UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number 0-26074
SPYGLASS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 37-1258139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 E. Diehl Road, 4th Floor, Naperville, IL 60563 (630) 505-1010
(Address of principal executive offices, zip code, registrant's
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Act:
$0.01 par value Common Stock
(Title of Class)
Traded on the Nasdaq National Market
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. __X____
The aggregate market value of the Common Stock held by non-affiliates
of the registrant on October 30, 1998, based upon the closing sale
price of the Common Stock on the Nasdaq National Market on that date
as reported in The Wall Street Journal, was approximately
$182,285,831
Registrant had 14,973,150 shares of Common Stock outstanding as of
December 9, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1998 Annual Report to Stockholders for
fiscal 1998 are incorporated by reference in Parts II and IV hereof.
The Annual Report shall be deemed "filed" with the Commission only
with respect to those portions specifically incorporated by reference
herein. Portions of the registrant's definitive Proxy Statement for
its Annual Meeting of Stockholders for fiscal 1998, which will be
filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year, are incorporated by
reference into Part III hereof.
<PAGE>
PART I
Item 1. Business
General
Spyglass, Inc. ("Spyglass" or the "Company") was organized as an
Illinois corporation in February 1990 and reincorporated in Delaware
in May 1995. Spyglass entered the Internet market during fiscal 1994
and, from fiscal 1994 through fiscal 1996, focused its efforts on
developing, marketing and distributing Internet client and server
technologies for incorporation into a variety of Internet-based
software products and services. Since fiscal 1997, the Company has
been focusing on the development, marketing and distribution of its
technologies and services to the non-PC Internet device marketplace.
In February 1998, Spyglass reorganized its business to integrate its
development, professional services and marketing resources. This
change has allowed Spyglass to target its tailored solutions to the
needs of the various vertical sectors within the Internet device
market.
Spyglass provides its customers with expertise, software and
professional services that enable them to rapidly develop cost-
effective Internet-enabled devices. Spyglass professional services
include custom engineering for defining, developing and delivering
complete, end-to-end project solutions. Spyglass solutions have been
integrated into a variety of products, including but not limited to
televisions, office equipment, television set-top boxes, industrial
controls, network computers and screen and cellular phones. In
addition, several major corporations have deployed SurfWatch, a
leading content filtering software designed to block unwanted
material from the Internet.
On November 14, 1997, the Company acquired AllPen Software
("AllPen"). AllPen, located in Los Gatos, California, develops
software solutions and technologies and provides professional
services for the Internet device marketplace. These solutions have
been successfully applied in television, screenphone, handheld PC,
mobile and wireless products. This transaction was effected through
the exchange of 639,246 shares of common stock of the Company for all
of the issued and outstanding shares of AllPen. This transaction was
accounted for under the pooling of interests method of accounting.
Because the effect of this transaction on prior year financial
statements was considered immaterial, such financial statements were
not restated; instead, the Company's equity accounts were adjusted
for the effect of the pooling.
In October 1998, General Instrument Corporation ("GI") acquired
700,000 shares of the Company's common stock for $7,392,000 and also
acquired warrants to purchase an additional 700,000 shares. The
warrants have exercise prices ranging from $13.20 to $14.78 per share
(subject to adjustment in certain circumstances), and become
exercisable on varying dates over a five-year period. In connection
with this investment, the Company and GI entered into a three-year
agreement under which the Company will develop and integrate new
Internet cable services and technologies for GI. This work will be
performed through a newly-formed subsidiary of the Company, in which
GI will hold a 10% minority interest and which GI will have an option
to purchase at fair market value under certain circumstances.
<PAGE>
A central element of the Company's business strategy is its use of an
Original Equipment Manufacturing ("OEM") distribution network. The
Company chose this approach to enable it to leverage the marketing,
distribution and development resources of much larger organizations
that are strategically focused on offering value-added products and
services that leverage the Internet. The Company intends to continue
to increase the performance, functionality and flexibility of its
technology offerings and breadth of its services to meet the evolving
needs of Internet users and to continue to invest in building
customer awareness of the Spyglass name and the range of Internet
solutions available from Spyglass.
The Company's future results of operations will be largely
dependent upon a number of factors relating to development and
acceptance of the Internet as a commercial market, particularly use
of the Internet through non-PC devices, and the Company's ability
to establish its solutions as widely-accepted in the market. See
the "Future Operating Results" section incorporated by reference
into Item 7 of this Annual Report on Form 10-K.
The Internet
The Internet is a worldwide network that links thousands of public
and private computer networks. The Internet began in 1969 as a
project of the Advanced Research Projects Agency ("ARPA") of the U.S.
Department of Defense to connect different types of computers across
geographically disparate areas. The ARPA network was designed to
allow any computer on the network to communicate with any other
computer on the network through an open communications protocol known
as TCP/IP.
The World Wide Web ("WWW") was introduced in 1992. The WWW is based
on a client/server system in which certain computers ("servers")
store files and respond to requests issued by remote computers
("clients" ) to download the files, thus allowing multiple,
geographically dispersed users to view and use the information stored
on a single server. The client must contain software, known as a
browser, that can read Hyper Text Markup Language (HTML) documents
and follow their hypertext links to retrieve and display linked
documents from servers.
In order to support the continued growth and popularity of the
Internet, certain "infrastructure" elements must expand to handle the
resulting increases in Internet demand and traffic. These elements
include widespread, inexpensive Internet access, either through
Internet access providers or on-line services, and widely available
high-speed communications channels to accommodate the increasing
number and size of files available for downloading.
Products and Technologies
Spyglass products and technologies deliver the embedded Internet and
infrastructure solutions needed to effectively connect a wide variety
of devices to the Internet and leverage the wealth of on-line
information and communication options. Spyglass products deliver
benefits to a wide range of groups such as consumers, device
manufacturers, content providers, internetworking vendors and
Internet service providers (ISPs").
<PAGE>
Spyglass' solutions provide its partners with a complete array of
software and services necessary to make devices work with the Web.
Spyglass solutions enable Web connectivity from virtually any device,
while providing the infrastructure solutions needed to eliminate
performance "bottlenecks" and deliver value-added services such as
content filtering and conversion. And, critically important to the
mass deployment of these new devices, these solutions ensure that
these devices have access to evolving Web content without the need
for changes in the original Web content or costly changes to the
device's software.
Spyglass Embedded Internet Technologies
Spyglass Device Mosaic
Spyglass Device Mosaic is the embedded industry's first full-
featured, thin browser. Occupying less than 1MB of code when
compiled specifically for devices, it supports the key Internet
standards to deliver information to devices. Moreover, Device
Mosaic's modular design makes it scalable across a broad range of
devices. Features can be added to support the latest needs of
televisions and set-top boxes or a stripped down version can be
embedded in more memory-constrained screen phones and hand-held
devices. To further reduce memory footprint, Device Mosaic comes
bundled with its own graphics library, the Spyglass ThinGUI Library,
which enables rich GUI (graphical user interface) functionality in
less than 300KB of code. Easily ported to a variety of popular real-
time operating systems, Device Mosaic enables consumer electronics
manufacturers to add Web functionality to products quickly, cutting
development costs and sharply reducing time to market.
Spyglass Device Mail
Spyglass Device Mail is an embedded email technology designed
specifically for televisions, cellular phones, and handheld
computers. Specifically designed and built for these products,
Spyglass Device Mail requires very little memory and is designed to
run on the embedded or real-time operating systems that are commonly
used by consumer electronics and office equipment manufacturers.
Spyglass Device Mail supports SMTP and IMAP4 Internet messaging
standards, and optionally supports POP3. Spyglass Device Mail will
work with any ISP, eliminating the need for a proprietary dial-up
network.
Spyglass MicroServer
Spyglass MicroServer is a small footprint Web server that can be
embedded in devices such as copiers, printers, industrial controls,
and manufacturing equipment. It delivers standards-based Web server
functionality in as little as 10KB of random access memory ("RAM").
Application user interfaces for Spyglass MicroServer enabled devices
are authored in HTML and may be used with any commercial Web browser.
Typical uses include providing operational or status information to a
user, updating a device's internal database, or initiating a device
action, such as running a diagnostic. Developed specifically for the
embedded systems market, Spyglass MicroServer has been ported to many
of the leading real-time operating systems.
Spyglass Mobile Forms Database
Spyglass Mobile Forms Database is a mobile database and forms data
collection application for Windows CE handheld PCs (HPCs). Spyglass
Mobile Forms Database works with the latest Windows CE devices
including the Philips Velo, the HP 320LX, Casio's Cassiopeia,
Compaq's PC Companion, LG's Phenom, and NEC's MobilePro. Spyglass
Mobile Forms Database allows users to create powerful handheld
databases that precisely fit their mobile data collection needs. The
database exists on a handheld device for easy collection of important
data while freeing users from their desktop. Exchanging data with a
desktop is made easy with the import/export functionality.
Spyglass Infrastructure Technologies
Spyglass Prism
Spyglass Prism is a server-based content delivery platform designed
to optimize the performance of the new generation of Web-enabled
devices by dynamically converting existing Web content for optimal
delivery and display on a wide variety of devices. Spyglass Prism
dynamically translates richly formatted Web content such as tables,
JPEG images, frames and Java applets into formats that match the
relatively limited display capabilities of non-PC devices. For
example, with a Personal Digital Assistant ("PDA"), Spyglass Prism
converts memory and bandwidth intensive color images into a simpler,
grayscale format and resizes those images for the PDA's smaller
display. These conversions of graphic-laden content can reduce access
times by as much as 90%. Performance is further enhanced by a
feature that stores previously converted, frequently requested Web
content. SurfWatch content filtering can also be added to Spyglass
Prism, allowing users to block access to objectionable Web content.
Spyglass Remote Mosaic
Spyglass Remote Mosaic brings Web browsing capabilities to devices
with extremely limited computing, RAM or display capacity. Such
devices include PDAs, cellular phones, pagers, low-end set-top boxes
and traditional television sets. By splitting the browser into two
components -a lightweight viewer which resides in the device and a
proxy browser that resides on a server -Spyglass Remote Mosaic can
deliver Web-browsing functionality in as little as 50K of RAM on the
device. This unique design reduces the amount of memory required on
the device, and
simplifies upgrades by putting most of the functionality on the
server.
SurfWatch Technologies
SurfWatch Client Products
SurfWatch Client from Spyglass is an easy-to-use, effective software
application for screening unwanted material from the Internet.
SurfWatch Client versions include: SurfWatch for the Macintosh,
SurfWatch for Windows 95 and SurfWatch for Windows 98.
SurfWatch Client blocks access to a comprehensive list of sites in
any or all of five "core" categories pertaining to sexually explicit
material, violence, hate speech, drugs/alcohol/tobacco, and gambling
as well as allowing users to block all access to all chat.
SurfWatch Server Products
SurfWatch Server-based products plug into or act as an add-on to
Microsoft and Netscape proxy servers and the Check Point FireWall-1.
As described in the SurfWatch Client Products section above, the
filtering technology included in the SurfWatch Server-based products
blocks the same unwanted, inappropriate material on computers
connected to the network enabling centralized (easier)
administration of the filtering solution throughout a school district
or corporation. SurfWatch Server-based products include: SurfWatch
Standard Edition, Surfwatch Educational Edition, SurfWatch
Professional Edition, SurfWatch for Check Point FireWall-1 and
SurfWatch SDK. All editions includes the ability to administer
different levels of filtering to different people (so that
individuals or groups can have varied levels of Web access), and
further allows customization based on the time of day or the day of
the week.
In additon to the above, the SurfWatch Educational Edition provides
Secure Learning_ environments (or "white lists"). These inclusive
lists of accessible Web content direct students to educational sites
while steering them away from sexually explicit materials, violent
content, hate speech, gambling sites and sites promoting drugs,
alcohol or tobacco. The SurfWatch Professional Edition and SurfWatch
for Check Point FireWall-1 add productivity categories to the already
existing sites that are blocked. These categories include, but are
not limited to, entertainment, games, job search, sports and travel.
SurfWatch SDK enables software developers to embed SurfWatch
filtering technology into their own hardware and/or software
applications.
Marketing, Sales, and Distribution
The Company distributes its technologies through a distribution
network of OEMs that includes device manufacturers, platform
developers, infrastructure hardware providers, service providers and
content developers that incorporate Internet technology into their
products and services. Spyglass has adopted this distribution model
to increase its presence in the marketplace, and to leverage the
marketing, distribution and development resources of its customers.
Certain products, such as the SurfWatch products, are also sold
directly to end users via direct sales and telesales and through
value-added resellers ("VARs") and distributors.
Since it shifted its direction to the non-PC marketplace, the Company
has been focusing its marketing efforts on a variety of companies,
including but not limited to real time operating system (RTOS)
vendors, consumer and industrial device manufacturers, software
developers, cable companies, Regional Bell Operating Companies (RBOC)
and Internet Service Providers (ISP). Efforts include direct
marketing campaigns, advertising campaigns and participating in the
engineering and trade conferences and shows focused on these markets
and industries. In addition, the Company is targeting public
relations efforts at analysts, the trade press and other media
relevant to the Internet device market.
The Company's license arrangements with its customers typically
provide for a non-exclusive license to incorporate Spyglass
technology into the customer's products and services and distribute
the Spyglass technology. These licenses generally provide for
royalties based on the number of copies distributed and generally
include up-front minimum royalty commitments.
The Company derived approximately 15% of its revenues for the fiscal
year ended September 30, 1998 from Motorola Corporation and 39.5% of
its revenues for the fiscal year ended September 30, 1997 from
Microsoft Corporation. As the Internet device market develops, the
Company expects to continue to derive a significant portion of its
revenues from a relatively limited number of customers.
As of December 10, 1998, the Company had 8 employees in marketing and
15 in sales. The Company currently operates sales offices located in
Cambridge, Massachusetts, San Ramon, California, Morristown, New
Jersey, Marina del Rey, California, Berkshire, United Kingdom and
Tokyo, Japan.
Professional Services Organization
The Spyglass Professional Services organization provides custom
solutions and support for the Company's customers through its
professional services and customer services groups. These custom
solutions are essential to Spyglass' overall strategy.
Professional Services Group
The Professional Services group provides strategic Internet
consulting, custom engineering, development, systems integration and
project management services. These services are provided on a
project basis to assist customers in developing unique products or
services utilizing Spyglass technologies and other third party
technologies. This group consists of senior consulting managers,
experienced engineering developers, senior technologists and
architects, technical writers and quality assurance specialists.
Customer Services Group
Most of the Company's customers enter into support agreements with
the Company for annual fees based upon on the number of products
licensed, platforms supported and copies distributed. These support
agreements entitle the customer to the backup technical support
described below as well as product updates and enhancements.
The Company tracks all support requests through a series of customer
databases that maintain current status reports as well as historical
logs of customer interaction. Support specialists diagnose and solve
technical problems related not only to the Company's products, but
also to other software and technologies with which the Company's
products interact. In addition, support specialists provide the
customer with direct access to the Company's development engineers
and report customer and end-user feedback to the Company's
development staff. Other types of support provided to the customer
include technical reports, documentation, status reports for product
upgrades and updates, and support during Beta test and pre-release
cycles.
As of December 10, 1998, the Company employed 29 employees in its
Professional Services organization.
Product Development
An important factor in the Company's ability to deliver state-of-the-
art solutions to its customers is the technology base the Company can
leverage in the creation of customized solutions for its customers.
The Company has a suite of embedded Internet and infrastructure
solutions that it continues to develop in order to support the latest
Internet technologies and standards. These core technologies form
the basis for most of the Company's customer solutions.
The Company's primary development efforts are focused on embedded
Internet technologies for HTML rendering and browsing and
infrastructure technologies that enhance the performance and
functionality of non-PC devices connected to the Internet.
In order to respond to rapidly changing competitive and technological
conditions, the Company may seek to enhance or expand its product
offerings by licensing one or more complementary technologies or
products or acquiring one or more complementary companies.
Because many of the significant technologies incorporated in the
Spyglass product suite are implementations of Internet standard
protocols which are constantly evolving, the Company actively
participates in a number of Internet standards-setting groups and
technical conferences.
As of December 10, 1998, the Company's research and development
staff, which is responsible for product development, quality
assurance, technical communication and product coordination,
consisted of 40 full-time employees. From time to time the Company
employs independent contractors for software development,
documentation, artistic design and quality reviews. For the fiscal
years ended September 30, 1998, 1997 and 1996, research and
development expenses were $9,173,000, $13,644,000 and $6,801,000,
respectively, which represented 45%, 64% and 30% of revenues,
respectively.
Competition
The market for Internet technologies and services is extremely
competitive, and competition is likely to increase in the future.
The Company currently faces competition from other Internet device
technology vendors and service providers such as Oracle, Sun
Microsystems, Microsoft, on-line service companies, Internet access
providers and networking software companies. Additionally, the
Company considers a significant source of competition for its
Internet technologies and professional services to be the prospect
company's internal resources.
Spyglass Device Mosaic competes with several companies who are
providing lightweight Web browsers for the emerging Internet device
marketplace. Spyglass competes with a number of small start-up
companies in specific vertical markets. Spyglass also competes with
Microsoft's Pocket Internet Explorer offering on WindowsCE, Network
Computer, Inc. (an Oracle subsidiary), Planet Web and JavaSoft, which
is attempting to adapt the Java environment to embedded devices. All
of these companies are licensing their Web browser and other
solutions to OEMs.
Spyglass Device Mail competes with several companies who are
providing e-mail packages with their browsers such as Microsoft,
PowerTV, NCI and a variety of smaller companies.
Spyglass MicroServer competes with other thin, embeddable Web server
technologies, including those provided by 3Soft, Agranat, emWare,
Integrated Systems, Inc. and Wind River Systems. The embedded server
market is characterized by an abundance of small competitors and two
RTOS developers. Many of the smaller competitors are offering their
products at extremely competitive prices in an attempt to establish a
market position. The RTOS developers have the advantage of being
able to offer embedded Web server functionality along with their
operating systems. The barriers to entry for the embedded Web server
market are very low, as the amount of software required for a server
is very small.
Spyglass Mobile Forms Database competes with other products such as
Symantic's ACT and Syware's Visual CE.
At this time, the Company believes there are no other content
conversion servers that are being offered to the OEM market that
directly compete with Spyglass Prism.
Spyglass Remote Mosaic faces competition primarily from NCI's (a
division of Oracle) DTV Navigator.
The Company also faces competition for its SurfWatch Client product
from other companies who have filtering products, such as The
Learning Company's Cyber Patrol and NetNanny's NetNanny. The
greatest competition is in the home market, due to the low barrier to
entry. The SurfWatch Server products face competition primarily from
NetPartners' WebSENSE and The Learning Company's CyberPatrol.
In its professional services offerings, Spyglass competes with other
technology consulting firms as well as other technology competitors
and customers' in-house research and development staff.
Competition among the current and future suppliers of Internet
software and services could result in significant price competition.
Moreover, many of the Company's current and potential competitors
have significantly greater financial, technical, marketing and other
resources than the Company. There can be no assurance that the
Company will be able to compete successfully against current and
future sources of competition or that the competitive pressures faced
by the Company will not adversely affect the Company's revenues or
gross margins.
Proprietary Rights
One of the Company's products, Spyglass Device Mosaic, is based in
part on technology licensed to the Company under an agreement with
the University of Illinois at Urbana-Champaign. This agreement grants
the Company the exclusive (subject to previously granted licenses
described below) worldwide right to develop, distribute and
sublicense commercial derivative versions of NCSA Mosaic, the Web
browser that was originally developed at the National Center for
Supercomputing Applications on the University of Illinois campus. The
University Agreement provides for royalties based on Spyglass' net
revenues from Device Mosaic. This University Agreement is terminable
in the event of a material breach by the Company of its obligations
thereunder. The University informed the Company that, prior to
appointing the Company as its exclusive licensing agent, the
University granted certain rights with respect to NCSA Mosaic and the
Mosaic trademark to approximately 10 organizations, some of which
have developed and market WWW browsers based on NCSA Mosaic.
The University Agreement gives the Company the exclusive right (with
certain limited exceptions) to use the University's trademarks
"Mosaic" and "NCSA Mosaic" and its spinning globe logo in connection
with Spyglass Mosaic products on a royalty-free basis (with certain
limited exceptions). In addition, the Company has the exclusive right
(with certain limited exceptions) to use these marks in connection
with the sale of other products for a royalty payment based on net
revenues derived from such products. The University has filed an
application to register the "NCSA Mosaic" and "Mosaic" trademarks in
the United States.
Spyglass has registered the name "SPYGLASS", the red "S" logo, the
name "SURF-WATCH", and the tag line "MAKE THE NET WORK" in the United
States. Spyglass has also received trademark registrations for the
name "SPYGLASS" in a number of foreign jurisdictions. Spyglass has
filed additional trademark applications in the United States and in
foreign jurisdictions.
Spyglass relies upon patent, copyright, trade secret and
confidentiality agreements and/or license agreements with its
customers, employees and other third parties to protect its
proprietary technology. However, effective intellectual property
protections may not be available in every country in which Spyglass'
products and services are provided. Spyglass has been issued and
continues to seek patent protection from the United States Patent and
Trademark Office for its technologies. The University of Illinois
does not have patent protection for NCSA Mosaic. There can be no
assurance that the steps taken by Spyglass (or the University of
Illinois) to protect their respective proprietary technologies will
be adequate to prevent misappropriation thereof by a third party, or
that a third party will not be able to independently develop similar
technologies. In addition, there can be no assurance that other
parties will not assert technology infringement claims against
Spyglass.
The Company licenses technology from a number of vendors for
incorporation into the Company's products. Examples of such licensed
technologies include security products, image conversion products and
databases. Specifically, the Company announced on September 13, 1995
an agreement with RSA Data Security, Inc. ("RSA") allowing the
Company to bundle RSA-security products with its technology
offerings. The agreement allows Spyglass to use RSA's BSAFE and
TIPEM software developer's kits to build security into Spyglass'
technology offerings. BSAFE is a well-known cryptographer's tool
kit, providing the means to add multiple algorithms and modules for
encryption and authentication features to any application.
On November 3, 1995, the Company entered into an agreement with the
Java Products Group of Sun Microsystems, Inc. to license the JAVA
programming language, the HOT JAVA browser and related technology.
Under the agreement, the Company is granted the right to distribute
the JAVA Runtime interpreter, the HOT JAVA browser and certain JAVA
classes and interfaces developed by both Sun and the Company. The
Company also has the right to port so-called "platform dependent
parts" to other platforms.
Employees
As of December 10, 1998, Spyglass employed 127 persons, including 23
in sales and marketing, 40 in research and development, 29 in
professional services and 35 in finance and administrative functions.
None of the Company's employees are represented by a labor union and
Spyglass considers its employee relations to be good.
Item 2. Properties
The Company's executive offices are located in Naperville, Illinois
(27,841 square feet) and are occupied under a lease that expires in
December 1999. The Company also leases facilities Cambridge,
Massachussets, Los Gatos, California and Los Altos, California. The
Company leases sales offices in San Ramon, California, Morristown,
New Jersey, Marina del Rey, California, Berkshire, United Kingdom and
Tokyo, Japan.
Item 3. Legal Proceedings
Unisys Corporation ("Unisys") has announced its intention to require
the payment of royalties for the use of compression technology
associated with the Graphics Interchange Format ("GIF"), a popular
file format based on compression technology patented by Unisys.
Spyglass Device Mosaic has the ability to decompress files, including
files stored in GIF. The assertion of these patent rights by Unisys,
if successful, could result in additional royalty costs to the
Company or prevent the Company's products from enabling users to view
files compressed in GIF.
Item 4. Submission of Matters To A Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the quarter ended September 30, 1998.
Executive Officers of the Registrant
Name Age Position(s)with the
Company
Douglas P. Colbeth................ 43 President, Chief Executive
Officer and Director
Randall T. Littleson.............. 33 Vice President and General
Manager
Christian T. Nall................. 37 Vice President, Business
Development
Michael F. Tyrrell................ 39 Executive Vice President,
Business Development
Gary L. Vilchick.................. 44 Executive Vice President,
Finance, Administration and
Operations and Chief
Financial Officer
Mr. Colbeth has been President, Chief Executive Officer and a
director of the Company since he joined the Company in April 1991.
Prior to joining the Company, Mr. Colbeth spent four years at
Stellar/Stardent Computer Corp., a high-end graphics workstation
supplier, in various management positions, most recently as Vice
President/General Manager of its AVS software business unit. From
January 1979 until March 1987, Mr. Colbeth was employed in various
sales and management positions at Prime Computer, Inc., a
minicomputer vendor. Mr. Colbeth received his B.S. degree in
economics from Siena College in 1977 and has completed graduate
studies in managerial economics at Rensselaer Polytechnic Institute.
Mr. Littleson joined the Company as Director, Product Marketing in
June 1996 and was promoted to Vice President, Marketing in October
1996 and Vice President and General Manager in February 1998. Prior
to joining the Company, Mr. Littleson served in various management
positions for Seagate Software (formerly Palindrome Corp.), a
developer of data management software solutions, for six years and a
systems engineer for Novell prior to that. Mr. Littleson received
his B.S. degree from the University of Michigan in 1987 and his
M.B.A. from Keller Graduate School of Management in 1994.
Mr. Nall joined the Company in September 1995 as Director, Western
Operations and was promoted to Vice President, Business Development
in January 1997. Prior to joining the Company, Mr. Nall was District
Manager, Midwest Region for Hitachi Data Systems, a computer system
manufacturer, and Business Unit Executive, Silicon Valley for IBM for
10 years prior to that. Mr. Nall received his Bachelor of Science
degree from the University of California, Berkley in 1982.
Mr. Tyrrell joined the Company in June 1990 as Vice President, Sales.
Mr. Tyrrell has served as Executive Vice President, Business
Development since November 1995. Prior to joining the Company, Mr.
