from the
location(s) shown above or remove or permit to be removed any
accessories now or hereafter placed upon, the Equipment.
(iii) Upon the Bank's demand, the Borrower shall immediately provide
the Bank with a complete and accurate description of the
Equipment including, as applicable, the make, model,
identification number and serial number of each item of
Equipment. In addition, the Borrower shall immediately notify
the Bank of the acquisition of any new or additional Equipment
or the replacement of any existing Equipment and shall supply
the Bank with a complete description of any such additional or
replacement Equipment.
(iv) The Borrower shall, at the Borrower's sole cost and expense,
keep and maintain the Equipment in a good state of repair and
shall not destroy, misuse, abuse, illegally use or be negligent
in the care of the Equipment or any part thereof. The Borrower
shall not remove, destroy, obliterate, change, cover, paint,
deface or alter the name plates, serial numbers, labels or
other distinguishing numbers or identification marks placed
upon the Equipment or any part thereof by or on behalf of the
manufacturer, any dealer or rebuilder thereof, or the Bank. The
Borrower shall not be released from any liability to the Bank
hereunder because of any injury
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<PAGE>
to or loss or destruction of the Equipment. The Borrower shall
allow the Bank and its representatives free access to and the
right to inspect the Equipment at all times and shall comply
with the terms and conditions of any leases covering the real
property on which the Equipment is located and any orders,
ordinances, laws, regulations or rules of any federal, state or
municipal agency or authority having jurisdiction of such real
property or the conduct of the business of the persons having
control or possession of the Equipment.
(v) The Equipment is not now and shall not at any time hereafter be
so affixed to the real property on which it is located as to
become a fixture or a part thereof. The Equipment is now and
shall at all times hereafter be and remain personal property of
the Borrower.
6.18 Y2K Compliance. The Borrower shall perform all acts reasonably necessary
to ensure that the Borrower becomes Year 2000 Compliant in a timely manner.
Such acts shall include performing a review and assessment of all of
Borrower's systems and adopting a plan with a budget for the remediation
and testing of such systems. For the purposes hereof, "Year 2000 Compliant"
shall mean that all software, hardware, firmware, equipment, goods or
systems, utilized by and material to the business operations or financial
condition of the Borrower, will properly perform date sensitive functions
before, during and after the Year 2000. Borrower shall use its best efforts
to remain informed as to whether its major customers, suppliers and vendors
are Year 2000 Compliant. Borrower shall, upon the Bank's request, provide
Bank with such certifications or other evidence of Borrower's compliance
with the terms hereof as Bank may from time to time require.
SECTION
7
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event
of default (an "Event of Default") under this Agreement:
7.1 Non-Payment: Any Borrower shall fail to pay the principal amount of any
Obligations when due or interest on the Obligations within 5 days of when
due.
7.2 Performance Under This Agreement: The Borrower shall fail in any material
respect to perform or observe any term, covenant or agreement contained in
this Agreement or in any document, instrument or agreement relating to this
Agreement or any other document or agreement executed by Borrower with or
in favor of Bank and any such failure shall continue unremedied for more
than 30 days after written notice from the Bank to the Borrower of the
existence and character of such Event of Default.
7.3 Representations and Warranties; Financial Statements: Any representation or
warranty made by the Borrower under or in connection with this Agreement or
any financial statement given by the Borrower or any guarantor shall prove
to have been incorrect in any material respect when made or given or when
deemed to have been made or given.
7.4 Other Agreements: If there is a default under any other agreement with Bank
or under an agreement to which Borrower is a party with Bank or with a
third party or parties resulting in a right by the Bank or by such third
party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness.
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<PAGE>
7.5 Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be
unable to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any substantial
amount of its properties and assets; (iii) file a voluntary petition in
bankruptcy or seeking reorganization or to effect a plan or other
arrangement with creditors; (iv) file an answer admitting the material
allegations of an involuntary petition relating to bankruptcy or
reorganization or join in any such petition; (v) become or be adjudicated a
bankrupt; (vi) apply for or consent to the appointment of, or consent that
an order be made, appointing any receiver, custodian or trustee, for itself
or any of its properties, assets or businesses; or (vii) in an involuntary
proceeding, any receiver, custodian or trustee shall have been appointed
for all or substantial part of the Borrower's or guarantor's properties,
assets or businesses and shall not be discharged within 30 days after the
date of such appointment.
7.6 Execution: Any writ of execution or attachment or any judgment lien shall
be issued against any property of the Borrower and shall not be discharged
or bonded against or released within 30 days after the issuance or
attachment of such writ or lien.
7.7 Suspension: The Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any
permit, license or approval of any governmental body necessary to conduct
the Borrower's business as now conducted.
7.8 Material Adverse Change: If there occurs a material adverse change in the
Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations
or there is a material impairment of the value or priority of the Bank's
security interest in the Collateral.
7.9 Change in Ownership: There shall occur a sale, transfer, disposition or
encumbrance (whether voluntary or involuntary), or an agreement shall be
entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Borrower.
7.10 Impairment of Collateral. There shall occur any injury or damage to all or
any part of the Collateral or all or any part of the Collateral shall be
lost, stolen or destroyed.
SECTION
8
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole and
absolute election, without demand and only upon such notice as may be required
by law:
8.1 Acceleration: Declare any or all of the Borrower's indebtedness owing to
the Bank, whether under this Agreement or any other document, instrument or
agreement, immediately due and payable, whether or not otherwise due and
payable.
8.2 Cease Extending Credit: Cease making Advances or otherwise extending credit
to or for the account of the Borrower under this Agreement or under any
other agreement now existing or hereafter entered into between the Borrower
and the Bank.
8.3 Termination: Terminate this Agreement as to any future obligation of the
Bank without affecting the Borrower's obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document,
instrument or agreement.
8.4 Protection of Security Interest: Make such payments and do such acts as the
Bank, in its sole judgment, considers necessary and reasonable to protect
its security interest or lien in the
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<PAGE>
Collateral. The Borrower hereby irrevocably authorizes the Bank to pay,
purchase, contest or compromise any encumbrance, lien or claim which the
Bank, in its sole judgment, deems to be prior or superior to its security
interest. Further, the Borrower hereby agrees to pay to the Bank, upon
demand therefor, all expenses and expenditures (including attorneys' fees)
incurred in connection with the foregoing.
8.5 Foreclosure: Enforce any security interest or lien given or provided for
under this Agreement or under any security agreement, mortgage, deed of
trust or other document, in such manner and such order, as to all or any
part of the properties subject to such security interest or lien, as the
Bank, in its sole judgment, deems to be necessary or appropriate and the
Borrower hereby waives any and all rights, obligations or defenses now or
hereafter established by law relating to the foregoing. In the enforcement
of its security interest or lien, the Bank is authorized to enter upon the
premises where any Collateral is located and take possession of the
Collateral or any part thereof, together with the Borrower's records
pertaining thereto, or the Bank may require the Borrower to assemble the
Collateral and records pertaining thereto and make such Collateral and
records available to the Bank at a place designated by the Bank. The Bank
may sell the Collateral or any portions thereof, together with all
additions, accessions and accessories thereto, giving only such notices and
following only such procedures as are required by law, at either a public
or private sale, or both, with or without having the Collateral present at
the time of the sale, which sale shall be on such terms and conditions and
conducted in such manner as the Bank determines in its sole judgment to be
commercially reasonable. Any deficiency which exists after the disposition
or liquidation of the Collateral shall be a continuing liability of the
Borrower to the Bank and shall be immediately paid by the Borrower to the
Bank.
8.6 Non-Exclusivity of Remedies: Exercise one or more of the Bank's rights set
forth herein or seek such other rights or pursue such other remedies as may
be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
8.7 Application of Proceeds: All amounts received by the Bank as proceeds from
the disposition or liquidation of the Collateral shall be applied to the
Borrower's indebtedness to the Bank as follows: first, to the costs and
expenses of collection, enforcement, protection and preservation of the
Bank's lien in the Collateral, including court costs and reasonable
attorneys' fees, whether or not suit is commenced by the Bank; next, to
those costs and expenses incurred by the Bank in protecting, preserving,
enforcing, collecting, liquidating, selling or disposing of the Collateral;
next, to the payment of accrued and unpaid interest on all of the
Obligations; next, to the payment of the outstanding principal balance of
the Obligations; and last, to the payment of any other indebtedness owed by
the Borrower to the Bank.
SECTION
9
MISCELLANEOUS
9.1 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any
amount so payable under this Agreement, the Bank may, at its option and
without any obligation to do so and without waiving any default occasioned
by the Borrower having so failed to pay such amount, create an Advance
under this Agreement in an amount equal to the amount so payable, which
Advance shall thereafter bear interest as provided hereunder.
9.2 Default Interest Rate: If an Event of Default, or an event which, with
notice or passage of time could become an Event of Default, has occurred or
is continuing, the Borrower shall pay to the Bank interest on any
Indebtedness or amount payable under this Agreement at a rate which is 3%
in excess of the rate or rates then in effect under this Agreement.
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<PAGE>
9.3 Reliance and Further Assurances: Each warranty, representation, covenant,
obligation and agreement contained in this Agreement shall be conclusively
presumed to have been relied upon by the Bank regardless of any
investigation made or information possessed by the Bank and shall be
cumulative and in addition to any other warranties, representations,
covenants and agreements which the Borrower now or hereafter shall give, or
cause to be given, to the Bank. Borrower agrees to execute all documents
and instruments and to perform such acts as the Bank may reasonably deem
necessary to confirm and secure to the Bank all rights and remedies
conferred upon the Bank by this agreement and all other documents related
thereto.
9.4 Attorneys' Fees: Borrower shall pay to the Bank all costs and expenses,
including but not limited to reasonable attorneys fees, incurred by Bank in
connection with the administration, enforcement, including any bankruptcy,
appeal or the enforcement of any judgment or any refinancing or
restructuring of this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness
hereunder.
9.5 Notices: All notices, payments, requests, information and demands which
either party hereto may desire, or may be required to give or make to the
other party hereto, shall be given or made to such party by hand delivery
or through deposit in the United States mail, postage prepaid, or by
facsimile delivery, or to such other address as may be specified from time
to time in writing by either party to the other.
To the Borrower: To the Bank:
TRINET EMPLOYER GROUP, INC. SANWA BANK CALIFORNIA
101 Callan Avenue, 3rd Floor Hayward Office (BBC)
San Leandro, CA 94577 24299 Southland Drive
Attn: Doug Devlin Hayward, CA 94545
Attn: Elizabeth Saffo
FAX: (510) 352-6480 Assistant Vice President
FAX: (510) 293-9365
9.6 Waiver: Neither the failure nor delay by the Bank in exercising any right
hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right hereunder or under any other document, instrument or agreement
mentioned herein preclude other or further exercise thereof or the exercise
of any other right; nor shall any waiver of any right or default hereunder,
or under any other document, instrument or agreement mentioned herein,
constitute a waiver of any other right or default or constitute a waiver of
any other default of the same or any other term or provision.
9.7 Conflicting Provisions: To the extent the provisions contained in this
Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be
considered cumulative.
9.8 Binding Effect; Assignment: This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Bank and their respective successors
and assigns, except that the Borrower shall not have the right to assign
its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may sell, assign or grant participation in
all or any portion of its rights and benefits hereunder. The Borrower
agrees that, in connection with any such sale, grant or assignment, the
Bank may deliver to the prospective buyer, participant or assignee
financial statements and other relevant information relating to the
Borrower and any guarantor.
9.9 Jurisdiction: This Agreement, any notes issued hereunder, the rights of the
parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein shall be governed
by and construed according to the laws of the State of
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<PAGE>
California without regard to conflict of law principles, to the
jurisdiction of whose courts the parties hereby submit.
9.10 Waiver of Jury Trial: THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT. THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
9.11 Counterparts: This Agreement may be executed in any number of counterparts
and all such counterparts taken together shall be deemed to constitute one
and the same instrument.
9.12 Headings: The headings herein set forth are solely for the purpose of
identification and have no legal significance.
9.13 Entire Agreement and Amendments: This Agreement and all documents,
instruments and agreements mentioned herein constitute the entire and
complete understanding of the parties with respect to the transactions
contemplated hereunder. All previous conversations, memoranda and writings
between the parties pertaining to the transactions contemplated hereunder
not incorporated or referenced in this Agreement or in such documents,
instruments and agreements are superseded hereby. This Agreement may be
amended only by an instrument in writing signed by the Borrower and the
Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA TRINET EMPLOYER GROUP, INC.
BY: /s/ ELIZABETH SAFFO BY: /s/ MARTIN BABINEC
----------------------------- --------------------------
Name: Elizabeth Saffo, Assistant Name: Martin Babinec, President
Vice President
BY: /s/ DOUGLAS DEVLIN
---------------------------
Name: Douglas Devlin, Chief
Financial Officer
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<PAGE>
Exhibit 2.1.1
Schedule of Purposes and Maximum Loan Amounts and Costs
- -----------------------------------------------------------------------------
PROJECT NAME BUDGETED PROJECT COSTS
- -----------------------------------------------------------------------------
Pay to Bill $ 216,000
- -----------------------------------------------------------------------------
Canadian PTB $ 247,200
- -----------------------------------------------------------------------------
Reno Facility $ 600,000
- -----------------------------------------------------------------------------
Web Deployment $1,453,800
- -----------------------------------------------------------------------------
Back Office Systems $ 981,000
- -----------------------------------------------------------------------------
Additional Web Self-Service $ 531,400
- -----------------------------------------------------------------------------
Additional Infrastructure $ 511,000
- -----------------------------------------------------------------------------
Supporting Capital Expenditures $1,338,646
- -----------------------------------------------------------------------------
Total $5,879,046
- -----------------------------------------------------------------------------
Notwithstanding anything contrary contained in the credit agreement dated
September 21, 1999 Sanwa Bank is obligated to advance funds in an amount not to
exceed 80% of individual budgeted project costs, as designated in the table
above. The Bank, in its sole discretion, may advance funds in an amount not to
exceed 100% of individual budgeted project costs. Under no circumstances shall
the Bank's aggregate funding exceed $4,000,000.00.
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<PAGE>
CERTIFIED CORPORATE RESOLUTION TO BORROW
WHEREAS, TRINET EMPLOYER GROUP, INC. (the "Corporation") has made
application to SANWA BANK CALIFORNIA (the "Bank") for credit accommodations
which may consist of but shall in no way be limited to the following: the
renewal, continuation or extension of an existing obligation; the extension of a
new loan, line of credit or commitment; the issuance of letters of credit or
banker's acceptances; or the purchase or sale through Bank of foreign
currencies.
RESOLVED, that: any two, acting together, of the following officers: MARTIN
BABINEC, as the PRESIDENT of the Corporation, or DOUGLAS DEVLIN, as the CHIEF
FINANCIAL OFFICER of the Corporation, are authorized, in the name of and on
behalf of the Corporation to:
(a) Borrow money from the Bank in such amounts and upon such terms and
conditions as are agreed upon by the officers of the Corporation and
the Bank; and execute and deliver or endorse such evidences of
indebtedness or renewals thereof or agreements therefor as may be
required by the Bank, all in such form and content as the officers of
the Corporation executing such documents shall approve (which approval
shall be evidenced by the execution and delivery of such documents);
provided, however, that the maximum amount of such indebtedness shall
not exceed the principal sum of $30,000,000.00 exclusive of any
interest, fees, attorneys' fees and other costs and expenses related
to the indebtedness.
(b) Execute such evidences of indebtedness, agreements, security
instruments and other documents and to take such other actions as are
herein authorized.
(c) Sell to or discount or re-discount with the Bank any and all
negotiable instruments, contracts or instruments or evidences of
indebtedness at any time held by the Corporation; and endorse,
transfer and deliver the same, together with guaranties of payment or
repurchase thereof, to the Bank (for which the Bank is hereby
authorized and directed to pay the proceeds of such sale, discount or
re-discount as directed by such endorsement without inquiring into the
circumstances of its issue or endorsement or the disposition of such
proceeds).
(d) Withdraw, receive and execute receipts for deposits and withdrawals on
accounts of the Corporation maintained with the Bank.
(e) Grant security interests and liens in any real, personal or other
property belonging to or under the control of the Corporation as
security for any indebtedness of the Corporation to the Bank; and
execute and deliver to the Bank any and all security agreements,
pledges, mortgages, deeds of trust and other security instruments and
any other documents to effectuate the grant of such security interests
and liens, which security instruments and other documents shall be in
such form and content as the officers of the Corporation executing
such security instruments and other documents shall approve and which
approval shall be evidenced by the execution and delivery of such
security instruments and other documents.
(f) Apply for letters of credit or seek the issuance of banker's
acceptances under which the Corporation shall be liable to the Bank
for repayment.
(g) Purchase and sell foreign currencies, on behalf of the Corporation,
whether for immediate or future delivery, in such amounts and upon
such terms and conditions as the officer(s) authorized herein may deem
appropriate, and give any instructions for transfers or deposits of
monies by check, drafts, cable, letter or otherwise for any purpose
incidental to the foregoing, and authorize or direct charges to the
depository account or accounts of the
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<PAGE>
Corporation for the cost of any foreign currencies so purchased
through the Bank.
(h) To designate in writing to the Bank in accordance with the terms of
any agreement or other document executed by the above-named
individuals one or more individuals who shall have the authority to as
provided herein, to:
(1) request advances under lines of credit extended by the Bank to
the Corporation;
(2) apply for letters of credit or seek the issuance of bankers
acceptances under which the Corporation shall be liable to the
Bank for repayment,
(3) make deposits and receive and execute receipts for deposits on
accounts of the Corporation maintained with the Bank;
(4) make withdrawals and receive and execute receipts for withdrawals
on account of the Corporation maintained with the Bank;
(5) purchase and sell foreign currencies.
(i) Transact any other business with the Bank incidental to the powers
hereinabove stated.
RESOLVED FURTHER, that all such evidences of indebtedness, agreements,
security instruments and other documents executed in the name of and on behalf
of the Corporation and all such actions taken on behalf of the Corporation in
connection with the matters described herein are hereby ratified and approved.
RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions
until written notice of their revocation is delivered to the Bank.
RESOLVED FURTHER, that any resolution set forth herein is in addition to
and does not supersede any resolutions previously given by the Corporation to
the Bank.
RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is,
authorized and directed to prepare, execute and deliver to the Bank a certified
copy of the foregoing resolutions.
I do hereby certify that I am ____________________, the Secretary of TRINET
EMPLOYER GROUP, INC., a California corporation, and I do hereby further certify
that the foregoing is a true copy of the resolutions of the Board of Directors
of the Corporation adopted and approved by unanimous written consent.
I hereby further certify that such resolutions are presently in full force
and effect and have not been amended or revoked. I do further certify that the
following persons have been duly elected and qualified as and, this day are,
officers of the Corporation, holding their respective offices appearing below
their names, and that the signatures appearing opposite their names are the
genuine signatures of such persons.
NAME OF OFFICER: MARTIN BABINEC /s/ MARTIN BABINEC
------------------------------------
(SIGNATURE)
TITLE: PRESIDENT
NAME OF OFFICER: DOUGLAS DEVLIN /s/ DOUGLAS DEVLIN
------------------------------------
(SIGNATURE)
TITLE: CHIEF FINANCIAL OFFICER
-2-
<PAGE>
IN WITNESS WHEREOF, this document is executed as of the 21 day of September,
NAME OF CORPORATION: TRINET EMPLOYER GROUP, INC.
BY: /s/ DOUGLAS P. DEVLIN
------------------------------------
Name: Douglas P. Devlin, Secretary
-3-
<PAGE>
[SANWA BANK LOGO]
TRINET: Construction-Draw Sheet
<TABLE>
<CAPTION>
Owner/Project: Employer Group Inc. Draw #: Date:
- ------------------------------------------------------------------------------------------------------------------------------------
C D E F G H I
- ------------------------------------------------------------------------------------------------------------------------------------
Description Original Previous Previously This Borrower's Net Request Total Line
Budget Request Disbursed Request Equity This Draw Draw to Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Project Name: D10*.80 F10*.20 F10-G10 E10+H10
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Pay to Bill $216,000 $100,000 $ 80,000 $100,000 $20,000 $ 80,000 $ 160,000
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian PTB $200,000 $190,000 $152,000 $ 30,000 $ 6,000 $ 24,000 $ 176,000
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Reno Facility $100,000 $ 80,000 $ 64,000 $ 50,000 $10,000 $ 40,000 $ 104,000
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Web Deployment $150,000 $ 0 $ 0 $187,500 $37,500 $150,000 $ 150,000
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Back Office Systems $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Web Self-Service $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Infrastructure $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Supporting Capex $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS $666,000 $370,000 $370,000 $367,500 $73,500 $294,000 $ 664,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TRINET: Construction-Draw Sheet
<TABLE>
<CAPTION>
Owner/Project: Employer Group Inc. Draw #: Date:
- ------------------------------------------------------------------------------------------------------------------------------------
J K L
- ------------------------------------------------------------------------------------------------------------------------------------
Description Budget % Maximum
To Date Drawn Funding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Project Name: D10+F10 110/J10 IF/(I10=C10*.8,"Y","N")
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Pay to Bill $200,000 80.00% N
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian PTB $220,000 80.00% Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Reno Facility $130,000 80.00% Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Web Deployment $187,500 80.00% Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Back Office Systems $0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Web Self-Service $0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Infrastructure $0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
Supporting Capex $0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
$0 #DIV/0! Y
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS $737,500 Y
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LINE AVAILABILITY $3,336,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
***SBCL funds advanced in an amount equal to 80% of individual actual project
costs (assumes no project variance).
***Aggregate funding not to exceed $4,000,000.
***Prior to draw request-borrower to provide bank with:
1. Individual project receipts/invoices.
2. General breakdown of draw requests for hard costs and soft/labor costs.
3. Signed copy of construction-draw sheet.
---------------------------
Trinet Employer Group, Inc.
<PAGE>
[LOGO OF SANWA BANK CALIFORNIA]
AUTHORIZATION TO CHARGE ACCOUNT
Hayward BBC #2278 Office September______, 1999
------------------
You are hereby authorized and instructed to charge $INVOICE AMOUNT to
my/our (Checking/XXXXXX No. 0560-53600) account, (MONTHLY/XXXXXXXXXXXXX),
beginning October 31, 1999, and credit a like amount to the following indicated
account in the name of TriNet Employer Group, Inc. Checking Account____________
Savings Account No._____________ [_] [_] Loan No. 05224199670 ______________ [_]
-----------
at SLOC Office [X] In the event there are not sufficient funds in my/our account
----
on the day of the charge, you may at any time thereafter deduct in addition to
the amount indicated above, a late charge in accordance with the terms of the
above referenced loan.
This authority is to remain in full force and effect until revoked by me in
writing, or, in case of credit on loan account, until the loan is paid in full.
Present contract calls for final payment on September_______ , 1999
CHARGE MUST ORIGINATE TRINET EMPLOYER GROUP, INC.
AT DEPOSITORY OFFICE _________________________________________
MIS-40 (03/90) Martin Babinec, President
/s/ DOUGLAS DEVLIN
-----------------------------------------
Douglas Devlin, Chief Financial Officer
<PAGE>
TO: Rochelle Dineen, Group Credit DATE: September 10, 1999
FROM: Elizabeth Saffo, Hayward BBC
RE: The Commercial Credit Agreement dated September 1999, executed by Trinet
Employer Group, Inc. ("Borrower") and Sanwa Bank California ("Bank").
Section 6 Covenants- 6.8 Redemption or Repurchase of Stock: prohibits the
----------------------------------
redemption or repurchase of any class of the Borrower's stock now or hereafter
outstanding.
Martin Babinec and Doug Devlin are requesting permission to repurchase
"diminimus stock" from external company shareholders. Pursuant to Section 6.8
of the Commercial Credit Agreement, the BBC is recommending that the Borrower be
permitted to repurchase company stock in an amount not to exceed $50,000 per
annum.
Recommended Approved
/s/ELIZABETH SAFFO /s/ROCHELLE DINEEN 9/10/99
- ------------------ ---------------------------------
Elizabeth Saffo, AVP Rochelle Dineen, VP
Hayward BBC Group Credit, Northern Region
<PAGE>
[LOGO OF SANWA BANK CALIFORNIA]
LOAN DISBURSEMENT INSTRUCTIONS
Line of Credit
Date:_____________________________,________________
The undersigned hereby instructs Sanwa Bank California to disburse the proceeds
of this loan as shown below:
DISBURSEMENT AMOUNT
Credited to the following account: Any and all Advances will $_______
be deposited into checking account #0560-53600 upon the
request of the Borrower.
========
TOTAL: $_______
-1-
<PAGE>
BORROWER:
TRINET EMPLOYER GROUP, INC.
BY: /s/ MARTIN BABINEC
--------------------------------
NAME: Martin Babinec, President
BY: /s/ DOUGLAS DEVLIN, CFO
--------------------------------
NAME: Douglas Devlin, Chief
Financial Officer
-2-
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
Exhibit 10.7
CONCUR AGREEMENT NUMBER___________
CONCUR TECHNOLOGIES, INC.
VOLUME LICENSE AGREEMENT
(Employee-Based Pricing)
Volume License Agreement (the "Agreement") made this 12th day of August, 1999,
---- ------
(the "Agreement Date") by and between Concur Technologies, Inc. ("Concur") and
TriNet VCO ("Customer").
- ----------
In consideration of the license fee paid by Customer to Concur and of the mutual
covenants and conditions set forth herein, the parties agree as follows:
DEFINITIONS:
"CustomerOne Services" means the technical support and related services provided
- ---------------------
by Concur for the Licensed Programs as set forth in Section 5.1 and Exhibit B.
"Documentation" means technical manuals and other documentation relating to the
-------------
operation and use of the Licensed Programs which are delivered with the
respective Licensed Programs.
"Licensed Programs" means the Concur Software and the Third Party Software.
-----------------
"Concur Software" means object code versions of the software programs developed
---------------
by or for Concur and described in Exhibit A including any accompanying
Documentation, and also including all Updates thereto which may be provided to
Customer by Concur pursuant to the terms of Section 5.
"Third Party Software" means the object code versions of the third party
--------------------
software programs described in Exhibit A, including any accompanying
Documentation, and including all Updates thereto which may be provided to
Customer by Concur pursuant to the terms of Section 5.
"Updates" means one (1) copy of all published revisions and corrections to the
------
Documentation and one (1) copy of corrections and new releases of the Licensed
Programs that are generally made available at no additional cost to Concur's
customers who have ordered CustomerOne Services for the relevant time period.
Updates shall not include any options or future products which Concur or third
party vendors license separately, including any specific applications within the
EmployeeDesktop suite that have not been licensed by Customer under this
Agreement, as referenced in Exhibit A hereto. For example, if Customer is
licensing XMS with EmployeeDesktop, payment of CustomerOne fees for XMS does not
entitle Customer to use CompanyStore without payment of additional license and
CustomerOne fees.
1. LICENSE
1.1 Concur hereby grants to Customer, subject to the terms and conditions of
this Agreement and payment of the license fees set forth in Exhibit A, a
fully-paid, non-exclusive license without right of sublicense (the
"License") to use the Licensed Programs solely for Customer's own internal
data processing operations.
The parties have agreed not to account for the actual number of users of
the Licensed Programs within Customer's organization, but that the license
and maintenance fees shall be proportionate to the total number of
Customer employees, as published in Customer's annual report (or other
reliable data source). Customer shall not permit any third party to use the
Licensed Programs except as specifically authorized in writing by Concur.
1.2 Customer may not copy any Licensed Programs, or any portion thereof, except
to (a) make one copy solely for backup or archival purposes; or (b)
transfer the Licensed Programs to a single hard disk provided Customer
keeps the original solely for backup or archival purposes. Customer agrees
to reproduce on each copy the copyright and other proprietary notices
provided on the Master Disk(s) and the Documentation. Customer may not
market rent, lease, or relicense the Licensed Programs or use the Licensed
Programs for third party training, commercial timesharing, or service
bureau use.
1.3 Customer is authorized to use the Licensed Programs on a back-up computer,
at no additional charge, when its primary computer is temporarily
inoperable until operable status is restored and processing on the back-up
computer is completed. In addition, Customer may install the Licensed
Programs on a nonproduction test computer, at Customer's disaster recovery
site, for a period not to exceed thirty (30) days per year, solely to
recreate Customer's production environment for disaster recovery testing.
Customer expressly agrees that it shall neither apply nor benefit from the
functionality of the Licensed Programs under such disaster recovery
testing, except in the case of disaster.
1.4 Customer agrees not to alter, merge, modify or adapt the Licensed Programs
or the Documentation in any way or remove or obscure Concur's copyright or
trademark notices. In particular, Customer agrees not to cause or permit
the disassembly, decompilation, or reverse engineering of any Licensed
Program. In jurisdictions where a right to reverse engineer is provided by
law unless information is available about products in order to achieve
interoperability, functional compatibility, or similar objectives, Customer
agrees to submit a detailed written proposal to Concur concerning
Customer's information needs before engaging in reverse engineering.
- --------------------------------------------------------------------------------
REV 060399 CONCUR TECHNOLOGIES, INC. Page 1
- --------------------------------------------------------------------------------
<PAGE>
1.5 Other Concur products and/or run time versions of Third Party Software, may
be embedded in or delivered with the Licensed Programs under this Agreement
("Embedded Programs"). Customer's right to use any Embedded Programs shall
be limited to use necessary to implement the Licensed Programs it has
licensed. Customer shall have no right to use such Embedded Programs other
than as necessary for the licensed ordinary use of the Licensed Programs.