Tyrrell spent three years as a regional sales manager for Multiflow
Computer, Inc., a supercomputer company. Mr. Tyrrell's prior
experience includes five years of sales and sales management at
Celerity Computing and Prime Computer, Inc. Mr. Tyrrell received his
B.S. degree in business administration from the University of New
Hampshire.
Mr. Vilchick joined the Company in December 1995 as Executive Vice
President, Finance, Administration and Operations and Chief Financial
Officer. Prior to joining the Company, Mr. Vilchick was the Vice
President of Finance for Pitney Bowes Logistics Systems, a provider
of technology for supply chain management solutions for
three years, and Controller for Pitney Bowes Management Services for
four years prior to that. Mr. Vilchick received his B.S. degree in
accounting from the University of Rhode Island. Mr. Vilchick is a
Certified Public Accountant.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company had 625 shareholders of record as of December 9, 1998.
The additional information required by this Item is incorporated
herein by reference from the sections entitled "Selected Quarterly
Data" and "Shares Listed" in the Company's Annual Report to
stockholders for the fiscal year ended September 30, 1998 (the
"Annual Report").
On November 14, 1997, the Company issued 639,246 shares of common
stock in exchange for all of the outstanding common stock of AllPen
Software. No underwriters were engaged in connection with such
issuance. The shares issued in this transaction were offered and
sold in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933.
Item 6. Selected Financial Data
The information required by this Item is incorporated herein by
reference from the section entitled "Selected Financial Data" in the
Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this Item is incorporated herein by
reference from the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company exports products to diverse geographic areas.
Substantially all foreign sales, however, are transacted in U.S.
dollars and therefore the Company is not exposed to significant
foreign currency market risk.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by
reference from the financial statements contained in the Annual
Report.
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item concerning directors of the
Company is incorporated herein by reference from the section entitled
"Election of Directors" included in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders for the fiscal year
ended September 30, 1998, which will be filed with the Securities and
Exchange commission within 120 days of the Company's fiscal year end
(the "1998 Proxy Statement"). The information required by this Item
concerning executive officers of the Company is included in Part I of
this Annual Report on Form 10-K under the section captioned
"Executive Officers of the Registrant". The information required by
this Item concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is incorporated herein by reference
from the section entitled "Other Matters--Section 16(a) Beneficial
Ownership Reporting Compliance" included in the 1998 Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by
reference from the sections entitled "Election of Directors--
Compensation Committee Interlocks and Insider Participation",
"Election of Directors--Compensation of Directors", "Executive
Compensation" and "Executive Compensation--Employment Agreements"
included in the 1998 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated herein by
reference from the section entitled "Beneficial Ownership of Voting
Stock" included in the 1998 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following financial information is incorporated by reference
into Part II hereof from the Annual Report
1. Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets at September 30,
1998 and 1997
Consolidated Statements of Operations for the three
years ended September 30, 1998
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended September 30, 1998
Consolidated Statements of Cash Flows for the three years
ended September 30, 1998
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable, not required, or the information required is included in
the financial statements or notes thereto.
3. Exhibits
The exhibits are listed in the accompanying Index to Exhibits
immediately following the signature page.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Spyglass, Inc.
Registrant
Date: December 21, 1998 /s/ Gary L. Vilchick
Gary L. Vilchick
Executive Vice President,
Finance, Administration and
Operations and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below as of December 21, 1998 by the
following persons on behalf of the registrant and in the capacities
indicated.
Signature
/s/ Douglas P. Colbeth
Douglas P. Colbeth
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Gary L. Vilchick
Gary L. Vilchick
Executive Vice President, Finance, Administration
And Operations and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Tim Krauskopf
Tim Krauskopf
Director
/s/ Brian J. Jackman
Brian J. Jackman
Director
/s/ John Shackleton
John Shackleton
Director
/s/ Charles T. Brumback
Charles T. Brumback
Director
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Spyglass, Inc.
We have audited the consolidated financial statements of Spyglass,
Inc. and subsidiaries as of September 30, 1998 and 1997, and for each
of the two years in the period ended September 30, 1998, and have
issued our report thereon dated October 19, 1998. Our audits also
included the financial statement schedule listed in the Index at Item
14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. The consolidated financial statements and financial
statement schedule of Spyglass, Inc. and subsidiaries as of and for
the year ended September 30, 1996 were audited by other auditors
whose report dated October 25, 1996 expressed an unqualified opinion
on those statements and schedule.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information
set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
October 19, 1998
SPYGLASS, INC.
SCHEDULE II
Valuation and Qualifying Accounts
Balance Charged Charged Balance
at to to (1) at
Description beginning costs other Deductions end of
of period and accounts period
period expenses
September 30, 1998
Allowance for $350,000 309,068 13,000 243,068 $429,000
doubtful accounts
September 30, 1997
Allowance for $470,000 1,029,051 - 1,149,051 $350,000
doubtful accounts
September 30, 1996
Allowance for $180,209 301,034 - 11,243 $470,000
doubtful accounts
(1)- Bad debt write-offs
INDEX TO EXHIBITS
Exhibit No. Description
3.1(1) Amended and Restated Certificate of
Incorporation of the Registrant, as amended
3.2(2) By-laws of the Registrant
4.1(2) Specimen certificate for shares of Common Stock
10.1(2) 1991 Stock Option Plan *
10.2 1995 Stock Incentive Plan, as amended *
10.3(2) 1995 Director Stock Option Plan *
10.4(2) Employment and Confidentiality Agreement between
the Registrant and Douglas P. Colbeth dated April
1, 1991 *
10.5(2) Employment and Confidentiality Agreement between
the Registrant and Michael F. Tyrrell dated April
29, 1991 *
10.6(7) Senior Management Retention Agreement between the
Registrant and Doug Colbeth, dated November 1,
1996 *
10.7(7) Senior Management Retention Agreement between the
Registrant and Michael Tyrrell, dated November
1, 1996 *<PAGE>
10.8(7) Senior Management Retention Agreement between the
Registrant and Gary Vilchick, dated November 1,
1996 *
10.9(7) Senior Management Retention Agreement between the
Registrant and Randall T. Littleson, dated
November 1, 1996 *
10.10(3) Standard form of Employment and
Confidentiality Agreement
10.11(2) NCSA Mosaic Software License Agreement
between the Registrant and the Board of
Trustees for the University of Illinois
dated May 10, 1994, as amended by amendment
No. 1 dated May 10, 1994, amendment No. 2
dated August 4, 1994 and amendment No. 3
dated March 21, 1995(5)
10.12(3) Amendment No. 4 to NCSA Mosaic Software
License Agreement between the
Registrant and the Board of Trustees
for the University of Illinois, dated
June 28, 1995. (5)
10.13(2) OEM/Source License Agreement , dated
December 12, 1994, between the
Registrant and Microsoft Corporation.
10.14(4) Amendment No. 1 to the OEM/Source
License Agreement between the
Registrant and Microsoft Corporation,
dated September 26, 1995. (5)
10.15(4) Technology Cooperation Agreement,
Including Amendment of OEM/Source
License Agreement between the
Registrant and Microsoft Corporation
dated December 6, 1995 (5)
10.16 (7) Amendment No. 1, dated September 30,
1996, to the Technology Cooperation
Agreement, Including Amendment of
OEM/Source License Agreement between
the Registrant and Microsoft
Corporation, dated December 6, 1995(5)
10.17(8) Amendment No. 2 to the Technology
Cooperation Agreement, Including
Amendment of OEM/Source License
Agreement between the Registrant and
Microsoft Corporation, dated January
21, 1997.
10.18(3) RSA Data Security, Inc.-BSAFE/TIPEM OEM
Master License Agreement dated August
8, 1995(5)
10.19(6) Sub-Lease Agreement between Rust
Environment & Infrastructure, Inc. and
the Registrant dated February 6, 1996
10.20(9) Office Lease Agreement between American
National Bank and Trust Company of<PAGE>
Chicago Trust No. 43194 and the
Registrant dated May 28, 1997
10.21(6) Standard Form of Invention and Non-
Disclosure Agreement
10.22(6) Standard Form of Non-Disclosure
Agreement
10.23(10) Source Code License and Distribution
Agreement between the Company and
Motorola, Inc. dated as of June 25,
1998(5)
10.24+ Amendment 1 to the Source Code License
and Distribution Agreement between the
Company and Motorola, Inc. dated as of
June 25, 1998
10.25+ Common Stock and Warrant Purchase
Agreement between the Company and
General Instrument Corporation dated
October 19, 1998
10.26+ Digital Software Integration Center
Sourcing Agreement between the Company
and General Instrument Corporation
dated November 1, 1998
10.27+ Operating Agreement between the Company
and General Instrument Corporation
dated October 19, 1998
13.1 Portions of the Annual Report to
Stockholders for the fiscal year ended
September 30, 1998 (only those portions
specifically incorporated by reference
herein are filed herewith).
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
(1) Incorporated herein by reference from the Company's Registration
Statement on Form S-8 (File No. 333-04357) filed on May 23, 1996.
(2) Incorporated herein by reference from the Company's Registration
Statement on Form S-1 (File No. 33-92174).
(3) Incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, as
amended by an Annual Report on Form 10-K/A filed on May 17, 1996.
(4) Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995, as
amended by a Quarterly Report on Form 10-Q/A filed on May 17, 1996.
(5) Confidential treatment previously granted by the Securities and
Exchange Commission as to certain portions, which are omitted
and filed separately with the Commission.
(6) Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(7) Incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1996.
(8) Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996.
(9) Incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997.
(10) Incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
+ Confidential treatment requested as to certain portions, which
portions are omitted and filed separately with the Securities
and Exchange Commission.
* Management contract or compensatory plan or arrangement filed as
an Exhibit to this form pursuant to Items 14(a) and 14(c) of
Form 10-K.
EXHIBIT 10.2
SPYGLASS, INC.
1995 STOCK INCENTIVE PLAN, AS AMENDED
1. Purpose
The purpose of this 1995 Stock Incentive Plan (the "Plan")
of Spyglass, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company by enhancing its ability to
attract and retain key employees, consultants and others who are
in a position to contribute to the Company's future growth and
success.
2. Definitions
"Award" means any Option, Stock Appreciation Right,
Performance Shares, Restricted Stock or Unrestricted Stock
awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" means a committee of not less than two members
of the Board appointed by the Board to administer the Plan,
provided that if and when the Common Stock is registered under
Section 12 of the Exchange Act, each member of the Committee
shall be a "Non-Employee Director" within the meaning of Rule
16b-3 under the Exchange Act ("Rule 16b-3").
"Common Stock" means the Common Stock, $.01 par value per
share, of the Company.
"Company" means Spyglass, Inc. and, except where the context
otherwise requires, all present and future subsidiaries of
Spyglass, Inc. as defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by
a Participant, in a manner determined by the Board, to receive
amounts due or exercise rights of the Participant in the event of
the Participant's death. In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean
the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" means, with respect to Common Stock or
any other property, the fair market value of such property as
determined by the Board in good faith or in the manner
established by the Board from time to time.
<PAGE>
"Incentive Stock Option" means an option to purchase shares
of Common Stock awarded to a Participant under Section 6 which is
intended to meet the requirements of Section 422 of the Code or
any successor provision.
"Nonstatutory Stock Option" means an option to purchase
shares of Common Stock awarded to a Participant under Section 6
which is not intended to be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory
Stock Option.
"Participant" means a person selected by the Board to
receive an Award under the Plan.
"Performance Shares" mean shares of Common Stock which may
be earned by the achievement of performance goals established for
a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of
the Exchange Act or any successor provision.
"Restricted Period" means the period of time selected by the
Board during which shares subject to a Restricted Stock Award may
be repurchased by or forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a
Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive
any excess in Fair Market Value of shares of Common Stock over
the exercise price awarded to a Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to
a Participant under Section 9(c).
3. Administration
The Plan will be administered by the Board. The Board shall
have authority to make Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable from time to time, and to
interpret the provisions of the Plan. The Board's decisions
shall be final and binding. No member of the Board shall be
liable for any action or determination relating to the Plan made
in good faith. To the extent permitted by applicable law, the
Board may delegate to one or more executive officers of the
Company the power to make Awards to Participants who are not
Reporting Persons and all determinations under the Plan with
respect thereto, provided that the Board shall fix the maximum
amount of such Awards to be made by such executive officers and a
maximum amount for any one Participant. To the extent permitted
by applicable law, the Board may appoint a Committee to
administer the Plan and, in such event, all references to the
Board in the Plan shall mean such Committee or the Board. All
decisions by the Board or the Committee pursuant to the Plan
shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award.
<PAGE>
4. Eligibility
All of the Company's employees, officers, directors,
consultants and advisors who are expected to contribute to the
Company's future growth and success, other than persons who have
irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be awarded
only to persons eligible to receive Incentive Stock Options under
the Code.
5. Stock Available for Awards
(a) Subject to adjustment under subsection (b) below,
Awards may be made under the Plan for up to 3,300,000 shares of
Common Stock. If any Award in respect of shares of Common Stock
expires or is terminated unexercised or is forfeited for any
reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to
such Award or so surrendered, as the case may be, to the extent
of such expiration, termination, forfeiture or decrease, shall
again be available for award under the Plan, subject, however, in
the case of Incentive Stock Options, to any limitation required
under the Code and provided that shares made available pursuant
to this sentence shall be available for Awards to Reporting
Persons only to the extent consistent with Rule 16b-3. Shares
issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event that the Board, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination or other similar transaction
affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to
be made available under the Plan, then the Board, subject, in the
case of Incentive Stock Options, to any limitation required under
the Code, shall equitably adjust any or all of (i) the number and
kind of shares in respect of which Awards may be made under the
Plan, (ii) the number and kind of shares subject to outstanding
Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate,
the Board may make provision for a cash payment with respect to
an outstanding Award, provided that the number of shares subject
to any Award shall always be a whole number.
(c) The Board may grant Awards under the Plan in
substitution for stock and stock based awards held by employees
of another corporation who concurrently become employees of the
Company as a result of a merger or consolidation of the employing
corporation with the Company (or a subsidiary of the Company) or
the acquisition by the Company (or a subsidiary of the Company)
of property or stock of the employing corporation. The
substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
<PAGE>
(d) Subject to adjustment under Section 5(b), the maximum
number of shares with respect to which an Award may be granted to
any employee under the Plan shall not exceed 150,000 per calendar
year. For purposes of calculating such maximum number, (a) an
Award shall continue to be treated as outstanding notwithstanding
its repricing, cancellation or expiration and (b) the repricing
of an outstanding Award or issuance of a new Award in
substitution for a cancelled Award shall be deemed to constitute
the grant of a new additional Award separate from the original
grant of the Award that is repriced or cancelled.
6. Stock Options
(a) General
(i) Subject to the provisions of the Plan, the Board
may award Incentive Stock Options and Nonstatutory Stock Options,
and determine the number of shares of Common Stock to be covered
by each Option, the option price of such Option and the
conditions and limitations applicable to the exercise of such
Option. The terms and conditions of Incentive Stock Options
shall be subject to and comply with Section 422 of the Code, or
any successor provision, and any regulations thereunder.
(ii) The Board shall establish the exercise price
at the time each Option is awarded. In the case of Incentive
Stock Options, such price shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of award.
(iii) Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may
specify in the applicable Award or thereafter. The Board may
impose such conditions with respect to the exercise of Options,
including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the
payment of the exercise price by delivery of cash or check in an
amount equal to the exercise price of such Options or, to the
extent permitted by the Board at or after the award of the
Option, by (A) delivery of shares of Common Stock owned by the
optionee for at least six months (or such shorter period as is
approved by the Board), valued at their Fair Market Value, (B)
delivery of a promissory note of the optionee to the Company on
terms determined by the Board, (C) delivery of an irrevocable
undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of
irrevocable instructions to a broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price, (D)
payment of such other lawful consideration as the Board may
determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of
an Option upon the delivery of shares to the Company in payment
of the exercise price of an Option for up to the number of shares
so delivered.
(vi) The Board may at any time accelerate the time at
which all or any part of an Option may be exercised.
<PAGE>
(b) Incentive Stock Options
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following
additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such
in the option agreement covering such Incentive Stock Options.
The Option exercise period shall not exceed ten years from the
date of grant.
(ii) If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of
such option, the owner of stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company (after taking into account the attribution of stock
ownership rule of Section 424(b) and of the Code), then the
following special provisions shall be applicable to the Incentive
Stock Option granted to such individual:
(x) The purchase price per share of the Common
Stock subject to such Incentive Stock Option shall not be
less than 110% of the Fair Market Value of one share of
Common Stock at the time of grant; and
(y) The option exercise period shall not exceed
five years from the date of grant.
(iii) For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other
incentive stock option plans of the Company) which are intended
to constitute Incentive Stock Options shall not constitute
Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair
Market Value (determined as of the respective date or dates of
grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless,
at the time of such exercise, the Participant is, and has been
continuously since the date of grant of his or her Option,
employed by the Company, except that:
(x) an Incentive Stock Option may be exercised
within the period of three months after the date the
Participant ceases to be an employee of the Company (or
within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement
with respect to such Option may designate a longer exercise
period and that the exercise after such three-month period
shall be treated as the exercise of a Nonstatutory Stock
Option under the Plan;
<PAGE>
(y) if the Participant dies while in the employ
of the Company, or within three months after the Participant
ceases to be such an employee, the Incentive Stock Option
may be exercised by the Participant's Designated Beneficiary
within the period of one year after the date of death (or
within such lesser period as may be specified in the
applicable Option agreement); and
(z) if the Participant becomes disabled (within
the meaning of Section 22(e)(3) of the Code or any successor
provision thereto) while in the employ of the Company, the
Incentive Stock Option may be exercised within the period of
one year after the date of death (or within such lesser
period as may be specified in the applicable Option
agreement).
For all purposes of the Plan and any Option granted hereunder,
"employment" shall be defined in accordance with the provisions
of Section 1.421-7(h) of the Income Tax Regulations (or any
successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its
expiration date.
(v) Incentive Stock Options shall not be assignable or
transferable by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the optionee,
shall be exercisable only by the optionee.
7. Stock Appreciation Rights
(a) The Board may grant SARs entitling recipients on
exercise of the SAR to receive an amount, in cash or Common Stock
or a combination thereof (such form to be determined by the
Board), determined in whole or in part by reference to
appreciation in the Fair Market Value of the Common Stock between
the date of the Award and the exercise of the Award. A SAR shall
entitle the Participant to receive, with respect to each share of
Common Stock as to which the SAR is exercised, the excess of the
share's Fair Market Value on the date of exercise over its Fair
Market Value on the date the SAR was granted. The Board may also
grant SARs that provide that, following a change in control of
the Company (as defined by the Board at the time of the Award),
the holder of such SAR will be entitled to receive, with respect
to each share of Common Stock subject to the SAR, an amount equal
to the excess of a specified value (which may include an average
of values) for a share of Common Stock during a period preceding
such change in control over the Fair Market Value of a share of
Common Stock on the date the SAR was granted.
(b) SARs may be granted in tandem with, or independently
of, Options granted under the Plan. A SAR granted in tandem with
an Option which is not an Incentive Stock Option may be granted
either at or after the time the Option is granted. A SAR granted
in tandem with an Incentive Stock Option may be granted only at
the time the Option is granted.
(c) When SARs are granted in tandem with Options, the
following provisions will apply:
<PAGE>
(i) The SAR will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable
and will be exercisable in accordance with the procedure required
for exercise of the related Option.
(ii) The SAR will terminate and no longer be
exercisable upon the termination or exercise of the related
Option, except that a SAR granted with respect to less than the
full number of shares covered by an Option will not be reduced
until the number of shares as to which the related Option has
been exercised or has terminated exceeds the number of shares not
covered by the SAR.
(iii) The Option will terminate and no longer be
exercisable upon the exercise of the related SAR.
(iv) The SAR will be transferable only with the related
Option.
(v) A SAR granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Common
Stock subject to the Option exceeds the exercise price of such
Option.
(d) A SAR not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the
Board may specify.
(e) The Board may at any time accelerate the time at which
all or any part of the SAR may be exercised.
8. Performance Shares
(a) The Board may make Performance Share Awards entitling
recipients to acquire shares of Common Stock upon the attainment
of specified performance goals. The Board may make Performance
Share Awards independent of or in connection with the granting of
any other Award under the Plan. The Board in its sole discretion
shall determine the performance goals applicable under each such
Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the
awarded Performance Shares; provided, however, that the Board may
rely on the performance goals and other standards applicable to
other performance plans of the Company in setting the standards
for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to
such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall
have the rights of a stockholder only as to shares actually
received by the Participant under the Plan and not with respect
to shares subject to an Award but not actually received by the
Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Common Stock
under a Performance Share Award only upon satisfaction of all
conditions specified in the agreement evidencing the Performance
Share Award.
<PAGE>
(d) The Board may at any time accelerate or waive any or
all of the goals, restrictions or conditions imposed under any
Performance Share Award.
9. Restricted and Unrestricted Stock
(a) The Board may grant Restricted Stock Awards entitling
recipients to acquire shares of Common Stock, subject to the
right of the Company to repurchase all or part of such shares at
their purchase price (or to require forfeiture of such shares if
purchased at no cost) from the recipient in the event that
conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable Restricted Period or
Restricted Periods established by the Board for such Award.
Conditions for repurchase (or forfeiture) may be based on
continuing employment or service or achievement of
pre-established performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted
by the Board, during the applicable Restricted Period. Shares of
Restricted Stock shall be evidenced in such manner as the Board
may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the
Participant and, unless otherwise determined by the Board,
deposited by the Participant, together with a stock power
endorsed in blank, with the Company (or its designee). At the
expiration of the Restricted Period, the Company (or such
designee) shall deliver such certificates to the Participant or
if the Participant has died, to the Participant's Designated
Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell
at a purchase price determined by the Board, which shall not be
lower than 85% of Fair Market Value on the date of sale) to
Participants shares of Common Stock free of any restrictions
under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock
and Unrestricted Stock shall be determined by the Board of
Directors and may not be less than the par value of the Common
Stock. Such purchase price may be paid in the form of past
services or such other lawful consideration as is determined by
the Board.
(e) The Board may at any time accelerate the expiration of
the Restricted Period applicable to all, or any particular,
outstanding shares of Restricted Stock.
10. General Provisions Applicable to Awards
(a) Applicability of Rule 16b-3. Those provisions of the
Plan which make an express reference to Rule 16b-3 shall apply to
the Company only at such time as the Company's Common Stock is
registered under the Exchange Act, or any successor provision,
and then only to Reporting Persons.
<PAGE>
(b) Reporting Person Limitations. Notwithstanding any
other provision of the Plan, to the extent required to qualify
for the exemption provided by Rule 16b-3, (i) any Option, SAR,
Performance Share Award or other similar right related to an
equity security issued under the Plan to a Reporting Person shall
not be transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order
as defined by the Code or Title I or the Employee Retirement
Income Security Act ("ERISA"), or the rules thereunder, and shall
be exercisable during the Participant's lifetime only by the
Participant or the Participant's guardian or legal
representative, and (ii) the selection of a Reporting Person as a
Participant and the terms of his or her Award shall be determined
only in accordance with the applicable provisions of Rule 16b-3.
(c) Documentation. Each Award under the Plan shall be
evidenced by an instrument delivered to the Participant
specifying the terms and conditions thereof and containing such
other terms and conditions not inconsistent with the provisions
of the Plan as the Board considers necessary or advisable. Such
instruments may be in the form of agreements to be executed by
both the Company and the Participant, or certificates, letters or
similar documents, acceptance of which will evidence agreement to
the terms thereof and of this Plan.
(d) Board Discretion. Except as otherwise provided by the
Plan, each type of Award may be made alone, in addition to or in
relation to any other type of Award. The terms of each type of
Award need not be identical, and the Board need not treat
Participants uniformly. Except as otherwise provided by the Plan
or a particular Award, any determination with respect to an Award
may be made by the Board at the time of award or at any time
thereafter.
(e) Termination of Status. Subject to the provisions of
Section 6(b)(iv), the Committee shall determine the effect on an
Award of the disability, death, retirement, authorized leave of
absence or other termination of employment or other status of a
Participant and the extent to which, and the period during which,
the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger
or other reorganization in which all of the outstanding shares of
Common Stock are exchanged for securities, cash or other property
of any other corporation or business entity (an "Acquisition") or
in the event of a liquidation of the Company, the Board of
Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its
discretion, take any one or more of the following actions as to
outstanding Awards: (i) provide that such Awards shall be
assumed, or substantially equivalent Awards shall be substituted,
by the acquiring or succeeding corporation (or an affiliate
thereof) on such terms as the Board determines to be appropriate,
(ii) upon written notice to Participants, provide that all
unexercised Options or SARs will terminate immediately prior to
the consummation of such transaction unless exercised by the
Participant within a specified period following the date of such
notice, (iii) in the event of an Acquisition under the terms of
<PAGE>
which holders of the Common Stock of the Company will receive
upon consummation thereof a cash payment for each share
surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to Participants equal to the
difference between (A) the Acquisition Price times the number of
shares of Common Stock subject to outstanding Options or SARs (to
the extent then exercisable at prices not in excess of the
Acquisition Price) and (B) the aggregate exercise price of all
such outstanding Options or SARs in exchange for the termination
of such Options and SARs, and (iv) provide that all or any
outstanding Awards shall become exercisable or realizable in full
prior to the effective date of such Acquisition.
(g) Withholding. The Participant shall pay to the Company,
or make provision satisfactory to the Board for payment of, any
taxes required by law to be withheld in respect of Awards under
the Plan no later than the date of the event creating the tax
liability. In the Board's discretion, and subject to such
conditions as the Board may establish, such tax obligations may
be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation,
valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants
who are foreign nationals or employed outside the United States
on such terms and conditions different from those specified in
the Plan as the Board considers necessary or advisable to achieve
the purposes of the Plan or comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or
terminate any outstanding Award, including substituting therefor
another Award of the same or a different type, changing the date
of exercise or realization and converting an Incentive Stock
Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the
Board determines that the action, taking into account any related
action, would not materially and adversely affect the
Participant.
(j) Cancellation and New Grant of Options. The Board of
Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees,
(i) the cancellation of any or all outstanding Options under the
Plan and the grant in substitution therefor of new Options under
the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which
may be lower or higher than the exercise price per share of the
cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an option
exercise price per share which is higher or lower than the then
current exercise price per share of such outstanding Options.
<PAGE>
(k) Conditions on Delivery of Stock. The Company will not
be obligated to deliver any shares of Common Stock pursuant to
the Plan or to remove restrictions from shares previously
delivered under the Plan (i) until all conditions of the Award
have been satisfied or removed, (ii) until, in the opinion of the
Company's counsel, all applicable federal and state laws and
regulations have been complied with, (iii) if the outstanding
Common Stock is at the time listed on any stock exchange, until
the shares to be delivered have been listed or authorized to be
listed on such exchange upon official notice of notice of
issuance, and (iv) until all other legal matters in connection
with the issuance and delivery of such shares have been approved
by the Company's counsel. If the sale of Common Stock has not
been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award,
such representations or agreements as the Company may consider
appropriate to avoid violation of such Act and may require that
the certificates evidencing such Common Stock bear an appropriate
legend restricting transfer.
11. Miscellaneous
(a) No Right To Employment or Other Status. No person
shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant
the right to continued employment or service for the Company.
The Company expressly reserves the right at any time to dismiss a
Participant free from any liability or claim under the Plan,
except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of
the applicable Award, no Participant or Designated Beneficiary
shall have any rights as a stockholder with respect to any shares
of Common Stock to be distributed under the Plan until he or she
becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts
payable upon exercise of Awards granted under the Plan shall be
considered salary, wages or compensation to Participants for
purposes of determining the amount or nature of benefits that
Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
(d) Effective Date and Term. The Plan shall become
effective upon the closing of the Company's initial public
offering. No Award granted under the Plan shall become effective
until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained
within twelve months after the date of the Board's adoption of
the Plan, no Options previously granted under the Plan shall be
deemed to be Incentive Stock Options and no Incentive Stock
Options shall be granted thereafter. No Award may be made under
the Plan after May 7, 2005, but Awards previously granted may
extend beyond that date.
<PAGE>
(e) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided
that no amendment shall be made without stockholder approval if
such approval is necessary to comply with any applicable tax or
regulatory requirement. Amendments requiring stockholder
approval shall become effective when adopted by the Board of
Directors, but no Incentive Stock Option granted after the date
of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to
grant such Incentive Stock Option to a particular Participant)
unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not
obtained within twelve months of the Board's adoption of such
amendment, any Incentive Stock Options granted on or after the
date of such amendment shall terminate to the extent that such
amendment to the Plan was required to enable the Company to grant
such option to a particular Participant.
(f) Governing Law. The provisions of the Plan shall be
governed by and interpreted in accordance with the laws of the
State of Delaware.
EXHIBIT 10.24
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote
omissions.
AMENDMENT I
This Amendment and attachments hereto (the "Amendment"),
effective as of September 30, 1998, is entered into upon the
latest date following the signatures hereto by and between
Spyglass, Inc., ("Spyglass") and Motorola, Inc. ("Licensee") and
is attached to and incorporated in its entirety into that certain
Source License and Distribution Agreement by and between Spyglass
and Licensee dated June 25, 1998 (the "Agreement").
Notwithstanding anything to the contrary contained in the
Agreement, and in consideration of the mutual promises, covenants
and conditions contained in the Agreement and contained herein,
the parties hereby covenant and agree to the foregoing and as
follows:
1. Capitalized terms herein will have the meanings identified in
the Agreement unless otherwise defined in this Amendment. For
purposes of this Amendment, the existing definition of "Licensed
Software" in Section 1.5 shall be deleted and replaced in its
entirety with the following new definition:
"1.5 "Licensed Software" means the standard non-customized
code base of the software described in Exhibit A attached to the
Agreement and Exhibit A-1 attached hereto, and any derivative
works thereof."
2. Section 2.2 Distribution License shall be amended to add the
following new subsections (c), (d), and (e) respectively:
"2.2(c). Subject to the terms and conditions contained
herein, Spyglass grants the Licensee, and the Licensee accepts, a
non-exclusive, non-transferable, perpetual, irrevocable (subject
to Section 7.2) right and license, under all Intellectual
Property rights of Spyglass, in the Territory to copy and
distribute copies of the Source Code Form of the *** of the
Device Mosaic segment of the Licensed Software only, and only as
incorporated into or bundled with the Licensee Products and
subject to the requirements set forth in Section 2.4 below, to
Resellers and Sublicensees solely to allow Licensee to grant such
Resellers and Sublicensees the right to modify *** and distribute
such modifications in Object Code Form only and only as bundled
or incorporated with the Licensee Products to End Users.
Licensee is granted no right to further distribute the Licensed
Software, or a portion thereof, in Source Code Form. Licensee,
its Resellers and Sublicensees are granted no right hereunder to
distribute the Licensed Software, or a portion thereof, on a
standalone basis.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.2(d). Subject to Licensee and an Escrow Agent entering
into the Escrow Agreement (attached hereto and made part of the
Agreement as Exhibit F) or a substantially similar Escrow
Agreement, Licensee shall have the right to place the Licensed
Software in Source Code Form (and the relating documentation),
excluding any third party software, in an escrow account. Such
escrow account shall be maintained and controlled at Licensee's
sole expense and direction, and Spyglass shall have no obligation
to make deposits into the escrow account, including the deposits
of any Updates, Upgrades, modifications or enhancements to the
Licensed Software. Licensee shall, in accordance with the
requirements of the Licensee Report set forth in Section 5.4 of
the Agreement, report to Spyglass each Reseller and Sublicensee
named as a beneficiary in such escrow agreement. The Licensed
Software may be released from escrow for the benefit of
Licensee's Resellers and/or Sublicensees only in the event of:
(1) a receiver, trustee in bankruptcy or similar officer is
appointed to take charge of all of Licensee's property; (2)
Licensee files a voluntary petition under federal bankruptcy laws
or similar state statues or such petition is filed against
Licensee and is not dismissed within sixty (60) days; or (3) a
change of control of
Licensee's *** (or its successor organization within Licensee's
business organization) occurs when a competitor of a reported
beneficiary (either a Reseller or Sublicensee) acquires a
controlling interest in such Licensee's Group and such
reported beneficiary's/(ies')
support or interests are adversely affected due to such change
in control as demonstrated by specific facts; provided that: (i)
the Licensed Software in Source Code Form is released from escrow
for the sole purpose of allowing those Resellers and/or
Sublicensees who have been reported to Spyglass as beneficiaries
the ability to support the Licensee Products for their then-
current customers/End Users, (ii) the Licensed Software in Source
Code Form is only released from escrow when the Licensee Products
in Source Code Form are also released, and (iii) Licensee
notifies Spyglass as soon as Licensee becomes aware of an event
that could result in the release of the Licensed Software from
escrow.
2.2(e). Spyglass agrees to permit Licensee to provide any
Reseller or Sublicensee with any of the development documentation
of Spyglass as identified in Exhibit G for the purpose of
permitting such Reseller or Sublicensee to use the development
documentation to develop Reseller or Sublicensee application
products for use with the Licensee Products, provided a written
confidentiality agreement is executed between Licensee and each
Reseller or Sublicensee to keep the confidential portions of the
development documentation of Spyglass confidential for a period
of at least three (3) years in accordance with terms otherwise at
least as protective as those of Section 8 of the Agreement.
Spyglass agrees to reasonably consider adding further Spyglass
documentation to Exhibit G as appropriate to assist with the
creation of such Reseller or Sublicensee application products."
3. Section 5.3 Additional License Fees shall be deleted and
replaced in its entirety with the following new Section 5.3
Additional License Fees:
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
"5.3 Additional License Fees: Upon Licensee exhausting the
number of copies of the Licensed Software acquired in the Initial
Purchase Commitments in Exhibits B and B-1, Licensee shall pay
Spyglass on a calendar quarterly basis, concurrent with the
Licensee Report set forth in Section 5.4, the following:
(i) a Per Copy Fee equivalent to the Per Copy Fee
which, in Exhibit B, corresponds to the accumulated number
of copies of the Licensed Software, and derivative works
thereof, distributed by Licensee, its Resellers and
Sublicensees, and
(ii) a Per Copy Fee equivalent to the Per Copy Fee
which, in Exhibit B-1, corresponds to the accumulated number
of copies of the Licensed Software, and derivative works
thereof, distributed by Licensee, its Resellers and
Sublicensees.
The above calculations are based upon a one-to-one ratio of
distribution of Licensed Software identified in Exhibit A to the
distribution of the Licensed Software identified in Exhibit A-1.
4. Section 5.4 Licensee Report shall be amended to add the
following new subsection (iv):
"(iv) and the names and addresses of each Reseller and
Sublicensee who has been named as a beneficiary by Licensee in an
escrow agreement providing such Reseller and/or Sublicensee
access to the Licensed Software in Source Code Form."
5. The last sentence of Exhibit B, Section A (2), is hereby
deleted in its entirety.
6. Exhibits A and B shall be amended to add, as attachments, the
Exhibits A-1 and B-1, respectively, attached hereto.
7. The Additional Deliverable A identified in the attachment,
Exhibit A-1, shall be considered Spyglass' Confidential
Information whether or not it is marked as "confidential" in
writing.
8. The Additional Deliverable A identified in the attachment,
Exhibit A-1, shall be included under the Exhibit C, Technical
Support Services, at *** Technical Support Services Fees for the
period commencing on the Amendment Date through December 15,
1998, at which time, Licensee may elect for the parties to
negotiate in good faith an amendment to the Technical Support
Services covering the fee for such services for the Additional
Deliverable A or Spyglass shall cease providing such support.
9. Exhibit C, Technical Support Services, Section 1.1, in
subsection (iv), the word "Hellcat" is hereby deleted and
replaced with the word "Blackbird" (or subsequent commercial
brand name therefor).
<PAGE>
10. Exhibit C, Technical Support Services, Section 2.1,
subsection (d), the word "Hellcat" is hereby deleted and replaced
with the word "Blackbird" (or subsequent commercial brand name
therefor).
11. Exhibit D, Licensee Product, is hereby amended to delete and
replace in its entirety the existing Licensee Product description
with the following new Licensee Product description:
"Licensee Product: Any Motorola, Inc. ***. Products that
represent substantial deviations from this common architecture
and its future generation enhancements shall be considered
additional Licensee Products."
12. Unless otherwise modified or amended herein, all other terms
and conditions of the Agreement and the Exhibits thereto, shall
apply to the Additional Deliverable A as "Licensed Software" in
the same manner they apply to the Licensed Software identified in
the Agreement; and the parties' rights and obligations thereunder
remain in full force and effect.
13. This Amendment shall become a part of the Agreement and
shall be read together with the Agreement as a single document.
To the extent that there are any conflicts between the terms and
conditions of the Agreement and the terms and conditions of this
Amendment, the terms and conditions of this Amendment shall
control.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by the duly authorized representatives. By executing
below, the parties agree to amend the Agreement as noted herein.
SPYGLASS, INC. MOTOROLA, INC.
By: /s/Gary Vilchick By: /s/ Ray Burgess
Name: Gary Vilchick Name: Ray Burgess
Title: Executive V.P. CFO Title: VP & Gen Mgr,
IES
Date: 9/30/98 Date: 9/30/98
<PAGE>
EXHIBIT A-1
(Attachment to Exhibit A)
DELIVERABLES
This Exhibit A-1 is incorporated in its entirety as part of the
Agreement.
Additional Deliverable:
A. Spyglass Device Mail Version 1.0 in Source Code Form for the
VxWorks operating environment
Delivery Dates:
On or before September 30, 1998.
Licensed Spyglass Trademarks:
Spyglass Trademarks:
Spyglass[Registered Trademark] Device Mail
The Additional Deliverable A is hereby added to the Agreement and
included in the definition of "Licensed Software".
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote
omissions.
EXHIBIT B-1
LICENSE FEE SCHEDULE
(for Device Mail)
This Exhibit B-1 is incorporated in its entirety as part of the
Agreement.
A) Spyglass Device Mail
(1) Technology Access Fee - Device Mail: ***
(2) Initial Purchase Commitment - Device Mail: ***,
includes *** Copies as follows:
# of Copies
***/Per Copy = ***
Initial Purchase Commitment: ***
Due ***
(3) Per Copy Fee for Additional License Fees for Device Mail
# of Copies Per Copy Fee Payment
*** ***
(4) Technology Access Fees, Initial Purchase Commitment and
Per Copy Fees are due on a Per Licensee Product basis. Products
that represent substantial deviations from the common
architecture of the Licensee Product identified in Exhibit D
shall be considered additional Licensee Products and are subject
to the then-current Spyglass pricing for each additional Licensee
Product added to Exhibit D.
<PAGE>
Exhibit F
Preferred Escrow Agreement Introduction
DSI's Preferred arrangement offers the flexibility of a
modifiable contract combined with premium protection for both the
depositor and the beneficiary. This advanced escrow can be
precisely tailored to accommodate various circumstances.
In addition to our Technology Protection services, DSI's
Preferred customers benefit from these unique features:
_ Technical Verification options
_ Tailored release conditions
_ Written notification detailing the contents of the deposit
and each update
_ Semi-annual account histories listing all deposit activity
For additional benefits, you can choose DSI's Comprehensive
Preferred addendum and receive these additional features:
_ Recurring Level I Technical Verification
_ Continual DeposiTrack Service
_ Unlimited updates/replacements and one additional storage
unit
Because we recognize that various situations require different
levels of service and protection, DSI offers our customers a wide
array of options. Our specialized agreements include SAFE,
FlexSAFE, Preferred and Comprehensive Preferred. Master
agreements are also available to simplify and standardize your
escrow arrangements.
Please consult your DSI representative to select an agreement and
develop an escrow program that meets your individual needs.
PREFERRED ESCROW AGREEMENT
Account Number ______________________
This Agreement is effective __________________, 19_____ among
Data Securities International, Inc. ("DSI"),
______________________________________ ("Depositor") and
______________________________________ ("Preferred Beneficiary"),
who collectively may be referred to in this Agreement as "the
parties."
<PAGE>
A. Depositor and Preferred Beneficiary have entered or will
enter into a license agreement, development agreement, and/or
other agreement regarding certain proprietary technology of
Depositor (referred to in this Agreement as "the license
agreement").
B. Depositor desires to avoid disclosure of its proprietary
technology except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor
is critical to Preferred Beneficiary in the conduct of its
business and, therefore, Preferred Beneficiary needs access to
the proprietary technology under certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an
escrow with DSI to provide for the retention, administration and
controlled access of the proprietary technology materials of
Depositor.
E. The parties desire this Agreement to be supplementary to the
license agreement pursuant to 11 United States [Bankruptcy] Code,
Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this
Agreement by the parties, Depositor shall deliver to DSI the
proprietary information and other materials ("deposit materials")
required to be deposited by the license agreement or, if the
license agreement does not identify the materials to be deposited
with DSI, then such materials will be identified on an Exhibit A.
If Exhibit A is applicable, it is to be prepared and signed by
Depositor and Preferred Beneficiary. DSI shall have no
obligation with respect to the preparation, signing or delivery
of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of
the deposit materials to DSI, Depositor shall conspicuously label
for identification each document, magnetic tape, disk, or other
tangible media upon which the deposit materials are written or
stored. Additionally, Depositor shall complete Exhibit B to this
Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B
must be signed by Depositor and delivered to DSI with the deposit
materials. Unless and until Depositor makes the initial deposit
with DSI, DSI shall have no obligation with respect to this
Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2
below.
1.3 Deposit Inspection. When DSI receives the deposit materials
and the Exhibit B, DSI will conduct a deposit inspection by
visually matching the labeling of the tangible media containing
the deposit materials to the item descriptions and quantity
listed on the Exhibit B. In addition to the deposit inspection,
Preferred Beneficiary may elect to cause a verification of the
deposit materials in accordance with Section 1.6 below.
<PAGE>
1.4 Acceptance of Deposit. At completion of the deposit
inspection, if DSI determines that the labeling of the tangible
media matches the item descriptions and quantity on Exhibit B,
DSI will date and sign the Exhibit B and mail a copy thereof to
Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the
Exhibit B, DSI will (a) note the discrepancies in writing on the
Exhibit B; (b) date and sign the Exhibit B with the exceptions
noted; and (c) provide a copy of the Exhibit B to Depositor and
Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed
Exhibit B to Preferred Beneficiary is Preferred Beneficiary's
notice that the deposit materials have been received and accepted
by DSI.
1.5 Depositor's Representations. Depositor represents as
follows:
a. Depositor lawfully possesses all of the deposit
materials deposited with DSI;
b. With respect to all of the deposit materials, Depositor
has the right and authority to grant to DSI and Preferred
Beneficiary the rights as provided in this Agreement;
c. The deposit materials are not subject to any lien or
other encumbrance;
d. The deposit materials consist of the proprietary
information and other materials identified either in the license
agreement or Exhibit A, as the case may be; and
e. The deposit materials are readable and useable in their
current form or, if the deposit materials are
encrypted, the decryption tools and decryption keys
have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right,
at Preferred Beneficiary's expense, to cause a verification of
any deposit materials. A verification determines, in different
levels of detail, the accuracy, completeness, sufficiency and
quality of the deposit materials. If a verification is elected
after the deposit materials have been delivered to DSI, then only
DSI, or at DSI's election an independent person or company
selected and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license
agreement, Depositor shall update the deposit materials within 60
days of each release of a new version of the product which is
subject to the license agreement. Such updates will be added to
the existing deposit. All deposit updates shall be listed on a
new Exhibit B and the new Exhibit B shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the
escrow account. An independent record will be created which will
document the activity for each Exhibit B. The processing of all
deposit updates shall be in accordance with Sections 1.2 through
1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any
updates.
<PAGE>
1.8 Removal of Deposit Materials. The deposit materials may be
removed and/or exchanged only on written instructions signed by
Depositor and Preferred Beneficiary, or as otherwise provided in
this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials
in a secure, environmentally safe, locked facility which is
accessible only to authorized representatives of DSI. DSI shall
have the obligation to reasonably protect the confidentiality of
the deposit materials. Except as provided in this Agreement, DSI
shall not disclose, transfer, make available, or use the deposit
materials. DSI shall not disclose the content of this Agreement
to any third party. If DSI receives a subpoena or other order of
a court or other judicial tribunal pertaining to the disclosure
or release of the deposit materials, DSI will immediately notify
the parties to this Agreement. It shall be the responsibility of
Depositor and/or Preferred Beneficiary to challenge any such
order; provided, however, that DSI does not waive its rights to
present its position with respect to any such order. DSI will
not be required to disobey any court or other judicial tribunal
order. (See Section 7.5 below for notices of requested orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred
Beneficiary a report profiling the account history at least semi-
annually. DSI may provide copies of the account history
pertaining to this Agreement upon the request of any party to
this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor
and Preferred Beneficiary shall each have the right to inspect
the written records of DSI pertaining to this Agreement. Any
inspection shall be held during normal business hours and
following reasonable prior notice.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 Title to Media. Depositor hereby transfers to DSI the title
to the media upon which the proprietary information and materials
are written or stored. However, this transfer does not include
the ownership of the proprietary information and materials
contained on the media such as any copyright, trade secret,
patent or other intellectual property rights.
3.2 Right to Make Copies. DSI shall have the right to make
copies of the deposit materials as reasonably necessary to
perform this Agreement. DSI shall copy all copyright,
nondisclosure, and other proprietary notices and titles contained
on the deposit materials onto any copies made by DSI. With all
deposit materials submitted to DSI, Depositor shall provide any
and all instructions as may be necessary to duplicate the deposit
materials including but not limited to the hardware and/or
software needed.
<PAGE>
3.3 Right to Transfer Upon Release. Depositor hereby grants to
DSI the right to transfer the deposit materials to Preferred
Beneficiary upon any release of the deposit materials for use by
Preferred Beneficiary in accordance with Section 4.5. Except
upon such a release or as otherwise provided in this Agreement,
DSI shall not transfer the deposit materials.
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release
Conditions" shall mean the following:
a. A change of control of Depositor's Entertainment &
Imaging Group (or its successor organization within Depositor's
business organization). A change of control occurs when a
competitor of a Preferred Beneficiary (either a Reseller or
Sublicensee who has been reported to Spyglass) acquires a
controlling interest in such Depositor's Group and such reported
beneficiary's/(ies') support or interests are adversely affected
due to such change in control as demonstrated by specific facts;
or
b. Depositor's failure to continue to do business in the
ordinary course.
4.2 Filing For Release. If Preferred Beneficiary believes in
good faith that a Release Condition has occurred, Preferred
Beneficiary may provide to DSI written notice of the occurrence
of the Release Condition and a request for the release of the
deposit materials. Upon receipt of such notice, DSI shall
provide a copy of the notice to Depositor, by certified mail,
return receipt requested, or by commercial express mail.
4.3 Contrary Instructions. From the date DSI mails the notice
requesting release of the deposit materials, Depositor shall have
ten business days to deliver to DSI Contrary Instructions.
"Contrary Instructions" shall mean the written representation by
Depositor that a Release Condition has not occurred or has been
cured. Upon receipt of Contrary Instructions, DSI shall send a
copy to Preferred Beneficiary by certified mail, return receipt
requested, or by commercial express mail. Additionally, DSI
shall notify both Depositor and Preferred Beneficiary that there
is a dispute to be resolved pursuant to the Dispute Resolution
section (Section 7.3) of this Agreement. Subject to Section 5.2,
DSI will continue to store the deposit materials without release
pending (a) joint instructions from Depositor and Preferred
Beneficiary; (b) resolution pursuant to the Dispute Resolution
provisions; or (c) order of a court.
4.4 Release of Deposit. If DSI does not receive Contrary
Instructions from the Depositor, DSI is authorized to release the
deposit materials to the Preferred Beneficiary or, if more than
one beneficiary is registered to the deposit, to release a copy
of the deposit materials to the Preferred Beneficiary. However,
DSI is entitled to receive any fees due DSI before making the
release. This Agreement will terminate upon the release of the
deposit materials held by DSI.
<PAGE>
4.5 Right to Use Following Release. Unless otherwise provided
in the license agreement, upon release of the deposit materials
in accordance with this Article 4, Preferred Beneficiary shall
have the right to use the deposit materials for the sole purpose
of continuing the benefits afforded to Preferred Beneficiary by
the license agreement. Preferred Beneficiary shall be obligated
to maintain the confidentiality of the released deposit
materials.
ARTICLE 5 -- TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is
for a period of one year. Thereafter, this Agreement shall
automatically renew from year-to-year unless (a) Depositor and
Preferred Beneficiary jointly instruct DSI in writing that the
Agreement is terminated; or (b) the Agreement is terminated by
DSI for nonpayment in accordance with Section 5.2. If the
deposit materials are subject to another escrow agreement with
DSI, DSI reserves the right, after the initial one year term, to
adjust the anniversary date of this Agreement to match the then
prevailing anniversary date of such other escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment
of fees owed to DSI, DSI shall provide written notice of
delinquency to all parties to this Agreement. Any party to this
Agreement shall have the right to make the payment to DSI to cure
the default. If the past due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall
have the right to terminate this Agreement at any time thereafter
by sending written notice of termination to all parties. DSI
shall have no obligation to take any action under this Agreement
so long as any payment due to DSI remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon
termination of this Agreement by joint instruction of Depositor
and Preferred Beneficiary, DSI shall destroy, return, or
otherwise deliver the deposit materials in accordance with
Depositor's instructions. Upon termination for nonpayment, DSI
may, at its sole discretion, destroy the deposit materials or
return them to Depositor. DSI shall have no obligation to return
or destroy the deposit materials if the deposit materials are
subject to another escrow agreement with DSI.
5.4 Survival of Terms Following Termination. Upon termination
of this Agreement, the following provisions of this Agreement
shall survive:
a. Depositor's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the
deposit materials;
c. The rights granted in the sections entitled Right to
Transfer Upon Release (Section 3.3) and Right to Use
Following Release (Section 4.5), if a release of the
deposit materials has occurred prior to termination;
d. The obligation to pay DSI any fees and expenses due;
<PAGE>
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically
state they survive the termination or expiration of
this Agreement.
ARTICLE 6 -- DSI'S FEES
6.1 Fee Schedule. DSI is entitled to be paid its corporate fees
which have been previously negotiated with Depositor.
6.2 Payment Terms. DSI shall not be required to perform any
service unless the payment for such service and any outstanding
balances owed to DSI are paid in full. All other fees are due
upon receipt of invoice. If invoiced fees are not paid, DSI may
terminate this Agreement in accordance with Section 5.2. Late
fees on past due amounts shall accrue at the rate of one and one-
half percent per month (18% per annum) from the date of the
invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon
any instruction, instrument, or signature reasonably believed by
DSI to be genuine. DSI may assume that any employee of a party
to this Agreement who gives any written notice, request, or
instruction has the authority to do so. DSI shall not be
responsible for failure to act as a result of causes beyond the
reasonable control of DSI.
7.2 Indemnification. DSI shall be responsible to perform its
obligations under this Agreement and to act in a reasonable and
prudent manner with regard to this escrow arrangement. Provided
DSI has acted in the manner stated in the preceding sentence,
Depositor and Preferred Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions,
damages, arbitration fees and expenses, costs, attorney's fees
and other liabilities incurred by DSI relating in any way to this
escrow arrangement.