2. OWNERSHIP
2.1 Concur is the owner of, or has the rights to distribute, all of the
software components of the Licensed Programs, all copies of the Licensed
Programs, the forms generated by the Licensed Programs and the
Documentation for the Licensed Programs. The Licensed Programs and the
Documentation are also protected under applicable copyright laws and
Customer's right to use the Licensed Programs and the Documentation is
limited to the terms and conditions set forth in this Agreement. Any use of
the Licensed Programs by the U.S. government is subject to "restricted
rights" as that term is defined in FAR 52.227-19(c)(2) or DFAR
252.227.7013(c)(1) (if used in a defense related agency). Customer does not
acquire any rights, express or implied, in the Licensed Programs, other
than those specified in this Agreement
3. LIMITED WARRANTY AND LIMITATION OF REMEDIES
3.1 Warranties
A. Licensed Programs
Concur warrants that (i) each Licensed Program will perform in all material
respects in accordance with the Documentation for a period of ninety (90)
days from the date of delivery of such Licensed Program to Customer, and
(ii) each Licensed Program will not, as a result of the date change from
December 31, 1999 to January 1, 2000 fail to perform in all material
respects in accordance with the Documentation in the year 2000 and beyond.
Concur will not in any way be responsible for the Year 2000 Compliance of
the email systems, database systems, operating systems, browsers or any
other system or application (including any data extract files Concur may
create for Customer based on specifications provided by Customer) with
which the Licensed Programs interact, interface or exchange data but which
are not delivered by Concur as part of the Licensed Programs ("Non-Concur
Applications"); and (b) Concur is not responsible for any Year 2000-related
problems or compatibility problems resulting from the use of any of the
Licensed Programs (i) with any Non-Concur Applications that were not listed
in the supported configurations for the specific version of our Licensed
Programs licensed by Customer or (ii) that have been customized or altered
without the written approval of Concur. In addition, it is not Concur's
responsibility to ensure that Year 2000 Compliant versions of Customer's
Non-Concur Applications are compatible with the Licensed Programs.
Concur further warrants that the Licensed Programs do not contain any time
bombs, usage authorization codes, or other codes or programming devices
that may be used to access, modify, delete, damage, deactivate or disable
the Licensed Programs. The foregoing will not be deemed to prohibit or
limit Concur in any way from including features in the Licensed Programs
which restrict unlicensed use.
B. Media
Concur warrants that the Master Disk provided by Concur will be free from
defects in materials and workmanship under normal use for a period of
ninety (90) days from the date of delivery of the Master Disk to Customer.
C. Services
Concur warrants that its CustomerOne Services and consulting services will
be performed consistent with generally accepted industry standards. This
warranty shall be valid for ninety (90) days from performance of service.
3.2 Limitations of Warranty
The warranties above are the sole warranties provided by Concur. To be
covered by these limited warranties, Customer must provide Concur with
written notice of the breach of warranty within the applicable warranty
period. Please do not return any defective Master Disks until you have
called Concur's technical service support group and received a return
authorization number ("RMA"). The warranties do not apply if a Master Disk
has been damaged by misuse, or abuse or if a Licensed Program error is
caused, in whole or in part by the failure of any hardware or other
equipment to function in accordance with the specifications of the
applicable manufacturer. CONCUR SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES
AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY
IMPLIED WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE LICENSED PROGRAMS, THE MEDIA, THE
CUSTOMERONE SERVICES AND CONSULTING SERVICES. In no event does Concur
warrant that the LICENSED PROGRAMS, related Documentation, or services will
satisfy Customer's requirements, be without errors, or that all Licensed
Program errors will be corrected, or that the operation of the LICENSED
PROGRAMS will be uninterrupted.
3.3 Exclusive Remedies
Customer's exclusive remedy, and Concur's entire liability for any breach
of warranty, shall be:
A. For Licensed Programs
At the option of Concur, either correction of the error that caused the
breach of warranty, or refund of the
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 2
- --------------------------------------------------------------------------------
<PAGE>
license fees paid to Concur for the non-performing Licensed Program.
B. For Media
Concur will replace the defective materials unless the Master Disks have
been damaged by misuse or abuse.
C. For Services
At the option of Concur, either the reperformance of the services, or
refund the fees paid to Concur for the unsatisfactory services.
4. LIMITATION OF LIABILITY AND DAMAGES
4.1 NEITHER PARTY (INCLUDING CONCUR'S THIRD PARTY SOFTWARE PROVIDERS) WILL BE
LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR THIRD PARTY
DAMAGES (INCLUDING LOST PROFITS OR SAVINGS, BUSINESS INTERRUPTION, LOSS OF
DATA, OR SIMILAR CLAIMS), WHETHER IN AN ACTION IN CONTRACT OR IN TORT, EVEN
IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. The limitation of liability set forth in this Section
shall not be applicable to claims by Concur for Customer's breach of the
scope of the license rights under Section 1.
4.2 To the maximum extent permitted by law, Concur's total liability under this
Agreement, for whatever cause other than bodily injury, whether in an
action in contract or in tort, will be limited to the actual license fees
paid by Customer under this Agreement, and if such liability results from
Customer's use of the Licensed Programs or from services provided by or on
behalf of Concur, such liability will be limited to the actual fees paid by
Customer for the relevant Licensed Program or services giving rise to the
liability. The limitation of liability set forth in this Section shall not
be applicable to claims of infringement under Section 9.
4.3 The parties acknowledge that this Agreement allocates the risks between
Concur and Customer and that the fees reflect the limited warranties,
limitation of liability, and allocation of risk under this Agreement.
Customer further acknowledges that the pricing and terms of this Agreement
would have been different had there been a different allocation of risk.
4.4 The parties acknowledge and agree that the limitations specified in this
Section will survive and apply even if any remedy provided in this
Agreement is determined to have failed of its essential purpose.
5. CUSTOMERONE, CONSULTING AND TRAINING SERVICES
5.1 CustomerOne Services will be provided to customer only under the terms of
Concur's CustomerOne policies (including applicable fees) in effect on the
date customer support is rendered. Concur's current policies for its
CustomerOne Services are set forth in Exhibit B attached to this Agreement.
Reinstatement of lapsed CustomerOne Services is subject to Concur's
CustomerOne reinstatement fees in effect on the date CustomerOne Services
are reordered.
5.2 Concur will provide consulting and training services agreed to by the
Parties in writing under the terms of this Agreement. All consulting
services shall be billed on a time and materials basis unless the parties
expressly agree otherwise in writing. Any consulting or training services
acquired from Concur shall be bid separately from the Licensed Programs and
Customer may acquire either Licensed Programs or consulting services
without acquiring the other. Any training services provided by Concur shall
be subject to reasonable cancellation charges as follows: Written notice of
cancellation of any scheduled training classes must be received at least
fifteen (15) days prior to the first scheduled day of class or Customer
will be responsible for the full amount that would have been charged to
Customer for such class. For any on-site services requested in writing by
Customer, Customer shall reimburse Concur for reasonable, actual travel and
out-of-pocket expenses incurred.
5.3 Any ideas, know-how, or techniques which may be developed by Concur under
this Agreement, including any enhancements or modifications made to
Concur's Licensed Programs (collectively, "Developments"), shall be the
property of Concur. Concur may in its sole discretion develop, use, market,
and license any software or data processing material that is similar or
related to that which was developed by Concur for Customer. Concur shall
not be required to disclose information concerning any Developments which
Concur deems to be proprietary or confidential. Concur hereby grants to
Customer all rights to the Developments except for commercialization of the
Developments. Such rights shall include, but not be limited to, the right
to use, modify, adapt, copy and distribute (internally to Customer) such
Developments.
5.4 Customer acknowledges that Concur has extensive expertise, experience, and
proprietary products and tools in the area of operational cost
(specifically, travel and entertainment expenses and costs associated with
the procurement and human resources processes) management, processing and
automation, and that Concur intends to utilize such expertise, experience,
products and tools in providing consulting services and other services in
such field to other clients. Subject to Concur's compliance with the
confidentiality provisions stated herein, nothing in this Agreement shall
restrict or limit Concur from performing such development. consulting or
other services to any other entity in any industry. Customer agrees that,
except as otherwise agreed in this Agreement, Concur and its employees may
provide consulting services similar in nature to the services provided
hereunder for any third parties both during and after the term of this
Agreement.
5.5 Customer and Concur agree to cooperate in good faith to achieve completion
of the Services in a timely and professional manner. Customer understands
and agrees that Concur's provision of the consulting services may
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------
REV060399 CONCUR TECHNOLOGIES, INC. Page 3
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
depend on completion of certain Customer tasks or adherence to customer
schedules within Customer's control; consequently, the schedule for
completion of the consulting services or any portion thereof may require
adjustments or changes in the event such Customer tasks or schedules change
or are modified or are not completed as anticipated. Concur shall bear no
liability or otherwise be responsible for delays in the provision of
consulting services or any portion thereof occasioned by Customer's failure
timely to complete a Customer task or adhere to a Customer schedule.
6. PAYMENT AND TAXES
6.1 Payment of license fees shall be due thirty (30) days after delivery of the
Licensed Programs. All other fees, including fees for CustomerOne Services
which are payable in advance of the applicable Support Period, shall be
paid within thirty (30) days of Customer receipt of a proper invoice.
Customer acknowledges and agrees that Concur may assign the right to
receive payments due under this Agreement, to a third party for the purpose
of financing and/or leasing such payments. If Customer's procedures require
that an invoice be submitted against a purchase order before payments can
be made, Customer will be responsible for issuing the purchase order at the
time of order. Customer agrees to pay applicable media and shipping
charges. Customer shall pay all applicable shipping charges and any
federal, state, or local excise, sales, use or other taxes (except taxes
based on Concur's net income) imposed in respect of the License granted
hereunder or otherwise arising out of this Agreement. In the event that
Concur is required to pay any such tax, Customer shall promptly reimburse
Concur for the same. Customer shall reimburse Concur for all reasonable
travel and out-of-pocket expenses incurred by Concur in rendering any
services. Customer acknowledges that Concur will not commence
implementation or consulting services until Customer's first scheduled
license fee payment under this Agreement (whether such scheduled payment
represents the total license fees set forth in Exhibit A or a portion
thereof) has been paid by Customer. If past due amounts owing from Customer
are not paid within thirty (30) days (i) the unpaid amount shall bear
interest at the rate of 1% per month, and (ii) Concur will have the right
to terminate this Agreement upon thirty (30) days written notice to
Customer. Customer shall reimburse Concur for all reasonable costs incurred
(including reasonable attorneys' fees) in collecting past due amounts.
7. EXPORT RESTRICTIONS
7.1 Customer agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to ensure that neither
the Licensed Programs nor any direct product thereof are (i) exported
directly or indirectly, in violation of Export Laws; or (ii) intended to be
used for any purposes prohibited by the Export Laws, including without
limitation, nuclear, chemical, or biological weapons proliferation. If a
Licensed Program has been rightfully obtained by Customer outside of the
United States, Customer agrees not to re-export such Licensed Program or
any related technical information except as permitted by the laws and
regulations of the United States and those of the jurisdiction in which
Customer obtained such Licensed Programs.
8. TERM AND TERMINATION
8.1 This Agreement remains effective until terminated. Customer can terminate
this Agreement at any other time upon returning the Master Disk to Concur
and destroying all the copies of the Licensed Programs in any form in
Customer's possession. This License will also terminate if Customer fails
to comply with any material term or condition of this Agreement and such
breach is not cured within thirty (30) days following written notice from
Concur specifying such breach. This Agreement will terminate automatically
upon any transfer of a copy of the Licensed Programs by Customer other than
as permitted by this Agreement. The parties rights and obligations under
Sections 2, 3.2, 4, 6, 7, 8.1, 9, 10, 11, and 12 shall survive termination
of this Agreement. In the event of a termination of this Agreement for any
reason, Customer shall be obligated to pay Concur for any authorized work
performed and authorized expenses incurred through the date of the
termination.
8.2 In the event of a termination of this Agreement, and in addition to any
other rights or remedies available to Concur, Customer shall promptly
return to Concur the Master Disk and destroy all copies of the Licensed
Programs in any form in Customer's possession. Within two (2) weeks after
any termination, Customer shall certify in writing to Concur that it has
destroyed any and all copies of the Licensed Programs in Customer's
possession. Except as provided in Section 3, Customer shall not be
entitled to a refund of any portion of the license fee upon termination of
this Agreement.
9. INDEMNIFICATION FOR INFRINGEMENT
9.1 Concur warrants to Customer that the Licensed Programs do not infringe any
patent issued in the United States or a European Union country, or any
trade secret, copyright, or other proprietary rights. As Customer's
exclusive remedy for breach of this warranty and Concur's entire liability
for infringement, Concur agrees to indemnify and hold Customer harmless
with respect to any suit, claim, or proceeding brought against Customer
alleging that Customer's permitted use of the Licensed Programs under this
Agreement constitutes an infringement of any patent issued in the United
States or a European Union country, or any trade secret, copyright or other
proprietary right. Concur shall defend Customer against any such suit,
claim, or proceeding, and pay all litigation costs and reasonable
attorneys' fees incurred in connection with such suit, claim or proceeding,
and all settlement payments and damages awarded therein, provided that
Concur is notified in writing within thirty (30) days of any such suit,
claim or proceeding, Customer tenders the control of any such claim or
proceeding to Concur, and Customer cooperates with Concur in the defense or
settlement of same.
9.2 Upon notice of alleged infringement or if in Concur's opinion such a claim
is likely, Concur shall have the
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 4
- --------------------------------------------------------------------------------
<PAGE>
right, at its option and expense, either: (a) to procure for Customer the
right to continue using the Licensed Programs; or (b) to replace or modify
the Licensed Programs so that they provide substantially the same, or
greater, functionality and performance than the infringing Licensed
Program, but are no longer subject to a claim or infringement. If, in
Concur's opinion, none of the options above are reasonably available,
Customer's sole and exclusive remedy shall be to return the infringing
Licensed Programs to Concur in exchange for a refund of the price that
Customer paid to Concur for such Licensed Programs, less reasonable
amortization pro-rated over a forty-eight (48) month term from the date the
infringing Licensed Programs are shipped to Customer. Concur shall not have
any obligation under this Section: (a) to the extent the claim arises from
a modification of the Licensed Program other than by or on behalf of Concur
or from Customer's use of the Licensed Program in combination with other
non-Concur software, equipment or devices; (b) if Concur has provided
Customer with a non-infringing version of the Licensed Programs (that
provide substantially the same, or greater, functionality and performance
than the infringing Licensed Program) and Customer does not promptly
replace all copies of the infringing version of the Licensed Programs with
the non-infringing version; or (c) the use of any version of a Licensed
Program other than the most recent version of that Licensed Program, to the
extent that Customer's liability for such infringement claim would have
been avoided by the use of said most recent version.
10. CONFIDENTIALITY
10.1 By virtue of this Agreement, Concur and Customer may have access to
information that is confidential to one another ("Confidential
Information"). Confidential Information shall be limited to the Licensed
Programs, the results of any benchmark testing of the Licensed Programs
(both of the foregoing are trade secrets of Concur), the terms and pricing
under this Agreement and all information clearly identified as
confidential. A party's Confidential Information shall not include
information that: (a) is or becomes a part of the public domain through no
act or omission of the other party; (b) was rightfully in the possession of
the other party or was known by it prior to its disclosure; (c) is
independently developed by the receiving party without use of any
Confidential Information of the other party; or (d) was or is provided by
the disclosing party to third parties without restriction on disclosure.
10.2 The parties (including their respective employees and agents) agree to
hold each other's Confidential Information in confidence during the term of
this Agreement and for two (2) years thereafter. The parties further agree,
unless required by law or by court order, not to disclose or make any
Confidential Information of the other party available in any form to any
third party or to use it for any purpose other than the implementation of
this Agreement. Customer will not permit anyone except Authorized Users to
have access to the Licensed Programs.
11. RIGHT TO AUDIT
11.1 Concur may from time to time request Customer to provide a certification
signed by a duly authorized representative of Customer verifying the total
number of persons employed by Customer.
12. GENERAL TERMS
12.1 This Agreement is governed by the laws of the State of Washington,
excluding those laws that direct the application of the laws of another
jurisdiction. The parties agree that this Agreement shall not be governed
by the 1980 U.N. Convention on Contracts for the International Sale of
Goods and that English is the governing language of this Agreement. The
parties hereby irrevocably consent to the personal jurisdiction of the
federal and state courts sitting in King County in the State of Washington,
and to service of process within or without Washington by certified mail
requiring a signed receipt, and the parties agree that any court action
relating to the enforcement of any arbitration award or judgment or seeking
injunctive or other equitable relief, shall be brought in such courts.
12.2 All controversies or claims arising out of or relating to this Agreement
shall be resolved in accordance with the terms and conditions set forth in
this Section. First, the parties will attempt in good faith to resolve each
controversy or claim within sixty (60) days by negotiations between senior
executives of the parties who have settlement authority and who do not have
direct responsibility for the administration of this Agreement. The
disputing party shall give the other party written notice of the
controversy or claim in accordance with the notice provision of this
Agreement. The other party shall submit a response within twenty (20) days
after receiving said notice. The notice and response shall include (a) a
summary of the party's position and a summary of the evidence and arguments
supporting its position, and (b) the name of the executive who will
represent the party. The executives shall meet at a mutually acceptable
time and place within thirty (30) days of the disputing party's notice and
thereafter as often as they deem reasonably necessary to resolve the
controversy or claim. Concur and Customer agree that all negotiations
conducted pursuant to this Section are confidential and shall be treated as
compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
If the controversy or claim has not been resolved within sixty (60) days of
the disputing party's notice, the controversy or claim will be resolved
through binding arbitration conducted in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA") then in
effect. If Customer initiates arbitration, the arbitration proceeding will
be held in King County in the State of Washington and if Concur initiates
arbitration, the arbitration proceeding will be held in the city of the
federal district courthouse closest to Customer's principal place of
business. The parties agree that service of any notices in the course of
such arbitration at their respective addresses as provided in Section 12.4
shall be valid and sufficient. All proceedings will be held and a
transcribed record prepared in English. The parties will choose, by
- --------------------------------------------------------------------------------
REV060399 CONCUR TECHNOLOGIES, INC. Page 5
- --------------------------------------------------------------------------------
<PAGE>
mutual agreement, one arbitrator within thirty (30) days of receipt by a
party of the other party's notice of its intent to arbitrate. If no
arbitrator is appointed within the time provided in this Agreement or any
extension of time which is mutually agreed upon, the AAA will make such
appointment within thirty (30) days of such failure. The award rendered by
the arbitrator shall include costs of arbitration, reasonable attorneys'
fees and reasonable costs for expert and other witnesses, and judgment on
such award may be entered in any court having jurisdiction thereof.
Nothing in this Section shall be deemed to prohibit or restrict either
party from seeking injunctive relief and such other rights and remedies as
it may have at law or equity for any actual or threatened breach of any
provision of this Agreement relating to a party's confidential information
or proprietary rights. Except for actions for nonpayment or breach of
proprietary rights in the Licensed Programs, no action, regardless of
form, arising out of this Agreement may be brought more than one (1) year
after the cause of action has accrued.
12.3 Except for Customer's obligation to pay Concur, neither party shall be
liable for any delay or failure to perform due to external causes beyond
its reasonable control.
12.4 All notices shall be in writing and shall be delivered personally
(including overnight mail by private courier) or sent by first-class mail
(return receipt requested) or facsimile transmission to the address listed
in the signature page to this Agreement. Notice shall be deemed to have
been given at the time of delivery, twelve (12) hours after confirmation
of receipt if sent by facsimile, and three (3) business days after mailing
if sent by first-class mail. If Customer has any questions concerning this
Agreement, Customer can contact Concur at the following address:
Concur Technologies, Inc.
6222 185th Avenue NE
Redmond, WA 98052
Attention: Contract Administration
12.5 Customer acknowledges that it has read this Agreement, understands it and
agrees to be bound by its terms and conditions. Customer further agrees
that this Agreement (including the Exhibits attached to this Agreement) is
the complete and exclusive statement of the agreement between Customer and
Concur regarding its subject matter and supersedes and merges any earlier
proposal or prior arrangement, whether oral or written, and any other
communications between Customer and Concur relative to the subject matter
of this Agreement. If any provision of this Agreement is found void or
unenforceable, that provision will be enforced to the maximum extent
possible, and the remaining provisions of this Agreement will remain in
full force and effect. To expedite order processing, Customer agrees that
Concur may treat documents faxed by Customer to Concur as original
documents; nevertheless, either party may require the other to exchange
original signed documents. No purchase order, other ordering document, or
any handwritten or typewritten text which purports to modify or supplement
the printed text of this Agreement shall add to or vary the terms of this
Agreement. Customer consents to Concur identifying Customer as a customer
of the Licensed Programs on Concur's customer list; provided, however,
that Customer's name will not appear with greater prominence than any of
Concur's other customers listed in like manner and that Customer's name
will not be used in any manner suggesting any special endorsement of
Concur by Customer.
12.6 The parties agree that, during the term of this Agreement and for a period
of twelve (12) months thereafter, neither party will, except with the
prior written consent of the other, offer employment to or employ any
person who is employed by the other party (or any person who is a
subcontractor to the other party or an employee thereof) and who has been
introduced to the other party in connection with this Agreement.
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 6
- --------------------------------------------------------------------------------
<PAGE>
12.7 Neither this Agreement nor the License granted herein may be assigned or
transferred without the prior written permission of Concur, which
permission shall not be unreasonably withheld. Any attempted assignment
without such consent will be void. Notwithstanding the foregoing, Concur
may assign this Agreement, without Customer's permission, in connection
with any merger, consolidation, sale of all or substantially all of
Concur's assets, or any other similar transaction. In addition, Customer
agrees that Concur may subcontract the consulting services to be performed
in connection with the implementation of the Licensed Programs provided
that any such subcontracting arrangement shall not relieve Concur of any
of its obligations hereunder.
<TABLE>
<S> <C> <C>
Concur: Concur Technologies, Inc. Customer: TriNet VCO
--------------------------------------------
Name: Anne Kroger Name: Douglas P. Devlin
-------------------------------------------
Title: Director of Finance Title: Chief Financial Officer
-------------------------------------------
Signature: /s/ Anne Kroger Signature: /s/ DOUGLAS P. DEVLIN
---------------------- -------------------------------------------
Date: August 12, 1999 Date: August 12, 1999
---------------------- -------------------------------------------
Volume License Administrator: -----------------------
Phone/Fax: (510) 352-5000 / (510) 352-6480
------------------------------------------
Address: 101 Callan Avenue, San Leandro, CA 94577
-----------------------------------------
Customer Email Address: [email protected]
-----------------------------
</TABLE>
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CONCUR TECHNOLOGIES, INC. Page 7
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
During the first [ * ] years from the date of this Agreement, the parties
agree that (a) [ * ] license fees, beyond those set forth below, shall
be owed by Customer and (b) the annual CustomerOne Services fee rate will not
increase more than [ * ] each year.
For the period beginning [ * ] years after the date of this Agreement, if,
due to the number of Customer employees in the database and Concur's license
fees in effect at that time, additional license fees are due and they are in
excess of [ * ], the Customer will pay [ * ] at that time and make annual
payments not to exceed, in the aggregate, [ * ] until the additional fee has
been paid in full.
Licensed Programs
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DATE SOFTWARE PRODUCTS LICENSED SPECIFIED # OF USERS/ EXTENDED
COUNTRY EMPLOYEES PRICE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/99 EmployeeDesktop USA [ * ] [ * ]
- -------------------------------------------------------------------------------------------------------------------------------
7/99 Seeker Core and Payroll/PTO USA [ * ] [ * ]
Seeker Benefits Enrollment & Modeling
Seeker Events@Work
Back-Office Interface (Peoplesoft)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Amounts above do not include applicable taxes and shipping charges.
* Unlimited use during the initial 5-year term only.
CustomerOne Services
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
COVERAGE DATES SOFTWARE PRODUCTS LICENSED SPECIFIED # OF USERS/ EXTENDED
COUNTRY EMPLOYEES PRICE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/1/99-7/31/2000 EmployeeDesktop USA [ * ] [ * ]
- -------------------------------------------------------------------------------------------------------------------------------
8/1/99-7/31/2000 Seeker Core and Payroll/PTO USA [ * ] [ * ]
Seeker Benefits Enrollment & Modeling
Seeker Events@Work
Back-office Interface (Peoplesoft)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Amounts above do not include applicable taxes and shipping charges.
* [ * ] during the initial [ * ] year term only.
** CustomerOne Maintenance will be billed annually at [ * ] of the license
fees listed above beginning 8/1/1999.
[ * ] Confidential Treatment Requested
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 8
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
Summary of CustomerOne Services
Service Description:
- ---------------------
During the one year period commencing on the Agreement Date, Concur will provide
the CustomerOne Services described below for the fees indicated on Exhibit A.
The period during which CustomerOne Services will be provided to and purchased
by Customer will be automatically extended: (i) for an additional one-year
period unless terminated in writing by Concur or Customer at least thirty (30)
days before the end of the initial one-year period and; (ii) thereafter, for
successive additional one-year periods unless terminated in writing at least
thirty (30) days before the end of the then current one-year period by Concur or
Customer (the initial end of any one-year period and each subsequent extension
period are hereinafter each referred to as a "Support Period"). Concur reserves
the right to change any term of its CustomerOne Services (including the fee),
effective at the beginning of any Support Period, by giving Customer written
notice at least sixty (60) days before the end of the prior Support Period.
This Agreement may also be terminated during a Support Period as provided in
Section 8 of the Agreement.
Services:
- ----------
Technical Support: The CustomerOne Services provide support for the then current
version of the Licensed Program. The CustomerOne Services will include telephone
support and access to Concur Technologies' electronic support services via the
World Wide Web, including incident entry and review. An Incident is any call or
electronic inquiry to Concur Technologies' Technical Support, whether it regards
a product question, error message, or configuration issues, which generates a
call ID or tracking number. Concur will provide to Customer telephone technical
support for seven (7) days a week and twenty-four (24) hours per day, excluding
holidays. During the hours of 6:00 p.m. to 6:00 am. (PST) Concur's technical
support department is available via an emergency pager service. Customer will be
given the emergency pager number. The emergency pager is exclusively for
Priority 1 problems (as defined below) outside of normal business hours.
Priority 1 problems are severe problems in a production environment. Usage of
the emergency pager for problems other than Priority 1 will be billed at
Concur's standard technical consulting rate. No support will be available from
6:00 p.m. (PST) on the day immediately preceding a holiday until 6:00 a.m. (PST)
on the day immediately following a holiday. Concur currently observes the
following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Day after Thanksgiving, and Christmas Day. These holidays are
subject to change without prior notice to Customer.
CustomerOne Enterprise Service: There is no Incident limit on CustomerOne
Enterprise Service contracts.
Service Delivery: All support services will be provided to Customer's designated
Contacts. "Contact" is defined for these purposes as an individual listed on
the Technical Support Contact List at the end of this Exhibit B and for whom all
applicable CustomerOne Services fees for Contacts have been paid. Concur
provides telephone support to Customer's information service help-desk. Two
Contacts may be assigned for every Server database* covered under a CustomerOne
Services Agreement.
Upgrade/Updates: Concur will provide to Customer at no additional charge master
copies of any Updates to the then-current version of the
Licensed Program if and when each such Update is generally made available by
Concur to its other customers current on CustomerOne Services.
One master copy of the Update will be made available to each Contact. Customer
acknowledges and agrees that each such Update shall be regarded as a Licensed
Program under this Agreement, and Customer's use of the Updates shall be subject
to all the terms and conditions of this Agreement regarding Licensed Programs.
It is expressly understood and agreed by Customer that Concur is under no
obligation to issue Updates under future products that Concur or a third party
vendor licenses separately, including any specific applications within the
EmployeeDesktop suite that have not been licensed by Customer under this
Agreement, as referenced in Exhibit A hereto. For example, if Customer is
licensing XMS with EmployeeDesktop, payment of CustomerOne fees for XMS does not
entitle Customer to use CompanyStore without payment of additional license and
CustomerOne fees.
Error Corrections. Provided that the Licensed Programs are running under an
operating environment that is supported by Concur (each, a "Supported
Environment"), Concur shall use its reasonable efforts to correct any
reproducible programming error in a Licensed Program which significantly
degrades the use of the Licensed Program ("Error") with a level of effort
commensurate with the severity of the Error, provided that Concur (i) shall have
no obligation to correct all Errors in the Licensed Programs: and (ii) shall not
be responsible for correcting any Errors not attributable to the Licensed
Programs. Errors attributable to Concur shall be those that are reproducible by
Concur on unmodified Licensed Programs. Errors attributable to Customer's
modification or misuse of a Licensed Program, or to Customer's change in or of
its Supported Environment, will be billed at Concur's standard consulting rates
then in effect.
Exclusions and Limitations. Concur is not required to provide any CustomerOne
Services relating to problems arising out of (i) Customer's failure to
implement all Updates issued under the Agreement: (ii) any alternations or
additions to the Licensed Programs performed by parties other than Concur: (iii)
interconnection of the Licensed Programs with other software products not
supplied by Concur except as expressly prescribed in the Documentation; or (iv)
use of the Licensed Programs on a system other than a Supported Environment.
- --------------------------------------------------------------------------------
Concur reserves the right to terminate support (including Error correction
services) of any Licensed Program or prior release that has been superseded by a
new release anytime after six (6) months have elapsed since the shipment of a
new release.
- --------------------------------------------------------------------------------
Service Description & Procedure
- --------------------------------
Procedures:
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 9
- --------------------------------------------------------------------------------
<PAGE>
Who Provides CustomerOne Services: CustomerOne Services are provided by
specialists in the Concur Technologies Technical Assistance Center ("TAC") in
response to a request from Customer. The TAC is the focal point of service
delivery and service interaction with Customer. Both telephone support and
electronic services are offered from the TAC. Only Customer's Contact(s) will
communicate with the TAC specialists.
Submitting a Service Request: To submit a request for service, Customer has two
service options:
(a) over the phone,Contact will dial Concur Technologies' service number
as supplied to the Customer by Concur. When a TAC specialist answers
the phone, Contact will be prepared to discuss the problem with the
specialist.
(b) electronically, Contact will enter the service request via a secure
Web site. Contact will receive URL and login instructions in
information package.
In order to submit a service request, either telephonically or electronically,
Contact will employ the following procedures as applicable:
(a) provide a clear description that fully explains what the problem is,
and when the problem occurs;
(b) provide a diagnostic trace, sample code that causes the problem to
occur or a file of the failure symptom that has been recorded on the
end user's system; and
(c) describe the steps taken to attempt to resolve the problem.
Definitions of Priorities:
Priority 1: (P1) This status is reserved for severe problems in a production
environment. These problems occur when the Licensed Program is completely down,
thereby halting transactions throughout the organization, and there is no work-
around.
Priority 2: (P2) Serious problem in a pilot, test or production environment. A
major function is experiencing a reproducible problem which causes major
inconvenience; common operations fail consistently or the application crashes
readily.
Priority 3. (P3) A fundamental function is experiencing an intermittent problem,
or a common operation sometimes fails; a less common operation fails
consistently.
Priority 4: (P4) Minor problems: a less common operation fails occasionally; all
other errors.
Priority 5: (P5) Request for enhancements.
Concur reserves the right to re-prioritize a problem report to render it
consistent with these definitions
Response Time: Upon receipt of a service request, a TAC specialist will reply to
Contact to discuss the Problem within one (1) business hour on a P-1 request,
within four (4) business hours on a P-2 request, within eight (8) hours on a P-3
request, and within twenty four (24) hours on a P4 or P- 5 request from the time
of receipt of the service request.
Note: Hours are standard business hours
Server database is defined as either the XMS Server or Company Store Server
that holds reports and other information required by the relevant Licensed
Program.
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 10
- --------------------------------------------------------------------------------
<PAGE>
Technical Support Contact List
Required Information:
Please complete the required contact information below for:
1) The individual who should be contacted regarding sales and renewal
issues, and
2) The individual(s) who will be designated Customer's Technical Support
Contact(s).
<TABLE>
<CAPTION>
1) Administrative/Renewal Contact 2) Technical Support Contact/Designator
- --------------------------------- ---------------------------------------
<S> <C> <C> <C>
Company TriNet VCO Company TriNet VCO
---------------------------------- ------------------------------------------
Name: Marty Reese Name: Vincent Polite
---------------------------------- ------------------------------------------
Title: Director, E-business development Title: Team Lead - Internet & Systems Development
---------------------------------- ------------------------------------------
Address: 101 Callan Avenue Address: 101 Callan Avenue
---------------------------------- ------------------------------------------
City: San Leandro State: CA Zip: 94577 City: San Leandro State: CA Zip 94577
----------- ---- ------ ----------- -- -----
Phone: (510) 297-0274 Fax: (510) 352-6480 Phone: (510) 297-0237 Fax: (510) 352-6480
-------------- -------------- -------------- --------------
Email: [email protected] Email: [email protected]
---------------------- ----------------------------------------
<CAPTION>
3) Technical Support Contact/Designator
- ---------------------------------------
<S> <C>
Company TriNet VCO
----------------------------------
Name: Paul Sheirich
----------------------------------
Title: Peoplesoft Project Manager
----------------------------------
Address: 101 Callan Avenue
----------------------------------
City: San Leandro State: CA Zip 94577
----------- -- -----
Phone: (510) 352-6400 Fax: (510) 352-6480
-------------- --------------
Email: [email protected]
----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 11
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
As stated within this document, the Concur Technologies, Inc. Volume Licensing
Agreement (the "Agreement", above), exceptions to the standard terms may be made
and agreed to in writing by "Concur" and "Customer". This section, Exhibit C,
will amend the standard terms as follows:
Section 1. License
Sub-section 1.1
Customer will be able to operate the licensed programs across multiple,
networked servers (CPUs) that are under the control of the Customer in order to
properly support the Customer's PEO and Enterprise ES clients. Customer's
clients will, on occasion, behave as Users of the Licensed Programs (subject to
the terms of Exhibit A to the Agreement) and not sub-licensees.
Sub-section 1.2
Subject to Customer's confidentiality obligations under the Agreement, Customer
may only train the Customer's clients in the use of the user interfaces of the
Licensed Programs.
Section 6. Payment and Taxes
Sub-section 6.1
The payment of the licenses fees stated in Exhibit A will be due no later than
30 September 1999. An initial payment by Customer of 10% of the license fee will
be made. The balance of the license fees will not be considered "past due" until
after the agreed date above.
- --------------------------------------------------------------------------------
CONCUR TECHNOLOGIES, INC. Page 12
- --------------------------------------------------------------------------------
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.8
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is made as of the
Effective Date by and between PeopleSoft, Inc. ("PeopleSoft"), a Delaware
corporation having an office at 4305 Hacienda Drive, P.O. Box 9085, Pleasanton,
California 94566 and Licensee.
TERMS AND CONDITIONS
1. LICENSE
1.1 PeopleSoft grants Licensee a perpetual, non-exclusive, non-transferable
license to use the licensed Software, solely for Licensee's internal data
processing operations for the size of entity specified in the Schedule(s), on
Servers located at Sites within the Territory. Licensee shall use any third
party software products or modules provided by PeopleSoft solely with PeopleSoft
Software.
1.2 Licensee may:
a. make a reasonable number of copies of the Software, solely for: (i)
Production Use according to the terms of this Agreement; (ii) archive for
emergency back-up purposes; and (iii) disaster recovery testing purposes; and
b. modify or merge the Software with other software, with the understanding that
any modifications, however extensive, shall not diminish PeopleSoft's title
or interest in the Software.
1.3 PeopleSoft shall provide Licensee with the number of copies of the
Software and Documentation only as specified in the applicable Schedule and
workstation access as specified in the applicable Schedule. Licensee may make a
reasonable number of copies of Documentation solely for Licensee's internal use
with the Software provided all copyright notices are reproduced.
2. LICENSE EXCLUSIONS
2.1 Except as expressly authorized herein, Licensee shall not:
a. Copy the Software;
b. Cause or permit reverse compilation or reverse assembly of all or any
portion of the Software;
c. Distribute, disclose (except for disclosure to third parties under sections
4.2 and 14.2 of this Agreement), market, rent, lease or transfer to any
third party any portion of the Software (including PeopleTools) or the
Documentation, or use the Software or Documentation in any service bureau
arrangement, facility management, or third party training;
d. Disclose the results of Software performance benchmarks to any third party
without PeopleSoft's prior written consent (except for disclosure to third
parties under sections 4.2 and 14.2 of this Agreement);
e. Transfer the Software to a different database platform without prior written
notice to PeopleSoft and payment of any additional fees that may be due;
f. Transfer to or use the Software outside the Territory without providing
prior written notice to PeopleSoft and payment of additional fees;
g. Export the Software in violation of U.S. Department of Commerce export
administration regulations; and
h. Use PeopleTools, except solely in conjunction with the licensed PeopleSoft
applications.
2.2 No license, right, or interest in any PeopleSoft trademark, trade name,
or service mark is granted hereunder.
3. FEES AND PAYMENT TERMS
3.1 Licensee shall pay PeopleSoft the fees as specified in each applicable
Schedule.
3.2 Unless Licensee provides PeopleSoft with a valid tax exemption or direct
pay certificate, Licensee is responsible for all taxes, duties and customs fees
concerning the Software and/or services, excluding taxes based on PeopleSoft's
income. Overdue payments shall bear interest at the lesser of twelve percent
(12%) per annum or the maximum rate allowed under applicable law.
3.3 The license fee for the Software listed in the applicable Schedule is
based upon Licensee's representations concerning pricing metrics of operation,
as set forth in the Schedule(s). PeopleSoft reserves the right to assess
additional license fees if the pricing metrics of operation are enlarged beyond
the scope which formed the basis for the license fees.
3.4 On an annual basis, PeopleSoft shall provide Licensee with a statement
listing the applicable pricing metrics for which the Software is licensed.
Licensee shall provide PeopleSoft with a signed certification of such statement
either (a) confirming that the Software is being used in conformance with the
applicable license; or (b) providing PeopleSoft with corrected figures. If
Licensee provides PeopleSoft with corrected figures, PeopleSoft shall invoice
Licensee for the applicable fees for any increase beyond the applicable pricing
metrics licensed. Should Licensee fail to pay the applicable fees for any
increase, such failure shall be deemed a material breach of this Agreement.
3.5 PeopleSoft reserves the right to audit Licensee's use of the Software no
more than once annually at PeopleSoft's expense. All audits shall be conducted
during regular business hours at Licensee's site and shall not unreasonably
interfere with Licensee's business activities. PeopleSoft shall schedule any
audits at least fifteen (15) days in advance.
4. TITLE AND PROTECTION
4.1 PeopleSoft (or its third-party providers) retains title to all portions
of the Software and any copies thereof. If Licensee creates a Software
modification using PeopleTools, Licensee shall only have title in such
modification that remains after PeopleTools has been separated from the
modification. Licensee shall use modifications created by Licensee solely for
internal use in accordance with this Agreement. Licensee may disclose Licensee-
created modifications to other PeopleSoft customers through PeopleSoft Forum,
subject to PeopleSoft's right to modify and monitor modifications distributed
through PeopleSoft Forum. Except as stated above, Licensee shall have no right
to market or distribute modifications. In the event Licensee provides Software
modifications to PeopleSoft, PeopleSoft shall have a perpetual, royalty-free
license from Licensee to use, enhance and incorporate such modifications into
PeopleSoft's software products for general use and distribution. Licensee is not
obligated to disclose modifications to PeopleSoft.
4.2 Title to the physical media for the Software vests in Licensee upon
delivery. PeopleSoft represents that the Software contains valuable proprietary
information. Licensee shall not disclose the Software to anyone other than
those of its employees or consultants under nondisclosure obligation who have a
need to access the Software for purposes consistent with this Agreement. Each
full or partial copy of the Software made by Licensee shall have
page 1 of 4
<PAGE>
all copyright and proprietary information notices as provided in the original.
4.3 The Software was developed at private expense, is commercial, and is
published and copyrighted. If Licensee is an agency of the United States
Government or licensing the Software for operation on behalf of the United
States Government, the Software is transferred to Licensee with rights no
greater than those set forth in Federal Acquisition Regulation 52.227-19(c)(2)
[or DFAR 252.227-7013(c)(1) if the transfer is to a defense-related agency] or
subsequent citation.
4.4 The Software may be transferred to the U.S. government only with the
separate prior written consent of PeopleSoft and solely with "Restricted Rights"
as that term is defined in FAR 52.227- 19(c)(2) (or DFAR 252.227-7013(c)(1) if
the transfer is to a defense- related agency) or subsequent citation.
5. PATENT AND COPYRIGHT INDEMNITY
PeopleSoft shall indemnify and defend Licensee against any claims that the
Software infringes any United States patent or copyright; provided that
PeopleSoft is given prompt notice of such claim and is given information,
reasonable assistance, and sole authority to defend or settle the claim. In the
defense or settlement of the claim, PeopleSoft shall, in its reasonable judgment
and at its option and expense: (i) obtain for Licensee the right to continue
using the Software; (ii) replace or modify the Software so that it becomes
noninfringing while giving equivalent performance; or (iii) if PeopleSoft cannot
obtain the remedies in (i) or (ii) as its sole obligation, terminate the license
for the infringing Software and upon receipt of the infringing Software, return
only the license fees paid by Licensee for such Software, prorated over a five
year term from the applicable Schedule Effective Date. PeopleSoft shall have no
liability to indemnify or defend Licensee to the extent the alleged infringement
is based on: (i) a modification of the Software by anyone other than PeopleSoft
(ii) use of the Software other than in accordance with the Documentation, or
(iii) use of the Software outside the Territory.
6. DEFAULT AND TERMINATION
6.1 An event of default is: (i) a failure by either party to comply with any
material obligation under this Agreement; and (ii) such non-compliance remains
uncured for more than thirty (30) days after receipt of written notice thereof
6.2 If an event of default occurs, the nondefaulting party, in addition to
any other rights available to it under law or equity, may terminate this
Agreement and all licenses granted hereunder by written notice to the defaulting
party. Except as otherwise specifically stated herein, remedies shall be
cumulative and there shall be no obligation to exercise a particular remedy.
6.3 Within fifteen (15) days after termination of this Agreement, Licensee
shall certify in writing to PeopleSoft that all copies of the Software in any
form, including partial copies within modified versions, have been destroyed or
returned to PeopleSoft.
7. LIMITED WARRANTY
PeopleSoft warrants that it has title to the Software and/or the authority to
grant licenses to use the third party software. PeopleSoft warrants that the
Software will perform substantially in accordance with the Documentation for a
period of one (1) year from the date of initial installation and that the
Software media is free from material defects. PeopleSoft does not warrant that
the Software is error-free. PeopleSoft's sole obligation is limited to repair or
replacement of the defective Software in a timely manner, provided Licensee
notifies PeopleSoft of the deficiency within the one-year period and provided
Licensee has installed all Software updates provided pursuant to PeopleSoft's
Software Support Services. PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
8. LIMITATION OF LIABILITY
PEOPLESOFT SHALL NOT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS,
HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
EXCLUDING DAMAGES INCURRED BY LICENSEE UNDER THE ARTICLE ENTITLED, "PATENT AND
COPYRIGHT INDEMNITY," PEOPLESOFT'S LIABILITY FOR DAMAGES UNDER THIS AGREEMENT
(WHETHER IN CONTRACT OR TORT) SHALL IN NO EVENT EXCEED THE AMOUNT PAID BY
LICENSEE TO PEOPLESOFT FOR THE SOFTWARE MODULE OR THE SERVICES FROM WHICH THE
CLAIM AROSE. THE PARTIES AGREE TO THE ALLOCATION OF LIABILITY RISK SET FORTH IN
THIS SECTION.
9. SINGLE SITE SOFTWARE SUPPORT SERVICES
PeopleSoft shall provide Licensee with one (1) year of Software Support Services
for a single Server at Licensee's single, central Site listed in the applicable
Schedule according to PeopleSoft's standard Software Support Services Terms and
Conditions. After the first year, Licensee may elect to acquire single Site
Software Support Services pursuant to the then-current terms and conditions by
paying PeopleSoft the fees stated in the applicable Schedule. Unless Licensee
elects to purchase Software Support Services for more than one Site, Licensee
shall support all copies of the Software licensed under this Agreement through
Licensee's single, central Site. Licensee may acquire Support Services for
additional Sites for an additional annual fee.
10. ON-SITE SUPPORT DAYS
PeopleSoft shall use the installation support days listed in the Schedule(s) to
install the Software listed in the Schedule(s) on a single Server at Licensee's
single, central Site. Any additional installation support requested by
Licensee shall be provided to Licensee at the then-current hourly rate. Licensee
shall reimburse PeopleSoft for all reasonable travel and living expenses
associated with any installation and support.
11. TRAINING
PeopleSoft shall provide Licensee with the number of training units set forth in
the Schedule for use at a PeopleSoft Training Facility. Licensee may use
training units for training at Licensee's site only as the parties mutually
agree in writing. Licensee must use these training units within one (1) year
from the Schedule Effective Date.
12. NOTICES
All notices shall be in writing and sent by registered mail, overnight mail,
courier, or transmitted by facsimile (if confirmed by such mailing), to the
addresses indicated in this Agreement or such other address as either party may
indicate by at least ten (10) days prior written notice to the other party.
Notices to PeopleSoft shall be sent to the attention of PeopleSoft Legal with a
copy to Licensee's assigned account manager.
page 2 of 4
<PAGE>
13. ASSIGNMENT
Licensee may not assign this Agreement (by operation of law or otherwise) or
sublicense the Software without the prior written consent of PeopleSoft, and any
prohibited assignment or sublicense shall be null and void. Software licensed
under this Agreement is solely for the use of Licensee. Any merger or
acquisition of or by Licensee shall require payment of additional license fees
for the expanded scope of use of the licensed Software.
14. NONDISCLOSURE OBLIGATION
14.1 The terms, conditions, pricing and any other information clearly marked
"confidential" under this Agreement are confidential and shall not be disclosed,
orally or in writing by Licensee to any third party without the prior written
consent of PeopleSoft. PeopleSoft shall not disclose to any third party any
Licensee information provided to PeopleSoft which is clearly marked
"confidential" without Licensee's prior written consent
14.2 Licensee shall protect the Software with at least the same degree of care
and confidentiality, but not less than a reasonable standard of care, which
Licensee utilizes for Licensee information that it does not wish disclosed to
the public. Licensee may provide access to and use of the Software only to those
third parties that: (i) provide services to Licensee concerning Licensee's use
of the Software; (ii) have a need to use and access the Software; and (iii) have
agreed to substantially similar non-disclosure obligations imposed by Licensee
as those contained herein. This Agreement imposes no obligation upon Licensee
with respect to PeopleSoft's confidential information which Licensee can
establish by legally sufficient evidence: (a) was in the possession of, or was
rightfully known by Licensee without an obligation to maintain its
confidentiality prior to receipt from PeopleSoft; (b) is or becomes generally
known to the public without violation of this Agreement; (c) is obtained by
Licensee in good faith from a third party having the right to disclose it
without an obligation of confidentiality; or (d) is independently developed by
Licensee without the participation of individuals who have had access to
PeopleSoft's confidential information. Licensee may disclose confidential
information if required by law, provided that Licensee notifies PeopleSoft of
such requirement prior to disclosure and gives PeopleSoft an opportunity to
object to such disclosure. PeopleSoft may require Licensee to request that the
appropriate governmental entity seal the record containing such confidential
information and PeopleSoft shall have the right to assume responsibility for
responding to and defending such requests for disclosure of the confidential
information.
15. GENERAL
This Agreement is made in and shall be governed by the laws of the State of
California, without regard to its choice of law principles. Venue shall be in
San Francisco, California. The section headings herein are provided for
convenience only and have no substantive effect on the construction of this
Agreement. No purchase order or other ordering document that purports to modify
or supplement the printed text of this Agreement or any Schedule shall add to or
vary the terms of this Agreement. All such proposed variations or additions
(whether submitted by PeopleSoft or Licensee) are objected to and deemed
material unless agreed to in writing. Except for Licensee's obligation to pay
PeopleSoft, neither party shall be liable for any failure to perform due to
causes beyond its reasonable control. If any provision of this Agreement is held
to be unenforceable, this Agreement shall be construed without such provision.
The failure by a party to exercise any right hereunder shall not operate as a
waiver of such party's right to exercise such right or any other right in the
future. Except for actions for non-payment or breach of PeopleSoft's
proprietary rights in the Software, no action, regardless of form, arising out
of this Agreement may be brought by either party more than one year after the
cause of action has accrued. This Agreement may be amended only by a written
document executed by a duly authorized representative of each of the parties.
This Agreement may be executed in counterparts. To expedite order processing,
Transmitted Copies are considered documents equivalent to original documents,
however Licensee agrees to provide PeopleSoft with one fully executed original
Agreement and applicable Schedule(s).
This Agreement and the Schedule(s) constitute the entire agreement between the
parties concerning Licensee's acquisition and use of the Software. This
Agreement replaces and supersedes any prior verbal or written understandings,
communications, and representations between the parties. This Agreement may
be executed in counterparts, which taken together shall be considered original.
Sections 3, 4, 5, 8, 14, 15 and 16 of this Agreement shall survive any
termination of this Agreement.
16. DEFINITIONS
"Documentation" means only technical Publications relating to the use of the
Software, such as reference, user, installation, systems administrator and
technical guides, delivered by PeopleSoft to Licensee.
"PeopleTools" means the underlying architecture from which the Software is
designed, and includes software application programming tools and code.
"Production Use" means the use of the Software to perform real time transactions
for Licensee's internal use using live data.
"Schedule(s)" means the independent Software product schedule(s) executed by the
parties and Support Services schedules referencing this Agreement. Each
Schedule is a separate and independent contractual obligation from any other
Schedule. Agreement Effective Date and Schedule Effective Date(s) may
differ.
"Server" means a single database or file server that may be accessed by a
network of personal computers as set forth in the applicable Schedule.
"Site" means a specific, physical location of Licensee's Server as set forth in
the applicable Schedule.
"Software" means all or any portion of the then commercially available U.S.
functionality contained within the global version of the binary computer
software programs and enhancements thereto, (including corresponding source
code, unless specifically excluded elsewhere in this Agreement or the
Schedule(s)) and Documentation delivered by PeopleSoft to Licensee (or
subsequently made by Licensee with PeopleSoft's prior written consent), as
listed in the applicable Schedule. Software includes the third-party software
only as specified in the Schedule. Software does not include source code to
PeopleTools. Unless specifically stated otherwise, all Software is delivered to
Licensee only if and when generally commercially available.
page 3 of 4
<PAGE>
"Territory" means the territory designated in the applicable Schedule.
"Transmitted Copies" means this Agreement, Schedules and other ordering
documents that are (i) copied or reproduced and transmitted via photocopy,
facsimile or process that accurately transmits the original documents; and (ii)
accepted by PeopleSoft.
The Effective Date is September 24, 1997
TRINET EMPLOYER GROUP, INC.
- ---------------------------
LICENSEE
/s/ DOUGLAS P. DEVLIN
- ---------------------
(Authorized Signature)
Douglas P. Devlin, CFO
- ----------------------
(Name/Title)
Licensee Address: 101 CALLAN AVENUE
------------------
SAN LEANDRO, CA 94577
----------------------
PEOPLESOFT, INC.
/s/ William E. Pollak
- ---------------------
(Authorized Signature)
William E. Pollak, VP National Sales
- ------------------------------------
(Name/Title)
Approved As To
Legal Form
/s/ BM 9/97
- ------ ----
Initial Date
page 4 of 4
<PAGE>
SCHEDULE ONE
TO THE
SOFTWARE LICENSE AND SERVICES AGREEMENT
This independent Schedule is made as of September 24, 1997 ("Schedule Effective
Date") by and between PeopleSoft, Inc. ("PeopleSoft") and TriNet Employer Group,
Inc. ("Licensee"). This Schedule is part of the Software License and Services
Agreement between the parties dated September 24, 1997 ("Agreement").
PeopleSoft's standard Software Support Services Terms and Conditions shall be a
part of this Schedule during the initial, non-chargeable year of Support
Services, and thereafter only in the event Licensee elects to purchase Software
Support Services. Capitalized terms used herein shall have the same meaning
ascribed to them in the Agreement. Handwritten or typewritten text (other than
information which is specifically called for in the spaces provided) which
purports to modify or supplement the printed text of this Schedule shall have no
effect and shall not add to or vary the terms of the Agreement. All such
additions (whether submitted by Licensee or PeopleSoft) are objectionable and
deemed material.
Approved As To
Legal Form
BM 9/97
-------------
Initial Date
ACCEPTED BY: ACCEPTED BY:
LICENSEE PEOPLESOFT, INC.
/s/ DOUGLAS P. DEVLIN /s/ WILLIAM E. POLLAK
- -------------------------- ------------------------------------
Authorized Signature Authorized Signature
Douglas P. Devlin, CFO William E. Pollak, VP National Sales
- -------------------------- ------------------------------------
Printed Name and Title Printed Name and Title
<TABLE>
<CAPTION>
Production Test & License
----------- ------ --------
Copies/1/ Development Fee
--------- ----------- ---
Copies/2/
---------
<S> <C> <C> <C>
HRMS Software applications
Human Resources 1 0 [ * ]
Benefits Administration 1 0 [ * ]
Payroll 1 0 [ * ]
Financials Software applications
General Ledger (incl. nVision) 1 0 [ * ]
Asset Management 1 0 [ * ]
Payables 1 0 [ * ]
Billing 1 0 [ * ]
Receivables 1 0 [ * ]
-------
Subtotal from Page 1: [ * ]
(less fee reduction) [ * ]
-------
Subtotal from Page 2: [ * ]
-------
TOTAL FEES: [ * ]
-------
</TABLE>
The pricing set forth in this Schedule remains valid until 9/24/97.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Database Version: Oracle Operating System: HP-UX Hardware Model: HP
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
/1/ Indicates the number of physical copies to be shipped to Licensee.
Licensee's license includes the right to make copies for production use on
Servers at Licensee's Sites within the Territory. For the HRMS Software
applications licensed in this Schedule, the Territory shall be United States,
Canada and the United Kingdom. For the Financials Software applications licensed
in this Schedule, the Territory shall be United States only. Licensee will not
receive additional physical copies of the Software for this purpose.
/2/ If test and development copies are indicated, Licensee's license includes
the right to make test and development copies for use on Servers at Licensee's
Sites within the Territory. Licensee will not receive additional physical copies
of the Software for this purpose. Test and development copies may not be used
for production purposes.
[ * ] Confidential Treatment Requested
PeopleSoft HRMS Page 1 of 3
<PAGE>
Licensee receives the applicable items listed below:
- ------------------------------------------------------------------------------
Qty:
----
PeopleTools - Restricted Development/(3)/ 1
Training Units/(4)/ 114
Installation Support Days/(5)/ 9
Documentation for third party software 1
Documentation for PeopleSoft Applications 2
- --------------------------------------------------------------------------------
ADDITIONAL SOFTWARE/SERVICES
<TABLE>
<CAPTION>
Software/Service Manufacturer Quantity Fee
- ---------------- ----------- -------- ---
<S> <C> <C> <C>
Workstation Access (includes PeopleSoft, Inc. [ * ] [ * ]
base application Sybase, Inc./MITI
access, Workstation Crystal Computer
SQR, QueryLink, Services
nVision, Crystal).
Server SQR Sybase, Inc./MITI 1 included
Subtotal of Page 2: $0
--
</TABLE>
Payment terms: Licensee shall pay PeopleSoft ninety (90%) percent of the Total
Fees on the Schedule Effective Date and ten (10%) percent upon the earlier of
the Software installation date or sixty (60) days from the Schedule Effective
Date. Unless otherwise stated in this Schedule, the license fees specified
herein are non-cancelable and non-refundable. All fees are payable in U.S.
dollars and sent to the attention of PeopleSoft's Accounts Receivable
Department.
Single Site Software Support Services Renewal Terms: One (1) year after the
Schedule Effective Date, Licensee may elect to continue Software Support
Services for Licensee's single, central Site for the following year by paying
PeopleSoft an annual Support Services fee of seventeen (17%) percent of the
license fee paid for the Software licensed in this Schedule (17% of $650,200).
Thereafter, for a period of five (5) years, Licensee may elect to continue
single Site Software Support Services on an annual basis by paying PeopleSoft an
annual Software Support Services fee which shall not exceed 108% of the prior
year's fee. Thereafter, Licensee may elect to continue single Site Software
Support Services by paying PeopleSoft the then-current Support Services fee.
Additional license fees due based upon Licensee's growth in terms of annual
revenues and/or employees shall be added to the base fee for calculation of
Support Services fees due.
Increased HRMS License Fee Based Upon Increase in Employee Count: The pricing
set forth for the HRMS Software licensed in this Schedule is based on a Licensee
employee population of 3,500. Once Licensee grows to [ * ] employees and beyond
[ * ] employees, Licensee shall pay PeopleSoft additional license fees for the
licensed HRMS Software. Such additional license fees shall be as calculated in
the table below for the HRMS Software licensed in this Schedule. Licensee's
employee population shall be determined once annually in accordance with
PeopleSoft's Support Services billing. Additional license fees due shall be
added to the base fee for calculation of Support Services fees due.
_______________________________
/(3)/ PeopleTools for Restricted Development shall be used by Licensee to
develop interfaces and modifications only to the licensed PeopleSoft Software
application modules.
/(4)/ A Training Unit is equivalent to one person day of training in a
PeopleSoft training class.
/(5)/ One (1) Installation Support day is equivalent to an eight (8) hour work
day.