7.3 Dispute Resolution. Any dispute relating to or arising from
this Agreement shall be resolved by arbitration under the
Commercial Rules of the American Arbitration Association. Unless
otherwise agreed by Depositor and Preferred Beneficiary,
arbitration will take place in San Diego, California, U.S.A. Any
court having jurisdiction over the matter may enter judgment on
the award of the arbitrator(s). Service of a petition to confirm
the arbitration award may be made by First Class mail or by
commercial express mail, to the attorney for the party or, if
unrepresented, to the party at the last known business address.
7.4 Controlling Law. This Agreement is to be governed and
construed in accordance with the laws of the State of California,
without regard to its conflict of law provisions.
7.5 Notice of Requested Order. If any party intends to obtain
an order from the arbitrator or any court of competent
jurisdiction which may direct DSI to take, or refrain from taking
any action, that party shall:
<PAGE>
a. Give DSI at least two business days' prior notice of
the hearing;
b. Include in any such order that, as a precondition to
DSI's obligation, DSI be paid in full for any past due fees and
be paid for the reasonable value of the services to be rendered
pursuant to such order; and
c. Ensure that DSI not be required to deliver the original
(as opposed to a copy) of the deposit materials if DSI
may need to retain the original in its possession to
fulfill any of its other duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the
Exhibits described herein, embodies the entire understanding
among the parties with respect to its subject matter and
supersedes all previous communications, representations or
understandings, either oral or written. No amendment or
modification of this Agreement shall be valid or binding unless
signed by all the parties hereto, except that Exhibit A need not
be signed by DSI, Exhibit B need not be signed by Preferred
Beneficiary and Exhibit C need not be signed.
8.2 Notices. All notices, invoices, payments, deposits and
other documents and communications shall be given to the parties
at the addresses specified in the attached Exhibit C. It shall
be the responsibility of the parties to notify each other as
provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of
the other parties. Unless otherwise provided in this Agreement,
all documents and communications may be delivered by First Class
mail.
8.3 Severability. In the event any provision of this Agreement
is found to be invalid, voidable or unenforceable, the parties
agree that unless it materially affects the entire intent and
purpose of this Agreement, such invalidity, voidability or
unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision
in question shall be deemed to be replaced with a valid and
enforceable provision most closely reflecting the intent and
purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the
parties. However, DSI shall have no obligation in performing
this Agreement to recognize any successor or assign of Depositor
or Preferred Beneficiary unless DSI receives clear, authoritative
and conclusive written evidence of the change of parties.
<PAGE>
_______________________________ _______________________________
Depositor Preferred Beneficiary
By: By:
_______________________________ _______________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
Date:__________________________ Date:__________________________
Data Securities International, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
<PAGE>
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number ______________________
Depositor represents to Preferred Beneficiary that deposit
materials delivered to DSI shall consist of the following:
_______________________________ _______________________________
_____ _____
Depositor Preferred Beneficiary
By: By:
_______________________________ _______________________________
Name:__________________________ Name:__________________________
_____ _____
Title:_________________________ Title:_________________________
_______ _______
Date:__________________________ Date:__________________________
<PAGE>
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name __________________________________________
Account Number __________________________________________________
PRODUCT DESCRIPTION:
Product Name_______________________Version_______________________
Operating System_________________________________________________
_________________________________________________________________
Hardware Platform________________________________________________
_________________________________________________________________
DEPOSIT COPYING INFORMATION:
Hardware required:_______________________________________________
_________________________________________________________________
Software required:_______________________________________________
_________________________________________________________________
DEPOSIT MATERIAL DESCRIPTION:
Qty Media Type & Size Label Description of Each
Separate Item
(excluding documentation)
_____ Disk 3.5" or ____
_____ DAT tape ____mm
_____ CD-ROM
_____ Data cartridge tape ____
_____ TK 70 or ____ tape
_____ Magnetic tape ____
_____ Documentation
_____ Other ______________________
I certify for Depositor that the above described__________DSI
has inspected and accepted the above
deposit materials have been transmitted to DSI:
materials (any exceptions are noted
above):
Signature__________________ Signature_____________________
Print Name_________________ Print Name____________________
Date_______________________ Date Accepted_________________
Exhibit B#____________________
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA
92123
<PAGE>
EXHIBIT C
DESIGNATED CONTACT
Account Number ______________________
Notices, deposit material
returns and Invoices to Depositor should be
communications to Depositor addressed to:
should be addressed to:
Company Name:
Address:
Designated Contact: Contact:
Telephone:
Facsimile:
Notices and communications to Invoices to Preferred
Preferred Beneficiary should be Beneficiary
addressed to: should be addressed to:
Company Name:
Address:
Designated Contact: Contact:
Telephone:
Facsimile:
Requests from Depositor or Preferred Beneficiary to change the
designated contact should be given in writing by the designated
contact or an authorized employee of Depositor or Preferred
Beneficiary.
Contracts, deposit materials Invoice inquiries and fee
and notices to remittances DSI should be addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date:__________________________
_______
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote
omissions.
Exhibit G
***
***
EXHIBIT 10.25
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote
omissions.
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This Agreement is entered into as of October 19, 1998 (the
"Effective Date") between Spyglass, Inc., a Delaware corporation
having a principal place of business at 1240 E. Diehl Road, 4th
Floor, Naperville, IL 60563 (the "Company"), and General Instrument
Corporation, a Delaware corporation having a place of business at 101
Tournament Drive, Horsham, Pennsylvania 19044 (the "Purchaser"). The
Company and the Purchaser are hereinafter sometimes referred to
individually as a "Party" and collectively as the "Parties."
WHEREAS, contemporaneously with the execution of this Agreement,
the Company and the Purchaser are entering into a Digital Software
Integration Center Sourcing Agreement (the "Sourcing Agreement");
WHEREAS, contemporaneously with the execution of this Agreement,
the Company has organized Spyglass DSIC, Inc. (the "Subsidiary") for
the purpose of operating and managing a Digital Software Integration
Center in accordance with the terms of the Sourcing Agreement:
WHEREAS, contemporaneously with the execution of this Agreement,
the Company, the Subsidiary and the Purchaser are entering into an
Operating Agreement for the purpose of establishing certain rights
and obligations with respect to the Subsidiary; and
WHEREAS, the Company and the Purchaser desire to enter into this
Agreement for the purpose of providing for the purchase and sale of
certain securities of the Company and establishing certain rights and
obligations with respect to such securities;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchaser, each intending to be
legally bound, hereby agree as follows:
1. Purchase and Sale of Securities.
1.1 Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement, at the Closing (as defined below) the
Company will issue and sell to the Purchaser, and the Purchaser will
purchase, 700,000 shares of common stock, $.01 par value per share,
of the Company ("Common Stock") for the purchase price of $10.56 per
share. The shares of Common Stock being sold under this Agreement
are referred to as the "Shares."
1.2 Warrants. The Company will issue to the Purchaser at
the Closing three warrants, covering a total of 700,000 shares of
Common Stock, which warrants shall be in the form attached hereto as
Exhibit A, Exhibit B and Exhibit C, respectively (the "Warrants").
2. The Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall take place at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts at 10:00
a.m. (or at such other time and place as may be agreed by the
Parties) on the date of this Agreement (the "Closing Date"). At the
Closing:
-1-
<PAGE>
(1) the Company shall deliver to the Purchaser a
certificate, as of the most recent practicable date, as to the
corporate good standing of the Company issued by the Secretary of
State of the State of Delaware;
(2) the Company shall deliver to the Purchaser the
Certificate of Incorporation of the Company, as amended and in effect
as of the Closing Date, certified by the Secretary of State of the
State of Delaware;
(3) the Company shall deliver to the Purchaser a
certificate of the Secretary of the Company certifying as to the
Company's By-laws and resolutions of the Company's Board of Directors
relating to the issuance and sale of the Shares and the Warrants;
(4) the Company shall deliver to the Purchaser a
certificate for the Shares being purchased by the Purchaser,
registered in the name of the Purchaser and dated as of the Closing
date;
(5) the Purchaser shall pay to the Company the purchase
price for the Shares, by wire transfer of immediately available
funds;
(6) the Company and the Purchaser shall execute and
deliver a Cross-Receipt with respect to the purchase and sale of the
Shares;
(7) the Company shall execute and deliver to the Purchaser
the Warrants; and
(8) the Company shall deliver to the Purchaser an opinion
of counsel in substantially the form attached hereto as Exhibit D.
3. Representations of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
3.1 Organization and Standing. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company is duly
qualified to do business as a foreign corporation and is in good
standing in any jurisdiction in which the failure to so qualify would
have a material adverse effect on the business, properties, assets,
operations or condition (financial or otherwise) of the Company.
3.2 Capitalization. The authorized capital stock of the
Company at the Closing will consist of (a) 50,000,000 shares of
common stock, $.01 par value per share, of which 13,935,007 shares
were issued and outstanding as of the close of business on October
13, 1998, and (b) 2,000,000 shares of Preferred Stock, $.01 par value
per share, none of which are issued or outstanding. All of the
issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable. The Company has not issued or granted any options,
warrants or other securities exercisable for or convertible into
capital stock of the Company, except pursuant to the employee and/or
director stock plans described in, or as otherwise disclosed in, the
-2-
<PAGE>
Company Reports (as defined in Section 3.5 below). All of the
Shares, and all of the shares of Common Stock issued upon exercise of
the Warrants (the "Warrant Shares"), will be, when issued in
accordance with this Agreement or the Warrants, as the case may be,
duly authorized, validly issued, fully paid and nonassessable.
3.3 Authorization of Transaction. The Company has all
requisite power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Company and the consummation of the
transactions contemplated hereby by the Company have been duly and
validly authorized by all necessary corporate action on the part of
the Company. The issuance, sale and delivery of the Shares in
accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon exercise of the Warrants, have
been duly authorized by all necessary corporate action on the part of
the Company, and all such shares have been duly reserved for
issuance. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against it in accordance with
its terms.
3.4 Noncontravention. Neither the execution and delivery
of this Agreement by the Company, nor the consummation by the Company
of the transactions contemplated hereby, will (a) conflict with or
violate any provision of the Certificate of Incorporation or By-laws
of the Company, (b) require on the part of the Company any filing
with, or permit, authorization, consent or approval of, any
governmental entity, (c) conflict with, result in breach of,
constitute a default under, or require any notice, consent or waiver
under, any contract, agreement or other instrument to which the
Company is a party or by which it is bound (other than any consent or
waiver which has already been obtained), or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
the Company.
3.5 Reports and Financial Statements. The Company has
previously furnished or made available to the Purchaser complete and
accurate copies, as amended or supplemented, of its (i) Annual Report
on Form 10-K for the fiscal year ended September 30, 1997, as filed
with the Securities and Exchange Commission (the "SEC"), (ii) its
Quarterly Reports on Form 10-Q for the quarter ended December 31,
1997, March 31, 1998 and June 30, 1998, as filed with the SEC, (iii)
its Current Report on Form 8-K dated November 14, 1997, as amended by
a Form 8-K/A dated December 23, 1997, as filed with the SEC and (iv)
all other reports or statements filed by the Company with the SEC
since September 30, 1997 (such reports and statements are
collectively referred to herein as the "Company Reports"). The
Company Reports constitute all of the documents required to be filed
by the Company under Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with the SEC since September
30, 1997. As of their respective dates, the Company Reports did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The audited financial statements and
unaudited interim financial statements of the Company included in the
Company Reports (i) comply as to form in all material respects with
-3-
<PAGE>
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods covered thereby (except
as may be indicated therein or in the notes thereto, and in the case
of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Company as of
the respective dates thereof and for the periods referred to therein,
and (iv) are consistent with the books and records of the Company.
3.6 Absence of Material Adverse Changes. Except as
disclosed by the Company to the Purchaser prior to the date hereof,
since June 30, 1998, there has not been any material adverse change
in the assets, business, financial condition or results of operations
of the Company.
3.7 Litigation. Except as may be disclosed in the Company
Reports, there is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's
knowledge, following reasonable inquiry, any threat thereof, against
the Company, which questions the validity of this Agreement or the
right of the Company to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in
the assets, business, financial condition or results of operations of
the Company.
3.8 Compliance with Laws. The Company, its properties and
assets, and the operation of its business as currently conducted, do
not violate any law, rule or regulation applicable to them, or
violate any judgment, writ, injunction, decree or order of any court,
governmental agency or regulatory body, except for any violation
which would not reasonably be expected to have a material adverse
effect on the business, properties, assets, operations or condition
(financial or otherwise) of the Company.
4. Representations of the Purchaser. The Purchaser represents
and warrants to the Company as follows:
4.1 Organization and Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
4.2 Authorization of Transaction. The Purchaser has all
requisite power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Purchaser and the consummation of the
transactions contemplated hereby by the Purchaser have been duly and
validly authorized by all necessary corporate action on the part of
the Purchaser. This Agreement has been duly and validly executed and
delivered by the Purchaser and constitutes a valid and binding
obligation of the Purchaser, enforceable against it in accordance
with its terms.
4.3 Noncontravention. Neither the execution and delivery
of this Agreement by the Purchaser, nor the consummation by the
Purchaser of the transactions contemplated hereby, will (a) conflict
with or violate any provision of the Certificate of Incorporation or
-4-
<PAGE>
By-laws of the Purchaser, (b) require on the part of the Purchaser
any filing with, or permit, authorization, consent or approval of,
any governmental entity, (c) conflict with, result in breach of,
constitute a default under, or require any notice, consent or waiver
under, any contract, agreement or other instrument to which the
Purchaser is a party or by which it is bound (other than any consent
or waiver which has already been obtained), or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
the Purchaser.
4.4 Investment Matters.
(1) The Purchaser is purchasing the Shares and the
Warrants, and will purchase the Warrant Shares, for its own account
for investment only, and not with a view to, or for sale in
connection with, any distribution of such securities in violation of
the Securities Act of 1933, as amended (the "Securities Act"), or any
rule or regulation under the Securities Act.
(2) The Purchaser has had such opportunity as it has
deemed adequate to obtain from representatives of the Company such
information as is necessary to permit it to evaluate the merits and
risks of its investment in the Company.
(3) The Purchaser has sufficient experience in business,
financial and investment matters to be able to evaluate the risks
involved in the purchase of the Shares, the Warrants and the Warrant
Shares and to make an informed investment decision with respect to
such purchase.
(4) The Purchaser can afford a complete loss of the value
of the Shares and is able to bear the economic risk of holding the
Shares for an indefinite period.
(5) The Purchaser understands that (i) neither the Shares,
the Warrants nor the Warrant Shares have been registered under the
Securities Act and they are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) neither the
Shares, the Warrants nor the Warrant Shares can be sold, transferred
or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then
available; (iii) in any event, the exemption from registration under
Rule 144 or otherwise may not be available for at least one year and
even then will not be available unless the terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration
statement on file with the Securities and Exchange Commission with
respect to the Shares, the Warrants or the Warrant Shares and the
Company has no obligation or current intention to register such
securities under the Securities Act.
(6) A legend substantially in the following form may be
placed on the certificate representing the Shares, the Warrants and
the Warrant Shares:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
-5-
<PAGE>
Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote
omissions.
satisfactory to the corporation to the effect that such registration
is not required."
(7) The Purchaser is an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
(8) During the 30-day period immediately preceding the
date of this Agreement, the Purchaser has not (i) bought or sold any
shares of Common Stock or any "put" or "call" options or other
derivative securities with respect thereto, (ii) made any "short
sales" of shares of Common Stock or (iii) otherwise taken, directly
or indirectly, any action to manipulate or affect the market price of
the Common Stock.
5. Covenants of the Company.
5.1 Inspection. So long as the Purchaser (or any of its
Affiliates, as defined below) holds at least 25% of the Shares
originally issued pursuant to this Agreement, the Company shall (a)
permit the Purchaser, or any authorized representative thereof, to
visit and inspect the properties of the Company, including its
corporate and financial records, and to discuss its business and
finances with officers of the Company, at least twice per year
following reasonable notice, subject to the confidentiality
obligations of Section 9.2 hereof, and (b) provide the Purchaser, as
well as any registered holder of the Warrants, with copies of all
reports filed by the Company with the SEC or otherwise distributed
generally to its stockholders. For purposes of this Agreement, an
"Affiliate" of a party means any person or entity that controls, is
controlled by, or is under common control with, such party.
5.2 Reservation of Common Stock. The Company shall
reserve and maintain a sufficient number of shares of Common Stock
for issuance upon exercise of the Warrants.
6. Transfer of Securities.
6.1 Restriction on Transfer. The Purchaser may not sell,
transfer or otherwise dispose of any of the Shares, or any other
shares of capital stock of the Company issued in respect of the
Shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events), without the
prior written consent of the Company, during the *** period
following the date of this Agreement. Notwithstanding the foregoing,
this restriction on transfer shall terminate upon the consummation of
(i) a merger, consolidation, reorganization, recapitalization or
tender offer involving the Company, immediately following which the
individuals and entities who were the beneficial owners of the Common
Stock of the Company immediately prior to such transaction
beneficially own, directly or indirectly, less than 60% of the
combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of the Company or the
resulting or acquiring corporation in such transaction, (ii) the sale
of all or substantially all of the assets of the Company, or
(iii) the acquisition by any of the companies listed on Exhibit C to
the Operating Agreement of beneficial ownership (within the meaning
of Section 13(d) of the Securities Exchange Act of 1934) of shares of
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Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote
omissions.
common stock of the Company representing 20% or more of the
outstanding common stock of Spyglass (a "Spyglass Change in
Control").
6.2 Restricted Securities.
(1) "Restricted Securities" means the Shares and any other
shares of capital stock of the Company issued in respect of the
Shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Restricted Securities
shall cease to be Restricted Securities (i) upon any sale pursuant to
a registration statement under the Securities Act, Section 4(1) of
the Securities Act or Rule 144 under the Securities Act, or (ii) at
such time as they become eligible for sale under Rule 144(k) under
the Securities Act.
(2) Restricted Securities shall not be sold or transferred
unless either (a) they first shall have been registered under the
Securities Act, or (b) the Company first shall have been furnished
with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act.
7. Indemnification.
7.1 Indemnification by the Company. The Company shall
defend, indemnify and hold harmless the Purchaser, its Affiliates and
each of their respective employees, officers and directors against
any losses, claims, damages or liabilities (including reasonable
attorneys' fees and amounts paid in settlement) to which they may
become subject as a result of any breach by the Company of a
representation, warranty or covenant of the Company contained in this
Agreement. Any party seeking to assert rights to indemnification
under this Section 7.1 shall give the Company prompt written
notification of any loss, claim, damage or liability for which
indemnification may be sought; shall give the Company the opportunity
to assume the defense of any lawsuit or other proceeding relating
thereto; and shall not settle or consent to an entry of judgment with
respect to any such matter without the prior written consent of the
Company, which consent shall not be unreasonably withheld.
7.2 Survival. The indemnification provided in this
Section 7 shall survive the Closing and continue for a period of ***
thereafter.
8. Registration Rights.
8.1 Definitions. For purposes of this Section 8:
(1) "Eligible Shares" means (i) the Shares, (ii) any
shares of Common Stock issued or issuable upon the exercise of the
Warrants and (iii) any other shares of common stock issued in respect
of any such shares as a result of stock splits, stock dividends,
reclassifications, recapitalizations, mergers or similar events;
provided, however, that shares which are Eligible Shares shall cease
to be Eligible Shares upon (i) any sale pursuant to a registration
statement under the Securities Act or Rule 144 under the Securities
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<PAGE>
Act or (ii) becoming eligible for sale by the holder thereof pursuant
to Rule 144(k) under the Securities Act.
(2) "Registration Statement" means a registration
statement filed by the Company with the SEC for a public offering and
sale of securities of the Company (other than a registration
statement on Form S-8 or Form S-4, or their successors, or any other
form for a similar limited purpose, or any registration statement
covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
(3) "Holder" means the Purchaser or any other person or
entity holding or having the right to acquire Eligible Shares to
which rights under this Section 8 are transferred in accordance with
Section 8.8.
(4) "Selling Stockholder" means a Holder whose Eligible
Shares are included in a Registration Statement pursuant to this
Section 8.
8.2 Registration of Eligible Sharesof Eligible Shares.
(1) At any time after the first anniversary of the Closing
Date, or upon a Spyglass Change in Control, Holders may submit to the
Company a written request (a "Registration Request") that the Company
file a Registration Statement under the Securities Act covering
Eligible Shares held by them which represent at least 20% of the
Eligible Shares then outstanding (or a lesser percentage if the
anticipated aggregate offering price, net of underwriting discounts
and commissions, would exceed $500,000). Such Registration Request
shall state the intended manner of sale or other disposition of such
Eligible Shares (including whether such Eligible Shares are to be
sold in an underwritten offering). Within 10 days after receipt of a
Registration Request, the Company shall give written notice of such
proposed registration to all Holders. Such Holders shall have the
right to have included in such Registration Statement such of their
Eligible Shares as such Holders may request in a written notice
delivered to the Company within 20 days after receipt of the
Company's notice referred to in the preceding sentence. Promptly
following the expiration of such 20-day period, the Company shall use
its best efforts to effect, as expeditiously as possible and in any
event within 90 days after the expiration of such 20-day period, the
registration under the Securities Act of all Eligible Shares which
the Company has been requested to so register, in order to permit the
public sale or other disposition of such Eligible Shares in the
manner specified in the Registration Request.
(2) Whenever the Company proposes to file, after the first
anniversary of the Closing Date, a Registration Statement covering
shares of its Common Stock (other than a Registration Statement filed
pursuant to Section 8.2(a)), it will, prior to such filing, give
written notice to all Holders of its intention to do so, which notice
shall state whether such the shares to be offered by the Company are
to be sold in an underwritten offering. Such Holders shall have the
right to have included in such Registration Statement such of their
Eligible Shares as such Holders may request in a written notice
delivered to the Company within 20 days after receipt of the
Company's notice referred to in the preceding sentence. The Company
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<PAGE>
shall use its best efforts to effect the registration under the
Securities Act of all Eligible Shares which the Company has been
requested to so register, in order to permit the public sale or other
disposition of such Eligible Shares in the manner specified in the
notice by the Company to such Holders; provided that the Company
shall have the right to postpone or withdraw any registration
effected pursuant to this Section 8.2(b) without obligation to any
Holder.
(3) If any registration effected pursuant to this
Section 8.2 relates to an underwritten offering
(1) any Holder including Eligible Shares in such
registration shall, as a condition to including
their Eligible Shares in such registration, agree
to be bound by the terms and restrictions
relating to such offering, as required by the
underwriters; and
(2) notwithstanding any other provision of this
Section 8, if the managing underwriter determines
that the inclusion in such registration of all
Eligible Shares requested to be registered under
this Section 8.2 would jeopardize the success of
the offering, the Company may limit the number of
shares of Common Stock (including Eligible
Shares) to be included in such registration by
selling stockholders, with the number of such
shares of Common Stock (if any) included in such
registration allocated among all selling
stockholders requesting registration in
proportion, as nearly as practicable, to the
respective number of shares of Common Stock held
by such selling stockholders.
(4) Notwithstanding the other provisions of this
Section 8.2, the Company shall not be required to effect the
registration under the Securities Act of Eligible Shares requested by
the Holder thereof to be registered pursuant to this Section 8.2 if,
at the time of such request, all such Eligible Shares may be
immediately sold by such Holder pursuant to Rule 144 under the
Securities Act without exceeding the volume limitations in paragraph
(e) of Rule 144.
8.3 Registration Procedures. If and whenever the Company
is required by the provisions of this Section 8 to use its best
efforts to effect the registration of any Eligible Shares under the
Securities Act, the Company shall:
(1) prepare and file with the SEC a Registration Statement
with respect to such Eligible Shares and use its best efforts to
cause that Registration Statement to become effective;
(2) prepare and file with the SEC any amendments and
supplements to such Registration Statement and the prospectus
included in such Registration Statement as may be necessary to comply
with the provisions of the Securities Act (including the anti-fraud
provisions thereof) and to keep such Registration Statement effective
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<PAGE>
for 120 days from the effective date or until all such Eligible
Shares covered thereby have been sold;
(3) subject to the provisions of Section 8.4, upon the
happening of any event which results in such Registration Statement
containing an untrue statement of a material fact or omitting to
state a material fact required to be stated therein, the Company
shall promptly notify the Selling Stockholders of such occurrence and
shall prepare and file with the SEC, as promptly as practicable
thereafter, a supplement or amendment to such Registration Statement
so that it will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein not misleading. If the Company has delivered preliminary or
final prospectuses to the Selling Stockholders and after having done
so the prospectus is amended or supplemented pursuant to this
paragraph, the Company shall promptly notify the Selling Stockholders
and, if requested by the Company, the Selling Stockholders shall
immediately cease making offers or sales of shares under such
Registration Statement and return all prospectuses to the Company.
The Company shall promptly provide the Selling Stockholders with
revised prospectuses and, following receipt of the revised
prospectuses, the Selling Stockholders shall be free to resume making
offers and sales under such Registration Statement;
(4) furnish to each Selling Stockholder such reasonable
numbers of copies of the Prospectus, including any preliminary
Prospectus, in conformity with the requirements of the Securities
Act;
(5) use its best efforts to register or qualify the
Eligible Shares covered by such Registration Statement under the
securities or Blue Sky laws of such states as the Selling
Stockholders shall reasonably request, provided, however, that the
Company shall not be required in connection with this paragraph (e)
to qualify as a foreign corporation or execute a general consent to
service of process in any jurisdiction;
(6) as expeditiously as possible following the
effectiveness of such Registration Statement, notify each seller of
such Eligible Shares of any request by the SEC for the amending or
supplementing of such Registration Statement or Prospectus; and
(7) in the case of an underwritten offering, furnish, at
the request of any Holder, on the date such Eligible Shares are
delivered to the underwriters for sale in connection with such
Registration Statement pursuant to this Section 8, (i) an opinion of
counsel representing the Company for the purpose of such
registration, addressed to the underwriters, dated such date, in form
and substance customarily given by company counsel in underwritten
public offerings, and (ii) a letter from the independent certified
public accountants of the Company, dated such date, in form and
substance customarily given by independent certified public
accountants in underwritten public offerings.