[ * ] Confidential Treatment Requested
PeopleSoft HRMS Page 2 of 3
<PAGE>
<TABLE>
<CAPTION>
Employee Population Additional License Fees Due
- ------------------- ---------------------------
<S> <C>
upon reaching 9,000 employees [ * ]
each additional 1,000 employees beyond [ * ] per each [ * ] employee increase
9,000 (up to 14,000 employees)
upon reaching 15,000 employees [ * ]
each additional 1,000 employees beyond [ * ] per each [ * ] employee increase
15,000 (up to 24,000)
upon reaching 25,000 employees [ * ]
each additional 1,000 employees beyond [ * ] per each [ * ] employee
increase
25,000 (up to 50,000)
each additional 1,000 employees [ * ] per each [ * ] employee increase
beyond 50,000
</TABLE>
Increased Financials License Fee Based Upon Increase in Annual Revenue:
Licensee's authorized use of the Financials Software licensed in this Schedule
is based upon Licensee's current annual revenues of $250,000,000. Once
Licensee's annual revenues reach and exceed $750,000,000, Licensee shall pay
PeopleSoft additional license fees for the licensed Financials Software. Such
additional license fees shall be as calculated in the table below for the
Financials Software licensed in this Schedule. Licensee's annual revenues shall
be determined once annually in accordance with PeopleSoft's Support Services
billing. Additional license fees due shall be added to the base fee for
calculation of Support Services fees due.
<TABLE>
<CAPTION>
Annual Revenue Additional License Fees Due
-------------- ---------------------------
<S> <C>
upon reaching $750 million [ * ]
each $250 million increase beyond
increase $750 million [ * ] per each [ * ] million
</TABLE>
Additional Software Option: Through the period ending March 15, 1998, Licensee
shall have the option to license one (1) production copy of the following
Software applications for the following license fees:
<TABLE>
<CAPTION>
Software application License Fee
-------------------- -----------
<S> <C>
Projects $56,000
Time and Labor $110,000
</TABLE>
The license fees stated in this option include one year of Software Support
Services commencing upon exercise of the pricing option. The pricing stated in
this option shall only be valid if PeopleSoft is not subjected to a competitive
sales process. A competitive sales process includes responding to an RFP, RFQ,
RFI and more than one PeopleSoft product demonstration per product.
<TABLE>
<CAPTION>
LICENSEE SITE ADDRESS BILL-TO ADDRESS SHIP-TO ADDRESS
<S> <C> <C> <C> <C>
101 Callan Avenue 101 Callan Avenue 101 Callan Avenue
San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577
Contact Name: Doug Devlin Contact Name: Doug Devlin Contact Name: Doug Devlin
Phone No. 510/297-0221 Phone No. 510/297-0221 Phone No. 510/297-0221
Fax No. 510/352-6480 Fax No. 510/352-6480 Fax No. 510/352-6480
P.O. Box No:
</TABLE>
[ * ] Confidential Treatment Requested
PeopleSoft HRMS Page 3 of 3
<PAGE>
Software Support Services
Terms and Conditions
Software Support Services Terms and Conditions ("Support Services") are
referenced in and incorporated into the License Agreement between PeopleSoft
and Licensee. Upon reasonable notice, PeopleSoft reserves the right to
modify the terms and conditions of Support Services on an annual basis to
reflect current market conditions.
1. Coverage
PeopleSoft provides Licensee with Support Services for the Software at
Licensee's single, central Site in consideration for Licensee's payment of
the applicable support services fees to PeopleSoft. Only employees from
Licensee's single, central, supported Site may contact PeopleSoft in
connection with the provision of Support Services. Licensee may acquire
support services for additional Sites by paying an additional fee.
2. Software Maintenance
The following technical and functional improvements will be issued
periodically by PeopleSoft to improve Software operations:
a. Fixes to Errors;
b. Updates; and
c. Enhancements contained within new releases.
3. Priority Level of Errors
PeopleSoft shall reasonably determine the priority level of Error.
PeopleSoft uses the following protocols:
Priority A (Critical):
PeopleSoft promptly initiates the following procedures: (1) assign
PeopleSoft specialists to correct the Error; (2) provide ongoing
communication on the status of the corrections; and (3) immediately commence
to provide a Workaround or a Fix.
Priority B (Urgent):
PeopleSoft: (1) assigns a PeopleSoft specialist to commence correction of
the Error and (2) Provides escalation procedures as reasonably determined by
PeopleSoft support staff. PeopleSoft exercises all commercially reasonable
efforts to include the Fix for the Error in the next Software maintenance
release.
Priority C (Standard):
PeopleSoft may include the Fix for the Error in the next major Software
release.
4. Telephone Support
PeopleSoft provides telephone technical support concerning installation and
use of the Software. Except for designated holidays, standard telephone
support hours are Monday through Friday, 6:00 a.m. to 6:30 p.m. Pacific
Time. Telephone Support is available 24-hour, 7-days a week for in-
production customers who need to resolve critical production problems
outside of normal support hours.
5. Account Manager
PeopleSoft assigns an account manager to assist the on-going support
relationship. A reasonable amount of account manager on-Site time is
included in the annual Support Services fee. Licensee will reimburse
PeopleSoft for the reasonable travel and living expenses of the account
manager for on-Site activity.
6. PEOPLESOFT FORUM
a. PeopleSoft Forum on-line bulletin board system features postings by
PeopleSoft and PeopleSoft Software users regarding technical and non-
technical topics of interest. Licensee may access PeopleSoft Forum via
the Internet. At Licensee's own expense, Licensee shall acquire
appropriate Internet access software.
Page 1 of 3
<PAGE>
b. All maintenance releases and program fixes to the Software may be
delivered to Licensee through PeopleSoft Forum. All information specified
in PeopleSoft Forum by PeopleSoft is confidential and proprietary to
PeopleSoft and shall only be used in connection with Licensee's use of
the Software and informational communications with other PeopleSoft Forum
participants. PeopleSoft reserves the right to modify information posted
to PeopleSoft Forum. PeopleSoft shall have the right to publish and
distribute only through PeopleSoft Forum in all languages and in
association with Licensee's name any material or software programs
provided by Licensee to PeopleSoft Forum. Licensee shall not use
PeopleSoft Forum for advertising or public relations purposes and shall
only submit information to PeopleSoft Forum which is owned by Licensee or
which Licensee has third party permission to submit to PeopleSoft Forum
for use by all other PeopleSoft Forum users.
c. In the interest of diminishing exposure to software viruses, PeopleSoft
tests and scans for software viruses all information entered by
PeopleSoft prior to submission of information to PeopleSoft Forum.
Licensee shall also use a reliable virus detection system on any software
or information posted to PeopleSoft Forum, utilize back-up procedures,
monitor access to PeopleSoft Forum, promptly notify PeopleSoft of any
virus detected within Licensee's systems associated with PeopleSoft Forum
and generally exercise a reasonable degree of caution when utilizing
information from PeopleSoft Forum. PeopleSoft does not warrant that
PeopleSoft Forum will operate without interruption or without errors.
PeopleSoft reserves the right to modify or suspend PeopleSoft Forum
service in connection with PeopleSoft's provision for Support Services.
7. Fees
The first year of Support Services is included in the Software license fees,
thereafter, in the event Licensee elects to continue to receive Support
Services, Licensee shall pay PeopleSoft the annual Support Services fee as
set forth in the applicable Schedule. Support Services are billed on an
annual basis, payable in advance. Licensee shall be responsible for all
taxes associated with Support Services, other than taxes based on
PeopleSoft's income. Licensee's payment shall be due within thirty (30) days
of receipt of the PeopleSoft invoice.
Should Licensee elect not to renew Support Services and subsequently request
Support Services, PeopleSoft shall reinstate Support Services only after
Licensee pays PeopleSoft the annual then-current fee plus all cumulative
fees that would have been payable had Licensee not suspended Support
Services.
8. Term and Termination
Unless a shorter term is agreed to in writing by both parties, Support
Services shall be provided for one (1) year from the Schedule Effective Date
and shall be extended each additional year unless terminated by either
party. Each one (1) year term shall commence on the anniversary of the
Schedule Effective Date.
Either party may terminate the Support Services provisions at the end of the
original term or at the end of any renewal term by giving the other party
written notice at least ninety (90) days prior to the end of any term.
In the event Licensee fails to make payment pursuant to the section titled
"Fees", or in the event Licensee breaches the Support Services provisions
and such breach has not been cured within thirty (30) days of written
receipt of notice of breach, PeopleSoft may suspend or cancel Support
Services.
9. Exclusions
PeopleSoft shall have no obligation to support:
a. Altered, damaged or substantially modified Software;
b. Software that is not the then-current or Previous Sequential Release;
c. Errors caused by Licensee's negligence, hardware malfunction or other
causes beyond the reasonable control of PeopleSoft;
d. Software installed in a hardware or operating environment not supported
by PeopleSoft;
e. Third party software not licensed through PeopleSoft; and
f. Software installed at more than one Site if Licensee has not paid for
such Support Services.
Page 2 of 3
<PAGE>
10. General
All Updates provided to Licensee are subject to the terms and conditions of
the Agreement.
PeopleSoft shall not be liable for any failure or delay in performance of
the Support Services due to causes beyond its reasonable control. Any
illegal or unenforceable provision shall be severed from these Terms and
Conditions. Licensee agrees that any information received pursuant to these
Terms and Conditions shall be deemed subject to the non-disclosure
obligations set forth in the Agreement. The Support Services Terms and
Conditions states the entire agreement of PeopleSoft's provision of Support
Services to Licensee and may only be amended by a written amendment executed
by both parties.
11. Definitions
Unless otherwise defined herein, capitalized terms used herein shall have
the same meaning as set forth in the Agreement and applicable Schedule.
"Enhancement" means technical or functional additions to the Software to
improve software functionality and/or operations. Enhancements are delivered
with new releases of the Software.
"Error" means a malfunction in the Software which degrades the use of the
Software.
"Fix" means the repair or replacement of source or object or executable
code versions of the Software to remedy an Error.
"Previous Sequential Release" means the release of Software for use in a
particular operating environment which has been replaced by a subsequent
release of the Software in the same operating environment. A Previous
Sequential Release will be supported by PeopleSoft for a period of eighteen
(18) months after release of the subsequent release.
"Priority A" means an Error that: (1) renders the Software inoperative; or
(2) causes the Software to fail catastrophically.
"Priority B" means an Error that affects performance of the Software, but
does not prohibit Licensee's use of the Software.
"Priority C" means an Error that causes only a minor impact of the use of
the Software.
"Update" means all published revisions to the Documentation and one (1)
copy of the new release of the Software which are not designated by
PeopleSoft as new products for which it charges separately.
"Workaround" means a change in the procedures followed or data supplied to
avoid an Error without significantly impairing performance of the Software.
Page 3 of 3
<PAGE>
SCHEDULE TWO
TO THE
SOFTWARE LICENSE AND SERVICES AGREEMENT
This independent Schedule to the Software License and Services Agreement
("Schedule") is made as of June 24, 1998 ("Schedule Effective Date") by and
between PeopleSoft USA, Inc. ("PeopleSoft") and TriNet Employer Group, Inc.
("Licensee"). This Schedule is part of the Software License and Services
Agreement between the parties dated September 24, 1997 ("Agreement").
PeopleSoft's Software Support Services Terms and Conditions shall be a part of
this Schedule during the Initial Support Services Term and thereafter, provided
Licensee elects to purchase Support Services. Capitalized terms used herein
shall have the same meaning ascribed to them in the Agreement.
SOFTWARE/SERVICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Software Modules Mfr. Provided Copies Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HRMS Software Modules
- --------------------------------------------------------------------------------------------------------
FSA Administration PeopleSoft, Inc. 1 [ * ]
- --------------------------------------------------------------------------------------------------------
Time & Labor/(1)/ PeopleSoft, Inc. 1 [ * ]
- --------------------------------------------------------------------------------------------------------
Other Software
- --------------------------------------------------------------------------------------------------------
PeopleTools - Restricted Development/(2)/ PeopleSoft, Inc. 1 [ * ]
- --------------------------------------------------------------------------------------------------------
Workstation Access for "n"/(3)/ PeopleSoft, Inc. Sybase, 1
users (includes base application access, Inc./SQRIBE Technologies
PeopleSoft Workflow, Workstation SQR, Seagate Software Information
QueryLink, Crystal, nVision). Management Group, Inc.
- --------------------------------------------------------------------------------------------------------
Server SQR for "n"/(4)/ servers Sybase, Inc./SQRIBE 1
Technologies.
- --------------------------------------------------------------------------------------------------------
PowerPlay 5 user pack/(5)/ Cognos Corp. 1 [ * ]
- --------------------------------------------------------------------------------------------------------
Other: ________
- --------------------------------------------------------------------------------------------------------
TOTAL FEES: [ * ]
- --------------------------------------------------------------------------------------------------------
1. Specific Licensed Use: Licensee's use of the Software is limited to each of the following restrictions.
------------------------------------------------------------------------------------------------------
Territory Software/(6)/ (indicate the country specific Employees
global version or local version/(7)/ for
each country within the Territory in which
or for which the Software will be used)
------------------------------------------------------------------------------------------------------
[ * ] American English Global Version [ * ]
---------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------
/(1)/ The license for the Time and Labor Software module includes a limited use
license for the Human Resources Software module. Such limited use license means
that the Human Resources Software module shall only be used in order to access
the features and functions of the Time and Labor Software module.
/(2)/ PeopleTools for Restricted Development shall be used by Licensee to
develop interfaces and modification only to the licensed PeopleSoft Software
application modules.
/(3)/ "n" is that number necessary to effect the purpose for which the Software
is licensed in accordance with the Agreement.
/(4)/ "n" is that number necessary to effect the purpose for which the Software
is licensed in accordance with the Agreement.
/(5)/ PowerPlay shall be licensed for each named user.
/(6)/ PeopleSoft makes no representations regarding any functionality contained
in the Software versions to which Licensee has rights as set forth in this table
except as set forth in the Documentation. Except as otherwise explicitly set
forth in this Schedule, Licensee shall not be entitled to: (i) local country
Support Services, including without limitation, account management; or (ii)
local country installation.
/(7)/ Local support services must be purchased for each country in which or for
which a local version of the Software will be used.
[ * ] Confidential Treatment Requested
Page 1 of 3
<PAGE>
<TABLE>
<CAPTION>
Technical Environment:
-----------------------------------------------------------------------
Database Version Operating System Hardware Model
-----------------------------------------------------------------------
<S> <C> <C>
Oracle Unix HP
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
3. Licensee shall receive the applicable items listed below:
-----------------------------------------------------------------------
Item Qty.
-----------------------------------------------------------------------
<S> <C>
Training Units/(8)/ 10
-----------------------------------------------------------------------
Installation Days/(9)/ 2
-----------------------------------------------------------------------
</TABLE>
4. Payment Terms: Licensee shall pay PeopleSoft ninety percent (90%) of
license fees on the Schedule Effective Date and ten percent (10%) upon the
earlier of: (i) the Software installation date; or (ii) sixty (60) days after
the Schedule Effective Date. Unless explicitly stated in this Schedule, all fees
specified herein are non-cancelable and non-refundable. All fees are payable in
U.S. dollars and shall be sent to the attention of PeopleSoft's Accounts
Receivable Department.
5. Support Services Terms for One Single, Central Site: For a period of
one year commencing on the Schedule Effective Date ("Initial Support Services
Term"), Licensee shall receive Support Services at the Site for the Software
version which meets the Technical Environment at no additional cost. Licensee
may elect to continue Support Services for the following year, and shall pay in
advance of the period an annual Support Services fee equal to eighteen percent
(18%) of the license fee for the Software licensed pursuant to this Schedule.
Thereafter, for a period of five (5) years, Licensee may elect to continue
single Site Software Support Services on an annual basis by paying PeopleSoft an
annual Software Support Services fee which shall not exceed one hundred and
eight percent (108%) of the prior year's fee. Thereafter, Licensee may elect to
continue Support Services by paying PeopleSoft the then-current Support Services
fee. The applicable Support Services fee assessed prior to the commencement of
each year of Support Services shall incorporate the then-current employee count
and/or Reported Revenues. Additional license fees due pursuant to the section in
this Schedule entitled Incremental License Fees shall be included in the
calculation for Support Services fees.
Incremental License Fees - HRMS Software: Licensee's licensed use of the
HRMS Software licensed pursuant to this schedule is based on an employee count
of 3500. Once Licensee grows to 9,000 employees and beyond 9,000 employees,
Licensee shall pay PeopleSoft for the licensed Software additional license fees
as calculated in the table below. Licensee's employee population shall be
determined once annually in accordance with PeopleSoft's Support Services
billing. Additional license fees due shall be added to the base fee for
calculation of Support Services fees due.
<TABLE>
<CAPTION>
Employee Population Additional License Fees Due
- -------------------- ---------------------------
<S> <C>
upon reaching 9,000 employees [ * ]
each additional 1,000 employees beyond [ * ]
9,000 (up to 14,000 employees)
upon reaching 15,000 employees [ * ]
each additional 1,000 employees beyond [ * ]
15,000 (up to 24,000 employees)
upon reaching 25,000 employees [ * ]
each additional 1,000 employees beyond [ * ]
25,000 (up to 50,000 employees)
each additional 1,000 employees beyond [ * ]
50,000 employees
</TABLE>
- --------------------------------
/(8)/ One (1) Training Unit is one training day for one person at a scheduled
PeopleSoft Training Session.
/(9)/ One (1) Installation day is equivalent to an eight (8) hour work day.
[ * ] Confidential Treatment Requested
Page 2 of 3
<PAGE>
<TABLE>
<CAPTION>
Miscellaneous Information:
- -------------------------------------------------------------------------------------------------------------------------------
SHIPPING INFORMATION BILLING INFORMATION SITE INFORMATION TRAINING INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contact: Steve Carlson Contact: Accounts Payable Contact: Steve Carlson Contact: Paul Sheirich
- -------------------------------------------------------------------------------------------------------------------------------
Address: 101 Callan Avenue Address: 101 Callan Avenue Address: 101 Callan Avenue Address: 101 Callan Avenue
- -------------------------------------------------------------------------------------------------------------------------------
San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577 San Leandro, CA 94577
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Phone: 510-297-0226 Phone: 510-297-0243 Phone: 510-297-0226 Phone: 510-297-0233
- -------------------------------------------------------------------------------------------------------------------------------
Fax: 510-352-6480 Fax: 510-352-6480 Fax: 510-352-6480 Fax: 510-352-6480
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ACCEPTED BY: ACCEPTED BY:
LICENSEE PEOPLESOFT USA, INC.
/s/ DOUGLAS P. DEVLIN /s/ ROD WALTERS
- ---------------------- ----------------------------
Authorized Signature Authorized Signature
Douglas P. Devlin, CFO Rod Walters, General Manager
- ---------------------- ----------------------------
Printed Name and Title Printed Name and Title
Page 3 of 3
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
EXHIBIT 10.09
Date: 10/06/99 AUTHORIA, INC.
Agreement No: 06099901 Software License Agreement (Outsourcer)
THIS AGREEMENT is by and between AUTHORIA, INC., a Delaware corporation with
offices at 78 Fourth Avenue, Waltham, MA 02451 ("Authoria") and the following
Licensee:
Licensee Name: TriNet VCO
Address: 101 Callan Avenue, San Leandro, CA 94577
Principal Contact: Martin Babinec
This Agreement consists of the following terms and conditions and one or more
Software and/or Services Schedule(s) (collectively referred to as the
"Schedule(s)") to this Agreement which are adopted from time to time with
reference to this Agreement.
Each Software Schedule identifies the software products and related
documentation licensed from Authoria under this Agreement (the "Software"), and
sets forth the Scope of Use, Term of License, Designated Location(s), License
Fees, Payment Terms, and Specifications for such Software. Each Services
Schedule identifies the consulting services to be provided by Authoria under
this Agreement (the "Services"), and sets forth the Services Fees and Payment
Terms for such Services. Each Schedule will refer to this Agreement by Contract
Number and will become effective as an integral part of this Agreement upon its
execution by both Licensee and Authoria.
1. Software License Grant. Subject to the terms of this Agreement, Authoria
----------------------
grants to Licensee a nonexclusive license ("License") to use the Software
identified in any Software Schedule attached to this Agreement at the
Designated Location(s) during the Term. Licensee may transfer the Software to
other locations owned or controlled by Licensee by providing prompt written
notice to Authoria specifying the change in the Designated Location(s). The
License shall extend to affiliates of Licensee to the extent provided in the
Software Schedule, so long (and only so long) as Licensee owns or controls,
directly or indirectly, stock or other interest in the affiliate representing
more than fifty percent (50%) of the aggregate stock or other interest
entitled to vote on decisions reserved to a vote by owners of such stock or
other interest. Licensee's use of the Software shall be limited to Licensee's
internal business purposes only, and, unless otherwise provided in the
Software Schedule, Licensee may not use the Software to process accounts or
records or to generate output data for the direct benefit of, or for purposes
of rendering services to, any other business entities or organizations. In no
event may Licensee allow timesharing, rental or use of the Software in
service bureau.
2. Certain Restrictions. Licensee understands that the Software is a proprietary
--------------------
product of Authoria that contains trade secrets and is protected by copyright
law. Authoria shall have sole and exclusive ownership of all right, title,
and interest in and to the Software and documentation, all copies thereof,
and all modifications and enhancements thereto (including ownership of all
copyrights and other intellectual property rights pertaining thereto),
subject only to the right and license expressly granted to Licensee herein.
This Agreement does not provide Licensee with title or ownership of the
Software, but only a right of limited use. Licensee may not use, copy,
modify, or distribute the Software (electronically or otherwise), or any
copy, adaptation, transcription, or merged portion thereof, except as
expressly authorized by Authoria, an applicable Software Schedule, or a
separate written agreement signed by Authoria. Licensee shall ensure that the
Software is not modified, translated, examined, tested, subjected to
simulated input, reverse engineered or decompiled or disassembled by
attempted recreation of source code in any manner, for any reason including
but not limited determining the mechanism, algorithms, processes or
characteristics of the Software, provided Licensee may examine or test the
Software only for authorized maintenance and error correction. Licensee shall
further ensure that no person with access to the Software otherwise attempts
to obtain or derive the object or source code of the Software or create any
derivative works based on the Software or any software product or other work
based on the mechanism, algorithms, processes or characteristics of the
Software. Licensee agrees to keep the source code, object code, generic code
and content of the Software confidential and not to disclose such codes to
any other person or entity or to allow any other person or entity to copy or
view such codes. Licensee agrees that it will not cause or permit the use of
the Software and related documentation, or the ideas or concepts contained
therein, as the basis of the development of any computer software products.
For purposes of this Agreement, it will be presumed that any works developed
or created by Licensee which involve the development of computer software
performing substantially similar functions to the licensed Software, and are
reduced to practice within three (3) years following the date of termination
or expiration of the License granted hereunder, are the result of the breach
of this Section and/or Section 3, Confidentiality, unless Licensee is able to
establish otherwise by clear and convincing evidence. Notwithstanding
anything to the contrary contained herein, this presumption will not apply in
the event that Licensee independently develops products performing similar
functions to the Software, so long as Licensee can show by clear and
convincing documentary evidence, that (i) such products are developed for the
benefit of individual clients of Licensee as part of an overall business
solution, and are not generally marketed for commercial resale, (ii) neither
the Software, nor the ideas or concepts contained therein, are used as the
basis for development of such products, and (iii) no employee(s) of Licensee
having access to the Software are involved, directly, or indirectly, in the
development or design of such products. Licensee authorizes Authoria upon
three (3) days' prior written notice to enter Licensee's premises in order to
inspect the Software during regular business hours to verify compliance with
the terms of this Agreement, provided that Licensee agrees not to conceal or
destroy any software, materials or information after receiving such notice,
through the completion of such inspection.
<PAGE>
3. Confidentiality. Any proprietary information, including the Software,
---------------
which is identified as confidential and which is provided by one party to the
other shall be considered "Confidential Information" under this Agreement.
Each party shall take such measures to protect Confidential Information of
the other party as it takes to protect its own similar proprietary and
confidential information. This restriction shall not apply to any
Confidential Information which is already known by the receiving party, is or
becomes publicly available through no fault of the receiving party, or is
required to be disclosed by government or judicial order. The terms of this
Agreement shall be considered Confidential Information, and shall not be
disclosed by either party without the prior written consent of the other. All
Confidential Information provided to a party under this Agreement shall be
returned to the disclosing party or destroyed promptly upon termination of
this Agreement.
4. Authoria Services. Subject to the terms of this Agreement, Authoria will
-----------------
provide Licensee with such Services as are described in any Services Schedule
attached to this Agreement. Authoria may also make maintenance services
available to Licensee under a separate maintenance agreement. In the event
that Licensee requests consulting services that are beyond the scope of this
Agreement and the maintenance agreement, Authoria may provide such services
at is standard rates then in effect or recommend appropriate outside
consultants. Any and all enhancements, modifications and corrections to the
Software provided as part of any Authoria service will be considered part of
the "Software" for purposes of this Agreement.
5. Licensee Responsibilities. Licensee is responsible for the following
-------------------------
actions:
(a) Determining whether the Software will achieve the results Licensee
desires;
(b) Procuring, installing, and operating computers and operating systems to
run the Software in accordance with the Specifications;
(c) Providing a proper environment and proper utilities for the computers on
which the Software operate, including an uninterrupted power supply;
(d) Selecting and training personnel that can operate computers and are
familiar with the accounts and records that serve as input and output
for the Software; and
(e) Establishing adequate operational back-up provisions to protect against
data loss and/or a defect or malfunction that renders the Software or
the computer systems on which they run nonoperational.
Authoria reserves the right to charge additional service fees if an operator
seeks assistance with respect to such basic information or any other matters not
directly relating to the operation of the Software. Authoria does not hold
itself out as a professional expert and adviser regarding Licensee's computer or
information needs. Authoria is not responsible for obsolescence of the Software
that may result from changes in Licensee's requirements.
6. Publicity. Licensee agrees to make reasonable efforts to serve as a
---------
reference account upon prior request by Licensor, to participate in case
studies and other promotional activity, and to allow its name to be used in
press releases, sales materials and user literature.
7. Data. Licensee acknowledges that data conversion is subject to the
----
likelihood of human and machine errors, omissions, delays, and losses,
including inadvertent loss of data or damage to media, that may give rise to
loss or damage. Authoria shall not be liable for any such errors, omissions,
delays, or losses, unless caused by its willful misconduct. Licensee is
responsible for adopting reasonable measures to ensure the accuracy and
integrity of the data and knowledge content, including backing up data, and
adopting procedures to ensure the accuracy of input data; examining and
confirming results prior to use; and adopting procedures to identify and
correct errors and omissions, replace lost or damaged media, and reconstruct
data. Licensee is also responsible for complying with all local, state, and
federal laws pertaining to its benefit programs and the use and disclosure of
any data.
8. Fees/Payment. Licensee agrees to pay the fees specified in the attached
------------
Schedule(s) in accordance with the terms specified therein, plus any
reasonable travel and living expenses incurred in connection with the
provision of Software or Services under this Agreement. The fees specified in
the Schedule(s) are exclusive of, and Licensee agrees to pay any sales, use
or other tax related to this transaction, however designated (except taxes
based on net income). Unless otherwise specified in a Schedule, invoices are
payable upon receipt. Authoria reserves the right to charge a late fee of up
to 1.5% per month (or, if less, the maximum rate allowable by law) on any
balance remaining unpaid for more than thirty (30) days.
9. Limited Warranty.
----------------
(a) Authoria warrants that the Software shall not develop any faults due to
the manipulation of data by the Software with dates prior to, through
and including January 1, 2000. Notwithstanding the foregoing, Authoria
makes no warranty whatsoever with respect to the Software's use or
display of date related data, which may be read from third party
systems.
(b) Authoria warrants that, prior to delivery of any media containing
Software, it will take reasonable steps to test such media to ensure
that the Software is free of programming devices (e.g., viruses, key
locks, backdoors, etc.) that are designed to disrupt the use of the
Software or any system with which the Software operates, or destroy or
damage data or make data inaccessible or delayed, except for file and
purge routines necessary to the routine functioning of the Software.
(c) Authoria warrants that for a period of ninety (90) days following
delivery, the Software will function substantially in accordance with
the Specifications. Authoria does not warrant that the Software will be
error free in all circumstances. As Licensee's exclusive remedy for any
breach of this warranty, Authoria will, at its expense, replace or
repair any Software that fails to meet this limited warranty. In the
event that Authoria is unable to repair or replace the Software during
the warranty period, Licensee may terminate its License and return the
defective Software, and Authoria will provide Licensee with a refund of
the License Fees paid for the Software in question. However, Authoria is
not responsible for any defect or error not reported during the warranty
period or any defect or error in Software that Licensee has modified,
misused, or damaged.
2
Authoria Confidential
Authoria/TriNet License Agreement 100599
<PAGE>
(d) EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION, AUTHORIA MAKES NO
WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF
THIS AGREEMENT OR ANY OTHER COMMUNICATION. AUTHORIA SPECIFICALLY
DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
10. Limitation of Liability. THE CUMULATIVE LIABILITY OF AUTHORIA TO LICENSEE
-----------------------
FOR ALL CLAIMS ARISING UNDER OR RELATED TO THIS AGREEMENT, WHETHER IN
CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE TOTAL AMOUNT OF ALL
LICENSE FEES PAID TO AUTHORIA FOR THE RELEVANT SOFTWARE WITHIN THE PRIOR
YEAR. THIS LIMITATION SHALL NOT APPLY TO THE INDEMNIFICATION PROVIDED IN
PARAGRAPH 11. IN NO EVENT WILL AUTHORIA OR ITS SUPPLIERS BE LIABLE TO
LICENSEE FOR DAMAGES FOR LOSS OF DATA, LOST PROFITS, OR ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT,
EVEN IF AUTHORIA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR
ANY CLAIM BY ANY THIRD PARTY. THE FOREGOING LIMITATION OF LIABILITY AND
EXCLUSION OF CERTAIN DAMAGES SHALL APPLY REGARDLESS OF THE SUCCESS OR
EFFECTIVENESS OF OTHER REMEDIES.
11. Indemnification. If a third party claims that the Software infringes any
----------------
U.S. patent, copyright, or trade secret, Authoria will (as long as Licensee
is not in default under this Agreement or any other agreement with Authoria)
defend Licensee against such claim at Authoria's expense and pay all damages
that a court finally awards, provided that Licensee promptly notifies
Authoria in writing of the claim, allows Authoria to control, and cooperates
with Authoria in, the defense or settlement of such action. If such a claim
is made or appears possible, Authoria may, at its option, secure for
Licensee the right to continue to use the Software, modify or replace the
Software so they are noninfringing, or, if neither of the foregoing options
is available in Authoria's judgment, require Licensee to return the Software
for a credit equal to the portion of previously paid License fees allocable
to the remaining term of the License. (If the License is perpetual, the
License Fee will be amortized over a five-year useful life.) However,
Authoria has no obligation for any claim based on a modified version of the
Software or their combination, operation, or use with any product, data, or
apparatus not provided by Authoria. THIS PARAGRAPH STATES AUTHORIA'S ENTIRE
OBLIGATION TO LICENSEE WITH RESPECT TO ANY CLAIM OF INFRINGEMENT.
12. Default/Termination. Should Licensee fail to pay any fees or charges due
-------------------
hereunder or fail to carry out any other obligation under this Agreement or
any other agreement with Authoria, Authoria may, at its option, in addition
to other available remedies, terminate the Software License granted under
this Agreement and/or disable the Software, provided that it first gives
Licensee fifteen (15) days' prior notice in order to permit Licensee to cure
its default. Upon expiration or termination of any License, Licensee will
promptly return or certify the destruction of all copies of the Software and
all other materials pertaining to the Software, which are in Licensee's
possession.
13. U.S. Government Restricted Rights. If the Software is acquired under the
---------------------------------
terms of a proposal or agreement with the United States Government or any
contractor therefor, the Software is subject to the following: the Software
is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the
U.S. Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of the Rights in Technical Data and Computer Software clause at
DFARS 252.227-7013, FAR 52.227-17 Alternate III (g)(3), or subparagraphs
(c)(1) and (2) of the Commercial Computer Software - Restricted Rights at 48
CFR 52.227-19, as applicable, and their successor provisions.
Contractor/Manufacturer is Authoria, Inc. 78 Fourth Avenue, Waltham, MA
02451.
14. General.
-------
(a) This Agreement, including any Schedule(s) attached hereto which have
been signed by both parties, is the complete and exclusive statement of
the agreement between the parties and supersedes all proposals or prior
agreements, oral or written, and all other communications between the
parties relating to the subject matter hereof. Any waiver or
modification of the provisions of this Agreement will be effective only
if in writing and signed by the party against whom it is to be
enforced. In the event of a conflict with the provisions of any other
document, the provisions of this Agreement will control.
(b) Persons and entities who have licensed software to Authoria for
inclusion in the Software are third party beneficiaries to this
Agreement as it applies to their respective software products included
in the Software.
(c) Except for actions for nonpayment or breach of Authoria's proprietary
rights in the Software, a delay or failure by either party to exercise
any right or bring any action, within one (1) year of the event giving
rise to such right or such cause of action, shall waive any and all
rights relating to that action.
(d) All notices or other communications required to be given hereunder
shall be in writing and delivered either personally or by U.S. mail,
certified, return receipt requested, postage prepaid, and addressed as
provided in this Agreement or as otherwise requested by the receiving
party. Notices delivered personally shall be effective upon delivery
and notices delivered by mail shall be effective upon their receipt by
the party to whom they are addressed.
(e) This Agreement and the associated License may not be assigned by
Licensee without Authoria's written consent, which shall not be
unreasonably withheld. Licensee agrees that it shall not be considered
unreasonable for Authoria to withhold Authoria's consent to an
assignment to a party that is, or is likely to become, in Authoria's
reasonable opinion, a competitor of Authoria.
(f) Licensee will be responsible for compliance with all legal requirements
related to its use of the Software, including those related to the
disclosure of data, and to any exports of Software made by Licensee.
(g) This Agreement shall be considered an agreement made in Massachusetts
and shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts.
3
<PAGE>
Executed by the parties hereto as an instrument under seal effective as of the
date first written above.
AUTHORIA, INC. TRINET VCO
/s/ TOD LOOFBOURROW 10/29/99 /s/ DOUGLAS P. DEVLIN 10/21/99
- ----------------------------- --------------------------------
Signature Date Signature Date
Tod Loofbourrow President & CEO Douglas P. Devlin CFO
- ------------------------------------ ---------------------------------
Name Title Name Title
4
Authoria Confidential
Authoria/TriNet License Agreement 100599
<PAGE>
Software Schedule (Outsourcer)
to
Authoria Software License Agreement #: 06099901
Licensee Name: Tri-Net VCO
Designated Location: 101 Callan Avenue
San Leandro, CA 94577
Licensed Software: Authoria HR Software including:
Health and Welfare, HRIS Bridge
Term of License: Five years, beginning on October 22, 1999 (the "Effective
Date"). Following expiration of the five year Term, the
License will automatically renew from year to year unless
either party provides the other with written notice of
its intention not to renew at least ninety (90) days
prior to the expiration of the initial term or any
renewal thereof.
Scope of Use: Unlimited workstations for use for the benefit of [ * ]
covered individuals.** The Authoria Software may be used
by the Licensee for generating output data for the direct
benefit of, or for purposes of rendering services to, any
other business entities or organizations (a "Third Party
Licensee Organization"), subject to the payment of the
License Fee below with respect to all covered lives of
individuals in each such Third Party Licensee
Organization, and subject to the other terms and
conditions of the Agreement. Notwithstanding the
foregoing, Licensee may not install the Software on any
workstation, server or other computer other than a
computer at the Designated Location operated by an
employee or contractor directly responsible to Licensee
and not to any Third Party Licensee Organization.
License Fees: The License Fee for the Licensed Software shall be
[ * ]. Such License Fee shall be payable as described
below, in "Payment Terms". Additional License Fees, based
on the addition of covered individuals as described
below, shall be payable as described below. *
*The Software License Fee is based on the number of
covered individuals. If the number of covered individuals
increases beyond the [ * ] provided in this Software
Schedule above, Licensee will be responsible for payment
of an additional license fee, in accordance with the
following schedule: (The fees in the schedule are valid
for 60 months from execution of the Agreement) Licensee
will pay Authoria such fee within thirty (30) days
following the increase in covered lives.
<TABLE>
<CAPTION>
Lives Additional License Fee
----- ----------------------
<S> <C>
20,001 - 49,999 [ * ]
50,000 - 74,999 [ * ]
75,000 - 99,999 [ * ]
100,000 - 124,999 [ * ]
125,000 > [ * ] per life per year in [ * ] life increments
</TABLE>
Optional Products: Licensee has the option to purchase additional modules at
[ * ] off of the list price stated below if purchased by
12/31/99 and at [ * ] off of the list price if purchased
by 3/31/00.
<TABLE>
<CAPTION>
Module List Price
---------------------------------------------------------------------------------------
<S> <C>
Defined Contributions [ * ]
Compensation [ * ]
Employment [ * ]
Time Off [ * ]
Employee Relations [ * ]
Employee Services [ * ]
Payroll [ * ]
Transaction Bridge [ * ]
</TABLE>
[ * ] Confidential Treatment Requested
Authoria Confidential
Authoria/TriNet License Agreement 100599
<PAGE>
Payment Terms: An initial deposit of 75% of the initial License Fee is
payable upon execution of this Schedule. The remaining 25%
balance will be payable net 30 days from shipment of the
Software.
Approved: Accepted:
Authoria, Inc. TriNet VCO
Authoria Licensee
By: /s/ TOD LOOFBOURROW 10/29/99 By: /s/ DOUGLAS P. DEVLIN 10/21/99
-------------------------------- -------------------------------
Authorized Representative Date Authorized Representative Date
Authoria Confidential
Authoria/TriNet License Agreement 100599
<PAGE>
Date: October 21, 1999
Exhibit 10.10
AUTHORIA, INC.
Annual Support and Maintenance Agreement (Outsourcer)
for Software Licensed Under
Software License Agreement #: 06099901
THIS AGREEMENT is by and between AUTHORIA, INC., a Delaware corporation with
offices at 78 Fourth Avenue, Waltham, MA 02451 ("Authoria") and the following
Licensee:
Licensee Name: TriNet VCO
Address: 101 Callan Avenue
San Leandro, CA 94577
Principal Contact: Martin Babinec
1. Maintenance Services. Subject to the following terms and conditions,
--------------------
Authoria agrees to provide the above-named Licensee with, and, during the
term of the License Agreement (defined below), Licensee agrees to subscribe
to, the maintenance services described on the Maintenance Services Schedule
attached hereto ("Maintenance Services"), with respect to Authoria Software
licensed under the Software License Agreement reference above (the "License
Agreement"). All terms contained herein and not otherwise defined shall have
the meaning set forth in the License Agreement.
2. Term; Termination. The initial term of this Agreement is five years,
-----------------
beginning on the effective date of the License Agreement. Thereafter, this
Agreement shall automatically renew from year to year, provided that
Authoria may terminate this Agreement upon ninety (90) days prior written
notice to Licensee. This Agreement will automatically terminate: (i) upon
expiration or termination of the License Agreement; or (ii) in the event
that Licensee fails to pay the Maintenance Fee when due. Either party may
terminate this Agreement if the other party commits a material breach of its
terms which is not cured within thirty (30) days after written notice of
such breach.
3. Fees. Maintenance Fees are set forth on the Maintenance Services
----
Schedule attached hereto, and are exclusive of, and Licensee agrees to pay,
any reasonable travel and living expenses incurred in connection with the
provision of Maintenance Services under this Agreement. The first Annual
Maintenance Fee is payable upon execution of this Agreement. Subsequent
Annual Maintenance Fees shall be payable thereafter annually in advance on
or before the anniversary date of this Agreement. The Annual Maintenance
Fees following the initial 60 month term shall not exceed 108% of the rates
provided in this Agreement for the modules licensed for the then current
life count.
4. Limited Warranty. Authoria WARRANTS THAT THE MAINTENANCE SERVICES
----------------
WILL BE PERFORMED IN A WORKMANLIKE MANNER IN ACCORDANCE WITH INDUSTRY
STANDARDS. Authoria MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED
TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR ANY OTHER WARRANTY OF ANY KIND RESPECTING AND MAINTENANCE
SERVICES PERFORMED HEREUNDER OR ANY MATERIALS FURNISHED HEREUNDER.
5. Limitation of Liability. THE CUMULATIVE LIABILITY OF Authoria TO
-----------------------
LICENSEE FOR ALL CLAIMS ARISING UNDER OR RELATED TO THIS AGREEMENT, WHETHER
IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE MAINTENANCE FEES PAID
TO Authoria WITHIN THE PRIOR YEAR. IN NO EVENT WILL Authoria BE LIABLE TO
LICENSEE FOR DAMAGES FOR LOSS OF DATA, LOST PROFITS, OR OTHER INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT,
EVEN IF Authoria HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR
ANY CLAIM BY ANY THIRD PARTY. THE FOREGOING LIMITATION OF LIABILITY AND
EXCLUSION OF CERTAIN DAMAGES SHALL APPLY REGARDLESS OF THE SUCCESS OR
EFFECTIVENESS OF OTHER REMEDIES.
6. Source Code Availability. Authoria has placed a copy of the source
------------------------
code for the Software in escrow with a third party escrow agent. In the
event that Authoria ceases to do business in the ordinary course (other than
a cessation of business due to a sale of Authoria or its business, or any
other transaction where the maintenance of the Software is carried on by a
successor), voluntarily files for bankruptcy, or is adjudicated bankrupt,
while this Agreement is in effect, Authoria agrees to furnish to Licensee,
upon request and without charge, a single copy of Authoria's proprietary
source code for the current version of the Software then installed at
Licensee's site. Upon taking possession of the source code, Licensee may use
the source code only to perform warranty or maintenance obligations, and
such use of the source code by Licensee will be limited to the correction of
errors and maintaining the Software so that it operates in accordance with
its specified documentation. Under no circumstances does a release of the
source code authorize Licensee to expand the use of the Software beyond the
scope of the License.
Authoria Confidential 1
Authoria/TriNet Maint Agmt 100599
<PAGE>
7. General.
-------
(a) This Agreement, including the Maintenance Services Schedule and any
other attachments hereto which have been signed by both parties, is the
complete and exclusive statement of the agreement between the parties
and supersedes all proposals or prior agreements, oral or written, and
all other communications between the parties relating to the subject
matter hereof. Any waiver or modification of the provisions of this
Agreement will be effective only if in writing and signed by the party
against whom it is to be enforced. In the event of a conflict with the
provisions of any other document, the provisions of this Agreement will
control.
(b) All notices or other communications required to be given hereunder
shall be in writing and delivered either personally or by U.S. mail,
certified, return receipt requested, postage prepaid, and addressed as
provided in this Agreement or as otherwise requested by the receiving
party. Notices delivered personally shall be effective upon delivery
and notices delivered by mail shall be effective upon their receipt by
the party to whom they are addressed.
(c) A delay or failure by either party to exercise any right or bring any
action, within one (1) year of the event giving rise to such right or
such cause of action, shall waive any and all rights relating to that
action.
(d) Licensee's rights hereunder may not be transferred by assignment,
operation of law or otherwise, except in connection with a permitted
transfer of the License.
(e) All provisions regarding warranty, liability and limits thereon shall
survive indefinitely.
(f) This Agreement shall be considered an agreement made in Massachusetts
and shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts.
Executed by the parties hereto as an instrument under seal as of the date first
written above.
AUTHORIA, INC.
/s/ TOD LOOFBOURROW 10/29/99 /s/ DOUGLAS P. DEVLIN 10/21/99
- -------------------------------- ----------------------------------
Signature Date Signature Date
Tod Loofbourrow President & CEO Douglas P. Devlin CFO
- ----------------------------------- ----------------------------------
Name Title Name Title
Authoria Confidential 2
Authoria/TriNet Maint Agmt 100599
<PAGE>
Maintenance Services Schedule
for Software Licensed Under
Authoria Software License Agreement #: 06099901
Licensee Name: TriNet VCO
Designated Location: 101 Callan Avenue
San Leandro, CA 94577
Licensee Key Contact & Phone#: Martin Babinec
Authoria Telephone Support Number: 781-530-2000
Maintenance Services Elected: Software Maintenance Including Core Content
Maintenance
Annual Maintenance Fee: $27,000 per year based upon 20,000 covered individuals.
If the number of covered individuals for which Licensee
is licensed to use the Software increases beyond the
20,000 provided in the Software Schedule, Licensee will
promptly notify Authoria and will pay Authoria, within
thirty (30) days following such increase. The
additional Maintenance Fee will be equal to 18% per
year of the additional license fees stated in the
Software Schedule.
1. Telephone Support. Telephone Support consists of unlimited telephone support
-------------------
during Authoria's normal business hours, from 9:00 a.m. through 6:00 p.m.,
Monday through Friday, Eastern Standard Time, excluding Authoria holidays.
Such support will include the opportunity to consult with a member of
Authoria's technical support staff who will assist Licensee with the Software
capabilities, functionality and characteristics as described in the Software
Specifications and provide basic problem resolution assistance as required.
2. Maintenance Releases and New Versions. Authoria will make available to
---------------------------------------
Licensee such point releases, updates and/or enhancements to the Software
which Authoria makes generally available to its Licensees at no additional
charge ("Maintenance Releases"). New versions and major releases of the
Software ("New Versions") will be made available to Licensees for an
additional charge. In the event that Authoria Services are required in
connection with Licensee's implementation of a Maintenance Release or New
Version, Licensee will be billed for such Services at Authoria's standard
rates then in effect. As Authoria makes available Maintenance Releases and
New Versions of the Software, Authoria reserves the right to discontinue or
modify the terms and conditions of support for non-current releases and
versions. Authoria shall provide at least 90 days notice of such
discontinuance or modification; provided, however, that Authoria will
continue to support non-current releases and versions of the Software for the
remainder of Licensee's then current Maintenance Services term.
3. Content Maintenance. Core Content Maintenance consists of such updates to the
---------------------
core content as are authored into the Software on an ongoing basis by
Authoria, including legislative changes and enhancements to existing topics
in the subjects licensed by Licensee. In the event that Licensee also elects
to purchase Customized Content Maintenance, Authoria will perform complete
maintenance of all of Licensee's benefits and human resources policy content,
both core and as customized to Licensee, and such Customized Content
Maintenance will be billed at normal Authoria service rates based on the
level of maintenance required.
4. Excluded Services. Excluded from the coverage of this Agreement are services
-----------------
resulting from misuse or modification of the Software by Licensee, failure or
interruption of any electrical power, or any accident or other cause external
to the Software, including, but not limited to problems or malfunctions
related to Licensee's network, database, third party software products,
and/or workstation configurations or Licensee's hardware. Such excluded
services, and additional consulting services such as lntranet consulting,
training, content setup and technical integration may be contracted for
separately at Authoria's then current labor rates, subject to Authoria's
agreement.
5. Licensee's Responsibilities. Licensee will have sole responsibility to notify
-----------------------------
Authoria promptly of all problems, to allow, if necessary, unrestricted and
free access to the Software, and to ensure that the a qualified Licensee
representative is available to provide assistance as necessary to perform
Maintenance Services hereunder.
Approved: Accepted:
Authoria, Inc. TriNet VCO
Authoria Licensee
By: /s/ TOD LOOFBOURROW 10/29/99 By: /s/ DOUGLAS P. DEVLIN 10/21/99
-------------------------------- ---------------------------------
Authorized Representative Date Authorized Representative Date
Authoria Confidential 3
Authoria/TriNet Maint Agmt 100599
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
Exhibit 10.11
[Logo Goes Here]
BRIO SOFTWARE LICENSE AGREEMENT
This Software License Agreement, ("Agreement") is made effective as of September
29, 1999 (the "Effective Date"), by and between Brio Technology Inc., a Delaware
corporation with its principal place of business at 3460 W. Bayshore Road, Palo
Alto, CA 94303 ("Brio"), and TriNet VCO a California corporation with an office
at 101 Callan Avenue San Leandro, CA 94577
("Licensee").
1. DEFINITIONS
1.1. Licensed Program Materials shall mean the Licensed Programs in machine
--------------------------
readable object code only, and associated User Documentation, provided to
Licensee by Brio and specified in Exhibit A. The Licensed Program Materials
shall also be deemed to include any Updates of Licensed Program Materials made
generally available by Brio to its licensees, provided Licensee has made payment
for Support and Maintenance under the terms of any Exhibit B (Support and
Maintenance) attached hereto.
1.2. Designated Locations shall mean the particular location(s), if applicable,
--------------------
set forth in Exhibit A where Licensed Program Materials are permitted to be used
pursuant to the license grant defined in Exhibit A.
2. LICENSE GRANTS
License Grant. Licensee shall be granted the license grants set forth in
- -------------
Exhibit A. The foregoing license grants shall be subject to the terms and
conditions of this Agreement. Brio reserves all rights in the Licensed Program
Materials, which are not expressly granted herein.
3. ADDITIONAL LICENSE CONDITIONS
3.1 Reverse Engineering. Licensee shall not decompile, reverse engineer or
-------------------
otherwise attempt to derive or modify the source code of the Licensed Programs
Materials unless expressly licensed to do so by Brio in writing. Licensee shall
not merge the Licensed Program Materials with another program.
3.2 Proprietary Notices. Licensee agrees to reproduce and include any
-------------------
copyright or other proprietary rights notices of Brio on all copies, in whole or
in part, in any form, including partial copies, of the Licensed Program
Materials made hereunder. Licensee further agrees to permit Brio to enter any
of Licensee's premises during regular business hours, upon five (5) days written
notice, to inspect the Licensed Program Materials, and Licensee's use thereof,
in any reasonable manner.
3.3 No Licensee Modification or Translation. Licensee shall not modify,
---------------------------------------
translate or create derivative works of the Licensed Program Materials.
3.4 Sublicensing, Rental, Lease or Resale. Licensee shall not sublicense,
-------------------------------------
rent, lease, resell for profit, or distribute, the Licensed Program Materials or
derivative works thereof.
3.5 Export. Licensee shall not export or re-export, directly or indirectly,
------
the Licensed Program Materials or any part thereof in a manner prohibited by the
United States Export Administration Act or the regulations thereunder.
3.6 Brio Modifications. Brio reserves the right to modify the Licensed Program
------------------
Materials in order to reflect changes in support requirements or to improve
then-existing Licensed Program Materials.
<PAGE>
4. RECORDS AND AUDITS
Licensee shall maintain complete and accurate records of the number of copies of
Licensed Programs Materials it has made, and the location of such copies, and
the Designated Computer upon which the Licensed Program Materials have been
loaded. Brio shall, at any time during the term of this Agreement, be entitled
to audit such records, upon seven (7) prior days written notice to Licensee, in
order to confirm the accuracy of Licensee's records and Licensee's conformance
with the terms and conditions of this Agreement; provided, that no more than one
(1) such audit may be conducted in any one hundred and eighty (180) day period.
Any such audit shall be performed at Brio's expense during Licensee's normal
business hours. If an audit reveals that Licensee has underpaid fees and/or
charges to Brio in excess of five percent (5%), then Licensee will pay Brio's
reasonable costs of conducting the audit, in addition to the underpaid amounts,
plus interest as provided in Section 6.1 below.
5. TITLE
Ownership of all right, title and interest in and to the originals and any
copies, in whole or in part, of the Licensed Program Materials, including
translations, compilations, partial copies, modifications and updated works, and
ownership of all patents, trade secrets, copyrights and other intellectual
property rights pertaining thereto, shall be and shall remain the sole property
of Brio. Licensee acknowledges that the license granted pursuant to this
Agreement does not provide Licensee with title or ownership of the Licensed
Program Materials. Licensee shall keep the Licensed Program Materials free and
clear of all claims, liens and encumbrances.
6. PAYMENTS
6.1 License Fees. The fees for the license, maintenance, and other services
------------
granted under this Agreement are set forth in Exhibit A. All fees and charges
will be invoiced by Brio to Licensee and must be paid in full within thirty (30)
days after the date of invoice or as otherwise specified on Exhibit A to this
agreement. All payments are due in United States dollars. Brio reserves the
right to apply a service charge to any unpaid balance at the rate of 1.5% per
month (but in no event more than the maximum rate allowed by law) for any fee or
charge not paid within thirty (30) days after the date of invoice. If Licensee
fails to pay any invoice when due, Brio will have the right to institute
collection procedures to recover same, and Licensee will be responsible for all
reasonable costs of collection incurred by Brio, including without limitation
litigation costs, reasonable attorneys' fees and court costs. Brio also reserves
the right to discontinue or suspend any services, with written notice thereof to
Licensee, including the termination of this Agreement for Licensee's failure to
make timely payment of applicable fees or charges, without penalty to Brio.
MAIL TO: Brio Technology, Inc.
Dept. CH 10866
Palantine, IL 60055-0866
<PAGE>
6.2 Taxes. Licensee shall pay or reimburse Brio for all taxes, duties and
-----
assessments imposed on Licensee or Brio in connection with the license or use of
Licensed Program Materials under this Agreement or any services provided
hereunder, including without limitation all sales, use, excise and other taxes
and duties, excluding only taxes based upon Brio's net income. Licensee shall
hold Brio harmless from all claims and liability arising from Licensee's failure
to report or pay any such taxes, duties and assessments.
7. DELIVERY AND ACCEPTANCE
7.1 Delivery. Brio shall deliver the copies of Licensed Program Materials
--------
specified in Exhibit A to Licensee within fifteen (15) business from the
Effective Date of this Agreement. Shipment shall be F.O.B. Brio's facilities.
7.2 Acceptance. (1) In the event that the Licensed Program Materials were
----------
evaluated by Licensee prior to the Effective Date under an evaluation or trial
license agreement between Brio and Licensee, for purposes of this Agreement, the
Licensed Program Materials shall be deemed accepted by Licensee upon the later
of the Effective Date or delivery to Licensee, (2) In the event that the
Licensed Program Materials were not evaluated by Licensee prior to the Effective
Date under an evaluation or trial license agreement between Brio and Licensee,
the following terms shall apply: Following delivery of the Licensed Program
Materials, Licensee shall have a period of ten (10) business days to undertake
inspection and testing of the Licensed Program Materials to determine
conformance with applicable User Documentation. Licensees failure to notify Brio
in writing of any defects within the ten (10) business day inspection period, in
the Licensed Program Materials shall be deemed acceptance thereof.
8. BRIO PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION.
Licensee agrees not to provide or otherwise make available any Licensed Program
Materials to any competitor of Brio or to any person other than employees,
consultants, contractors or agents of Licensee who are not competitors of Brio
and who have a need to use such Licensed Program Materials. Licensee
acknowledges that the Licensed Program Materials, as well as other information
concerning Brio's business, products, proposed new products, licensees and
related information constitute Brio's confidential and proprietary information
("Confidential Information"). Licensee agrees that Licensee will take
appropriate action by instruction, agreement, or otherwise with Licensee's
employees to satisfy Licensee's obligations under this Agreement with respect to
use, copying, modification, protection and security of Confidential Information.
Licensee shall promptly return all Confidential Information to Brio (i) after
termination of this Agreement, or (ii) upon receipt by the Licensee of written
notice from Brio requesting return of such Confidential Information.
9. LIMITED WARRANTY
9.1 Limited Warranty. Brio warrants that for a period of thirty (30) days from
----------------
receipt of Licensed Program Materials by Licensee, (i) the media on which the
Licensed Program Materials are recorded will be free from defects in materials
and workmanship, and (ii) the Licensed Programs Materials will perform
substantially in accordance with their then-current User Documentation, provided
that such Licensed Program Materials are property used by Licensee. Brio makes
no warranty as to the Licensed Program Materials after said thirty (30) day
period. Brio does not warrant that the Licensed Program Materials will meet
Licensee's requirements or will operate in combination with other software which
may be selected for use by Licensee, or that the operation of the Licensed
Program Materials will be uninterrupted or error-free. Brio's sole and exclusive
liability and Licensee's sole and exclusive remedy under this Limited Warranty
shall be, at Brio's election, either (i) replacement of the disk if defective,
or (ii) Brio's reasonable effort to make the Licensed Program materials perform
substantially in accordance with the accompanying User Documentation, if the
Licensed Program Materials initially delivered are defective. The above remedies
are available only if Brio is promptly notified in writing within the thirty
(30) day warranty period. This limited warranty is VOID if failure of the
Licensed Programs is due to accident, abuse or misapplication. Any replacement
Licensed Program will be warranted for the remainder of the original warranty
period, or for thirty (30) days, whichever is longer.
9.2 Warranty of Title. Each party warrants that it has all necessary right,
-----------------
power and authority to enter into this Agreement.
<PAGE>
9.3. Warranty of Year 2000 compliancy. Brio warrants that the Licensed Program
- ---- --------------------------------
Materials will be "year 2000 compliant" in that when used in accordance with its
associated User Documentation they will correctly process, provide and/or
receive date data within and between the twentieth and twenty-first centuries,
provided that all hardware, software and firmware used (including but not
limited to Databases and API's) in association with the Licensed Program
Materials exchange accurate date data. "Year 2000 compliant" includes, but is
not limited to, date and century recognition before and after 1/1/2000,
calculations to accommodate same century, and multi-century formulas end date
values, and date data interface values that reflect the century. Leap year
calculations are accommodated.
9.4. Disclaimer. EXCEPT FOR THE LIMTED WARRANTY SET FORTH HEREIN, BRIO MAKES
----------
NO PROMISES, REPRESENATIONS OR WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY,
OR OTHERWISE, WITH RESPECT TO ANY LICENSED PROGRAM MATERIALS, INCLUDING THEIR
CONDITION, THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, OR THE
EXISTENCE OF ANY LATENT OR PATENT DEFECTS, AND BRIO SPECIFICALLY EXCLUDES ALL
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT.
10. SUPPORT MAINTENANCE AND TRAINING
10.1 Support. Licensee shall have the right, upon payment of the support fees
-------
set forth in any Exhibit A attached hereto, to the support services outlined in
Exhibit B hereto. The names of specified Licensee contact persons shall be added
to such Exhibit B. Such contact persons shall attend the classes specified in
such Exhibit A, and after attending such training may obtain support from Brio
as set forth in such Exhibit B.
10.2 Maintenance. Upon payment of maintenance fees as set forth in any Exhibit
-----------
A attached hereto, Licensee shall have the right to receive maintenance from
Brio as set forth in such Exhibit B.
10.3 Training. Brio shall provide any training set forth in Exhibit A attached
--------
hereto.
11. INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION
Indemnity. Brio will defend, at its expense, any action brought against
- ---------
Licensee based upon a claim that the Licensed Program Materials used within the
scope of any license granted hereunder directly infringe a U.S. patent or
copyright. Brio further agrees to pay all damages and costs finally awarded
against Licensee attributable to such claim; provided that Brio shall have sole
control of any such action or settlement negotiations, and provided that
Licensee notifies Brio promptly in writing of such claim and gives Brio all
authority, information and assistance, at Brio's expense, reasonably necessary
to settle or defend such claim. Brio shall not be liable for any costs or
expenses incurred without its prior written authorization. If the Licensed
Program Materials become, or in the opinion of Brio may become, the subject of a
claim of infringement of any United States patent or copyright, Brio may, at its
option: (1) procure for Licensee the right to use the Licensed Program
Materials free of any liability; (ii) replace or modify the Licensed Program
Materials to make them non-infringing; or (iii) remove the Licensed Program
Materials, or part thereof, and refund the aggregate payments paid therefor by
Licensee, less an amount equal to 20% of the purchase price of the license for
such Licensed Program Materials for each year of use. Brio assumes no liability
hereunder for: (i) any method or process in which the Licensed Program Materials
may be used; or (ii) any compliance with Licensee's specifications. Brio shall
have no obligation to defend Licensee or to pay costs, damages or attorney's
fees for any claim based upon: (A) use of other than a current unaltered release
of the Licensed Program Materials; or (B) the combination, operation or use of
any Licensed Program Materials furnished hereunder with non-Brio programs or
data if such infringement would have been avoided but for the combination,
operation or use of the Licensed Program Materials with such programs or data.
THIS SECTION 11.1 SETS FORTH THE SOLE AND EXCLUSIVE LIABILITY OF BRIO FOR
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
12. UNITED STATES RESTRICTED RIGHTS AND EXPORT LAWS AND REGULATIONS
If Licensee is an agency, department or entity of the United States Government
("Government"), then use, reproduction, release, modification or disclosure of
the Licensed Program Materials, or any part thereof, including technical data,
is restricted in accordance with Federal Acquisition Regulation ("FAR") 12.212
for civilian agencies and Defense Federal
<PAGE>
Acquisition Regulation Supplement ("DFARS") 227.7202 for military agencies. The
Licensed Program Materials are a commercial product, which was developed at
private expense. The use of the Licensed Program Materials by any Government
agency, department or other agency of the Government is further restricted as
set forth in this Agreement. Any obligation of Licensor to provide Products
under this Agreement shall be subject in all respects to all United States laws
and regulations governing the license and delivery of technology and products
abroad by persons subject to the jurisdiction of the United States. Licensee
shall not export, directly or indirectly, any Products or related information
without first obtaining all required licenses and approvals from the appropriate
government agencies.
13. LIMITATION OF LIABILITY
Other than its liability under 11 above, Licensee agrees that Brio's liability
hereunder for damages arising from use, performance or nonperformance of the
Licensed Program Materials, including but not limited to liability for patent
and copyright infringement, shall be as set forth above in Sections 9 and 11,
and shall in no event exceed the amount paid by Licensee pursuant to this
Agreement. Licensee further agrees that BRIO WILL NOT BE LIABLE FOR ANY LOST
PROFITS, FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY
CLAIM OR DEMAND AGAINST LICENSEE BY ANY OTHER PARTY. IN NO EVENT WILL BRIO BE
LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL, INDIRECT, OR EXEMPLARY DAMAGES
ARISING OUT OF THIS AGREEMENT, EVEN IF BRIO HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, AND UNDER ANY CAUSE OF ACTION, INCLUDING NEGLIGENCE. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY. No action may be brought or arbitration demanded by Licensee for
any dispute arising out of or in connection with this Agreement at any time more
than twelve (12) months after the facts occurred giving rise to the cause of
action or dispute. Licensee is responsible for the selection of software
products to satisfy its requirements, and for the data and other results
obtained from operation of the Licensed Program Materials. Brio will have no
liability to Licensee or third parties in connection with such data and other
results.
14. TERM AND TERMINATION
14.1 Term. The term of this Agreement and the license granted hereunder shall
----
commence on the date set forth at the beginning of this Agreement and shall
continue until terminated in accordance with this Section 14.
14.2 Termination. Either party may, at its option, terminate this Agreement upon
-----------
written notice to the other party if the other party materially fails to comply
with any of the terms and conditions of this Agreement and if such default has
not been cured within thirty (30) days after written notice to the defaulting
party.
14.3 Surviving Terms. Sections 3, 4, 5, 8, 9.2, 9.3, 11, 12, 13, 14.3 and 15,
---------------
and all payment obligations incurred prior to termination of this Agreement,
shall survive termination of this Agreement. Within thirty (30) days after
termination of this Agreement, Licensee shall return to Brio, at Licensee's
expense, and shall make no further use of, any property, materials or other
items of Brio, and shall certify in writing to Brio, that the originals and all
copies, in whole or in part, in any form, of the Licensed Program Materials have
been destroyed or returned to Brio.
15. GENERAL PROVISIONS
15.1 Assignment. All the terms and provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties to this Agreement and to
their respective heirs, successors, assigns and legal representatives. Licensee
may not assign this Agreement in whole or in part, except with Brio's written
consent, which shall not be unreasonably withheld. Any assignment by Licensee
shall not result in an increase in the scope of the license granted pursuant to
this Agreement. Brio shall be entitled to assign this Agreement to a successor
to all or substantially all of its relevant assets without restriction.
15.2 Entire Agreement. This Agreement represents the entire agreement between
----------------
the parties, and supersedes all prior agreements and understandings with respect
to the matters covered by this Agreement. Licensee agrees that it has not
entered into this Agreement based on any representations other than those
contained herein. This Agreement may only be amended by a written agreement
signed by both parties.
<PAGE>
15.3 Delays. Brio is not responsible for failure to fulfill its obligations
------
under this Agreement due to causes beyond its control.
15.4 Governing Law. This Agreement shall in all respects be governed by the laws
-------------
of the State of California without reference to its principles of conflicts of
laws. The parties hereby agree that all disputes arising out of this Agreement
shall be subject to the exclusive jurisdiction of and venue in the federal and
state courts within Santa Clara County, California. Licensee hereby consents to
the personal and exclusive jurisdiction and venue of these courts.
15.5 Arbitration. Any claim, dispute, or controversy arising out of or in
-----------
connection with or relating to this Agreement, including the breach or alleged
breach thereof, will be submitted by the parties to binding arbitration by the
American Arbitration Association in the City of San Jose, California, under the
commercial rules then in effect for that Association, except as provided herein.
The parties will agree on one (1) arbitrator within thirty (30) days of receipt
of the notice of intent to arbitrate. If no arbitrator is appointed within the
time herein provided, or any extension of time which is mutually agreed upon,
the Association will make such appointment within thirty (30) days of such
failure. Such Association-appointed arbitrator will have a minimum of ten (10)
years experience with development software for computers, internet applications,
and knowledge of wide area networks. The awarded rendered by the arbitrator will
include costs of arbitration, reasonable costs for expert and other witnesses,
and reasonable attorney's fees to the prevailing party. Licensee acknowledges
that any breach of its obligations with respect to the proprietary rights of
Brio and its licensors or third party suppliers will cause Licensee irreparable
injury for which there are inadequate remedies at law and, therefore, the
arbitrator may award Brio and its licensors equitable relief in addition to all
other remedies available to them. Judgment on the arbitration award may be
entered in any court having Jurisdiction thereof. Nothing in this Agreement will
be deemed as preventing either party from seeking injunctive relief (or any
other provisional remedy) from any court having jurisdiction over the parties
and the subject matter of this dispute as is necessary to protect either party's
name, proprietary information, trade secret, know-how, or any other intellectual
property rights. Because both parties to this Agreement have had the opportunity
to negotiate individual provisions of this Agreement, the parties agree that any
arbitrator or court shall not construe any ambiguity that may exist in the
Agreement against a party on the basis of that party having drafted the
Agreement.
15.6 Waiver. The waiver of any particular breach or default or any delay in
------
exercising any rights shall not constitute a waiver of any subsequent breach or
default.
15.7 Notices. All notices permitted or required under this Agreement shall be in
-------
writing and shall be delivered in person or mailed by first class, registered or
certified mail, postage prepaid, to the address of the party specified in this
Agreement or such other address as either party may specify in writing. Such
notice shall be deemed to have been given upon receipt.
15.8 Headings. The headings of the several sections of this Agreement are
--------
intended for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
15.9 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform its obligations (other than payment obligations) under this Agreement
due to reasons beyond its reasonable control, including without limitation acts
of God, war, riot, embargoes, acts of civil or military authorities, fire,
floods or accidents.
15.10 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and all of which together shall constitute one
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and any Exhibits
hereto as of the date first set forth above.
BRIO TECHNOLOGY, INC. TriNet VCO
("LICENSEE")
/s/ LORI L. HARMON /s/ DOUGLAS P. DEVLIN
------------------ ---------------------
(Signature) (Signature)
Lori L. Harmon Douglas P. Devlin
------------------ ---------------------
(Print Name) (Print Name)
Vice President Chief Financial Officer
------------------ -----------------------
(Title) (Title)
<PAGE>
EXHIBIT A
- ---------
LICENSE GRANTS, LICENSE AND SUPPORT AND MAINTENANCE FEES, AND TRAINING
- ----------------------------------------------------------------------
1. License Grants.
--------------
Licensee is granted a nonexclusive non-transferable license to install the
number of copies of the Licensed Programs outlined below in this Exhibit.
Licensee shall have a nonexclusive license to use the Licensed Documentation
solely for the Licensee's internal purposes and solely in connection with
Licensee's use of the Licensed Program Materials. Licensee's use of Licensed
Program Materials shall be solely for Licensee's internal business or
administrative purposes.
2. Products, License Fees, Support and Maintenance Fees.
----------------------------------------------------
PRODUCT QUANTITY UNIT PRICE EXTENDED PRICE 1ST YEAR MAINTENANCE
- ------- -------- ---------- -------------- --------------------
Brio.Portal* 1 [*] [*] [*]
GRAND TOTAL [*]
*Includes:
[*]
[*]
[*]
[*]
[*]
**Plus applicable sales taxes
[*] Confidential Treatment Requested
<PAGE>
EXHIBIT B
- ----------
SUPPLEMENTAL TERMS AND CONDITIONS FOR SUPPORT AND MAINTENANCE ONLY
In the event Licensee has initialed this Exhibit, then the following terms and
conditions will apply solely for yearly Support and Maintenance services for
Licensed Program Materials and Updates therto. The obligation of Licensee to
make payment to BRIO for Support and Maintenance fees commences upon the
Effective Date of this Agreement. This Agreement for Support and Maintenance
will renew automatically at the end of the first calendar year after the
Effective Date hereof, and sixty (60) days prior to such anniversary, BRIO will
Invoice Licensee for the following years Support and Maintenance fees at the
then prevailing BRIO rates for such Support and Maintenance, not to exceed a 10%
increase over the prior year's Support and Maintenance Fees. Licensee may elect
to terminate this Support and Maintenance Agreement by giving BRIO written
notice of its intent to so terminate, no later than thirty (30) days prior to
the anniversary date. Failure of Licensee to so notify BRIO will constitute
Licensees agreement to make payment to BRIO for a further year of Support and
Maintenance fees as invoiced by BRIO. In the event that BRIO does not receive
further Maintenance Fees for one or more annual maintenance periods, Maintenance
can be reactivated by mutual agreement upon payment by Licensee of all
Maintenance Fees due for the period in which Maintenance was not provided. The
fees for the initial term of Support and Maintenance are outlined in Exhibit A
of this Agreement. This Exhibit does not apply to Support or Maintenance
services for any modifications of the Licensed Program Materials, which my be
quoted to Licensee by Brio.
1. DEFINITIONS
The following defined terms, and other capitalized terms defined herein, shall
govern the interpretation of this Exhibit. Capitalized terms that are used and
not otherwise defined shall have the meaning set forth in the Software License
Agreement.
1.1 Error. Error means a material failure of the Licensed Program Materials to
-----
conform as described in the applicable User Documentation, which failure is
demonstrable in the environment for which the Licensed Program Materials was
designed and causes it to be inoperable, to operate improperly in the
environment for which it was designed, or produces results different from those
described in the applicable User Documentation. Failures resulting from
Licensee's negligence or improper use of the Licensed Program Materials,
modifications or damage to the Licensed Program Materials by Licensee, and
Licensee's use of the Licensed Program Materials on third party hardware or
software not identified and certified to Licensee as compatible by BRIO, are not
considered Errors.
1.2 Error Correction. Error correction means either a modification or addition
----------------
that, when made or added to the Licensed Program Materials, brings the Licensed
Program Materials into material conformity with its User Documentation or a
procedure or routine that, when observed in the regular operation of the
Licensed Program Materials, avoids the practical adverse effect of such
nonconformity.
1.3 Update. Update means an updated revision of the Licensed Program
------
Materials that includes Error Corrections. Provided Licensee has initialed this
Exhibit B, and continue to make yearly maintenance payments, under this
Agreement, Updates are normally provided to Licensee on diskette, CD ROMs, tapes
or made available via the BRIO Homepage. Updates are any Updates of Licensed
Program Material identified by Brio by incrementing the numeral to the left or
right of the decimal point in the version number.
<PAGE>
SECTION 2 - SUPPORT AND MAINTENANCE SERVICES
- --------------------------------------------
2.1 Error Correction
----------------
Call Priorities
Call priorities are established with the level of urgency or impact on the
customers business. Each priority level has a Response Time, Issue Resolution
and Defect Resolution Objective associated with it as shown below:/1/
<TABLE>
<CAPTION>
Priority Description Response Time Issue Defect
Objective Resolution Resolution
Objective Objective
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1 Critical: Application Down, Unable to 1 Hour /8/ Hours To Next Available
use or severely impaired. No work resolve or Patch.
around available. provide work
around.
- -----------------------------------------------------------------------------------------------------------------
2 Serious: Important feature not 2 Hours /2/ Days To Future Patch or
available, work around not available. resolve or next Minor
provide work Release.
around.
- -----------------------------------------------------------------------------------------------------------------
3 Intermediate: Question, Important 8 Hours /2/ Weeks To Future Patch or
feature not available, but there is a resolve or next Major
reasonable work around, or a less provide work Release.
significant feature is not available around.
with no reasonable work around.
- -----------------------------------------------------------------------------------------------------------------
4 Minor: Enhancement or minor problem 24 Hours /4/ Weeks To Future scheduled
that doesn't cause a disruption of resolve or release
work. provide work determined by
around. Brio.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
If Brio is unable to correct the Error(s) as described above for Priority 1 and
2 Errors, within 8 hours or two (2) business days as applicable, Brio will
provide Licensee with the then existing diagnosis of the problem and outline
Brio's then existing plan and timetable for resolving the Error. Brio will
report its progress in correcting the Error to Licensee in accordance with the
table for resolving the Error. Brio shall work continuously on such Errors
until such Errors are remedied. SECTION 2 ("SERVICES PROVIDED") AND 3
("RESPONSE TIMES") STATE BRIO'S ENTIRE LIABILITY AND LICENSEES SOLE AND
EXCLUSIVE REMEDY CONCERNING BRIO'S OBLIGATION TO CORRECT ANY ERRORS IN THE
LICENSED PRODUCT.
2.2. Licensee Responsibilities. Licensee agrees to notify BRIO in writing or
-------------------------
by phone promptly following the discovery of any Error. Further, upon discovery
of an Error, Licensee agrees, if requested by BRIO, to submit to BRIO a listing
of output and any other data that BRIO may require in order to reproduce the
Error and the operating conditions under which the Error occurred or was
discovered. In addition, Licensee is responsible for procuring, installing, and
________________
/1/ All response times are based on Brio's standard support hours from 5 a.m. to
5 p.m. Pacific Time.
<PAGE>
maintaining all equipment, telephone lines, communications interfaces, and other
hardware necessary for BRIO to provide maintenance services to Licensee.
2.3. Telephone Support. BRIO will make a member of its maintenance staff
-----------------
available by telephone to Licensee's designated support coordinator (Licensee's
named employee responsible for liaison with BRIO relating to the Software
Support and Maintenance requested hereunder) to assist Licensee's use of the
Licensed Program Materials. Licensee's System Administrator will be responsible
for daily Support and Maintenance of the Licensed Program Materials per the
applicable Documentation. Additional extended service plans are available from
BRIO at Licensee's request.
2.4 Field Maintenance. Upon request, BRIO will provide field support and
-----------------
maintenance services at any Licensee field site(s) at BRIO's then current hourly
field maintenance rates, together with reimbursement of applicable travel and
related expenditures, at BRIO's cost plus a 10% administrative charge.
2.5 Exclusions from Support and Maintenance Services. Support and Maintenance
------------------------------------------------
services under this Exhibit do not include, system administration training,
operations training, network management setup for the licensed Program
Materials, travel and living expenses for installation and training, file
conversion costs, optional products and services, directories, consulting
services, shipping charges, or the costs of any recommended hardware.
This Exhibit also does not cover support or maintenance services for any failure
or defect in the Licensed Program Materials caused by any of the following:
(a) the improper use, alteration, or damage of the Licensed Program Materials
by Licensee or persons other than BRIO employees;
(b) modifications to the Licensed Program Materials not made or authorized by
BRIO;
(c) software other than the Licensed Program Materials;
(d) application interfacing between the Licensed Program Materials and other
software, that has not be approved or certified by Brio as being compatible
with the Licensed Program Materials.
(e) Use of Licensed Program Materials (l) with hardware, or third party
software that has not been approved and certified by BRIO.
SECTION 3 UPDATES
3.1 During each annual support and maintenance period in which Brio is
providing support and maintenance, Brio shall provide licensee with updates of
the licensed program materials at such time as such updates are made generally
available by Brio to it customer of the licensed program materials.
3.2 Update Support Policy:
---------------------
BRIO will support the current Update. The previous version will be supported for
twelve (12) months after the effective date of the current Update. Support will
be for Critical Errors (i.e., Priority 1 bugs) only, on a best-efforts basis and
subject to availability of support staff.
3.3 Travel and per diem expenses. Licensee will pay, within fifteen (15) days
----------------------------
of invoice, all reasonable travel and per diem expenses of BRIO personnel
related to any on-site support and maintenance of the Licensed Program
Materials. For all expenses incident to the performance of this Exhibit,
Licensee will pay BRIO's costs, plus a 10% administrative charge.
BRIO LICENSEE
By: /s/ Lori L. Harmon By: /s/ Douglas P. Devlin
------------------ ---------------------
Name: Lori L. Harmon Name: Douglas P. Devlin
------------------ --------------------
Date: September 29, 1999 Date: September 28, 1999
--------------------- --------------------
<PAGE>
Exhibit 10.12
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAD BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
[LETTERHEAD BRIO TECHNOLOGY]
Consulting Services Agreement
- --------------------------------------------------------------------------------
This Agreement is made by and between Brio Technology, Inc. with
headquarters at 3430 West Bayshore, Palo Alto, CA 94303-4605 (hereinafter,
"Brio"), and
Name: TriNet VCO
----------------------
Address: 101 Callan Ave.
----------------------
San Leandro, CA 94577
----------------------
Phone: (510) 352-5000
--------------
Fax: (510) 352-6480
--------------
(hereinafter, "Customer").
By signing this agreement the parties agree to the terms and conditions set
forth on this page and on the attached pages. The Effective Date of this
Agreement shall be the latter of the dates on which it is signed.
Executed by Customer Executed by BRIO Technology, Inc.
/s/ Steve Carlson /s/ Tamara MacDuff
- -------------------- --------------------------
Authorized Signature Authorized Signature
Name: Steve Carlson Name: Tamara MacDuff
------------- --------------
Title: Chief Information Officer Title: Vice President Finance
------------------------- ----------------------
Date: November 9, 1999 Date: November 29, 1999
---------------- -----------------
Michelle Hoppe
Associate Corporate Counsel
Brio Professional Services Agreement 1 of 4
<PAGE>
In consideration of the promises contained in this Agreement, BRIO agrees to
perform certain services subject to the terms and conditions set forth below and
in the Statement of Work attached as an exhibit and incorporated into this
Agreement by reference.
1. Statement of Work. The services which BRIO is to provide under this
Agreement are outlined in the Statement of Work (Exhibit A-1 et. seq.).
-------
Persons performing the services hereunder will observe any specified Customer
facility rules and regulations.
2. Fees. The compensation to be paid BRIO pursuant to this Agreement shall be
in consideration for all services rendered. BRIO will be paid as specified in
the software agreement.
3. Term. The term of this Agreement will begin on the Effective Date and
continue until terminated. Either party may terminate a Statement of Work under
this Agreement or the Agreement itself with or without cause at any time by
giving the other party 30 days' written notice of termination.
Upon the termination of a Statement of Work or of this Agreement for any or for
no reason, neither party will be liable to the other because of such termination
for damages on account of the loss of prospective profits, good will, or on
account of expenditures, leases or commitments in connection with the business
of Customer or of BRIO, or for any other reason whatsoever flowing from such
expiration or termination.
The following obligations will survive termination of this Agreement for any
reason: (a) obligations relating to nonuse and nondisclosure of confidential
information; (b) provisions relating to ownership and nonsolicitation; and (c)
obligations to make payments of amounts that are due under this Agreement.
4. Ownership. Customer shall have an unlimited non-exclusive license, in
perpetuity, to use the work defined in Exhibit A for Customer under this
Agreement. Nothing in this Agreement, however, shall be deemed to limit BRIO's
ability to develop and market functionally comparable products or work
deliverables based on the same general concepts, techniques and routines.
Nothing in this Agreement, shall be construed to convey to Customer any rights
of ownership in and to BRIO's software products, training materials, or
consulting methods. All right, title, and interest therein shall at all times
remain the property of BRIO or of BRIO's licensor.
5. Nondisclosure. BRIO agrees that any specifications, information or data
furnished to BRIO under this Agreement will remain Customer's property and, if
labeled "confidential" or "proprietary," BRIO agrees to treat such materials as
confidential information, both during and after the term of this Agreement. As a
result of this Agreement, BRIO may also provide Customer with similar
confidential information. For convenience, such nonpublic information will be
referred to as "Confidential Information."
Each party agrees that it will not use or duplicate any Confidential Information
provided hereunder unless such use or duplication is necessary to implement this
Agreement. Each party it will use all reasonable efforts to ensure against
disclosure or distribution of any Confidential Information to any third party,
except as specifically authorized by the owner in writing.
Confidential Information shall not include information which (a) is or becomes
publicly available through no act or omission of the receiving party; (b) was in
the receiving party's lawful possession prior to the disclosure and had not been
obtained either directly or indirectly from that party; (c) is lawfully
disclosed to the receiving party by a third party without restriction on
disclosure; (d) is furnished by the owning party to a third party without
restrictions on disclosure; or (e) is independently developed by the receiving
party.
Brio Professional Services Agreement 2 of 4
<PAGE>
6. Independent Contractor. Both parties agree that BRIO is an independent
contractor and, as such, neither BRIO not its personnel shall be considered
employee(s) of Customer. As a consequence, Customer is neither liable nor
responsible for withholding or deducting any sums for federal or state income
taxes, social security, health, workers compensation, and disability insurance
coverage, pension or retirement plan, or the like.
7. Nonsolicitation. During the term of this Agreement and for a period of one
year thereafter, Customer agrees that it will not solicit for hire, on behalf of
Customer or any other organization, any employee of BRIO, unless Customer has
first obtained BRIO's written consent.
8. Reference. BRIO may use Customer's company name as a reference.
9. Warranty and Disclaimer of Warranties. BRIO warrants that its services will
be of a professional quality conforming to generally accepted industry standards
and practices.
THE WARRANTY AND CONDITION INDICATED ABOVE IS EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10. Limitation of Liability. NEITHER PARTY SHALL BE LIABLE FOR INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF ANTICIPATED
REVENUE OR LOSS RESULTING FROM BUSINESS DISRUPTION), OR DAMAGE TO SYSTEMS, DATA,
OR PROGRAMS, RELATED TO, RESULTING FROM, OR ARISING AS A RESULT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. In no case will BRIO's liability to Customer exceed
the amounts paid by Customer to BRIO hereunder.
11. Taxes. Customer agrees to pay any and all federal, state, or local sales,
use, or property taxes, but excluding income taxes, that may become due in
connection with the services rendered by BRIO, unless Customer certifies an
exemption. Customer shall have the right to contest the amount or validity of
any imposition of taxes by appropriate legal proceedings; however, upon the
termination of such proceedings, Customer shall pay the contested items and any
interest or penalties in the event they are held valid.
12. Insurance. BRIO is responsible for maintaining insurance to protect
itself from the following: (a) claims and/or workers compensation or state
disability acts; (b) claims for damages because of bodily injury, sickness, or
death of any of its employees or any other person which arise out of any
negligent act or omission of BRIO, its employees or agents, if any; and (c)
claims for damages because of injury to or destruction of tangible property,
including loss of use resulting therefrom, which arise from any negligent act or
omission of BRIO, its employees or agents, if any.
13. Equal Employment Opportunity. BRIO agrees that it does not and will not
discriminate against any employee or applicant for employment because of race,
color, religion, age, sex, disability, national origin, or sexual orientation.
14. Governing Law. This Agreement shall be construed according to the
substantive laws of California, USA, excluding provisions relating to conflicts
of law.
15. Changes. If Customer wishes BRIO to perform additional items, or to make
changes to the Statement of Work attached hereto, Customer will notify BRIO in
writing. BRIO shall, upon Customer's written request, provide an estimate of the
cost and schedule impact of performing changing or delivering the Statement of
Work, which estimate will be provided within a mutually agreed time frame. BRIO
will take no further action with respect to any addition or change to the
Statement of Work until BRIO receives written authorization from Customer and
the parties execute an appropriate amendment to the relevant Statement of Work.
Brio shall be under no obligation to carry out such work, at its sole
discretion. If Customer fails to meet any Customer Responsibilities as defined
in the Statement of Work, and such failure affects BRIO's costs or schedule or
precludes further work by BRIO on the Project until the Customer
Responsibilities are met, then BRIO will notify Customer in writing and
thereafter, BRIO and Customer will promptly cooperate to make an appropriate
written amendment to the Statement of Work.
Brio Professional Services Agreement 3 of 4
<PAGE>
16. General Terms. This Agreement is intended to be the complete agreement
between the parties concerning the services to be performed. It may be modified
only in writing by both parties. In the event that any provision of this
Agreement is found to be invalid or unenforceable, it will be enforced to the
extent permissible and the remainder of this Agreement will remain in full force
and effect. Any notices required hereunder will be in writing and delivered
personally, by prepaid U.S. certified mail (return receipt requested), or by
prepaid express courier. Any terms and conditions which are included on
Customer's purchase order in connection with this Agreement shall be void and of
no force and effect unless expressly accepted in writing.
Brio Professional Services Agreement 4 of 4
<PAGE>
[LETTERHEAD OF BRIO TECHNOLOGY]
Exhibit A-1
Statement of Work
This Statement of Work is made a part of the Consulting Services Agreement
dated________(the "Agreement") by and between Brio Technology, Inc. ("BRIO") and
TriNet VCO ("Customer"). This Statement of Work describes the consulting
services to be provided by BRIO to Customer.
<TABLE>
<CAPTION>
Project Description
- --------------------
<S> <C>
1. Consulting Services to be performed: Brio will provide to customer consulting services to develop, test and rollout
the first phase of the Self Service Report System initiative. A detailed
description of this project and the requirements is provided in the proposal
for Brio Professional Services dated October 28, 1999.
2. Consulting Rate: . Customer will pay BRIO the following rates for consulting services:
. Brio.Portal Specialist - rate of US [ * ] per hour
. Brio.Report Specialist - rate of US [ * ] per hour
Rates do not include travel and living expenses which will be billed
separately.
3. Approximate Engagement Schedule:
. Consultants commencing on or about November 15, 1999 and ending
on or about December 14, 1999.
4. Number of Hours: Not to exceed [ * ] hours for the Brio.Portal Specialist. Not to exceed [ * ]
hours for the Brio.Report Specialist.
5. Consulting Fee: US [ * ], plus actual and reasonable expenses
</TABLE>
In the event that BRIO ceases to provide services to Customer for any reason,
this Statement of Work will be terminated. In such event, any remaining
consulting hours under the maximum number above will not be used and work will
cease.
<TABLE>
<S> <C> <C>
CUSTOMER BRIO TECHNOLOGY
Signed: /s/ Steve Carlson Signed: /s/ Tamara MacDuff
----------------- ------------------
Name: Steve Carlson Name: Tamara MacDuff
------------- --------------
Title: Chief Information Officer Title: Vice President Finance
------------------------- ----------------------
Date: November 9, 1999 Date: November 29, 1999
---------------- -----------------
Agreement No. _______ Michelle Hoppe
Associate Corporate Counsel
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[ * ] Confidential Treatement Requested
Trinet SOW 10-28 1 of 1
<PAGE>
EXHIBIT 10.13
July 23, 1999
TriNet VCO
101 Callan Avenue
San Leandro, California 94577
Dear _____:
It is my pleasure to offer you the enhanced terms and conditions associated with
your current position at TriNet VCO of ______________, reporting to the
President and Chief Executive Officer, Martin Babinec. In this position you will
continue to play a key role in the development of TriNet's business.
This letter and accompanying contract of employment will summarize important
details of matters pertaining to your employment. Implementation of the new
terms and conditions of your employment requires execution of, and acceptance by
the Company, of this contract. The terms of the attached contract, once executed
will supercede any terms and conditions of your heretofore operative employment
arrangement.
Upon the acceptance and execution and acceptance of the attached contract, the
new terms and conditions of employment will become effective May 19, 1999.