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<PAGE>
8.4 Limitations on Registration Rightson Registration Rights.
(1) The Company shall not be required to effect more than
three registrations pursuant to Section 8.2(a) above. In addition,
the Company shall not be required to file any Registration Statement
under Section 8.2 within the earlier to occur of (i) 180 days after
the filing of any other Registration Statement by the Company or
(ii) 120 days after the effective date of any other Registration
Statement filed by the Company.
(2) The Company may, by written notice to the Holders
whose Eligible Shares are included or are to be included in a
Registration Statement pursuant to Section 8.2, (i) delay (for a
period not to exceed 90 days) the filing or effectiveness of such
Registration Statement or (ii) suspend (for a period not to exceed 90
days) such Registration Statement after effectiveness and require
that the Selling Stockholders immediately cease (for a period not to
exceed 90 days) sales of shares pursuant to such Registration
Statement, in the event that (A) the Company is preparing to file a
Registration Statement with the SEC for a public offering of its
securities, subject to the rights of the Holders to include Eligible
Shares in such registration statement, as provided in Section 8.2, or
(B) the Company is engaged in any activity or transaction or
preparations or negotiations for any activity or transaction and the
Board of Directors of the Company determines in good faith that the
filing of such Registration Statement (or the public disclosure
required as a result thereof) would have a material adverse effect on
such activity or transaction, or the preparations or negotiations
therefor.
(3) If the Company delays or suspends a Registration
Statement or requires Selling Stockholders to cease sales of shares
pursuant to paragraph (b) above, the Company shall, as promptly as
practicable following the termination of the circumstance which
entitled the Company to do so, take such actions as may be necessary
to file or reinstate the effectiveness of such Registration Statement
and/or give written notice to all Selling Stockholders authorizing
them to resume sales pursuant to such Registration Statement. If as
a result thereof the prospectus included in such Registration
Statement has been amended to comply with the requirements of the
Securities Act, the Company shall enclose such revised prospectus
with the notice to Selling Stockholders given pursuant to this
paragraph (c), and the Selling Stockholders shall make no offers or
sales of shares pursuant to such Registration Statement other than by
means of such revised prospectus.
8.5 Requirements of Selling Stockholdersof Selling
Stockholders.
(1) The Company shall not be required to include any
Eligible Shares in a Registration Statement unless the Selling
Stockholder owning such shares furnishes to the Company in writing
such information regarding such Selling Stockholder and the proposed
sale of Eligible Shares by such Selling Stockholder as the Company
may reasonably request in writing in connection with such
Registration Statement or as shall be required in connection
therewith by the SEC or any state securities law authorities.
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<PAGE>
(2) Each Holder shall:
(1) indemnify the Company and each of its directors
and officers against, and hold the Company and each of its directors
and officers harmless from, any losses, claims, damages, expenses or
liabilities (including reasonable attorneys fees) to which the
Company or such directors and officers may become subject by reason
of any statement or omission in a Registration Statement made in
reliance upon, or in conformity with, written information furnished
by such Holder pursuant to this Section 8.5; and
(2) report to the Company sales made pursuant to a
Registration Statement.
8.6 Indemnification. The Company agrees to indemnify and
hold harmless each Selling Stockholder, each of its directors and
officers, any other person who controls (within the meaning of the
Securities Act or the Securities Exchange Act of 1934) such Selling
Stockholder, and any underwriter for such Selling Stockholder,
against any losses, claims, damages, expenses or liabilities to which
they may become subject by reason of any untrue statement or alleged
untrue statement of a material fact contained in a Registration
Statement or any omission or alleged omission to state therein a fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation or alleged violation of law
by the Company in connection with the registration of the Eligible
Shares of such Selling Stockholder, except insofar as such losses,
claims, damages, expenses or liabilities arise out of or are based
upon information furnished to the Company by or on behalf of a
Selling Stockholder for use in such Registration Statement. In
addition, the Company shall reimburse any such indemnified party for
any legal or other expenses reasonable incurred by them in connection
with investigating or defending any such losses, claims, damages,
expenses or liabilities. The Company shall have the right to assume
the defense and settlement of any claim or suit for which the Company
may be responsible for indemnification under this Section 8.6.
8.7 Expenses. The Company will pay all expenses incurred
by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees with the SEC or the
National Association of Securities Dealers, Inc., state Blue Sky fees
and expenses, printing expenses, and the fees and expenses of counsel
and auditors for the Company, but excluding (i) underwriting
discounts and selling commissions applicable to the sale of the
Eligible Shares and (ii) the fees and expenses of counsel for the
Selling Stockholders.
8.8 Assignment of Rightsof Rights. The Purchaser may not
assign any of its rights under this Section 8 except in connection
with the transfer of at least 20% of the Eligible Shares then
outstanding, provided that, prior to the effectiveness of such
assignment, such transferee must agree in a written instrument
delivered to the Company to be bound by the provisions of this
Section 8.
9. Miscellaneous.
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<PAGE>
9.1 Successors and Assigns. This Agreement, and the
rights and obligations of the parties hereunder, shall be binding
upon their successors and assigns.
9.2 Confidentiality. The Purchaser agrees that it will
keep confidential and will not disclose or divulge any confidential,
proprietary or secret information which the Purchaser may obtain from
the Company pursuant to financial statements, reports and other
materials submitted by the Company to the Purchaser pursuant to this
Agreement, or pursuant to visitation or inspection rights granted
hereunder, unless such information is known, or until such
information becomes known, to the public; provided, however, that the
Purchaser may disclose such information (i) to its attorneys,
accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment
in the Company, (ii) to any prospective purchaser of any Shares from
the Purchaser as long as such prospective purchaser agrees in writing
to be bound by the provisions of this Section, or (iii) to any
Affiliate of the Purchaser; subject to the agreement of such party to
keep such information confidential as set forth herein.
9.3 Survival of Representations, Warranties and Covenants.
All representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the Closing and
continue for a period of two years after the Closing. All covenants
shall survive indefinitely, except as limited in accordance with
their terms.
9.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and in the
English language, and shall be delivered by any lawful means, to the
following address:
If to the Company, at Spyglass, Inc., One Cambridge Center,
Cambridge, Massachusetts 02142, Attn: Chief Financial Officer, or at
such other address or addresses as may have been furnished in writing
by the Company to the Purchaser; or
If to the Purchaser, at 101 Tournament Drive, Horsham,
Pennsylvania 19044, Attn: Executive Vice President, Business
Development, with a copy to the Senior Vice President and General
Counsel, or at such other address or addresses as may have been
furnished in writing by the Purchaser to the Company.
Any such notices, requests, consents and other communications
shall be deemed delivered upon receipt by the addressee.
9.5 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
9.6 Amendments and Waivers. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be
amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the
Company and the Purchaser. Any amendment or waiver effected in
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<PAGE>
Accordance with this Section 9.6 shall be binding upon each holder of
any Shares (including shares of Common Stock into which such Shares
have been converted), each future holder of all such securities and
the Company. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
9.7 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
9.8 Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
9.9 Costs and Expenses. Except as provided in Section
8.7, all costs and expenses (including without limitation fees and
expenses of attorneys, brokers, agents or finders) incurred by any
Party in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs
and expenses, whether or not the transactions contemplated by this
Agreement are consummated.
9.10 Titles. The section headings of this Agreement are
for convenience of reference only and shall not be considered in
construing this Agreement.
9.11 Cooperation. Each Party shall, at the request and
expense of the other Party, at any time and from time to time
following the execution of this Agreement, execute and deliver to the
other Party such further instruments and take such further
administrative and ministerial actions as may be reasonably necessary
or appropriate to carry out the purposes and intent of this
Agreement.
9.12 No Third Party Beneficiaries. Nothing expressed or
implied in this Agreement or shall be construed to confer upon any
person or entity, other than the Parties and their respective
successors and permitted assigns, any rights or remedies under or in
connection with this Agreement.
9.13 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the Effective
Date.
SPYGLASS, INC.
By: /s/ Michael F. Tyrrell
GENERAL INSTRUMENT CORPORATION
By: /s/ Richard C. Smith
Richard C. Smith
(print name and title)
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 5 OF THIS WARRANT
Date of Issuance: October 19, 1998 Number of Shares: ***
(subject to adjustment)
SPYGLASS, INC.
Common Stock Purchase Warrant
Spyglass, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that General Instrument Corporation
(the "Registered Holder") is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before 5:00 p.m. (Boston,
Massachusetts time) on the Expiration Date (as defined below), ***
shares of Common Stock, $.01 par value per share, of the Company, at
a purchase price of *** per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively. The "Expiration Date" shall mean
December 31, 2003, or (if applicable) such later date as is provided
for in Section 1(c) below.
1. Vesting Schedule.
(a) This Warrant will become exercisable ("vest") as to
all of the Warrant Shares on October 1, 2003.
(b) Notwithstanding the foregoing vesting schedule, this
Warrant shall become immediately vested in full on the date (the
"Acceleration Date") 10 days following the date (if any) on which the
Registered Holder has paid to the Company (or a subsidiary or
affiliate (as defined in Rule 405 under the Securities Act of
1933) of the Company) an aggregate of *** under the Digital Software
Integration Center Sourcing Agreement dated October 19, 1998 between
the Company and the Registered Holder (the "Sourcing Agreement").
(c) In the event that any of the companies listed on
Exhibit C to the Operating Agreement dated October 19, 1998 between
the Company, the Registered Holder and Spyglass DSIC, Inc. (the
"Operating Agreement") acquire beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934) of
shares of Common Stock of the Company representing 20% or more of the
outstanding Common Stock of the Company and either (i) the Registered
Holder exercises its right to terminate the Sourcing Agreement or
(ii) the Registered Holder exercises its purchase option under the
Operating Agreement, this Warrant shall become immediately vested in
full.
<PAGE>
(d) In the event of the acceleration of vesting of this
Warrant under Section 1(b) or 1(c) above, the Expiration Date shall
be the later of December 31, 2003 and the date three years following
the Acceleration Date.
2. Exercise.
(a) This Warrant may be exercised by the Registered
Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit I duly executed by such
Registered Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by
payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day
on which this Warrant shall have been surrendered to the Company as
provided in Section 2(a) above. At such time, the person or persons
in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in Section 2(c) below shall
be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this
Warrant in full or in part, the Company, at its expense, will cause
to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which the Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which the
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 4 hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant
Shares equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon
such exercise.
(d) The Company shall be responsible for any and all taxes
arising from the granting and/or exercise of this Warrant (other than
taxes on the transfer of this Warrant or on the income of the
Registered Holder), including, but not limited to, all documentary
and stamp taxes.
<PAGE>
3. Antidilution Provisions.
3.1 Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Purchase Price as provided in Section 3.2(a), the
Registered Holder shall thereafter be entitled to purchase, at the
Purchase Price resulting from such adjustment, the number of Warrant
Shares (calculated to the nearest 1/100th of a share) obtained by
multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable hereunder
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
3.2 Adjustment of Purchase Price. The Purchase Price
shall be subject to adjustment from time to time as hereinafter set
forth.
(a) Stock Dividends, Subdivisions and Combinations.
In the event that the Company subsequent to the date hereof shall:
(i) declare a dividend upon, or make any
distribution in respect of, any of its Common Stock, payable in
Common Stock, Convertible Securities or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
then the Purchase Price shall be adjusted to that price determined by
multiplying the Purchase Price per share of Common Stock immediately
prior to such event by a fraction (A) the numerator of which shall be
the total number of outstanding shares of Common Stock of the Company
immediately prior to such event and (B) the denominator of which
shall be the total number of outstanding shares of Common Stock of
the Company immediately after such event. For purposes of this
Section 3.2, all shares of Common Stock issuable upon conversions or
exchanges of Convertible Securities and exercises of Stock Purchase
Rights shall be treated as outstanding. "Convertible Securities"
means evidences of indebtedness, shares of stock or other
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock,
either immediately or upon the arrival of a specified date or the
happenings of a specified event. "Stock Purchase Rights" means any
warrants, options or other rights to subscribe for, purchase or
otherwise acquire any shares of Common Stock or any Convertible
Securities.
(b) Issuance of Additional Shares of Common Stock.
In the event that the Company shall issue or sell any shares of
Common Stock after the date hereof for a consideration less than ***
of the then Fair Value (as defined below) per share immediately prior
to such issue or sale, the Purchase Price in effect immediately prior
to such issuance or sale shall be adjusted by: multiplying the then
existing Purchase Price by a fraction the numerator of which is (A)
the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Fair Value
per share of Common Stock immediately prior to such issue or sale
plus (2) the consideration received by the Company upon such issue or
sale, divided by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale, and the denominator
of which shall be the Fair Value per share of Common Stock
immediately prior to such issue or sale.
The provisions of this Subsection (b) shall not apply to any
shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock dividend or subdivision for which an
adjustment is provided for under Subsection (a) of this Section 3.2.
No adjustment of the Purchase Price shall be made under this
Subsection upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any Stock Purchase Rights or
pursuant to the conversion or exchange of any Convertible Securities
if an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights or Convertible Securities pursuant to
Subsection (a), (c) or (d) of this Section 3.2.
For purposes of this Warrant, "Fair Value" per share of Common
Stock means the following:
(i) if the Common Stock is listed on a national
securities exchange, the Nasdaq National Market or another nationally
recognized exchange or trading system as of the date on which a
determination of Fair Value is to be made, the Fair Value per share
of Common Stock shall be deemed to be the last reported sale price
per share of Common Stock thereon on the trading day immediately
preceding such date; and
(ii) if the Common Stock is not listed on a
national securities exchange, the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on
which a determination of Fair Value is to be made, the Fair Value per
share of Common Stock shall be as agreed upon by the Company and the
Registered Holder.
<PAGE>
Whenever the Company shall issue any of its Common Stock, Stock
Purchase Rights or Convertible Securities as consideration for a
merger, the purchase of stock or assets from or similar transaction
with a bona fide third party, such shares will be deemed for all
purposes hereunder to be issued for Fair Value.
(c) Issuance of Stock Purchase Rights. In the event
that the Company shall issue or sell any Stock Purchase Rights and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable upon exercise thereof (or, in the
case of Stock Purchase Rights exercisable for the purchase of
Convertible Securities, upon the subsequent conversion or exchange of
such Convertible Securities) shall be less than the Fair Value per
share of Common Stock immediately prior to the issuance of such Stock
Purchase Rights, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon exercise of such Stock
Purchase Rights (or upon conversion or exchange of such Convertible
Securities following such exercise) shall be deemed to have been
issued as of the date of the issuance of such Stock Purchase Rights
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be the minimum
consideration received or receivable by the Company in connection
with the issuance and exercise of such Stock Purchase Rights (or upon
conversion or exchange of such Convertible Securities). For the
purposes of this Subsection (c), the date as of which such Stock
Purchase Rights shall be deemed to be issued shall be the earlier of
(A) the date on which the Company shall enter into a firm contract
for the issuance of such Stock Purchase Rights, or (B) the date of
actual issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. In the event
that the Company shall issue or sell any Convertible Securities and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Fair Value per share of
Common Stock immediately prior to the issuance of such Convertible
Securities, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued as of the date of issuance of such Convertible Securities
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be equal to the
minimum consideration received or receivable by the Company in
connection with the issuance and conversion or exchange of such
Convertible Securities. For the purposes of this Subsection (d), the
date as of which such Convertible Securities shall be deemed to be
issued shall be the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such Convertible
Securities, or (B) the date of actual issuance of such Convertible
Securities. No adjustment of the Purchase Price shall be made under
this Subsection upon the issuance of any Convertible Securities which
are issued pursuant to the exercise of any Stock Purchase Rights, if
an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights pursuant to Subsection (c) of this Section
3.2.
<PAGE>
(e) Minimum Adjustment. In the event any adjustment
of the Purchase Price pursuant to this Section 3.2 shall result in an
adjustment of less than $.01 per share of Common Stock, no such
adjustment shall be made, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to $.01 or more per share of Common
Stock; provided, however, that upon any adjustment of the Purchase
Price pursuant to Subsection 3.2(a), the foregoing figure of $.01 per
share (or such figure last adjustment) shall be proportionately
adjusted and provided further that upon the exercise of this Warrant,
the Company shall make all necessary adjustments (to the nearest .001
of a cent) not theretofore made to the Purchase Price up to an
including the date upon which this Warrant is exercised.
(f) Readjustment of Purchase Price and Warrant
Shares. In the event (i) the purchase price payable for any Stock
Purchase Rights or Convertible Securities referred to in Subsection
(c) or (d) above, (ii) the additional consideration, if any, payable
upon exercise of such Stock Purchase Rights or upon the conversion or
exchange of such Convertible Securities or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for
shares of Common Stock shall change, the Purchase Price in effect at
the time of such change shall forthwith be readjusted to the Purchase
Price which would have been in effect at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold. On the
expiration of any such Stock Purchase Rights not exercised or of any
such Convertible Securities not converted or exchanged, the Purchase
Price then in effect shall forthwith be increased to the Purchase
Price which would have been in effect at the time of such expiration
or termination had such Stock Purchase Rights or Convertible
Securities never been issued. No readjustment of the Purchase Price
pursuant to this Subsection (f) shall have the effect of increasing
the Purchase Price by an amount in excess of the adjustment
originally made to the Purchase Price in respect of the issue, sale
or grant of the applicable Stock Purchase Rights or Convertible
Securities.
(g) Reorganization, Reclassification or
Recapitalization of Company. In the event of (i) any capital
reorganization or reclassification or recapitalization of the capital
stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 3.2), or (ii) the consolidation or
merger of the Company with or into another corporation or the sale or
transfer of all or substantially all of the assets of the Company in
which the Common Stock is converted into or exchanged for securities
or other property, there shall thereafter be deliverable upon the
exercise of this Warrant or any portion thereof the amount of
securities or property which the holder of the number of shares of
Common Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof would have been
entitled to receive upon such capital reorganization,
reclassification, recapitalization, consolidation, merger or sale,
and at the same aggregate Purchase Price.
<PAGE>
Prior to and as a condition of the consummation of any
transaction described in the preceding sentence, the Company shall
made equitable, written adjustments in the application of the
provisions herein set forth with respect to the rights and interests
of the Registered Holder so that the provisions set forth herein
shall thereafter be applicable, as nearly as possible, in relation to
any securities or other property thereafter deliverable upon exercise
of this Warrant. Any such adjustment shall be made by and set forth
in a supplemental instrument executed by the Company and/or the
successor entity, as applicable, which agreement shall bind each such
entity.
(h) Other Dilutive Events. If any event shall occur
as to which the other provisions of this Section 3 are not strictly
applicable but as to which the failure to make an adjustment of the
nature provided for in this Section 3 would not fairly protect the
purchase rights represented by this Warrant in accordance with the
essential intent and principles hereof, then, in each such case, the
Company shall appoint a firm of independent public accountants of
recognized national standing (which may be the regular auditors of
the Company), which shall give their opinion as to the adjustment, if
any, on a basis consistent with the essential intent and principles
established in this Section 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy
thereof to the Registered Holder and shall make the adjustments
described therein.
(i) Determination of Consideration. For purposes of
this Section 3, the consideration received or receivable by the
Company for the issuance, sale, grant or assumption of shares of
Common Stock, Stock Purchase Rights or Convertible Securities,
irrespective of the accounting treatment of such consideration, shall
be valued as follows:
(1) Cash Payment. In the case of cash, the net
amount received by the Company before deduction of any underwriting
commissions or similar concessions paid or allowed by the Company.
(2) Securities or Other Property. In the case
of securities or other property, the fair market value as determined
in good faith by the Board of Directors of the Company; provided that
a determination with respect to any securities for which a public
trading market exists shall be based upon the most recent public
trading price of such securities.
(3) Allocation Related to Common Stock. In the
event shares of Common Stock are issued or sold together with other
securities or other assets of the Company for a consideration which
covers both, the consideration received (computed as provided in
clauses (1) and (2) above) shall be allocable to such shares of
Common Stock as determined in good faith by the Board of Directors of
the Company.
<PAGE>
(4) Allocation Related to Stock Purchase Rights
and Convertible Securities. In the event that any Stock Purchase
Rights or Convertible Securities shall be issued or sold together
with other securities or other assets of the Company, together
comprising one integral transaction in which no specific
consideration is allocated to the Stock Purchase Rights or
Convertible Securities, the consideration received shall be allocable
to such Stock Purchase Rights and Convertible Securities as
determined in good faith by the Board of Directors of the Company.
(5) Dividends on Securities. In the event that
the Company shall declare a dividend or make any other distribution
upon any stock of the Company (other than Common Stock) payable in
either case in Common Stock, Convertible Securities or Stock Purchase
Rights, such Common Stock, Convertible Securities or Stock Purchase
Rights, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(6) Stock Purchase Rights and Convertible
Securities. The consideration for which shares of Common Stock shall
be deemed to be issued upon the issuance of any Stock Purchase Rights
or Convertible Securities shall be determined by dividing (i) the
total consideration, if any, received or receivable by the Company as
consideration for the granting of such Stock Purchase Rights or the
issuance of such Convertible Securities, plus the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights or the conversion or exchange
of such Convertible Securities or, in the case of Stock Purchase
Rights for Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the exercise of such
Stock Purchase Rights and the conversion or exchange of such
Convertible Securities, in each case before deducting any
underwriting commissions or similar concessions paid or allowed by
the Company, by (ii) the maximum number of shares of Common Stock
issuable upon the exercise of such Stock Purchase Rights or upon the
conversion or exchange of such Convertible Securities.
(j) Record Date. In the event that the Company shall
take a record of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Convertible Securities or Stock Purchase
Rights or (ii) to subscribe for or purchase Common Stock, Convertible
Securities or Stock Purchase Rights, then all references in this
Section 3 to the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
(k) Shares Outstanding. The number of shares of
Common Stock deemed to be outstanding at any given time shall not
include (i) shares of Common Stock in the treasury of the Company or
owned by any wholly-owned subsidiary of the Company and (ii) except
where shares are described on a "fully diluted basis" or in a similar
manner, any of the Warrant Shares.
<PAGE>
(l) Maximum Purchase Price. At no time shall the
Purchase Price per share of Common Stock exceed the amount set forth
in the first paragraph of the preamble of this Warrant except
pursuant to adjustments made pursuant to Subsection (a) or (g) of
this Section 3.2.
(m) Application. Except as otherwise provided
herein, all Subsections of this Section 3.2 are intended to operate
independently of one another, but without duplication. If an event
occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect; provided,
however, that no adjustment shall be made which duplicates an
adjustment already made pursuant to some other Subsection of this
Section 3.
(n) No Adjustments under Certain Circumstances.
Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Purchase Price in the
case of:
(i) the issuance of shares of Common Stock
pursuant to a rights offering in which the Registered Holder is
granted an opportunity to participate under the provisions of
Section 3.3.; or
(ii) the issuance of options or shares of Common
Stock to employees, directors or consultants pursuant to an
employment agreement, a stock option agreement or a plan approved by
the Board of Directors of the Company.
3.3 Rights Offering. In the event the Company shall
effect an offering of Common Stock pro rata among its stockholders
then the Registered Holder shall be entitled, at its option, to elect
to participate in such offering as if this Warrant had been exercised
and the Registered Holder were at the time of such rights offering a
holder of that number of shares of Common Stock to which the
Registered Holder is then entitled on the exercise hereof.
3.4 Certificates and Notices.
(a) Adjustments to Purchase Price. Upon any
adjustment under this Section 3 of the number of shares of Common
Stock purchasable upon exercise of this Warrant or of the Purchase
Price, a certificate, signed (i) by a Vice President or the Treasurer
of the Company, or (ii) by any independent firm of certified public
accountants of recognized national standing selected by, and at the
expense of the Company (which may be the Company's outside auditing
firm), setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated and
specifying the adjusted Purchase Price and the number of shares of
Common Stock or other property purchasable upon exercise of this
Warrant after giving effect to such adjustment, shall be mailed to
the Registered Holder.
The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of
Directors of the Company shall be conclusive evidence of the
correctness of any computation made under this Section 3, absent
manifest error.
<PAGE>
(b) Extraordinary Corporate Events. In the event
that the Company after the date hereof shall propose to (i) pay any
dividend payable in stock to the holders of shares of Common Stock or
to make any other distribution to the holders of shares of Common
Stock (other than a stock split effected by means of a Common Stock
dividend), (ii) offer to the holders of shares of Common Stock rights
to subscribe for or purchase any shares of any class of stock or any
other rights or options or (iii) effect any reclassification of the
Common Stock (other than a reclassification involving merely the
subdivision or combination of outstanding shares of Common Stock) or
any capital reorganization or any consolidation or merger (other than
a merger in which no distribution of securities or other property is
to be made to holders of shares of Common Stock), or any sale,
transfer or other disposition of all or substantially all of its
assets, or the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall mail to the Registered
Holder notice of such proposed action, which shall specify the date
on which the stock transfer books of the Company shall close, or a
record shall be taken, for determining the holders of Common Stock
entitled to receive such stock dividends or other distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place
or commence, as the case may be, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
receive securities or other property deliverable upon such action, if
any such date is to be fixed. Such notice shall be mailed in the
case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of Common Stock
for purposes of receiving such payment or offer, or in the case of
any action covered by clause (iii) above at least 30 days prior to
the date upon which such action takes place and 20 days prior to any
record date to determine holders of Common Stock entitled to receive
such securities or other property.
(c) Effect of Failure. Failure to file any
certificate or notice or to mail any notice, or any defect in any
certificate or notice pursuant to this Section 3.4 shall not affect
the legality or validity of the adjustment of the Purchase Price or
the number of shares purchasable upon exercise of this Warrant, or
any transaction giving rise thereto.
13. Fractional Shares. The Company shall not be required upon
the exercise of this Warrant to issue any fractional shares, but
shall make an adjustment therefor in cash on the basis of the fair
market value per share of Common Stock, as determined in good faith
by the Board of Directors of the Company.