We are all excited about the opportunity to continue our rewarding relationship.
Sincerely,
Martin Babinec
President & CEO
Attachments: Terms and Conditions of Employment
ExecEmplAgrmnt.DPD.990706
July 23, 1999
Page 1 of 13
<PAGE>
CONFIDENTIAL
TriNet VCO
GENERAL EMPLOYMENT TERMS & CONDITIONS
Name: Position:
Date of Offer: July 23, 1999 Scheduled Commencement Date: May 19, 1999
1. Compensation: Your base salary is $_______ per year, payable semi-monthly,
which represents an increase over your prior salary level, and constitutes
adequate consideration for the execution of this contract. As further incentive,
you will be granted an additional ______ qualified options to purchase TriNet
VCO's (the "Company") common stock subject to the vesting schedule, terms and
conditions of TriNet VCO's Stock Option Plan, option agreement, and subject to
approval of the Company's Board of Directors. Further, the Company will supply
you with additional life insurance in a face value amount not less than
$500,000. In addition to these compensation components, it is anticipated that
you will be eligible for annual bonus payments, subject to the Company's
profitability, its anticipated performance, your contribution to that
performance, the discretion of your manager, and the approval of the Board of
Directors. The current budget calls for such bonus to be in the range of
$25,000, but your signature on this document constitutes your acknowledgement
that there is no guarantee of payment.
2. Expenses. The company will reimburse you for reasonable and necessary
expenses incurred by you in furtherance of TriNet VCO's business. All expenses
claimed are subject to the review and approval of your supervisor. Records must
be maintained and submitted for any expenses to be reimbursed - including
destination for auto mileage totals and receipts for all other items. Use of
personal automobile for Company business will be reimbursed at the rate of the
prevailing Internal Revenue Service rate per mile, currently.
3. Trade Secrets. During and after your employment, you will hold all Trade
Secrets of TriNet VCO in confidence; you will not disclose these Trade Secrets
to any one. This does not apply to information disclosed in the ordinary course
of business to other persons who are employees of TriNet VCO at the time.
"Trade Secrets" means the information described in the Description of Trade
Secrets (Exhibit A) and any other confidential and/or proprietary knowledge,
data or information of TriNet VCO, whether embodied in memoranda, manuals,
letters, or other documents, computer disks, tapes or other information storage
devices, hardware, or other media or vehicles. Trade Secrets do not include
information generally known or that is or becomes public domain information
through no fault of yours.
ExecEmplAgrmnt.DPD.990706
July 23, 1999
Page 2 of 13
<PAGE>
You will also hold confidential any confidential information of any customer,
prospective customer, vendor or other person, if you are told or if you know
that the information is confidential.
You will not use any Trade Secrets of TriNet VCO other than for the benefit of
TriNet VCO, and you will not use any confidential information of any customer,
prospective customer, vendor or other person other than for the benefit of such
customer, vendor or other person if such disclosure is required in the
performance of your normal work duties.
These terms and conditions of this paragraph 3 are subject to further definition
and requirements in the separate Proprietary Information & Inventions Agreement
("PIIA") which you may be required to execute. Your signature below constitutes
your consent that the obligations herein may be expanded or otherwise modified
by virtue of said PIIA.
4. Invention Assignment. In consideration of your employment with TriNet VCO,
you hereby represent to, and agree with the Company as follows:
a. Company Business. You understand that the Company is engaged in a
continuous program of research, development, production and marketing in
connection with its business and that, as an essential part of your employment
with the Company, you may be expected to make new contributions to and create
inventions, processes, or refinements of value for the Company.
b. Disclosure of Inventions. From and after the date you become employed
with the Company, you will promptly disclose in confidence to the Company all
inventions, improvements, designs, techniques, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works, and Trade Secrets ("Invention(s)"), whether or not
patentable, copyrightable or protectable as trade secrets, that are made or
conceived or first reduced to practice or created by you, either alone or
jointly with others, during the period of your employment, whether or not in the
course of your employment.
c. Work for Hire; Assignment of Inventions. You acknowledge that
copyrightable works prepared by you within the scope of your employment are
"works for hire" under the Copyright Act and that the Company will be considered
the author thereof. You agree that all Inventions that (a) are developed using
equipment, supplies, facilities, or Trade Secrets of the Company, (b) result
from work performed by you for the Company, or (c) relate to the Company's
business or current or anticipated research and development, will be the sole
and exclusive property of the Company and are hereby assigned by me to the
Company. This assignment does not apply to an Invention that qualifies fully as
a nonassignable Invention under Section 2870 of the California Labor Code. I
have reviewed the notification on Exhibit B (Limited Exclusion Notification) and
agree that my signature acknowledges receipt of notification.
ExecEmplAgrmnt.DPD.990706
July 23, 1999
Page 3 of 13
<PAGE>
d. Assignment of Other Rights. You hereby irrevocably transfer and assign
to the Company: (a) all worldwide patents, patent applications, copyrights, mask
works, trade secrets and other intellectual property rights in any Invention;
and (b) any and all "Moral Rights" (as defined below) that you may have in or
with respect to any Invention. You also hereby forever waive and agree never to
assert any and all Moral Rights you have in or with respect to any Invention,
even after termination of your work on behalf of the Company. "Moral Rights"
mean any rights to claim authorship of an Invention, to object to or prevent the
modification of any Invention, or to withdraw from circulation or control the
publication or distribution of any Invention, and any similar right, existing
under judicial or statutory law of any country in the world, or under any
treaty, regardless of whether or not such right is denominated or generally
referred to as a "moral right."
e. Assistance. You agree to assist the Company in every proper way to
obtain for the Company and enforce patents, copyrights, mask work rights, trade
secret rights, and other legal protection for the company's Inventions in any
and all countries. You will execute any documents that the Company may
reasonably request for use in obtaining or enforcing such patents, copyrights,
mask work rights, trade secrets and other legal protections. Your obligations
under this paragraph will continue beyond the termination of your employment
with the Company, provided that the Company will compensate you at a reasonable
rate after such termination for time or expenses actually spent by you at the
Company's request on such assistance. You appoint the Secretary of the Company
as your attorney-in-fact, which appointment is coupled with an interest, to
execute documents on your behalf for this purpose.
f. Other Requirements. These terms and conditions of this paragraph 4 are
subject to further definition and requirements in the separate Proprietary
Information & Inventions Agreement ("PIIA") which you may be required to
execute. Your signature below constitutes your consent that the obligations
herein may be expanded or otherwise modified by virtue of said PIIA.
5. Proprietary Information. You understand that your employment by the Company
creates a relationship of confidence and trust with respect to any information
of a confidential or secret nature that may be disclosed to you by the Company
or to the business of any parent, subsidiary, affiliate, customer or supplier of
the Company or any other party with whom the Company agrees to hold information
of such party in confidence ("Proprietary Information"). Such Proprietary
Information includes but is not limited to Inventions, marketing plans, product
plans, business strategies, financial information, forecasts, personnel
information, and customer lists. These terms and conditions of this paragraph 5
are subject to further definition and requirements in the separate Proprietary
Information & Inventions Agreement ("PIIA") which you may be required to
execute. Your signature below constitutes your consent that the obligations
herein may be expanded or otherwise modified by virtue of said PIIA.
6. Company Property. During and after your employment, you will not use any
Company Property for any purpose other than for the benefit of TriNet VCO.
Except for business
ExecEmplAgrmnt.DPD.990706
July 23, 1999
Page 4 of 13
<PAGE>
uses related to the performance of your job, you will not remove from TriNet VCO
premises any Company Property without written consent of your manager. In the
event of your termination of employment, or at any time at the request of the
Company, you will return all Company Property. You will also return all copies
of Company Property, and any work product derived from Company Property.
"Company Property" means Trade Secrets of TriNet VCO, Work Product, customer
lists, prospect lists, forms, manuals, records, correspondence, contracts,
notes, memoranda, notebooks and other documents of TriNet VCO, software media,
equipment, and other intangible and tangible property owned by TriNet VCO.
7. Confidentiality. At all times, both during you employment and after its
termination, you will keep and hold all such Proprietary Information in strict
confidence and trust, and you will not use or disclose any of such Proprietary
Information without the prior written consent of the Company, except as may be
necessary to perform your duties as an employee of the Company for the benefit
of the Company. Upon termination of your employment with the Company, you will
promptly deliver to the Company all documents and materials of any nature
pertaining to you work with the Company and you will not take with you any
documents or materials or copies thereof containing any Proprietary Information.
8. No Breach of Prior Agreement. You represent that your performance of all the
terms of this Agreement and your duties as an employee of the Company will not
breach any invention assignment, proprietary information or similar agreement
with any former employer or other party. You represent that you will not bring
with you to the Company or use in the performance of your duties for the Company
any documents or materials of a former employer that are not generally available
to the public or have not been legally transferred to the Company.
9. Duty not to Compete. You understand that your employment with the Company
requires your undivided attention and effort. As a result, during your
employment, you will not, without the Company's express written consent, engage
in any employment or business other that for the Company, or invest in or assist
in any manner any business which directly or indirectly competes with the
business or future business plans of the Company.
10. Non-solicitation. During, and for a period of one (1) year after termination
of your employment with the Company, you will not directly or indirectly solicit
or take away suppliers, customers, employees or consultants of the Company for
your own benefit or for the benefit of any other party.
11. Name, Likeness Rights, etc. You hereby authorize the Company to use, reuse,
and to grant others the right to use and reuse your name, photograph, likeness
(including caricature), voice, and biographical information, and any
reproduction or simulation thereof, in any media now known or hereafter
developed (including but not limited to
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film, video, and digital, or other electronic media), both during and after
my employment, for whatever purposes the Company deems necessary.
12. Injunctive Relief. You understand that in the event of a breach or
threatened breach of this Agreement by you, the Company will suffer irreparable
harm and will therefore be entitled to injunctive relief to enforce this
Agreement.
13. Governing Law. This Agreement will be governed and interpreted in accordance
with the internal laws of the State of California, without regard to or
application of choice of law rules or principles.
14. Severability. In the event that any provision of this Agreement is found by
a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable,
then to the maximum extent permissible under applicable law, the remainder of
this Agreement shall remain in full force and effect.
15. Termination of Employment. TriNet VCO retains the right to control and
direct your work, its results, and the manner and means by which your work is
accomplished. Your employment with TriNet VCO is at the pleasure of the Board,
and may be terminated only upon the following terms:
a. Employment may be terminated without Cause, for any reason
whatsoever, upon written ninety (90) days' notice upon approval by
the Board of Directors.
b. In lieu of the notice in subparagraph (a), the Company may, upon the
same procedures, elect to provide one hundred twenty (120) days of
pay in lieu of notice.
c. Notwithstanding the provisions of subparagraphs (a) and (b), if in
the six months following a Change of Control, your employment is
terminated due to an Involuntary Termination Without Cause or a
Constructive Termination (a "Covered Termination"), the Company, and
its successors and assigns, shall be obligated to provide you with a
lump sum payment equal Two Million Dollars ($2,000,000.00) within
one (1) month from the date of such Covered Termination, subject to
applicable tax withholding.
d. "Cause" means termination of your employment with the Company for
any of the following reasons as determined in good faith by the
Board of Directors: (1) an intentional act which materially injures
the Company; (2) an intentional refusal or failure to follow lawful
and reasonable directions of the Board of Directors or an individual
to whom you reports (as appropriate); (3) a willful and habitual
neglect of duties; or (4) a conviction of a
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felony involving moral turpitude which is reasonably likely to
inflict or has inflicted material injury on the Company.
e. "Change of Control" means that the Company (a) merges or combines
with any other company or entity and the Company is not the
surviving corporation, or the stockholders of the Company
immediately prior to the merger or consolidation do not hold a
majority of the shares of the resulting corporation; (b) sells all
or substantially all its assets to any other company or entity; or
(c) has forty percent (40%) or more of its stock acquired by a
person and/or affiliates of such person.
f. "Constructive Termination" means that you voluntarily terminate
employment after any of the following are undertaken without your
express written consent: (1) the assignment to you of any duties or
responsibilities which result in a diminution or adverse change of
your position, status or circumstances of employment; provided,
however, that a mere change in your title or reporting relationship
shall not constitute a Constructive Termination; (2) a reduction by
the Company in your base pay in effect at the time of the Change of
Control; (3) a relocation of your business office to a location more
than thirty (30) miles from the location at which you performs
duties as of the date of this offer, except for required travel by
you on the Company's business to an extent substantially consistent
with your business travel obligations; (4) any breach by the Company
of any provision of this Agreement or any other material agreement
between you and the Company concerning your employment; or (5) any
failure by the Company to obtain the assumption of the terms and
conditions of this offer by any successor or assign of the Company.
g. "Involuntary Termination Without Cause" means your dismissal or
discharge other than for Cause. The termination of your employment
as a result of your death or disability will not be deemed to be an
Involuntary Termination Without Cause.
Further, in the event of a Covered Termination, all stock options
which you have been granted shall fully vest immediately upon the
occurrence of such an event, and you shall have the right to compel
the Company, and its successors and assigns, the re-purchase from
you any stock which you own at the then prevailing market value of
Company stock plus 25%. Notwithstanding the foregoing, if the Change
of Control was a transaction that was accounted for as a pooling of
interests for financial reporting purposes, then the unvested
portion of such stock options shall not accelerate unless
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the Company receives reasonable assurances from the Company's
independent public accountants (and from the acquiring party's
independent public accountants) that in their good faith judgment
such acceleration will not adversely affect the pooling of interests
accounting treatment of such Change of Control transaction.
h. Further, in the event of such a termination, you shall be entitled
to continue to participate in the those health and welfare plans in
which you were participating immediately prior to the event, for a
period of two (2) years thereafter at the expense of TriNet VCO, and
its successors, and assigns.
i. [Company right of first refusal on any shares offered to be sold by
the Employee during the thirty days following any termination.]
j. The Company shall withhold appropriate federal, state, local (and
foreign, if applicable) income and employment taxes from any
payments hereunder. You acknowledge that you have been advised by
the Company to consult with a tax advisor or attorney with respect
to the tax consequences, if any, of these benefits.
k. You agree that upon receipt of the benefits specified herein, you
shall execute a full and final release in favor of TriNet VCO, its
officers, directors, employees, agents, and assigns.
16. Informing Subsequent Employers. If your employment is terminated, TriNet VCO
has the right to inform any subsequent employer of your obligations under
Sections 3 - 10 above, and can send a copy of these terms of employment to that
employer.
18. Subsequent Periods Following Your Voluntary termination of Your Employment.
As Vice President of TriNet VCO, you will be in possession, or have access to,
custody of, or a fiduciary relationship to, all of Company's critical,
sensitive, and competitive Confidential and Proprietary Information. Such
information (as defined in PIIA or elsewhere) is extremely valuable and
sensitive, and any use or disclosure would seriously damage the Company. Your
knowledge of such information could be very valuable to any "Competitor" of
Company (as defined below), and if known, very damaging to Company. Further,
despite your best efforts to the contrary, it would impossible for any
Competitor, working with you, to avoid using, either intentionally or
unintentionally, such information to the Competitor's advantage and Company's
detriment. Because of your position with Company, it is extremely likely that
any subsequent work for a Competitor would inevitably result in a direct
violation of your statutory and contractual obligations to Company. Accordingly,
you specifically agree that for a period of six months after any termination of
your employment with Company, you will not engage in any activity on behalf of a
Competitor, and you will not assist any person or entity in competing or
preparing to compete with Company. You specifically agree that this
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<PAGE>
modest restriction will not, in any way, interfere with your ability to earn a
living wage, support your family, if any, and meet your routine financial
obligations. During the term of this six-month non-competition period, the
Company will pay you $3,000 per month as a non-employment contract fee for the
withholding of your services from any such competitive effort.} For purposes of
this Agreement, "Competitor" means any person or entity: (a) in the business of
{Customer activity}; or (b) which develops, produces, prepares, sells, or
distributes products or performs services then in competition with the products
or methods developed, produced, prepared, sold or distributed, or services
rendered by Company within (i) the geographic area and a radius of 200 miles of
any production, sales, or warehouse facility of Company, and (ii) any county in
any State of the United States of America wherein the Company has had, at any
time during your employment, gross sales aggregating in excess of $10,000; or
(c) {specific competitors}.
19. Mandatory Mediation & Arbitration. Unless otherwise prohibited by law or
specified below, any legal action, whether brought in law or equity, arising
from or relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco County, California through Judicial
Arbitration & Mediation Services/Endispute ("JAMS") under the then-existing JAMS
arbitration rules. However, nothing in this section is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration. Each party in any such
arbitration shall be responsible for its own attorneys' fees, costs and
necessary disbursement; provided, however, that in the event one party refuses
to arbitrate and the other party seeks to compel arbitration by court order, if
such other party prevails, it shall be entitled to recover reasonable attorneys'
fees, costs and necessary disbursements. Pursuant to California Civil Code
Section 1717, each party warrants that it was represented by counsel in the
negotiation and execution of this Agreement, including the attorneys' fees
provision herein.
20. Entire Agreement. This document and its related attachments and exhibits
contain the entire agreement between you and TriNet VCO regarding the terms of
your employment. Any amendment to these terms must be in writing and must be
signed by you and TriNet VCO's President.
I accept the above terms of employment as stated:
__________________________ ____________________
Addressee's Signature Date
Approved by TriNet VCO (Following receipt of signed acceptance by employee)
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<PAGE>
___________________________ ___________________
Hiring Manager, Title Date
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<PAGE>
EMPLOYMENT LETTER
EXHIBIT A
DESCRIPTION OF TRADE SECRETS
. Employee list and all information contained in employee records
. Vendor list and all information contained in vendor records
. Customer list and all information contained in customer/subscriber records
. Prospective Customer list and all information contained in prospective
customer/subscriber records
. Stockholder list and all information contained in stockholder records
. All information concerning the financial condition of the Company, including
information contained in any income statement, balance sheet or other
internal financial report.
. Marketing plans and strategies of the Company, including information
pertaining to prospective customers.
. Financing plans and strategies of the Company
. Staffing plans and strategies of the Company
. Expansion plans and business strategies of Subscriber Name
. Negotiations for financing, merger, acquisition, new customers, new vendors
or otherwise
. Technical research projects, methodologies and results
. Other research and development projects
. Drawings and specifications
. Software and hardware documentation
. Forms, manuals, handbooks and guidelines written for internal staff use
ExecEmplAgrmnt.DPD.990706
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<PAGE>
. Any materials for which the Company has copyright protection or are marked
confidential
. The Company's proprietary operating procedures and systems
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July 23, 1999
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<PAGE>
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
This is to notify you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I acknowledge receipt of a copy of this notification.
By:
(Printed Name of Employee)
Date:
Witnessed by:
(Printed Name of Representative)
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<PAGE>
EXHIBIT 10.14
T R I N E T V C O
September 10, 1999
TriNet VCO
101 Callan Avenue
San Leandro, California 94577
Dear Tony:
It is my pleasure to offer you the enhanced terms and conditions associated with
your current position at TriNet VCO of ______________, reporting to Craig
McGannon. In this position you will continue to play a key role in the
development of TriNet's business.
This letter and accompanying contract of employment will summarize important
details of matters pertaining to your employment. Implementation of the new
terms and conditions of your employment requires execution of, and acceptance by
the Company, of this contract. The terms of the attached contract, once executed
will supercede any terms and conditions of your heretofore operative employment
arrangement.
Upon the acceptance and execution and acceptance of the attached contract, the
new terms and conditions of employment will become effective May 19, 1999.
We are all excited about the opportunity to continue our rewarding relationship.
Sincerely,
Martin Babinec
President & CEO
Attachments: Terms and Conditions of Employment
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September 10, 1999
Page 1 of 13
<PAGE>
CONFIDENTIAL
TriNet VCO
GENERAL EMPLOYMENT TERMS & CONDITIONS
Name: Position:
Date of Offer: September 10, 1999 Scheduled Commencement Date: ________
1. Compensation: Your base salary is $_______ per year, payable semi-monthly,
which represents an increase over your prior salary level, and constitutes
adequate consideration for the execution of this contract. In addition to your
compensation, it is anticipated that you will be eligible for annual bonus
payments, subject to the Company's profitability, its anticipated performance,
your contribution to that performance, the discretion of your manager, and the
approval of the Board of Directors.
2. Expenses. The company will reimburse you for reasonable and necessary
expenses incurred by you in furtherance of TriNet VCO's business. All expenses
claimed are subject to the review and approval of your supervisor. Records must
be maintained and submitted for any expenses to be reimbursed - including
destination for auto mileage totals and receipts for all other items. Use of
personal automobile for Company business will be reimbursed at the rate of the
prevailing Internal Revenue Service rate per mile, currently.
3. Trade Secrets. During and after your employment, you will hold all Trade
Secrets of TriNet VCO in confidence; you will not disclose these Trade Secrets
to any one. This does not apply to information disclosed in the ordinary course
of business to other persons who are employees of TriNet VCO at the time.
"Trade Secrets" means the information described in the Description of Trade
Secrets (Exhibit A) and any other confidential and/or proprietary knowledge,
data or information of TriNet VCO, whether embodied in memoranda, manuals,
letters, or other documents, computer disks, tapes or other information storage
devices, hardware, or other media or vehicles. Trade Secrets do not include
information generally known or that is or becomes public domain information
through no fault of yours.
You will also hold confidential any confidential information of any customer,
prospective customer, vendor or other person, if you are told or if you know
that the information is confidential.
You will not use any Trade Secrets of TriNet VCO other than for the benefit of
TriNet VCO, and you will not use any confidential information of any customer,
prospective customer, vendor or other person other than for the benefit of such
customer, vendor or other person if such disclosure is required in the
performance of your normal work duties.
ExecEmplAgrmnt.TZ.990908
September 10, 1999
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<PAGE>
These terms and conditions of this paragraph 3 are subject to further definition
and requirements in the separate Proprietary Information & Inventions Agreement
("PIIA") which you may be required to execute. Your signature below constitutes
your consent that the obligations herein may be expanded or otherwise modified
by virtue of said PIIA.
4. Invention Assignment. In consideration of your employment with TriNet VCO,
you hereby represent to, and agree with the Company as follows:
a. Company Business. You understand that the Company is engaged in a
continuous program of research, development, production and marketing in
connection with its business and that, as an essential part of your employment
with the Company, you may be expected to make new contributions to and create
inventions, processes, or refinements of value for the Company.
b. Disclosure of Inventions. From and after the date you become employed
with the Company, you will promptly disclose in confidence to the Company all
inventions, improvements, designs, techniques, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works, and Trade Secrets ("Invention(s)"), whether or not
patentable, copyrightable or protectable as trade secrets, that are made or
conceived or first reduced to practice or created by you, either alone or
jointly with others, during the period of your employment, whether or not in the
course of your employment.
c. Work for Hire; Assignment of Inventions. You acknowledge that
copyrightable works prepared by you within the scope of your employment are
"works for hire" under the Copyright Act and that the Company will be considered
the author thereof. You agree that all Inventions that (a) are developed using
equipment, supplies, facilities, or Trade Secrets of the Company, (b) result
from work performed by you for the Company, or (c) relate to the Company's
business or current or anticipated research and development, will be the sole
and exclusive property of the Company and are hereby assigned by me to the
Company. This assignment does not apply to an Invention that qualifies fully as
a nonassignable Invention under Section 2870 of the California Labor Code. I
have reviewed the notification on Exhibit B (Limited Exclusion Notification) and
agree that my signature acknowledges receipt of notification.
d. Assignment of Other Rights. You hereby irrevocably transfer and assign to
the Company: (a) all worldwide patents, patent applications, copyrights, mask
works, trade secrets and other intellectual property rights in any Invention;
and (b) any and all "Moral Rights" (as defined below) that you may have in or
with respect to any Invention. You also hereby forever waive and agree never to
assert any and all Moral Rights you have in or with respect to any Invention,
even after termination of your work on behalf of the Company. "Moral Rights"
mean any rights to claim authorship of an Invention, to object to or prevent the
modification of any Invention, or to withdraw from circulation or control the
publication or distribution of any Invention, and any similar right, existing
ExecEmplAgrmnt.TZ.990908
September 10, 1999
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<PAGE>
under judicial or statutory law of any country in the world, or under any
treaty, regardless of whether or not such right is denominated or generally
referred to as a "moral right."
e. Assistance. You agree to assist the Company in every proper way to obtain
for the Company and enforce patents, copyrights, mask work rights, trade secret
rights, and other legal protection for the company's Inventions in any and all
countries. You will execute any documents that the Company may reasonably
request for use in obtaining or enforcing such patents, copyrights, mask work
rights, trade secrets and other legal protections. Your obligations under this
paragraph will continue beyond the termination of your employment with the
Company, provided that the Company will compensate you at a reasonable rate
after such termination for time or expenses actually spent by you at the
Company's request on such assistance. You appoint the Secretary of the Company
as your attorney-in-fact, which appointment is coupled with an interest, to
execute documents on your behalf for this purpose.
f. Other Requirements. These terms and conditions of this paragraph 4 are
subject to further definition and requirements in the separate Proprietary
Information & Inventions Agreement ("PIIA") which you may be required to
execute. Your signature below constitutes your consent that the obligations
herein may be expanded or otherwise modified by virtue of said PIIA.
5. Proprietary Information. You understand that your employment by the Company
creates a relationship of confidence and trust with respect to any information
of a confidential or secret nature that may be disclosed to you by the Company
or to the business of any parent, subsidiary, affiliate, customer or supplier of
the Company or any other party with whom the Company agrees to hold information
of such party in confidence ("Proprietary Information"). Such Proprietary
Information includes but is not limited to Inventions, marketing plans, product
plans, business strategies, financial information, forecasts, personnel
information, and customer lists. These terms and conditions of this paragraph 5
are subject to further definition and requirements in the separate Proprietary
Information & Inventions Agreement ("PIIA") which you may be required to
execute. Your signature below constitutes your consent that the obligations
herein may be expanded or otherwise modified by virtue of said PIIA.
6. Company Property. During and after your employment, you will not use any
Company Property for any purpose other than for the benefit of TriNet VCO.
Except for business uses related to the performance of your job, you will not
remove from TriNet VCO premises any Company Property without written consent of
your manager. In the event of your termination of employment, or at any time at
the request of the Company, you will return all Company Property. You will also
return all copies of Company Property, and any work product derived from Company
Property.
"Company Property" means Trade Secrets of TriNet VCO, Work Product, customer
lists, prospect lists, forms, manuals, records, correspondence, contracts,
notes, memoranda,
ExecEmplAgrmnt.TZ.990908
September 10, 1999
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<PAGE>
notebooks and other documents of TriNet VCO, software media, equipment, and
other intangible and tangible property owned by TriNet VCO .
7. Confidentiality. At all times, both during you employment and after its
termination, you will keep and hold all such Proprietary Information in strict
confidence and trust, and you will not use or disclose any of such Proprietary
Information without the prior written consent of the Company, except as may be
necessary to perform your duties as an employee of the Company for the benefit
of the Company. Upon termination of your employment with the Company, you will
promptly deliver to the Company all documents and materials of any nature
pertaining to you work with the Company and you will not take with you any
documents or materials or copies thereof containing any Proprietary Information.
8. No Breach of Prior Agreement. You represent that your performance of all the
terms of this Agreement and your duties as an employee of the Company will not
breach any invention assignment, proprietary information or similar agreement
with any former employer or other party. You represent that you will not bring
with you to the Company or use in the performance of your duties for the Company
any documents or materials of a former employer that are not generally available
to the public or have not been legally transferred to the Company.
9. Duty not to Compete. You understand that your employment with the Company
requires your undivided attention and effort. As a result, during your
employment, you will not, without the Company's express written consent, engage
in any employment or business other that for the Company, or invest in or assist
in any manner any business which directly or indirectly competes with the
business or future business plans of the Company.
10. Non-solicitation. During, and for a period of one (1) year after termination
of your employment with the Company, you will not directly or indirectly solicit
or take away suppliers, customers, employees or consultants of the Company for
your own benefit or for the benefit of any other party.
11. Name, Likeness Rights, etc. You hereby authorize the Company to use, reuse,
and to grant others the right to use and reuse your name, photograph, likeness
(including caricature), voice, and biographical information, and any
reproduction or simulation thereof, in any media now known or hereafter
developed (including but not limited to film, video, and digital, or other
electronic media), both during and after my employment, for whatever purposes
the Company deems necessary.
12. Injunctive Relief. You understand that in the event of a breach or
threatened breach of this Agreement by you, the Company will suffer irreparable
harm and will therefore be entitled to injunctive relief to enforce this
Agreement.
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September 10, 1999
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<PAGE>
13. Governing Law. This Agreement will be governed and interpreted in accordance
with the internal laws of the State of California, without regard to or
application of choice of law rules or principles.
14. Severability. In the event that any provision of this Agreement is found by
a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable,
then to the maximum extent permissible under applicable law, the remainder of
this Agreement shall remain in full force and effect.
15. Termination of Employment. TriNet VCO retains the right to control and
direct your work, its results, and the manner and means by which your work is
accomplished. Your employment with TriNet VCO is at the pleasure of the Board,
and may be terminated upon the following terms:
a. Employment may be terminated without Cause, for any reason
whatsoever, upon written sixty (60) days' notice upon approval by
the Board of Directors, but may be terminated with Cause
immediately.
b. In lieu of the notice in subparagraph (a), the Company may, upon
the same procedures, elect to provide ninety (90) days of pay in
lieu of notice.
c. "Cause" means termination of your employment with the Company for
any of the following reasons as determined in good faith by the
Board of Directors: (1) an intentional act which materially injures
the Company; (2) an intentional refusal or failure to follow lawful
and reasonable directions of the Board of Directors or an
individual to whom you reports (as appropriate); (3) a willful and
habitual neglect of duties; or (4) a conviction of a felony
involving moral turpitude which is reasonably likely to inflict or
has inflicted material injury on the Company.
d. "Constructive Termination" means that you voluntarily terminate
employment after any of the following are undertaken without your
express written consent: (1) the assignment to you of any duties or
responsibilities which result in a diminution or adverse change of
your position, status or circumstances of employment; provided,
however, that a mere change in your title or reporting relationship
shall not constitute a Constructive Termination; (2) a reduction by
the Company in your base pay in effect at the time of the Change of
Control; (3) a relocation of your business office to a location
more than thirty (30) miles from the location at which you performs
duties as of the date of this offer, except for required travel by
you on the Company's business to an extent substantially
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September 10, 1999
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<PAGE>
consistent with your business travel obligations; (4) any breach by
the Company of any provision of this Agreement or any other
material agreement between you and the Company concerning your
employment; or (5) any failure by the Company to obtain the
assumption of the terms and conditions of this offer by any
successor or assign of the Company.
e. "Change of Control" means that the Company (a) merges or combines
with any other company or entity and the Company is not the
surviving corporation, or the stockholders of the Company
immediately prior to the merger or consolidation do not hold a
majority of the shares of the resulting corporation; (b) sells all
or substantially all its assets to any other company or entity; or
(c) has forty percent (40%) or more of its stock acquired by a
person and/or affiliates of such person.
f. "Constructive Termination" means that you voluntarily terminate
employment after any of the following are undertaken without your
express written consent: (1) the assignment to you of any duties or
responsibilities which result in a diminution or adverse change of
your position, status or circumstances of employment; provided,
however, that a mere change in your title or reporting relationship
shall not constitute a Constructive Termination; (2) a reduction by
the Company in your base pay in effect at the time of the Change of
Control; (3) a relocation of your business office to a location
more than thirty (30) miles from the location at which you performs
duties as of the date of this offer, except for required travel by
you on the Company's business to an extent substantially consistent
with your business travel obligations; (4) any breach by the
Company of any provision of this Agreement or any other material
agreement between you and the Company concerning your employment;
or (5) any failure by the Company to obtain the assumption of the
terms and conditions of this offer by any successor or assign of
the Company.
g. "Involuntary Termination Without Cause" means your dismissal or
discharge other than for Cause. The termination of your employment
as a result of your death or disability will not be deemed to be an
Involuntary Termination Without Cause.
h. Further, in the event of a Covered Termination, all stock options
which you have been granted shall fully vest immediately upon the
occurrence of such an event, and you shall have the right to compel
the Company, and its successors and assigns, the re-purchase from
you any stock which you own at the then prevailing market value
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September 10, 1999
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<PAGE>
of Company stock plus 25%. Notwithstanding the foregoing, if the
Change of Control was a transaction that was accounted for as a
pooling of interests for financial reporting purposes, then the
unvested portion of such stock options shall not accelerate unless
the Company receives reasonable assurances from the Company's
independent public accountants (and from the acquiring party's
independent public accountants) that in their good faith judgment
such acceleration will not adversely affect the pooling of
interests accounting treatment of such Change of Control
transaction.
i. [Company right of first refusal on any shares offered to be sold by
the Employee during the thirty days following any termination.]
j. The Company shall withhold appropriate federal, state, local (and
foreign, if applicable) income and employment taxes from any
payments hereunder. You acknowledge that you have been advised by
the Company to consult with a tax advisor or attorney with respect
to the tax consequences, if any, of these benefits.
k. You agree that upon receipt of the benefits specified herein, you
shall execute a full and final release in favor of TriNet VCO, its
officers, directors, employees, agents, and assigns.
16. Informing Subsequent Employers. If your employment is terminated, TriNet VCO
has the right to inform any subsequent employer of your obligations under
Sections 3 - 10 above, and can send a copy of these terms of employment to that
employer.
18. Subsequent Periods Following Your Voluntary termination of Your Employment.
As Vice President of TriNet VCO, you will be in possession, or have access to,
custody of, or a fiduciary relationship to, all of Company's critical,
sensitive, and competitive Confidential and Proprietary Information. Such
information (as defined in PIIA or elsewhere) is extremely valuable and
sensitive, and any use or disclosure would seriously damage the Company. Your
knowledge of such information could be very valuable to any "Competitor" of
Company (as defined below), and if known, very damaging to Company. Further,
despite your best efforts to the contrary, it would impossible for any
Competitor, working with you, to avoid using, either intentionally or
unintentionally, such information to the Competitor's advantage and Company's
detriment. Because of your position with Company, it is extremely likely that
any subsequent work for a Competitor would inevitably result in a direct
violation of your statutory and contractual obligations to Company. Accordingly,
you specifically agree that for a period of six months after any termination of
your employment with Company, you will not engage in any activity on behalf of a
Competitor, and you will not assist any person or entity in competing or
preparing to compete with Company. You specifically agree that this modest
restriction will not, in any way, interfere with your ability to earn a living
wage, support your family, if any, and meet your routine financial obligations.
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 8 of 13
<PAGE>
During the term of this six-month non-competition period, the Company will pay
you $3,000 per month as a non-employment contract fee for the withholding of
your services from any such competitive effort.} For purposes of this Agreement,
"Competitor" means any person or entity: (a) in the business of {Customer
activity}; or (b) which develops, produces, prepares, sells, or distributes
products or performs services then in competition with the products or methods
developed, produced, prepared, sold or distributed, or services rendered by
Company within (i) the geographic area and a radius of 200 miles of any
production, sales, or warehouse facility of Company, and (ii) any county in any
State of the United States of America wherein the Company has had, at any time
during your employment, gross sales aggregating in excess of $10,000; or (c)
{specific competitors}.
19. Mandatory Mediation & Arbitration. Unless otherwise prohibited by law or
specified below, any legal action, whether brought in law or equity, arising
from or relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco County, California through Judicial
Arbitration & Mediation Services/Endispute ("JAMS") under the then-existing JAMS
arbitration rules. However, nothing in this section is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration. Each party in any such
arbitration shall be responsible for its own attorneys' fees, costs and
necessary disbursement; provided, however, that in the event one party refuses
to arbitrate and the other party seeks to compel arbitration by court order, if
such other party prevails, it shall be entitled to recover reasonable attorneys'
fees, costs and necessary disbursements. Pursuant to California Civil Code
Section 1717, each party warrants that it was represented by counsel in the
negotiation and execution of this Agreement, including the attorneys' fees
provision herein.
20. Entire Agreement. This document and its related attachments and exhibits
contain the entire agreement between you and TriNet VCO regarding the terms of
your employment. Any amendment to these terms must be in writing and must be
signed by you and TriNet VCO's President.
I accept the above terms of employment as stated:
_____________________________ _________________
Addressee's Signature Date
Approved by TriNet VCO (Following receipt of signed acceptance by employee)
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 9 of 13
<PAGE>
_____________________________ _________________
Hiring Manager, Title Date
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 10 of 13
<PAGE>
EMPLOYMENT LETTER
EXHIBIT A
DESCRIPTION OF TRADE SECRETS
. Employee list and all information contained in employee records
. Vendor list and all information contained in vendor records
. Customer list and all information contained in customer/subscriber records
. Prospective Customer list and all information contained in prospective
customer/subscriber records
. Stockholder list and all information contained in stockholder records
. All information concerning the financial condition of the Company, including
information contained in any income statement, balance sheet or other
internal financial report.
. Marketing plans and strategies of the Company, including information
pertaining to prospective customers.
. Financing plans and strategies of the Company
. Staffing plans and strategies of the Company
. Expansion plans and business strategies of Subscriber Name
. Negotiations for financing, merger, acquisition, new customers, new vendors
or otherwise
. Technical research projects, methodologies and results
. Other research and development projects
. Drawings and specifications
. Software and hardware documentation
. Forms, manuals, handbooks and guidelines written for internal staff use
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 11 of 13
<PAGE>
. Any materials for which the Company has copyright protection or are marked
confidential
. The Company's proprietary operating procedures and systems
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 12 of 13
<PAGE>
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:
(PRINTED NAME OF EMPLOYEE)
Date:
WITNESSED BY:
(PRINTED NAME OF REPRESENTATIVE)
ExecEmplAgrmnt.TZ.990908
September 10, 1999
Page 13 of 13
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (herein referred to as "Agreement") is made and
entered into this 22nd day of July, 1995, by and among TriNet Employer Group,
Inc. a California corporation (herein referred to as the "Company"), and Martin
Babinec (herein referred to as "Employee").
Whereas, the Employee is presently the President and Chief Executive
Officer of the Company, and Employee desires to continue such employment upon
the terms and conditions herein set forth; and
Whereas, this Agreement is being entered into in connection with the
issuance and sale of the Company's Series E Preferred Stock and the execution of
this Agreement is a condition of closing of such financing;
Now, Therefore, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Employment.
The Company hereby continues to employ Employee as the President and Chief
Executive Officer of the Company, and Employee hereby agrees to continue such
employment upon the terms and conditions herein set forth.
2. Term Of Agreement.
This Agreement shall commence as of the date hereof and shall continue for
an initial term through December 31, 1997 (unless terminated earlier as
hereinafter provided) and thereafter on a year to year basis unless and until
Employee's employment hereunder shall be terminated by either the Company or
Employee giving to the other party one year's prior written notice of the
termination of this Agreement after expiry of the initial term.
3. Duties Of Employee.
(a) Duties. Employee is employed as the President and Chief Executive
Officer of the Company. Employee's duties shall be such executive, managerial,
administrative, and professional duties as are commensurate with a position as a
President and Chief Executive Officer and as shall be reasonably assigned by the
Board of Directors of the Company (such duties shall not, however, be
inconsistent with Employee's duties as President and Chief Executive Officer),
or if mutually agreed by the Board of Directors of the Company and Employee by
the designee of the Board. Such duties shall include, without limitation, the
following:
(i) Preparing and submitting an annual budget for the Company to the
Chairman or the designee of the Chairman for approval, to include the following:
(1) Details of new office openings.
1.
<PAGE>
(2) Budget head-count by staff category.
(3) Details of proposed salary increases and/or changes to
commission or profit sharing arrangements.
(4) Capital expenditures, with amounts over $5,000 itemized.
(5) Monthly income statements detailing major categories of
expenditures, with an explanation of variances from the prior year.
(6) Monthly statements of cash flow.
(ii) Providing, by the fifteenth (15th) day of each month, monthly
financial statements for the prior month, which include a consolidated income
statement, cash flow and balance sheet with analysis of variances from budget.
(iii) Managing the Company with an objective of increasing profits.
(iv) Managing the Company's costs.
(v) Managing the Company's cash flow.
(vi) Managing the development, maintenance, and implementation of
recruiting policies and procedures.
(vii) Managing the development, maintenance, and implementation of
training policies and programs.
(viii) Managing the development, maintenance, and implementation of a
policy of periodic performance reviews.
(xi) Managing the development, maintenance, and implementation of
policies, systems and procedures that maintain high standards of candidate and
client service.
(x) Recommending the opening and closing of offices, as appropriate.
(xi) Managing the development, maintenance, and implementation of
other corporate policies as required from time to time.
(b) Authority Levels. Employee is authorized as President and Chief
Executive Officer of the Company to incur and approve expenditures on behalf of
the Company as follows:
(i) Expenditures within the budget set at the commencement of the
year. Material expenditures in excess of the Company budget must be approved by
the Board of Directors of the Company prior to incurring such expenditure.
(ii) Employee shall have the authority to purchase, lease or rent
additional fixed assets, as required, up to $25,000 before prior approval is
necessary from the Chairman of the Board of the Company.
2.
<PAGE>
(c) Engaging in Other Employment. During the term of this Agreement,
Employee shall during normal working hours (unless prevented by ill health or
accident and except during vacations and holidays) devote the whole of his time,
attention and abilities to carrying out his duties hereunder and Employee shall
not directly or indirectly render any services of a business, commercial, or
professional nature, to any other person or organization not designated by the
Board of Directors of the Company, whether for compensation or otherwise, or
have any financial interest in any other business or profession without the
prior written consent of the Board of Directors of the Company. Nothing in this
Section 3(c) shall preclude Employee from holding or acquiring less than five
percent (5%) of the outstanding shares or other securities of any other company,
which is publicly traded, by way of bona fide investment or prevent Employee
from continuing to act as a volunteer for non-profit organizations and to pursue
speaking engagements in areas associated with the Company's business, provided
that such activities do not materially impact Employee's performance of his
duties hereunder.
(d) Loyal and Conscientious Performance. Employee agrees that to the best
of his ability and experience he will at all times loyally and conscientiously
perform all the duties and obligations required of him by the terms of this
Agreement. Employee agrees he shall use his best efforts to promote the
interests and reputation of the Company and not do anything which is to the
detriment of the interests of the Company.
(e) Uniqueness of Employee's Services. Because of Employee's expertise and
his reputation in the industry, the services to be performed by Employee, under
the terms of this Agreement, are of a special, unique, unusual, extraordinary,
and intellectual character, which gives the services a peculiar value, the loss
of which cannot be reasonably or adequately compensated in damages in an action
at law. Employee therefore expressly agrees that the Company, in addition to any
other rights or remedies which the Company may possess, shall be entitled to
injunctive and other equitable relief to prevent a breach of this contract by
Employee.
4. Compensation And Benefits.
(a) Salary. For all the services to be rendered by Employee in any
capacity hereunder, during the period through December 31, 1997, the Company
shall pay Employee an annual base salary of $120,000, which amount may be
increased but not decreased by the Chairman following Employee's annual
performance review. Employee's annual base salary shall be subject to such
social security, unemployment insurance, withholding taxes and other payroll
deductions as are required to be made by law and shall be paid in equal
installments consistent with the Company's practices for its employees.
(b) Bonus. During the term of this Agreement, Employee shall be paid an
annual performance related bonus (the "Bonus") as agreed in writing from time to
time by Employee and the Board of Directors, including the affirmative approval
of the member of the Board elected by the Series E Preferred Stock, which bonus
shall not exceed 50% of Employee's annual salary.
(c) Fringe Benefits. So long as Employee remains in the employ of the
Company or an affiliate of the Company, Employee shall:
3.
<PAGE>
(i) Insurance. Continue to be provided with health insurance
coverage consistent with the Company's existing policy and be provided with life
and disability insurance as agreed in writing from time to time between Employee
and the Company. In particular, the Company shall continue to pay the premiums
for the two existing universal life insurance policies in the name of Employee
at their current benefit levels, on behalf of the same named beneficiaries under
such policies but in no event shall the Company be liable for premiums for such
life insurance in excess of $15,000 per year.
(ii) Vacation/Sick Days. Be provided with time off consistent with
that provided to other employees of the Company, however, Employee shall be
entitled to up to five weeks vacation annually (provided, that Employee's
maximum ceiling of accrued unused vacation shall be seven weeks) and sick days
in accordance with the standard policies of the Company. Upon termination of
employment, Employee shall be paid for unused vacation but not for sick days.
(iii) Car. Be provided with the use of a leased car by the Company
(the annual cost of which to the Company, including maintenance and other costs,
is not to exceed $12,000).
(iv) Other Benefits. Be provided with other fringe benefits that are
consistent with Company policy and that are more fully described on Exhibit A
attached hereto, except to the extent that such fringe benefits are modified by
this Agreement.
5. Noncompetition By Employee.
(a) Noncompetition and Nonsolicitation. During the term of Employment and
subject to the terms of this Section 5, for a period of two (2) years following
the termination of Employee's employment with the Company and absent the
Company's prior written approval following instruction by its Board including
the Board representative elected by the holders of the Series E Preferred Stock,
Employee will not:
(i) directly or indirectly engage in activities (similar or
reasonably related to those in which Employee has engaged in during his
employment with the Company) nor render services (similar or reasonably related
to those which Employee has rendered during his employment with the Company) in
either case to any firm or business organization which directly or indirectly
competes with the Company in any line of business engaged in (or planned to be
engaged in as evidenced by any writing by the Board of Directors of the Company
or any officers and/or employees of the Company; or any oral discussions by the
Board of Directors of the Company or any officers and/or employees of the
Company; or any minutes or writing regarding any Company meetings, including
meetings of the Board; or any strategic or business plan of the Company) by the
Company, whether now existing or hereafter established; and/or
(ii) divert or attempt to divert from the Company any business of
any kind in which it is engaged, including, without limitation, diversion
through the solicitation of customers of the Company and interference with any
of the Company's suppliers or customers; and/or
(iii) solicit for employment any person employed by the Company at
any time before or during the one year period following termination of this
Agreement; and/or
4.
<PAGE>
(iv) engage in such activities nor render such services to any other
person or entity engaged or about to become engaged in such activities to, for
or on behalf of any such firm or business organization, and Employee agrees not
to entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by Employee, would violate any provision of the
Company's standard form of Proprietary Information Agreement; and/or
(v) invest in any company or business engaging in any of the
foregoing.
(b) Breach of Non-Competition Covenant. In the event that Employee
breaches the noncompetition or nonsolicitation covenant set forth in Section
5(a) above, the right to receive the termination benefits as set forth in
Section 7(c) below shall immediately terminate. Except as otherwise provided by
law, any and all benefits otherwise due to Employee pursuant to this Agreement
shall cease.
6. Nondisclosure.
Except as may be required pursuant to an order of a court or except as to
information which is already in the public domain through no action, failure to
act or fault of Employee, Employee shall not, at any time, make use of, other
than in the ordinary course of fulfilling his duties as an employee of the
Company, divulge or otherwise disclose, directly or indirectly, any trade secret
(including, without limitation, any customer or prospect list, data, record or
financial information concerning the business, policies or operations of the
Company or its affiliates which Employee may have learned on or prior to the
date hereof or during the term of Employee's employment by the Company (as an
employee, officer, director, consultant or otherwise) as a shareholder, officer,
controlling person, agent or otherwise. Employee's obligations under this
Section 6 shall survive the termination of this Agreement.
7. Termination.
(a) This Agreement may be terminated by the Company prior to the end of
its initial term and thereafter without one year's prior notice, as follows:
(i) due to the death of Employee;
(ii) due to a disability which prevents Employee from performing his
full duties for a period of 90 or more consecutive days, or 120 cumulative days
during any 12 month period during the term of this Agreement; or
(iii) for "cause" (as hereinafter defined).
(b) For purposes of this Agreement, "cause" shall mean the occurrence of
any of the following events during the term of this Agreement:
(i) Employee's conviction for any felony or conviction or a plea of
nolo contendre for fraud, embezzlement or misappropriation of money or other
property of the Company;
5.
<PAGE>
(ii) Employee's failure or refusal to perform his duties on behalf of
the Company which duties are consistent with the scope and nature of Employee's
responsibilities as set forth in Sections 1 and 3 of this Agreement and with the
other provisions of this Agreement and which are not remedied by Employee within
a reasonable time period after receipt of written notice of such alleged
violative activities from the Board of Directors of the Company;
(iii) Any act of gross negligence or corporate waste by Employee to
the Company which materially adversely affects the business of the Company; or
(iv) Any material breach of this Agreement or any serious breach of
Employee's fiduciary duties owed to the Company.
(c) In the event of early termination of this Agreement pursuant to
Section 7(a) as permitted herein, and subject to the limitation of such benefits
pursuant to Section 5 (b) above, Employee shall be entitled only to his base
salary, bonus and benefits provided for herein for one year following such early
termination; provided, however, that if Employee is terminated due to a
disability, the amount of base salary paid pursuant to this Section 7(c) shall
be reduced by the amount of any disability payments made to Employee.
(d) Upon the termination of his employment hereunder for any reason
whatsoever Employee shall immediately deliver to the Company all documents,
statistics, accounts records, programs and other items of whatever nature or
description which may be in his possession or under his control which relate in
any way to the business or affairs of the Company or of any affiliated company
and no copies of any such documents or any part thereof shall be retained by
him.
8. Misrepresentation.
Employee shall not knowingly at any time make any untrue statement in
relation to the Company, and in particular shall not after the termination of
his employment hereunder wrongfully represent himself as being employed by or
connected with the Company.
9. Reimbursement Of Expenses.
The Company shall reimburse Employee for all ordinary and necessary out-of-
pocket expenses reasonably incurred by Employee on behalf of the business of the
Company. Employee agrees to keep such records and logs as may be required by the
relevant taxing authorities for the substantiation of each such business expense
as a deduction on the Company's income tax returns.
10. Indemnification.
The Company agrees to indemnify, defend and hold Employee harmless from any
and all actions, suits, proceedings, demands, judgments, liabilities, losses,
costs and expenses (including, without limitation, all reasonable legal costs
and disbursements) reasonably incurred by Employee in connection with any action
brought against Employee based upon activities undertaken by Employee while
acting as an employee or officer of the Company or any of its divisions or
affiliates, in each case, while acting in good faith in connection therewith and
in a
6.
<PAGE>
manner Employee reasonably believed to be in or not opposed to the best
interests of the Company, its divisions or any of its affiliates.
11. Notice.
Any notices to be given hereunder by either party to the other may be
effectuated either by personal delivery in writing or by mail, postage prepaid,
with return receipt requested. Notices shall be addressed to the parties as
follows:
If to the Company: TriNet Employer Group, Inc.
101 Callan, Third Floor
San Leandro, CA 94577
Facsimile Number: (510) 352-6480
with a copy to: Select Appointments Inc.
Ziggurat Grosvenor Road
St. Albans, Hertfordshire
United Kingdom AL13HW
Facsimile Number: (011) 441-727-842-841
If to Employee: Martin Babinec
516 Beverly Avenue
San Leandro, CA 94577
Facsimile Number: ____________
or to such other addresses as either the Company or Employee may designate by
written notice to each other. Notices delivered personally shall be deemed duly
given on the date of actual receipt; mailed notices shall be deemed duly given
as of the fifth day after the date so mailed. Notices hereunder may be delivered
by electronic facsimile transmission (fax) if confirmation by sender is made
within three business days by mail or personal delivery.
12. Inventions.
(a) It shall be part of the normal duties of Employee at all times to
consider in what manner and by what new methods or devices the products,
services, processes, equipment or systems of the Company or any associated
company with which he is concerned and for which he is responsible might be
improved, and promptly to give to the Board of Directors of the Company full
details of any invention or improvement which he may from time to time make or
discover in the course of his duties, and to use his best efforts to further the
interests of the Company with regard thereto. Subject to any contrary provisions
of the laws of the United States or the State of California, the Company shall
be entitled free of charge to all of Employee's rights, title and interest, if
any, in any such invention or improvement and, so far as the law permits, to the
exclusive use thereof.
(b) Employee shall, if and when required so to do by the Company, at the
expense of the Company apply or join with the Company in applying for patents or
other protection in any part of the world for any such discovery, invention or
process as aforesaid and shall at the expense of the Company execute and do or
procure to be executed or done all instruments and
7.
<PAGE>
things reasonably necessary for vesting the said patent or other protection when
obtained and all right, title and interest to and in the same in the Company or
in such other person as the Company may require.
(c) For the purpose of this clause Employee HEREBY IRREVOCABLY AUTHORIZES
the Company as his attorney in his name to execute and do any documents or
things which are required in order to give effect to the provisions of this
Section 12 and the Company is hereby empowered to appoint and remove at its
pleasure any person as agent and substitute for and on behalf of the Company in
respect of all or any of the matters aforesaid.
13. Waiver Of Breach.
The waiver by any party to a breach of any provision in this Agreement
cannot operate or be construed as a waiver of any subsequent breach by a party.
14. Severability.
The invalidity or unenforceability of any particular provision in this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if the invalid or unenforceable provision were
omitted.
15. Entire Agreement.
Except as otherwise provided herein, this Agreement covers the entire
understanding of the parties as to the employment of Employee, superseding all
prior understandings and agreements, and no modification or amendment of its
terms and conditions shall be effective unless in writing and signed by the
parties or their respective duly authorized agents. Any modification or
amendment of this Agreement on behalf of the Company shall require the consent
of the Series E Preferred Board representative.
16. Governing Law.
This Agreement shall be interpreted, construed and governed according to
the laws of the State of California.
17. Attorneys' Fees And Costs.
The prevailing party in any proceeding brought to enforce or interpret any
provision of this Agreement shall be entitled to recover its reasonable
attorneys' fees, costs and disbursements incurred in connection with such
proceeding, including but not limited to the costs of experts, accountants and
consultants and all other costs and services reasonably related to the
proceeding, including those incurred in any bankruptcy or appeal, jointly and
severally, from the nonprevailing party or parties.
18. Successors And Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors, permitted assigns, legal representatives
and heirs, but neither this Agreement
8.
<PAGE>
nor any rights hereunder shall be assignable by any of its parties except as
permitted by this Section. Employee agrees that this Agreement may be assigned
by the Company upon a sale, transfer or reorganization of the Company, and
Employee shall perform all services required pursuant to this Agreement for any
such assignee company.
In Witness Whereof, the parties hereto have executed this Agreement as of
the day and year first above written.
TriNet Employer Group, Inc.
By /s/ Martin Babinec
------------------------------------
Title President & CEO
---------------------------------
Employee
/s/ Martin Babinec
---------------------------------------
Martin Babinec
<PAGE>
Exhibit A
---------
YOUR BENEFITS AT TRINET EMPLOYER GROUP
YOUR HEALTH
TriNet's cash benefits supplement covers most of your employee premiums for
group health and dental plans.
A no coverage allowance is available to employees with other group health plans
in force.
Health Plan: You have a choice of four plans:
. group health insurance from a nationwide insurance carrier (Travelers) with
free choice of medical providers or a reduced cost PPO (preferred provider
organization) option
. Traveler's EPO, which works like an HMO but on a national basis
. HealthNet, a Health Maintenance Organization (HMO) with many local clinics
participating
. Kaiser Permanente, a staff HMO
Dental Plan included with any health plan enrollment, usable at any dentist.
Our Flexible Benefits Plan lets you use pre-tax dollars for medical insurance
premiums for your dependents and for out of pocket medical expenses.
Free counseling to you or family members through our Employee Assistance
Program.
YOUR CONVENIENCE
. Direct deposit to any bank *
. Discounted checking and credit union *
. Discount recreational coupons *
. Pre-tax dependent care through our Flexible Benefits Plan *
. LegalSaver for low cost legal assistance
. An optional vision plan
. Price/Costco membership
* Available at no cost to you
YOUR TIME OFF
. A paid time off program in which you accrue time each year for vacation,
illness, or personal time off. The number of days you accrue is based on your
years with the company:
Year Days Maximum*
-----------------------------------------------------------------------
First year 15 days n/a
1-3 years 17 days 22 days
3+ years 20 days 25 days
. Additional time off for jury duty or bereavement.
. Six company paid holidays.
. All employees are required to devote a minimum of 8 hours per quarter to
their continuing professional development. Company paid courses and
professional association memberships, when approved by your manager.
YOUR FINANCIAL SECURITY
Funded by TriNet:
- ----------------
. A term life policy for $10,000 for all employees with an additional benefit
for accidental death or dismemberment.
. Group disability insurance, at no cost to you, which can replace up to 60% of
your salary to age 65 for qualifying disabilities.
Other options available at your expense:
- ---------------------------------------
. For you and your dependents, optional term life insurance up to ten times
salary or $500,000.
. Our private retirement account permits after tax savings through convenient
payroll deduction.
The benefits listed are available to full time regular employees as of January,
1994. Benefits are subject to change. This is an abbreviated listing only; for
full details, please refer to benefit plan coverage booklets.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 18, 2000, except for paragraph 2 of Note
4, as to which the date is February 29, 2000, in the Registration Statement
(Form S-1) and related Prospectus of TriNet Group, Inc. for the registration of
its common stock.
Walnut Creek, California
March 1, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-1-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 16,777,235 8,584,563
<SECURITIES> 0 0
<RECEIVABLES> 3,637,345 1,676,753
<ALLOWANCES> 100,000 7,157
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,738,124 15,997,045
<PP&E> 7,979,264 4,005,578
<DEPRECIATION> 1,909,095 1,164,617
<TOTAL-ASSETS> 35,791,397 20,091,513
<CURRENT-LIABILITIES> 27,624,779 14,992,477
<BONDS> 0 0
0 0
500,000 500,000
<COMMON> 255,416 252,667
<OTHER-SE> 4,560,274 3,815,269
<TOTAL-LIABILITY-AND-EQUITY> 35,791,397 20,091,513
<SALES> 19,127,780 12,442,924
<TOTAL-REVENUES> 19,127,780 12,442,924
<CGS> 10,101,829 6,378,814
<TOTAL-COSTS> 18,933,495 10,693,927
<OTHER-EXPENSES> (101,882) (12,833)
<LOSS-PROVISION> 236,053 29,510
<INTEREST-EXPENSE> 9,340 10,760
<INCOME-PRETAX> 296,167 1,761,830
<INCOME-TAX> 399,300 779,400
<INCOME-CONTINUING> (103,133) 982,430
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (103,133) 982,430
<EPS-BASIC> (0.02) (0.07)
<EPS-DILUTED> (0.02) (0.07)
</TABLE>