14. Transfer Restrictions.
14.1 This Warrant may not be sold or transferred without
the prior written consent of the Company, which shall not be
unreasonably withheld; provided that the Company's consent shall not
be required in the event of the sale of all or substantially all of
the assets of the Registered Holder. Any permitted transfer shall be
effected by surrendering this Warrant, along with a properly executed
assignment, at the principal office of the Company.
<PAGE>
14.2 The Warrant Shares may not be sold or transferred
unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company
first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale
or transfer is exempt from the registration requirements of the Act.
14.3 Each certificate representing Warrant Shares shall
bear a legend substantially in the following form:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended, and may not be offered, sold
or otherwise transferred unless and until such
securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates
representing any Warrant Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
15. No Impairment. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of
this Warrant.
16. Liquidating Dividends. If the Company pays a dividend or
makes a distribution on the Common Stock (other than one payable in
(i) cash out of earnings or earned surplus (determined in accordance
with generally accepted accounting principles) or (ii) shares of
Common Stock) (a "Liquidating Dividend"), then the Company will pay
or distribute to the Registered Holder of this Warrant, upon the
exercise hereof, in addition to the Warrant Shares purchased upon
such exercise, the Liquidating Dividend which would have been paid to
such Registered Holder if he had been the owner of record of such
Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such
dividends or distribution are to be determined.
17. Reservation of Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such number of Warrant Shares and other
stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
18. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with
surety if reasonably required) in an amount reasonably satisfactory
to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
<PAGE>
19. No Rights as Stockholder. Until the exercise of this
Warrant, the Registered Holder of this Warrant shall not have or
exercise any rights by virtue hereof as a stockholder of the Company.
Notwithstanding the foregoing, in the event (i) the Company effects
a split of the Common Stock by means of a stock dividend and the
exercise price of and the number of shares subject to this Warrant
are adjusted as of the date of the distribution of the dividend
(rather than as of the record date for such dividend), and (ii) the
Registered Holder exercises this Warrant between the record date and
the distribution date for such stock dividend, the Registered Holder
shall be entitled to receive, on the distribution date, the stock
dividend with respect to the shares of Common Stock acquired upon
such exercise, notwithstanding the fact that such shares were not
outstanding as of the close of business on the record date for such
stock dividend.
20. Change or Waiver. Any term of this Warrant may be changed
or waived only by an instrument in writing signed by the party
against which enforcement of the change or waiver is sought.
21. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of
any provision of this Warrant.
22. Governing Law. This Warrant will be governed by and
construed in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
<PAGE>
Executed as of the date first written above.
SPYGLASS, INC.
By:________________________________
Title:_____________________________
ATTEST:
_________________________
<PAGE>
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:______________
The undersigned, pursuant to the provisions set forth in the
attached Warrant (No. ___), hereby irrevocably elects to purchase
_____ shares of the Common Stock covered by such Warrant. The
undersigned herewith makes payment of $____________, in lawful money
of the United States, representing the full purchase price for such
shares at the price per share provided for in such Warrant.
Signature:__________________________
Address:____________________________
____________________________
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 5 OF THIS WARRANT
Date of Issuance: October 19, 1998 Number of Shares: ***
(subject to adjustment)
SPYGLASS, INC.
Common Stock Purchase Warrant
Spyglass, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that General Instrument Corporation
(the "Registered Holder") is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before 5:00 p.m. (Boston,
Massachusetts time) on the Expiration Date (as defined below), ***
shares of Common Stock, $.01 par value per share, of the Company, at
a purchase price of *** per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively. The "Expiration Date" shall mean
December 31, 2003, or (if applicable) such later date as is provided
for in Section 1(c) below.
1. Vesting Schedule.
(a) This Warrant will become exercisable ("vest") as to
all of the Warrant Shares on October 1, 2003.
(b) Notwithstanding the foregoing vesting schedule, this
Warrant shall become immediately vested in full on the date (the
"Acceleration Date") 10 days following the date (if any) on which the
Registered Holder has paid to the Company (or a subsidiary or
affiliate (as defined in Rule 405 under the Securities Act of
1933) of the Company) an aggregate of *** under the Digital
Software Integration Center Sourcing Agreement dated October 19, 1998
between the Company and the Registered Holder (the "Sourcing
Agreement").
(c) In the event that any of the companies listed on
Exhibit C to the Operating Agreement dated October 19, 1998 between
the Company, the Registered Holder and Spyglass DSIC, Inc. (the
"Operating Agreement") acquire beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934) of
shares of Common Stock of the Company representing 20% or more of the
outstanding Common Stock of the Company and either (i) the Registered
Holder exercises its right to terminate the Sourcing Agreement or
(ii) the Registered Holder exercises its purchase option under the
Operating Agreement, this Warrant shall become immediately vested in
full.
<PAGE>
(d) In the event of the acceleration of vesting of this
Warrant under Section 1(b) or 1(c) above, the Expiration Date shall
be the later of December 31, 2003 and the date three years following
the Acceleration Date.
2. Exercise.
(a) This Warrant may be exercised by the Registered
Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit I duly executed by such
Registered Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by
payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day
on which this Warrant shall have been surrendered to the Company as
provided in Section 2(a) above. At such time, the person or persons
in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in Section 2(c) below shall
be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this
Warrant in full or in part, the Company, at its expense, will cause
to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which the Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which the
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 4 hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant
Shares equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon
such exercise.
(d) The Company shall be responsible for any and all taxes
arising from the granting and/or exercise of this Warrant (other than
taxes on the transfer of this Warrant or on the income of the
Registered Holder), including, but not limited to, all documentary
and stamp taxes.
<PAGE>
3. Antidilution Provisions.
3.1 Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Purchase Price as provided in Section 3.2(a), the
Registered Holder shall thereafter be entitled to purchase, at the
Purchase Price resulting from such adjustment, the number of Warrant
Shares (calculated to the nearest 1/100th of a share) obtained by
multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable hereunder
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
3.2 Adjustment of Purchase Price. The Purchase Price
shall be subject to adjustment from time to time as hereinafter set
forth.
(a) Stock Dividends, Subdivisions and Combinations.
In the event that the Company subsequent to the date hereof shall:
(i) declare a dividend upon, or make any
distribution in respect of, any of its Common Stock, payable in
Common Stock, Convertible Securities or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
then the Purchase Price shall be adjusted to that price determined by
multiplying the Purchase Price per share of Common Stock immediately
prior to such event by a fraction (A) the numerator of which shall be
the total number of outstanding shares of Common Stock of the Company
immediately prior to such event and (B) the denominator of which
shall be the total number of outstanding shares of Common Stock of
the Company immediately after such event. For purposes of this
Section 3.2, all shares of Common Stock issuable upon conversions or
exchanges of Convertible Securities and exercises of Stock Purchase
Rights shall be treated as outstanding. "Convertible Securities"
means evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for, with or without
payment of additional
<PAGE>
Confidential Materials omitted and filed
separately with the Securities and Exchange Commission. Asterisks
denote omissions.
consideration, shares of Common Stock, either immediately or upon the
arrival of a specified date or the happenings of a specified event.
"Stock Purchase Rights" means any warrants, options or other rights
to subscribe for, purchase or otherwise acquire any shares of Common
Stock or any Convertible Securities.
(b) Issuance of Additional Shares of Common Stock.
In the event that the Company shall issue or sell any shares of
Common Stock after the date hereof for a consideration less than ***
of the then Fair Value (as defined below) per share immediately prior
to such issue or sale, the Purchase Price in effect immediately prior
to such issuance or sale shall be adjusted by: multiplying the then
existing Purchase Price by a fraction the numerator of which is (A)
the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Fair Value
per share of Common Stock immediately prior to such issue or sale
plus (2) the consideration received by the Company upon such issue or
sale, divided by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale, and the denominator
of which shall be the Fair Value per share of Common Stock
immediately prior to such issue or sale.
The provisions of this Subsection (b) shall not apply to any
shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock dividend or subdivision for which an
adjustment is provided for under Subsection (a) of this Section 3.2.
No adjustment of the Purchase Price shall be made under this
Subsection upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any Stock Purchase Rights or
pursuant to the conversion or exchange of any Convertible Securities
if an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights or Convertible Securities pursuant to
Subsection (a), (c) or (d) of this Section 3.2.
For purposes of this Warrant, "Fair Value" per share of Common
Stock means the following:
(i) if the Common Stock is listed on a national
securities exchange, the Nasdaq National Market or another nationally
recognized exchange or trading system as of the date on which a
determination of Fair Value is to be made, the Fair Value per share
of Common Stock shall be deemed to be the last reported sale price
per share of Common Stock thereon on the trading day immediately
preceding such date; and
(ii) if the Common Stock is not listed on a
national securities exchange, the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on
which a determination of Fair Value is to be made, the Fair Value per
share of Common Stock shall be as agreed upon by the Company and the
Registered Holder.
<PAGE>
Whenever the Company shall issue any of its Common Stock, Stock
Purchase Rights or Convertible Securities as consideration for a
merger, the purchase of stock or assets from or similar transaction
with a bona fide third party, such shares will be deemed for all
purposes hereunder to be issued for Fair Value.
(c) Issuance of Stock Purchase Rights. In the event
that the Company shall issue or sell any Stock Purchase Rights and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable upon exercise thereof (or, in the
case of Stock Purchase Rights exercisable for the purchase of
Convertible Securities, upon the subsequent conversion or exchange of
such Convertible Securities) shall be less than the Fair Value per
share of Common Stock immediately prior to the issuance of such Stock
Purchase Rights, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon exercise of such Stock
Purchase Rights (or upon conversion or exchange of such Convertible
Securities following such exercise) shall be deemed to have been
issued as of the date of the issuance of such Stock Purchase Rights
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be the minimum
consideration received or receivable by the Company in connection
with the issuance and exercise of such Stock Purchase Rights (or upon
conversion or exchange of such Convertible Securities). For the
purposes of this Subsection (c), the date as of which such Stock
Purchase Rights shall be deemed to be issued shall be the earlier of
(A) the date on which the Company shall enter into a firm contract
for the issuance of such Stock Purchase Rights, or (B) the date of
actual issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. In the event
that the Company shall issue or sell any Convertible Securities and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Fair Value per share of
Common Stock immediately prior to the issuance of such Convertible
Securities, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued as of the date of issuance of such Convertible Securities
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be equal to the
minimum consideration received or receivable by the Company in
connection with the issuance and conversion or exchange of such
Convertible Securities. For the purposes of this Subsection (d), the
date as of which such Convertible Securities shall be deemed to be
issued shall be the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such Convertible
Securities, or (B) the date of actual issuance of such Convertible
Securities. No adjustment of the Purchase Price shall be made under
this Subsection upon the issuance of any Convertible Securities which
are issued pursuant to the exercise of any Stock Purchase Rights, if
an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights pursuant to Subsection (c) of this Section
3.2.
<PAGE>
(e) Minimum Adjustment. In the event any adjustment
of the Purchase Price pursuant to this Section 3.2 shall result in an
adjustment of less than $.01 per share of Common Stock, no such
adjustment shall be made, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to $.01 or more per share of Common
Stock; provided, however, that upon any adjustment of the Purchase
Price pursuant to Subsection 3.2(a), the foregoing figure of $.01 per
share (or such figure last adjustment) shall be proportionately
adjusted and provided further that upon the exercise of this Warrant,
the Company shall make all necessary adjustments (to the nearest .001
of a cent) not theretofore made to the Purchase Price up to an
including the date upon which this Warrant is exercised.
(f) Readjustment of Purchase Price and Warrant
Shares. In the event (i) the purchase price payable for any Stock
Purchase Rights or Convertible Securities referred to in Subsection
(c) or (d) above, (ii) the additional consideration, if any, payable
upon exercise of such Stock Purchase Rights or upon the conversion or
exchange of such Convertible Securities or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for
shares of Common Stock shall change, the Purchase Price in effect at
the time of such change shall forthwith be readjusted to the Purchase
Price which would have been in effect at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold. On the
expiration of any such Stock Purchase Rights not exercised or of any
such Convertible Securities not converted or exchanged, the Purchase
Price then in effect shall forthwith be increased to the Purchase
Price which would have been in effect at the time of such expiration
or termination had such Stock Purchase Rights or Convertible
Securities never been issued. No readjustment of the Purchase Price
pursuant to this Subsection (f) shall have the effect of increasing
the Purchase Price by an amount in excess of the adjustment
originally made to the Purchase Price in respect of the issue, sale
or grant of the applicable Stock Purchase Rights or Convertible
Securities.
(g) Reorganization, Reclassification or
Recapitalization of Company. In the event of (i) any capital
reorganization or reclassification or recapitalization of the capital
stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 3.2), or (ii) the consolidation or
merger of the Company with or into another corporation or the sale or
transfer of all or substantially all of the assets of the Company in
which the Common Stock is converted into or exchanged for securities
or other property, there shall thereafter be deliverable upon the
exercise of this Warrant or any portion thereof the amount of
securities or property which the holder of the number of shares of
Common Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof would have been
entitled to receive upon such capital reorganization,
reclassification, recapitalization, consolidation, merger or sale,
and at the same aggregate Purchase Price.
<PAGE>
Prior to and as a condition of the consummation of any
transaction described in the preceding sentence, the Company shall
made equitable, written adjustments in the application of the
provisions herein set forth with respect to the rights and interests
of the Registered Holder so that the provisions set forth herein
shall thereafter be applicable, as nearly as possible, in relation to
any securities or other property thereafter deliverable upon exercise
of this Warrant. Any such adjustment shall be made by and set forth
in a supplemental instrument executed by the Company and/or the
successor entity, as applicable, which agreement shall bind each such
entity.
(h) Other Dilutive Events. If any event shall occur
as to which the other provisions of this Section 3 are not strictly
applicable but as to which the failure to make an adjustment of the
nature provided for in this Section 3 would not fairly protect the
purchase rights represented by this Warrant in accordance with the
essential intent and principles hereof, then, in each such case, the
Company shall appoint a firm of independent public accountants of
recognized national standing (which may be the regular auditors of
the Company), which shall give their opinion as to the adjustment, if
any, on a basis consistent with the essential intent and principles
established in this Section 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy
thereof to the Registered Holder and shall make the adjustments
described therein.
(i) Determination of Consideration. For purposes of
this Section 3, the consideration received or receivable by the
Company for the issuance, sale, grant or assumption of shares of
Common Stock, Stock Purchase Rights or Convertible Securities,
irrespective of the accounting treatment of such consideration, shall
be valued as follows:
(1) Cash Payment. In the case of cash, the net
amount received by the Company before deduction of any underwriting
commissions or similar concessions paid or allowed by the Company.
(2) Securities or Other Property. In the case
of securities or other property, the fair market value as determined
in good faith by the Board of Directors of the Company; provided that
a determination with respect to any securities for which a public
trading market exists shall be based upon the most recent public
trading price of such securities.
(3) Allocation Related to Common Stock. In the
event shares of Common Stock are issued or sold together with other
securities or other assets of the Company for a consideration which
covers both, the consideration received (computed as provided in
clauses (1) and (2) above) shall be allocable to such shares of
Common Stock as determined in good faith by the Board of Directors of
the Company.
<PAGE>
(4) Allocation Related to Stock Purchase Rights
and Convertible Securities. In the event that any Stock Purchase
Rights or Convertible Securities shall be issued or sold together
with other securities or other assets of the Company, together
comprising one integral transaction in which no specific
consideration is allocated to the Stock Purchase Rights or
Convertible Securities, the consideration received shall be allocable
to such Stock Purchase Rights and Convertible Securities as
determined in good faith by the Board of Directors of the Company.
(5) Dividends on Securities. In the event that
the Company shall declare a dividend or make any other distribution
upon any stock of the Company (other than Common Stock) payable in
either case in Common Stock, Convertible Securities or Stock Purchase
Rights, such Common Stock, Convertible Securities or Stock Purchase
Rights, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(6) Stock Purchase Rights and Convertible
Securities. The consideration for which shares of Common Stock shall
be deemed to be issued upon the issuance of any Stock Purchase Rights
or Convertible Securities shall be determined by dividing (i) the
total consideration, if any, received or receivable by the Company as
consideration for the granting of such Stock Purchase Rights or the
issuance of such Convertible Securities, plus the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights or the conversion or exchange
of such Convertible Securities or, in the case of Stock Purchase
Rights for Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the exercise of such
Stock Purchase Rights and the conversion or exchange of such
Convertible Securities, in each case before deducting any
underwriting commissions or similar concessions paid or allowed by
the Company, by (ii) the maximum number of shares of Common Stock
issuable upon the exercise of such Stock Purchase Rights or upon the
conversion or exchange of such Convertible Securities.
(j) Record Date. In the event that the Company shall
take a record of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Convertible Securities or Stock Purchase
Rights or (ii) to subscribe for or purchase Common Stock, Convertible
Securities or Stock Purchase Rights, then all references in this
Section 3 to the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
(k) Shares Outstanding. The number of shares of
Common Stock deemed to be outstanding at any given time shall not
include (i) shares of Common Stock in the treasury of the Company or
owned by any wholly-owned subsidiary of the Company and (ii) except
where shares are described on a "fully diluted basis" or in a similar
manner, any of the Warrant Shares.
<PAGE>
(l) Maximum Purchase Price. At no time shall the
Purchase Price per share of Common Stock exceed the amount set forth
in the first paragraph of the preamble of this Warrant except
pursuant to adjustments made pursuant to Subsection (a) or (g) of
this Section 3.2.
(m) Application. Except as otherwise provided
herein, all Subsections of this Section 3.2 are intended to operate
independently of one another, but without duplication. If an event
occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect; provided,
however, that no adjustment shall be made which duplicates an
adjustment already made pursuant to some other Subsection of this
Section 3.
(n) No Adjustments under Certain Circumstances.
Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Purchase Price in the
case of:
(i) the issuance of shares of Common Stock
pursuant to a rights offering in which the Registered Holder is
granted an opportunity to participate under the provisions of
Section 3.3.; or
(ii) the issuance of options or shares of Common
Stock to employees, directors or consultants pursuant to an
employment agreement, a stock option agreement or a plan approved by
the Board of Directors of the Company.
3.3 Rights Offering. In the event the Company shall
effect an offering of Common Stock pro rata among its stockholders
then the Registered Holder shall be entitled, at its option, to elect
to participate in such offering as if this Warrant had been exercised
and the Registered Holder were at the time of such rights offering a
holder of that number of shares of Common Stock to which the
Registered Holder is then entitled on the exercise hereof.
3.4 Certificates and Notices.
(a) Adjustments to Purchase Price. Upon any
adjustment under this Section 3 of the number of shares of Common
Stock purchasable upon exercise of this Warrant or of the Purchase
Price, a certificate, signed (i) by a Vice President or the Treasurer
of the Company, or (ii) by any independent firm of certified public
accountants of recognized national standing selected by, and at the
expense of the Company (which may be the Company's outside auditing
firm), setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated and
specifying the adjusted Purchase Price and the number of shares of
Common Stock or other property purchasable upon exercise of this
Warrant after giving effect to such adjustment, shall be mailed to
the Registered Holder.
The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of
Directors of the Company shall be conclusive evidence of the
correctness of any computation made under this Section 3, absent
manifest error.
<PAGE>
(b) Extraordinary Corporate Events. In the event
that the Company after the date hereof shall propose to (i) pay any
dividend payable in stock to the holders of shares of Common Stock or
to make any other distribution to the holders of shares of Common
Stock (other than a stock split effected by means of a Common Stock
dividend), (ii) offer to the holders of shares of Common Stock rights
to subscribe for or purchase any shares of any class of stock or any
other rights or options or (iii) effect any reclassification of the
Common Stock (other than a reclassification involving merely the
subdivision or combination of outstanding shares of Common Stock) or
any capital reorganization or any consolidation or merger (other than
a merger in which no distribution of securities or other property is
to be made to holders of shares of Common Stock), or any sale,
transfer or other disposition of all or substantially all of its
assets, or the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall mail to the Registered
Holder notice of such proposed action, which shall specify the date
on which the stock transfer books of the Company shall close, or a
record shall be taken, for determining the holders of Common Stock
entitled to receive such stock dividends or other distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place
or commence, as the case may be, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
receive securities or other property deliverable upon such action, if
any such date is to be fixed. Such notice shall be mailed in the
case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of Common Stock
for purposes of receiving such payment or offer, or in the case of
any action covered by clause (iii) above at least 30 days prior to
the date upon which such action takes place and 20 days prior to any
record date to determine holders of Common Stock entitled to receive
such securities or other property.
(c) Effect of Failure. Failure to file any
certificate or notice or to mail any notice, or any defect in any
certificate or notice pursuant to this Section 3.4 shall not affect
the legality or validity of the adjustment of the Purchase Price or
the number of shares purchasable upon exercise of this Warrant, or
any transaction giving rise thereto.
26. Fractional Shares. The Company shall not be required upon
the exercise of this Warrant to issue any fractional shares, but
shall make an adjustment therefor in cash on the basis of the fair
market value per share of Common Stock, as determined in good faith
by the Board of Directors of the Company.
27. Transfer Restrictions.
27.1 This Warrant may not be sold or transferred without
the prior written consent of the Company, which shall not be
unreasonably withheld; provided that the Company's consent shall not
be required in the event of the sale of all or substantially all of
the assets of the Registered Holder. Any permitted transfer shall be
effected by surrendering this Warrant, along with a properly executed
assignment, at the principal office of the Company.
<PAGE>
27.2 The Warrant Shares may not be sold or transferred
unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company
first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale
or transfer is exempt from the registration requirements of the Act.
27.3 Each certificate representing Warrant Shares shall
bear a legend substantially in the following form:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended, and may not be offered, sold
or otherwise transferred unless and until such
securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates
representing any Warrant Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
28. No Impairment. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of
this Warrant.
29. Liquidating Dividends. If the Company pays a dividend or
makes a distribution on the Common Stock (other than one payable in
(i) cash out of earnings or earned surplus (determined in accordance
with generally accepted accounting principles) or (ii) shares of
Common Stock) (a "Liquidating Dividend"), then the Company will pay
or distribute to the Registered Holder of this Warrant, upon the
exercise hereof, in addition to the Warrant Shares purchased upon
such exercise, the Liquidating Dividend which would have been paid to
such Registered Holder if he had been the owner of record of such
Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such
dividends or distribution are to be determined.
30. Reservation of Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such number of Warrant Shares and other
stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
31. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with
surety if reasonably required) in an amount reasonably satisfactory
to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
<PAGE>
32. No Rights as Stockholder. Until the exercise of this
Warrant, the Registered Holder of this Warrant shall not have or
exercise any rights by virtue hereof as a stockholder of the Company.
Notwithstanding the foregoing, in the event (i) the Company effects
a split of the Common Stock by means of a stock dividend and the
exercise price of and the number of shares subject to this Warrant
are adjusted as of the date of the distribution of the dividend
(rather than as of the record date for such dividend), and (ii) the
Registered Holder exercises this Warrant between the record date and
the distribution date for such stock dividend, the Registered Holder
shall be entitled to receive, on the distribution date, the stock
dividend with respect to the shares of Common Stock acquired upon
such exercise, notwithstanding the fact that such shares were not
outstanding as of the close of business on the record date for such
stock dividend.
33. Change or Waiver. Any term of this Warrant may be changed
or waived only by an instrument in writing signed by the party
against which enforcement of the change or waiver is sought.
34. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of
any provision of this Warrant.
35. Governing Law. This Warrant will be governed by and
construed in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
<PAGE>
Executed as of the date first written above.
SPYGLASS, INC.
By:________________________________
Title:_____________________________
ATTEST:
_________________________
<PAGE>
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:______________
The undersigned, pursuant to the provisions set forth in the
attached Warrant (No. ___), hereby irrevocably elects to purchase
_____ shares of the Common Stock covered by such Warrant. The
undersigned herewith makes payment of $____________, in lawful money
of the United States, representing the full purchase price for such
shares at the price per share provided for in such Warrant.
Signature:__________________________
Address:____________________________
____________________________
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 5 OF THIS WARRANT
Date of Issuance: October 19, 1998 Number of Shares: ***
(subject to adjustment)
SPYGLASS, INC.
Common Stock Purchase Warrant
Spyglass, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that General Instrument Corporation
(the "Registered Holder") is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before 5:00 p.m. (Boston,
Massachusetts time) on the Expiration Date (as defined below), ***
shares of Common Stock, $.01 par value per share, of the Company, at
a purchase price of *** per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively. The "Expiration Date" shall mean
December 31, 2003, or (if applicable) such later date as is provided
for in Section 1(c) below.
1. Vesting Schedule.
(a) This Warrant will become exercisable ("vest") as to
all of the Warrant Shares on October 1, 2003.
(b) Notwithstanding the foregoing vesting schedule, this
Warrant shall become immediately vested in full on the date (the
"Acceleration Date") 10 days following the date (if any) on which the
Registered Holder has paid to the Company (or a subsidiary or
affiliate (as defined in Rule 405 under the Securities Act of
1933) of the Company) an aggregate of *** under the Digital
Software Integration Center Sourcing Agreement dated October 19, 1998
between the Company and the Registered Holder (the "Sourcing
Agreement").
(c) In the event that any of the companies listed on
Exhibit C to the Operating Agreement dated October 19, 1998 between
the Company, the Registered Holder and Spyglass DSIC, Inc. (the
"Operating Agreement") acquire beneficial ownership (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934) of
shares of Common Stock of the Company representing 20% or more of the
outstanding Common Stock of the Company and either (i) the Registered
Holder exercises its right to terminate the Sourcing Agreement or
(ii) the Registered Holder exercises its purchase option under the
Operating Agreement, this Warrant shall become immediately vested in
full.
<PAGE>
(d) In the event of the acceleration of vesting of this
Warrant under Section 1(b) or 1(c) above, the Expiration Date shall
be the later of December 31, 2003 and the date three years following
the Acceleration Date.
2. Exercise.
(a) This Warrant may be exercised by the Registered
Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit I duly executed by such
Registered Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by
payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day
on which this Warrant shall have been surrendered to the Company as
provided in Section 2(a) above. At such time, the person or persons
in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in Section 2(c) below shall
be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this
Warrant in full or in part, the Company, at its expense, will cause
to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which the Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which the
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 4 hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant
Shares equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon
such exercise.
(d) The Company shall be responsible for any and all taxes
arising from the granting and/or exercise of this Warrant (other than
taxes on the transfer of this Warrant or on the income of the
Registered Holder), including, but not limited to, all documentary
and stamp taxes.
<PAGE>
3. Antidilution Provisions.
3.1 Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Purchase Price as provided in Section 3.2(a), the
Registered Holder shall thereafter be entitled to purchase, at the
Purchase Price resulting from such adjustment, the number of Warrant
Shares (calculated to the nearest 1/100th of a share) obtained by
multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable hereunder
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
3.2 Adjustment of Purchase Price. The Purchase Price
shall be subject to adjustment from time to time as hereinafter set
forth.
(a) Stock Dividends, Subdivisions and Combinations.
In the event that the Company subsequent to the date hereof shall:
(i) declare a dividend upon, or make any
distribution in respect of, any of its Common Stock, payable in
Common Stock, Convertible Securities or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
then the Purchase Price shall be adjusted to that price determined by
multiplying the Purchase Price per share of Common Stock immediately
prior to such event by a fraction (A) the numerator of which shall be
the total number of outstanding shares of Common Stock of the Company
immediately prior to such event and (B) the denominator of which
shall be the total number of outstanding shares of Common Stock of
the Company immediately after such event. For purposes of this
Section 3.2, all shares of Common Stock issuable upon conversions or
exchanges of Convertible Securities and exercises of Stock Purchase
Rights shall be treated as outstanding. "Convertible Securities"
means evidences of indebtedness, shares of stock or other
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock,
either immediately or upon the arrival of a specified date or the
happenings of a specified event. "Stock Purchase Rights" means any
warrants, options or other rights to subscribe for, purchase or
otherwise acquire any shares of Common Stock or any Convertible
Securities.
(b) Issuance of Additional Shares of Common Stock.
In the event that the Company shall issue or sell any shares of
Common Stock after the date hereof for a consideration less than ***
of the then Fair Value (as defined below) per share immediately prior
to such issue or sale, the Purchase Price in effect immediately prior
to such issuance or sale shall be adjusted by: multiplying the then
existing Purchase Price by a fraction the numerator of which is (A)
the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Fair Value
per share of Common Stock immediately prior to such issue or sale
plus (2) the consideration received by the Company upon such issue or
sale, divided by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale, and the denominator
of which shall be the Fair Value per share of Common Stock
immediately prior to such issue or sale.
The provisions of this Subsection (b) shall not apply to any
shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock dividend or subdivision for which an
adjustment is provided for under Subsection (a) of this Section 3.2.
No adjustment of the Purchase Price shall be made under this
Subsection upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any Stock Purchase Rights or
pursuant to the conversion or exchange of any Convertible Securities
if an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights or Convertible Securities pursuant to
Subsection (a), (c) or (d) of this Section 3.2.
For purposes of this Warrant, "Fair Value" per share of Common
Stock means the following:
(i) if the Common Stock is listed on a national
securities exchange, the Nasdaq National Market or another nationally
recognized exchange or trading system as of the date on which a
determination of Fair Value is to be made, the Fair Value per share
of Common Stock shall be deemed to be the last reported sale price
per share of Common Stock thereon on the trading day immediately
preceding such date; and
(ii) if the Common Stock is not listed on a
national securities exchange, the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on
which a determination of Fair Value is to be made, the Fair Value per
share of Common Stock shall be as agreed upon by the Company and the
Registered Holder.
<PAGE>
Whenever the Company shall issue any of its Common Stock, Stock
Purchase Rights or Convertible Securities as consideration for a
merger, the purchase of stock or assets from or similar transaction
with a bona fide third party, such shares will be deemed for all
purposes hereunder to be issued for Fair Value.
(c) Issuance of Stock Purchase Rights. In the event
that the Company shall issue or sell any Stock Purchase Rights and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable upon exercise thereof (or, in the
case of Stock Purchase Rights exercisable for the purchase of
Convertible Securities, upon the subsequent conversion or exchange of
such Convertible Securities) shall be less than the Fair Value per
share of Common Stock immediately prior to the issuance of such Stock
Purchase Rights, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon exercise of such Stock
Purchase Rights (or upon conversion or exchange of such Convertible
Securities following such exercise) shall be deemed to have been
issued as of the date of the issuance of such Stock Purchase Rights
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be the minimum
consideration received or receivable by the Company in connection
with the issuance and exercise of such Stock Purchase Rights (or upon
conversion or exchange of such Convertible Securities). For the
purposes of this Subsection (c), the date as of which such Stock
Purchase Rights shall be deemed to be issued shall be the earlier of
(A) the date on which the Company shall enter into a firm contract
for the issuance of such Stock Purchase Rights, or (B) the date of
actual issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. In the event
that the Company shall issue or sell any Convertible Securities and
the consideration per share for which shares of Common Stock may at
any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Fair Value per share of
Common Stock immediately prior to the issuance of such Convertible
Securities, the Purchase Price shall be adjusted as provided in
Subsection (b) of this Section 3.2 on the basis that (i) the maximum
number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued as of the date of issuance of such Convertible Securities
as hereinafter provided and (ii) the aggregate consideration received
for such shares of Common Stock shall be deemed to be equal to the
minimum consideration received or receivable by the Company in
connection with the issuance and conversion or exchange of such
Convertible Securities. For the purposes of this Subsection (d), the
date as of which such Convertible Securities shall be deemed to be
issued shall be the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such Convertible
Securities, or (B) the date of actual issuance of such Convertible
Securities. No adjustment of the Purchase Price shall be made under
this Subsection upon the issuance of any Convertible Securities which
are issued pursuant to the exercise of any Stock Purchase Rights, if
an adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights pursuant to Subsection (c) of this Section
3.2.
<PAGE>
(e) Minimum Adjustment. In the event any adjustment
of the Purchase Price pursuant to this Section 3.2 shall result in an
adjustment of less than $.01 per share of Common Stock, no such
adjustment shall be made, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to $.01 or more per share of Common
Stock; provided, however, that upon any adjustment of the Purchase
Price pursuant to Subsection 3.2(a), the foregoing figure of $.01 per
share (or such figure last adjustment) shall be proportionately
adjusted and provided further that upon the exercise of this Warrant,
the Company shall make all necessary adjustments (to the nearest .001
of a cent) not theretofore made to the Purchase Price up to an
including the date upon which this Warrant is exercised.
(f) Readjustment of Purchase Price and Warrant
Shares. In the event (i) the purchase price payable for any Stock
Purchase Rights or Convertible Securities referred to in Subsection
(c) or (d) above, (ii) the additional consideration, if any, payable
upon exercise of such Stock Purchase Rights or upon the conversion or
exchange of such Convertible Securities or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for
shares of Common Stock shall change, the Purchase Price in effect at
the time of such change shall forthwith be readjusted to the Purchase
Price which would have been in effect at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold. On the
expiration of any such Stock Purchase Rights not exercised or of any
such Convertible Securities not converted or exchanged, the Purchase
Price then in effect shall forthwith be increased to the Purchase
Price which would have been in effect at the time of such expiration
or termination had such Stock Purchase Rights or Convertible
Securities never been issued. No readjustment of the Purchase Price
pursuant to this Subsection (f) shall have the effect of increasing
the Purchase Price by an amount in excess of the adjustment
originally made to the Purchase Price in respect of the issue, sale
or grant of the applicable Stock Purchase Rights or Convertible
Securities.
(g) Reorganization, Reclassification or
Recapitalization of Company. In the event of (i) any capital
reorganization or reclassification or recapitalization of the capital
stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 3.2), or (ii) the consolidation or
merger of the Company with or into another corporation or the sale or
transfer of all or substantially all of the assets of the Company in
which the Common Stock is converted into or exchanged for securities
or other property, there shall thereafter be deliverable upon the
exercise of this Warrant or any portion thereof the amount of
securities or property which the holder of the number of shares of
Common Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof would have been
entitled to receive upon such capital reorganization,
reclassification, recapitalization, consolidation, merger or sale,
and at the same aggregate Purchase Price.
<PAGE>
Prior to and as a condition of the consummation of any
transaction described in the preceding sentence, the Company shall
made equitable, written adjustments in the application of the
provisions herein set forth with respect to the rights and interests
of the Registered Holder so that the provisions set forth herein
shall thereafter be applicable, as nearly as possible, in relation to
any securities or other property thereafter deliverable upon exercise
of this Warrant. Any such adjustment shall be made by and set forth
in a supplemental instrument executed by the Company and/or the
successor entity, as applicable, which agreement shall bind each such
entity.
(h) Other Dilutive Events. If any event shall occur
as to which the other provisions of this Section 3 are not strictly
applicable but as to which the failure to make an adjustment of the
nature provided for in this Section 3 would not fairly protect the
purchase rights represented by this Warrant in accordance with the
essential intent and principles hereof, then, in each such case, the
Company shall appoint a firm of independent public accountants of
recognized national standing (which may be the regular auditors of
the Company), which shall give their opinion as to the adjustment, if
any, on a basis consistent with the essential intent and principles
established in this Section 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy
thereof to the Registered Holder and shall make the adjustments
described therein.
(i) Determination of Consideration. For purposes of
this Section 3, the consideration received or receivable by the
Company for the issuance, sale, grant or assumption of shares of
Common Stock, Stock Purchase Rights or Convertible Securities,
irrespective of the accounting treatment of such consideration, shall
be valued as follows:
(1) Cash Payment. In the case of cash, the net
amount received by the Company before deduction of any underwriting
commissions or similar concessions paid or allowed by the Company.
(2) Securities or Other Property. In the case
of securities or other property, the fair market value as determined
in good faith by the Board of Directors of the Company; provided that
a determination with respect to any securities for which a public
trading market exists shall be based upon the most recent public
trading price of such securities.
(3) Allocation Related to Common Stock. In the
event shares of Common Stock are issued or sold together with other
securities or other assets of the Company for a consideration which
covers both, the consideration received (computed as provided in
clauses (1) and (2) above) shall be allocable to such shares of
Common Stock as determined in good faith by the Board of Directors of
the Company.
<PAGE>
(4) Allocation Related to Stock Purchase Rights
and Convertible Securities. In the event that any Stock Purchase
Rights or Convertible Securities shall be issued or sold together
with other securities or other assets of the Company, together
comprising one integral transaction in which no specific
consideration is allocated to the Stock Purchase Rights or
Convertible Securities, the consideration received shall be allocable
to such Stock Purchase Rights and Convertible Securities as
determined in good faith by the Board of Directors of the Company.
(5) Dividends on Securities. In the event that
the Company shall declare a dividend or make any other distribution
upon any stock of the Company (other than Common Stock) payable in
either case in Common Stock, Convertible Securities or Stock Purchase
Rights, such Common Stock, Convertible Securities or Stock Purchase
Rights, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(6) Stock Purchase Rights and Convertible
Securities. The consideration for which shares of Common Stock shall
be deemed to be issued upon the issuance of any Stock Purchase Rights
or Convertible Securities shall be determined by dividing (i) the
total consideration, if any, received or receivable by the Company as
consideration for the granting of such Stock Purchase Rights or the
issuance of such Convertible Securities, plus the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights or the conversion or exchange
of such Convertible Securities or, in the case of Stock Purchase
Rights for Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the exercise of such
Stock Purchase Rights and the conversion or exchange of such
Convertible Securities, in each case before deducting any
underwriting commissions or similar concessions paid or allowed by
the Company, by (ii) the maximum number of shares of Common Stock
issuable upon the exercise of such Stock Purchase Rights or upon the
conversion or exchange of such Convertible Securities.
(j) Record Date. In the event that the Company shall
take a record of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Convertible Securities or Stock Purchase
Rights or (ii) to subscribe for or purchase Common Stock, Convertible
Securities or Stock Purchase Rights, then all references in this
Section 3 to the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
(k) Shares Outstanding. The number of shares of
Common Stock deemed to be outstanding at any given time shall not
include (i) shares of Common Stock in the treasury of the Company or
owned by any wholly-owned subsidiary of the Company and (ii) except
where shares are described on a "fully diluted basis" or in a similar
manner, any of the Warrant Shares.
<PAGE>
(l) Maximum Purchase Price. At no time shall the
Purchase Price per share of Common Stock exceed the amount set forth
in the first paragraph of the preamble of this Warrant except
pursuant to adjustments made pursuant to Subsection (a) or (g) of
this Section 3.2.
(m) Application. Except as otherwise provided
herein, all Subsections of this Section 3.2 are intended to operate
independently of one another, but without duplication. If an event
occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect; provided,
however, that no adjustment shall be made which duplicates an
adjustment already made pursuant to some other Subsection of this
Section 3.
(n) No Adjustments under Certain Circumstances.
Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Purchase Price in the
case of:
(i) the issuance of shares of Common Stock
pursuant to a rights offering in which the Registered Holder is
granted an opportunity to participate under the provisions of
Section 3.3.; or
(ii) the issuance of options or shares of Common
Stock to employees, directors or consultants pursuant to an
employment agreement, a stock option agreement or a plan approved by
the Board of Directors of the Company.
3.3 Rights Offering. In the event the Company shall
effect an offering of Common Stock pro rata among its stockholders
then the Registered Holder shall be entitled, at its option, to elect
to participate in such offering as if this Warrant had been exercised
and the Registered Holder were at the time of such rights offering a
holder of that number of shares of Common Stock to which the
Registered Holder is then entitled on the exercise hereof.
3.4 Certificates and Notices.
(a) Adjustments to Purchase Price. Upon any
adjustment under this Section 3 of the number of shares of Common
Stock purchasable upon exercise of this Warrant or of the Purchase
Price, a certificate, signed (i) by a Vice President or the Treasurer
of the Company, or (ii) by any independent firm of certified public
accountants of recognized national standing selected by, and at the
expense of the Company (which may be the Company's outside auditing
firm), setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated and
specifying the adjusted Purchase Price and the number of shares of
Common Stock or other property purchasable upon exercise of this
Warrant after giving effect to such adjustment, shall be mailed to
the Registered Holder.
The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of
Directors of the Company shall be conclusive evidence of the
correctness of any computation made under this Section 3, absent
manifest error.
<PAGE>
(b) Extraordinary Corporate Events. In the event
that the Company after the date hereof shall propose to (i) pay any
dividend payable in stock to the holders of shares of Common Stock or
to make any other distribution to the holders of shares of Common
Stock (other than a stock split effected by means of a Common Stock
dividend), (ii) offer to the holders of shares of Common Stock rights
to subscribe for or purchase any shares of any class of stock or any
other rights or options or (iii) effect any reclassification of the
Common Stock (other than a reclassification involving merely the
subdivision or combination of outstanding shares of Common Stock) or
any capital reorganization or any consolidation or merger (other than
a merger in which no distribution of securities or other property is
to be made to holders of shares of Common Stock), or any sale,
transfer or other disposition of all or substantially all of its
assets, or the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall mail to the Registered
Holder notice of such proposed action, which shall specify the date
on which the stock transfer books of the Company shall close, or a
record shall be taken, for determining the holders of Common Stock
entitled to receive such stock dividends or other distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place
or commence, as the case may be, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
receive securities or other property deliverable upon such action, if
any such date is to be fixed. Such notice shall be mailed in the
case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of Common Stock
for purposes of receiving such payment or offer, or in the case of
any action covered by clause (iii) above at least 30 days prior to
the date upon which such action takes place and 20 days prior to any
record date to determine holders of Common Stock entitled to receive
such securities or other property.
(c) Effect of Failure. Failure to file any
certificate or notice or to mail any notice, or any defect in any
certificate or notice pursuant to this Section 3.4 shall not affect
the legality or validity of the adjustment of the Purchase Price or
the number of shares purchasable upon exercise of this Warrant, or
any transaction giving rise thereto.
39. Fractional Shares. The Company shall not be required upon
the exercise of this Warrant to issue any fractional shares, but
shall make an adjustment therefor in cash on the basis of the fair
market value per share of Common Stock, as determined in good faith
by the Board of Directors of the Company.
40. Transfer Restrictions.
40.1 This Warrant may not be sold or transferred without
the prior written consent of the Company, which shall not be
unreasonably withheld; provided that the Company's consent shall not
be required in the event of the sale of all or substantially all of
the assets of the Registered Holder. Any permitted transfer shall be
effected by surrendering this Warrant, along with a properly executed
assignment, at the principal office of the Company.
<PAGE>
40.2 The Warrant Shares may not be sold or transferred
unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company
first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale
or transfer is exempt from the registration requirements of the Act.
40.3 Each certificate representing Warrant Shares shall
bear a legend substantially in the following form:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended, and may not be offered, sold
or otherwise transferred unless and until such
securities are registered under such Act or an
opinion of counsel satisfactory to the Company is
obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates
representing any Warrant Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
41. No Impairment. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of
this Warrant.
42. Liquidating Dividends. If the Company pays a dividend or
makes a distribution on the Common Stock (other than one payable in
(i) cash out of earnings or earned surplus (determined in accordance
with generally accepted accounting principles) or (ii) shares of
Common Stock) (a "Liquidating Dividend"), then the Company will pay
or distribute to the Registered Holder of this Warrant, upon the
exercise hereof, in addition to the Warrant Shares purchased upon
such exercise, the Liquidating Dividend which would have been paid to
such Registered Holder if he had been the owner of record of such
Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such
dividends or distribution are to be determined.
43. Reservation of Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such number of Warrant Shares and other
stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
44. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with
surety if reasonably required) in an amount reasonably satisfactory
to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
<PAGE>
45. No Rights as Stockholder. Until the exercise of this
Warrant, the Registered Holder of this Warrant shall not have or
exercise any rights by virtue hereof as a stockholder of the Company.
Notwithstanding the foregoing, in the event (i) the Company effects
a split of the Common Stock by means of a stock dividend and the
exercise price of and the number of shares subject to this Warrant
are adjusted as of the date of the distribution of the dividend
(rather than as of the record date for such dividend), and (ii) the
Registered Holder exercises this Warrant between the record date and
the distribution date for such stock dividend, the Registered Holder
shall be entitled to receive, on the distribution date, the stock
dividend with respect to the shares of Common Stock acquired upon
such exercise, notwithstanding the fact that such shares were not
outstanding as of the close of business on the record date for such
stock dividend.
46. Change or Waiver. Any term of this Warrant may be changed
or waived only by an instrument in writing signed by the party
against which enforcement of the change or waiver is sought.
47. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of
any provision of this Warrant.
48. Governing Law. This Warrant will be governed by and
construed in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
<PAGE>
Executed as of the date first written above.
SPYGLASS, INC.
By:________________________________
Title:_____________________________
ATTEST:
_________________________
<PAGE>
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:______________
The undersigned, pursuant to the provisions set forth in the
attached Warrant (No. ___), hereby irrevocably elects to purchase
_____ shares of the Common Stock covered by such Warrant. The
undersigned herewith makes payment of $____________, in lawful money
of the United States, representing the full purchase price for such
shares at the price per share provided for in such Warrant.
Signature:__________________________
Address:____________________________
____________________________
EXHIBIT 10.26
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. ASterisks deonte ommissions.
DIGITAL SOFTWARE INTEGRATION CENTER
SOURCING AGREEMENTAGREEMENT
This Digital Software Integration Center Sourcing Agreement
("Agreement") shall be effective as of the 1st day of November 1998
(the "Effective Date") by and between General Instrument Corporation,
a Delaware corporation having its principal place of business at 101
Tournament Drive, Horsham, PA 19044 ("GI") and Spyglass, Inc., a
Delaware corporation having its principal place of business at 1240
East Diehl Road, Naperville, Illinois 60563 ("Spyglass"). GI and
Spyglass are hereafter sometimes referred to herein collectively as
"Parties" and individually as a "Party."
RECITALS
WHEREAS, GI has designed and developed cable television set-top
terminals and GI offers developers of applications for such set-top
terminals assistance in connection with the development and
integration of such applications; and
WHEREAS, GI desires to take advantage of Spyglass' expertise in
Internet and real time operating systems technologies (including
Personal Java and Windows CE) and GI desires Spyglass to assist GI in
connection with the providing of such integration services to
entities desiring to create applications for General Instrument's
set-top terminals; and
WHEREAS, in order to assist GI in providing such services,
Spyglass shall create and operate a Digital Software Integration
Center ("DSIC") to provide development and integration assistance to
third party developers; and
WHEREAS, Spyglass has organized Spyglass DSIC, Inc., as a
subsidiary (the "Subsidiary") for the purpose of operating and
managing the DSIC in accordance with the terms of this Agreement; and
WHEREAS, contemporaneously with the execution of this Agreement,
Spyglass, the Subsidiary and GI are entering into an Operating
Agreement for the purpose of establishing certain rights and
obligations with respect to the Subsidiary.
NOW, THEREFORE, in consideration of the mutual provisions set
forth in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties intending to be legally bound, hereby agree
as follows:
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1. DEFINITIONS.
1.1 "Affiliate" shall mean any entity that controls, is
controlled by or is under common control with a Party, with control
being defined as at least fifty percent (50%) equity ownership or the
ability, contractual or otherwise, to dictate or manage the day to
day affairs of the controlled party.
1.2 "Confidential Information" shall mean proprietary
marketing, technical, or business information, including, without
limitation, component and product specifications, algorithms, quality
assurance plans, testing and analysis output and results, marketing
strategies, business plans and strategies, inventions (whether or not
patented or patentable), cost and profit data, distribution and
marketing plans, business and financial information, designs,
diagrams, blueprints, charts, products and software.
1.3 "Force Majeure" shall mean, without limitation, (a) any act
of God, war, riot, fire, rupture, explosion, flood, strike,
injunction, governmental action, inaction, or order, unavailability
of materials, supplies or energy, or unscheduled outage or shut-down,
(b) any lockout or other labor disturbance, even if such lockout or
disturbance is within the power of a party to settle, or (c) any
other cause, whether similar or dissimilar to the foregoing, which is
beyond the reasonable control of a Party (or any Affiliate of such
Party) claiming Force Majeure interference with the performance of
such Party under this Agreement.
1.4 "Management Committee" shall be a committee established
pursuant to Section 4.1 of the Agreement consisting of *** of
Spyglass and GI employees.
1.5 "Materials" shall mean software, technical documentation,
and other copyrightable materials generated by Spyglass in the course
of its performance under this Agreement.
1.6 "Person" shall mean a corporation, an association, a
partnership, an organization, a business, a limited liability
company, an individual, a government or a political subdivision
thereof or a governmental agency.
1.7 "Set-Top Terminal" shall mean a cable television Set-Top
Terminal developed by GI and distributed under the designation ***,
or any other similar digital product developed by GI.
1.8 "Work" shall mean the performance by Spyglass of the tasks
connected with or arising out of the operation of the DSIC, including
the services specified in Article 2.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2. SPYGLASS' OBLIGATIONS.
2.1 Creation and Staffing of DSIC. Spyglass shall establish a
DSIC which will provide the following services to GI:
a. Assist GI and third party developers in resolving
design and analysis issues concerning the Set-Top
Terminal architecture.
b. Provide technical support to application developers
and GI customers (but not end-users) purchasing the
Set-Top Terminals.
c. Test applications designed to run on the Set-Top
Terminals and to assist third party developers with
the integration of such applications into a Set-Top
Terminal.
d. Test and certify that applications developed for a
Set-Top Terminal operate on a designated platform.
e. Any other tasks that the Management Committee
determines in accordance with Section 4.1 should be
performed by the DSIC.
The particular tasks to be performed by the DSIC shall be set
forth in a Statement of Work and the parties shall diligently work to
complete such Statement of Work within six (6) weeks following the
Effective Date.
2.2 Facilities. The DSIC shall initially be set up in the
greater Boston, MA area. Spyglass shall make temporary office and lab
space available at *** to employees of GI that visit the DSIC.
Spyglass shall provide access to general office services such as
telephone, photocopiers, fax, etc. for such GI employees, customers
and independent software vendors ("ISVs"). Spyglass shall make
available, at GI's expense and upon its request and direction,
dedicated office and lab space for GI employees, customers and ISVs.
In the event that the Parties mutually agree that it is appropriate
for Spyglass to establish a second DSIC or to relocate a portion of
an existing DSIC to another location, the Parties shall negotiate in
good faith to reach an agreement on the timing, location, and cost
sharing arrangements for the operation of such additional DSIC.
2.3 Capital Equipment. Spyglass shall be responsible for
providing each employee assigned to the DSIC with the same amenities
and equipment that are supplied to other Spyglass employees
performing similar tasks on behalf of Spyglass apart from the DSIC.
At a minimum, each employee shall be provided with access to a
personal computer, telephone, e-mail capabilities, and copying
machines.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.4 Business Entities. Pursuant to the Operating Agreement,
which is being executed contemporaneously herewith, Spyglass shall
establish the Subsidiary, ninety percent (90%) of the stock of which
shall be owned by Spyglass, with the remaining ten percent (10%) to
be owned by GI. The sole responsibility of the Subsidiary shall be
to operate and manage the DSIC. The employees described in Article 4
that are assigned to work in the DSIC shall be employees of such
subsidiary. The terms of the option to purchase the Subsidiary shall
be set forth in the Operating Agreement
2.5 Delivery of Technology and Equipment. Spyglass shall
purchase and deliver to the DSIC the first *** of hardware and
equipment necessary for the implementation of a cable system network
(including head end, Set-Top Terminals, cabling, etc.), other capital
equipment, software and other technology of GI which is necessary or
useful to enable the personnel assigned to the DSIC to operate, test,
prototype and understand the operation of the Set-Top Terminals in
order to perform the Work and all computers, software, equipment and
office supplies for the GI employees, contractors and ISVs working in
the DSIC. GI shall make its equipment and technology available to
Spyglass ***. To the extent the aggregate cost of said technology
and equipment exceeds ***, GI shall purchase and deliver same to the
DSIC.
3. GI's OBLIGATIONS.
3.1 GI Personnel. GI shall make appropriate personnel
available to assist Spyglass in gaining an understanding of the
design and operation of the Set-Top Terminals. Such personnel shall
be available Monday through Friday between the hours of 9:00 a.m. and
5:00 p.m. Eastern Standard Time.
4. PROJECT MANAGEMENT.
4.1 Project Manager. GI and Spyglass shall each appoint a
dedicated, full-time Project Manager and an alternate Project Manager
who has the authority to assume the duties of the Project Manager in
the event the Project Manager is not available. Spyglass' Project
Manager shall be responsible for overseeing the day-to-day operation
of the DSIC. All communications between the Parties concerning the
day-to-day operation of DSIC shall be made through the respective
Project Managers. Each Party shall have a right to change its
Project Manager upon a minimum of thirty (30) days' prior written
notice to the other Party and subject to the other Party's approval,
which approval shall not be unreasonably withheld.
4.2 Management Committee. GI and Spyglass shall establish a
DSIC Management Committee each consisting of a mutually
agreed upon *** of
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
employees of Spyglass and GI. Such committee shall be responsible
for the oversight of the DSIC. The committee shall be comprised of
at least *** from each Party (which in the case of Spyglass at least
*** of which shall be a Subsidiary employee) and at least *** from
each Party. During the first year of this Agreement, the Management
Committee shall meet on a quarterly basis at the facilities of the
DSIC or as otherwise agreed. The Management Committee shall be
responsible for establishing goals and objectives of the DSIC, but
shall not be responsible for the day to day operation of the DSIC
which will be operated by Spyglass. Each Party shall have the right
to change its representatives on the Management Committee upon notice
to the other Party. A majority vote of the members of the Management
Committee is required in order to take any action.
4.3 Personnel. Spyglass shall staff the DSIC with the
personnel listed in Exhibit C. Exhibit B lists the minimum
qualifications of each Position. Spyglass shall be solely
responsible for the hiring and training of all such personnel and for
the payment of all wages and benefits for all the employees listed
above. With the exception of any Specialists listed in Exhibit B
that will provide assistance on limited and/or intermittent aspects
of the Work, each of the personnel identified above shall devote
their full time and effort and shall be dedicated to the operation of
the DSIC.
4.4 Reassignment of Personnel. Spyglass shall have the right,
with the consent of GI which shall not be unreasonably withheld, to
reassign personnel of the Subsidiary working in the DSIC to other
jobs at Spyglass; provided, however, that Spyglass shall not have the
right to reassign the employees listed in Exhibit D (the "Key
Employees") without the prior written consent of GI. Any reassigned
personnel shall be promptly replaced with another employee having the
necessary skills and training to perform tasks to which such person
is assigned. In the event that GI requires any confirmation with
respect to the qualifications of such replacement personnel, Spyglass
agrees to make resumes and other appropriate information available to
GI upon its request. Notwithstanding anything to the contrary above,
Spyglass shall have the right to temporarily (i.e., for up to thirty
(30) business days) reassign an employee of the Subsidiary to work on
non-DSIC matters for Spyglass and to assign a skilled, trained and
qualified replacement during such temporary period. In the event that
any employee (including employees listed in Exhibit D (the "Key
Employees")) of the Subsidiary terminates his/her employment with the
Subsidiary or the Subsidiary terminates such employment, the
Subsidiary shall have the right to hire a qualified person to replace
such departing employee.
4.5 Replacement of Spyglass Personnel. If GI determines in
good faith that the continued assignment of any Spyglass employee or
subcontractor performing or providing Work is not in accordance with
the requirements and standards set forth in
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
this Agreement, GI shall deliver a notice to Spyglass requesting
replacement of such employee. Promptly after its receipt of such
request by GI, Spyglass will investigate the matter stated in the
request and discuss its findings with GI. If GI still, in good
faith, requests replacement of such employee, Spyglass will replace
that employee with one of suitable ability and qualifications
reasonably acceptable to GI. Nothing in this Agreement shall be
deemed to give GI the right to require Spyglass to terminate any
Spyglass employee's employment; but is intended only to give GI the
right to request that Spyglass discontinue using a specific employee
in the performance of the Work.
4.6 Use of Subcontractors. The Parties acknowledge that
Spyglass shall have the right to engage subcontractors to satisfy the
minimum staffing requirement set forth in this Article 4. Spyglass
shall remain responsible for the performance of all obligations
performed directly by such subcontractors to the same extent as if
such obligations were performed by Spyglass employees. Spyglass
shall not disclose any Confidential Information of GI to said
subcontractors unless and until such subcontractor has agreed in
writing to protect the confidentiality of such Confidential
Information by executing GI's form of Non-Disclosure Agreement, which
is attached hereto as Exhibit F. Any modifications to said
Non-Disclosure Agreement shall require the express written agreement
of GI prior to the subcontractor performing any Work. *** relating
to such subcontractors will be charged to GI except as otherwise
specifically agreed to herein.
4.7 Spyglass' Employees. As mutually agreed, Spyglass may
augment the personnel assigned to the DSIC with other Spyglass
employees on an as-needed basis. GI shall be charged the rates set
forth in Exhibit B for all Work performed by such additional Spyglass
employees. GI shall have the right to request that Spyglass
discontinue the use of such additional employees and Spyglass shall
comply with such request.
4.8 No joint employment. It is understood that personnel
assigned to perform the Work shall be employed solely and exclusively
by the Subsidiary or Spyglass and all GI employees used in performing
GI's obligations of this Agreement shall be employed solely and
exclusively by GI. Thus, GI and Spyglass shall not be considered a
joint employer of any employee.
5. PAYMENT TERMS.
5.1 Payment for DSIC Personnel. On a ***basis, Spyglass will
prepare and provide to GI an invoice for the applicable personnel
that performed services on behalf of the Subsidiary in the ***. In
consideration of the performance of the obligations set forth in this
Agreement, including, but not limited to, Spyglass' compliance with
the staffing requirements described in Section 4.3, GI shall pay
Spyglass for the Work performed
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
during the *** in accordance with the charges set forth in Spyglass'
invoice, based upon a daily rate equal to the amounts listed in the
Payment Schedule set forth in Exhibit B divided by 260. In
accordance with Section 5.3, in the event Spyglass performs the Work
in accordance with the terms hereof, GI shall make the following
payments to Spyglass: a minimum of *** (individually the "Minimum
Payment" and collectively the "Minimum Payments"). Except as
otherwise provided in Section 11.5, GI's aggregate responsibility for
Minimum Payments hereunder for dedicated personnel and Spyglass
Specialists pursuant to Section 5.4, shall be limited to twenty
million dollars ($20,000,000) during the Term. In the event GI
incurs twenty million dollars ($20,000,000) in Work performed
hereunder, its total Minimum Payment obligations shall be completely
fulfilled and discharged, and shall supercede the obligation to make
complete the Minimum Payment obligation of any individual annual
period. The Parties also agree to periodically consider other fee
arrangements, including performance-based billing as an alternative
to the time-based charges specified in this Agreement.
5.2 Payment Terms. GI shall pay all undisputed amounts within
*** days of receipt of an invoice from Spyglass. All such payments
shall be made in U.S. dollars by check mailed to Spyglass' principal
office identified above or by wire transfer to a bank designated by
Spyglass. Any amount not paid when due shall bear a late payment
charge, until paid, at the rate of *** per annum. In the event that
any such amounts are not paid, Spyglass shall provide notice to GI.
If GI fails to make appropriate payment by the *** business day
following receipt of such notice, Spyglass shall have the right to
suspend the operation of DSIC but in the event of such suspension, GI
shall not be relieved of its obligation to make such payments. GI
shall pay Spyglass the amount of all governmental taxes, excises,
duties and/or other charges (except taxes on or measured by the net
income of Spyglass) that Spyglass may be required to pay with respect
to the production, sale or transportation of any Materials delivered
or any services performed hereunder. If, during the Term, any such
taxes, excises, duties and/or charges are imposed upon and required
to be paid by Spyglass which were not in effect as of the
commencement of the Agreement, and if GI reasonably deems such new
taxes, excises, duties and/or charges to be excessive, GI reserves
the right to terminate the Agreement, upon *** days' prior notice.
5.3 Calculation of Minimum Payments. At the end of each
calendar year of the Term, the Parties shall review the dollar value
of the Work performed and invoices paid in relation to the Minimum
Payments. GI shall be obligated to make the Minimum Payments set
forth in Section 5.1, only in the event that Spyglass performs the
Work and provides acceptable invoices totaling at least *** of the
annual Minimum Payment for the applicable calendar year. In the
event that Spyglass fails to provide this level of Work, GI shall be
obligated to make payment only in the amount of the actual Work
performed and accurately billed, rather than the specified Minimum
Payment.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
5.4 Additional Personnel Charges. In the event that Spyglass
agrees to provide any additional services or assign its personnel on
a temporary basis to the DSIC, such personnel shall be provided at
the rates set forth in Exhibit B. Such amounts for extra personnel
shall be billed on a ***basis at the end of each ***and payments of
such amounts are due within *** days of receipt of an invoice from
Spyglass.
5.5 Additional Expenses. GI shall reimburse Spyglass for all
out-of-pocket expenses incurred by Spyglass in leasing, constructing,
and operating the space (including general office services) in the
DSIC dedicated to the GI employees, customers, and ISVs. GI shall be
responsible for reimbursing Spyglass for any out-of-pocket costs
incurred by any Spyglass employee performing Work incurred in
connection with any travel (transportation, lodging, meals, etc.) by
such employee. In addition, GI shall be responsible for paying for
any equipment and/or software that Spyglass is obligated to purchase
for the Subsidiary employees that it does not purchase for its other
employees. Such costs shall be paid within *** days of receipt of an
invoice from Spyglass. GI shall also pay all reasonable and
necessary costs incurred by Spyglass in the temporary or permanent
relocation of employees that are relocated at the request of GI.
Spyglass shall be responsible for all other costs incurred in
connection with the performance of the Work.
6. ***.
GI expects, ***. The ***taken as a whole, are ***. In addition, if
***. If Spyglass enters into ***, then Spyglass shall promptly notify
GI, and GI shall have the right to ***. If any ***. GI *** may
request *** signed by Spyglass's Chief Financial Officer, and
Spyglass will comply ***, to insure that ***.
7. CONFIDENTIAL INFORMATION.
GI and Spyglass entered into a Non-Disclosure Agreement dated March
4, 1998 ("NDA") for the purpose of protecting the confidentiality of
proprietary information disclosed by either Party ("Discloser") to
the other Party ("Recipient") in connection with a potential business
relationship between the parties relating to Spyglass' internet
technology, applications, and/or services for use with GI's digital
set top terminals.
In connection with the NDA and this Agreement, the Parties have
disclosed and furnished and in the future may disclose or furnish to
each other Confidential Information. Confidential Information does
not include information that: (a) is or becomes part of the public
domain through no fault or breach on the part of the Recipient, any
of its subsidiaries, affiliates or persons to whom Confidential
Information is disclosed; (b) was known to Recipient or any of its
subsidiaries or affiliates free of any obligation of confidentiality
at the time of Discloser's communication thereof to Recipient and
such knowledge can be proven by appropriate evidence; (c) is
subsequently rightfully obtained by Recipient or any of its
subsidiaries or affiliates from a third party without an obligation
to keep such information confidential; (d) is independently developed
<PAGE>
by Recipient or any of its subsidiaries or affiliates without the use
of any Confidential Information or any breach of this Agreement or
the NDA; (e) is approved in writing for public release by Discloser;
or (f) is required to be disclosed by governmental or judicial
action, provided that the Recipient has first given Discloser
reasonable notice of such requirement and fully cooperates with
Discloser in seeking confidential treatment for any such disclosure.
Confidential Information provided in tangible form shall be clearly
marked as proprietary. With respect to any Products, any technical
information, including but not limited to circuit layout, design, or
software, embedded in any such Product is Confidential Information
notwithstanding the absence of any proprietary marking on such
Product. Confidential Information provided orally will be considered
proprietary if Discloser says it is proprietary at the time of oral
disclosure and summarizes it in a proprietary writing provided to
Recipient within thirty (30) days of the oral disclosure. All of the
protection and restrictions contained in this Agreement as to the use
and disclosure of Confidential Information shall apply during said
thirty (30) day period.
Recipient shall:
(a) hold Confidential Information in confidence using the same
degree of care as it normally exercises to protect its own
proprietary information,
(b) restrict disclosure and use of the Confidential Information
to employees (including any contractors or consultants)
with a need-to-know, and not disclose it to any other
parties,
(c) advise those employees, contractors and consultants of
their confidential obligations with respect to the
Confidential Information and that such disclosures are
subject to the terms and conditions of this Article,
(d) not copy, duplicate, reverse engineer or decompile
Confidential Information, and
(e) use the Confidential Information only in furtherance of
performance under this Agreement and shall not use
Confidential Information for its own benefit.
Neither the disclosure nor furnishing of Confidential Information by
either Party shall be construed as granting to the Recipient either
expressly or by implication, estoppel or otherwise, any license or
right to make use of such Confidential Information, except as
otherwise expressly provided in this Agreement, and Recipient agrees
that neither it nor any of its subsidiaries, affiliates, officers,
directors, employees, agents or representatives will make use thereof
without the specific and express written consent of Discloser prior
to such use. Furthermore, Recipient agrees that the Confidential
Information is the sole property of the Discloser and that Recipient
has no proprietary interest in such information whatsoever.
<PAGE>
WITHIN TEN (10) BUSINESS DAYS AFTER RECEIPT OF DISCLOSER'S WRITTEN
REQUEST, RECIPIENT SHALL RETURN TO DISCLOSER ALL CONFIDENTIAL
INFORMATION AND ALL MATERIALS CONTAINING CONFIDENTIAL INFORMATION,
INCLUDING BUT NOT LIMITED TO DOCUMENTS, DRAWINGS, PROGRAMS, LISTS,
MODELS, RECORDS, COMPILATIONS, NOTES, EXTRACTS AND SUMMARIES, WHETHER
PREPARED BY DISCLOSER OR RECIPIENT, OR ANY OF ITS SUBSIDIARIES,
AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES, EXCEPT FOR ONE COPY WHICH MAY BE RETAINED IN THE
FILES OF THE PATENT OR LAW DEPARTMENT OF RECIPIENT, OR AT THE OPTION
OF DISCLOSER, SHALL DESTROY SUCH CONFIDENTIAL INFORMATION AND
MATERIALS AND PROVIDE DISCLOSER WITH AN AFFIDAVIT ATTESTING TO SUCH
DESTRUCTION.
Obligations imposed by this Article shall survive for a period of
five (5) years after termination or expiration of this Agreement for
any reason.
Recipient acknowledges and agrees that unauthorized use or disclosure
of Confidential Information may cause serious, irreparable and
significant harm, damage or loss to Discloser which will be difficult
or impossible to ascertain. Accordingly, Recipient agrees that
Discloser shall have, in addition to all other remedies at law or in
equity, the right to seek immediate injunctive relief to enforce
Recipient's obligations under this Agreement.
Each Party agrees that it will not export or re-export, directly or
indirectly, any of the other Party's Confidential Information or any
products or materials of the other Party's to any country for which
the United States of America, at the time of export or re-export,
requires an export license or other governmental approval, without
first obtaining such license or approval.
The terms and conditions of this Article supersede all prior
agreements between the Parties with respect to the subject matter
hereof, including the NDA, and any disclosures made under the NDA
shall be governed by the provisions of this Article.
8. REPRESENTATIONS, WARRANTIES AND LIMITATIONS OF LIABILITY.
8.1Representation and Warranties. Spyglass represents and
warrants to GI that:
i) all Work shall be performed in accordance with each of the
terms and conditions set forth in this Agreement,
including, but not limited to, the SOW;
ii) it and its performance of the Work shall comply with
all applicable laws;
iii) the Work shall be performed in a professional manner and of
a high quality, consistent with the Internet industry
standards; and
iv) its computer systems will allow Spyglass to continue to do
business as a viable entity and to accurately process
date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999
and 2000, including leap year calculations
v) that all Materials prepared by Spyglass in the
performance of the Work will
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
accurately process correctly inputted date/time data
(including, but not limited to calculating, comparing and
sequencing) from, into and between the twentieth and
twenty-first centuries and the years 1999 and 2000,
including leap year calculations and Spyglass makes no
other representation or warranty regarding Year 2000
Compliance. In the event of any breach of this warranty,
Spyglass shall restore the Materials to the same level of
performance as warranted herein, or repair or replace the
Materials with conforming Materials so as to minimize
interruption to GI and its customers' ongoing business
processes, at Spyglass' sole cost and expense.
vi) that the prices charged to GI for any licenses and/or other
intellectual property rights are in compliance with the
requirements of Article 6.
8.2 Joint Representations. GI and Spyglass hereby each
represent and warrant that it has all requisite corporate power and
authority to enter into this Agreement and to perform the obligations
set forth herein. In addition, each Party hereby represents and
warrants that the execution, delivery and performance of this
Agreement will not result in a violation of any agreement to which
such Party is subject. EXCEPT AS PROVIDED ABOVE, NEITHER PARTY
MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES CONCERNING THE WORK TO
BE PROVIDED HEREUNDER OR ANY SOFTWARE OR OTHER PRODUCTS TO BE
DEVELOPED HEREUNDER AND EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, ARISING OUT OF THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE OR
NON-INFRINGEMENT.
8.3 Limitation of Liability. EXCEPT FOR PAYMENTS SPECIFIED IN
EXHIBITS B AND C TO THIS AGREEMENT AND AS PROVIDED BELOW IN ARTICLES
9 AND 10, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY
FOR ANY CAUSE WHATSOEVER WHERE THE AGGREGATE LIABILITY FOR DIRECT
DAMAGES ARISING HEREUNDER DURING THE TERM IS LESS THAN ***. IN THE
EVENT THE AGGREGATE LIABILITY FOR DIRECT DAMAGES ARISING HEREUNDER
DURING THE TERM EXCEEDS ***, EITHER PARTY SHALL BE RESPONSIBLE FOR
ALL DIRECT DAMAGES UP TO A MAXIMUM OF ***. IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY LOSS OF DATA, PROFITS, LOSS OF USE, OR FOR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT; PROVIDED,
HOWEVER, THAT THE LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE
8 WILL NOT APPLY WITH RESPECT TO: (I) DAMAGE OCCASIONED BY THE
WILLFUL MISCONDUCT OF A PARTY; (II) CLAIMS THAT ARE SUBJECT TO THE
INDEMNIFICATION PROVISIONS SET FORTH HEREIN; OR (III) DAMAGES
OCCASIONED BY THE BAD FAITH TERMINATION OF THIS AGREEMENT BY EITHER
PARTY. EACH PARTY SHALL HAVE A DUTY TO MITIGATE DAMAGES FOR WHICH
THE OTHER PARTY IS RESPONSIBLE.
<PAGE>
9. GENERAL INDEMNIFICATION AND INSURANCE.
9.1 By Spyglass. Spyglass shall defend, indemnify, and hold GI,
its subsidiaries and Affiliates, and each of their respective
employees, officers, directors, attorneys, agents, and
representatives, harmless from and against any and all claims,
liabilities, expenses, losses, demands, damages, fines, penalties,
and causes of action of every kind and character from any cause
whatsoever, made, incurred, sustained, or initiated by any Person
(including any Spyglass employee, contractor, representative or any
of their respective family members), arising out of, incident to, or
in connection with the performance, non-performance, or purported
performance by Spyglass of this Agreement, or breach of its terms
except to the extent attributable to the negligence or willful
misconduct of GI.
The obligations of this clause shall survive termination of this
Agreement.
9.2 By GI. GI shall defend, indemnify, and hold Spyglass,
its subsidiaries and Affiliates, and each of their respective
employees, officers, directors, attorneys, agents, and
representatives, harmless from and against any and all claims,
liabilities, expenses, losses, demands, damages, fines, penalties,
and causes of action of every kind and character from any cause
whatsoever, made, incurred, sustained, or initiated by any Person
(including any GI employee, contractor, representative or any of
their respective family members), arising out of, incident to, or in
connection with the performance, non-performance, or purported
performance by GI of this Agreement, or breach of its terms except to
the extent attributable to the negligence or willful misconduct of
Spyglass.
9.3 Minimum Acceptable Levels of Insurance. Each Party shall,
at all times during the Term, at its sole cost and expense, and
thereafter for so long as is reasonable and customary in the
industry, or for such shorter period as the other Party requests, in
consideration of the particular circumstances, carry and maintain the
insurance coverage listed below with insurers having a "Best's"
rating of A+X or better:
a) Workers' Compensation insurance as required under
applicable state law including Employer's Liability
$100,000 (per accident) $500,000 (disease - policy limit)
$100,000 (disease - per employee);
b) Commercial General Liability insurance covering claims
for bodily injury, death, personal injury or property
damage occurring or arising out of the performance of this
Agreement, including coverage for independent contractor's
protection (required if any work will be subcontracted),
premises-operations, products/completed operations and
contractual liability
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
with respect to the liability assumed by each Party
hereunder. The limits of insurance shall not be less than:
Each Occurrence ***
General Aggregate Limit ***
Products- Completed Broad
Form Property Damage ***
Personal and Advertising
Injury Limit ***
c) Errors and Omissions coverage sufficiently broad enough to
include the Work, and specifically software development and
certification with limits of insurance not less than ***.
d) Should performance of this Agreement involve any use of
automobiles, comprehensive automobile liability insurance
covering the ownership, operation and maintenance of all
owned, non-owned and hired motor vehicles with limits of
not less than *** Combined Single Limit (Bodily
Injury/Property Damage) for bodily injury and property
damage.
9.4 Waiver of Subrogation; Evidence of Insurance. Each Party
agrees that its, its insurer(s) and anyone claiming by, through,
under or in such Party's behalf shall have no claim, right of action
or right of subrogation against the other Party and the other Party's
affiliates, directors, officers employees and customers based on any
loss or liability insured against under the insurance required by
this Agreement. The insurance limits required in this Article may be
obtained through any combination of primary and excess or umbrella
liability insurance. The insured Party shall forward to the other
Party, certificates of such insurance upon execution of this
Agreement and upon any renewal of such insurance during the Term.
The certificates shall provide that (a) the other Party be named as
an additional insured as its interests may appear with respect to
this Agreement, (b) thirty (30) days' prior written notice of
cancellation of, material change or exclusions in the policy to which
certificates relate shall be given to the other Party, and (c)
coverage is primary and not excess of, or contributory with, any
other valid and collectible insurance purchased or maintained by the
other Party. The fulfillment of such obligations, however, shall not
otherwise relieve the insured Party of any liability assumed
hereunder or in any way modify the insured Party's obligations to
indemnify the other Party or end users under this Agreement.
9.5 Maintenance of Existing Coverage. Spyglass shall not at
any time after the expiration or termination of this Agreement take
any action to alter, impair or cancel any insurance coverage that may
apply with respect to the period during which this Agreement was in
effect.
<PAGE>
10. INTELLECTUAL PROPERTY INDEMNIFICATION.
10.1 Spyglass Indemnity. Spyglass agrees to indemnify, defend
and hold harmless GI, from and against any claims by third parties to
the extent based on a claim that any Work performed or Materials
provided by Spyglass: (a) infringes a copyright, or patent, or (b)
constitutes a misappropriation of another party's trade secret or
other proprietary information. Spyglass will bear the expense of
such defense and pay any Losses attributable to such claim.
Notwithstanding anything to the contrary elsewhere in this Section
10.1, Spyglass will have no obligation under this Article with
respect to any Losses arising from or in connection with any such
claim to the extent such Losses are caused by:
a. modifications of Materials by GI or its agents; or
b. GI's subsequent combination of any Materials with, or
operation or use thereof in combination with, items
not furnished or specified by Spyglass (other than the
combination thereof with other items required to
enable such item to be used by GI for its intended
purposes);
c. Spyglass' complying with specifications of GI; or
d. a breach of the terms of this Agreement by GI,
material to the claims of Losses incurred by Spyglass.
10.2 GI Indemnity. GI agrees to indemnify, defend and hold
harmless Spyglass against any claims to the extent based on a claim
that (1) GI provided software, or (2) any other software that
Spyglass is required by GI to use under this Agreement or any part
thereof, (a) infringes a copyright or patent or (b) constitutes a
misappropriation of another party's trade secret or other proprietary
or information. GI will bear the expense of such defense and pay
Losses attributable to such claim. Notwithstanding anything to the
contrary elsewhere in this Section 10.2, GI will have no obligation
under this Article with respect to any Losses arising from or in
connection with any such claim to the extent such Losses are caused
by:
a. modifications made by Spyglass or its agents to an
item provided by or for GI (other than modifications
made by or at the specific direction of GI);
b. the combination thereof by Spyglass or its agents
with, or the operation or use thereof in combination
with, items not furnished or specified by GI (other
than the combination thereof with other items required
to enable such item to be used by Spyglass for its
intended purposes); or
c. a breach of the terms of this Agreement by Spyglass
material to the claims or Losses incurred by GI.
<PAGE>
10.3 Rights of Indemnitor. If any software, hardware or other
materials becomes the subject of a claim under this Article, or in
the indemnitor's reasonable opinion is likely to become the subject
of such a claim, then the indemnitor may, at its option, (i) replace
or modify the software, hardware or other materials to make it
non-infringing or may cure any claims of misuse of another's trade
secret, or (ii) procure for the indemnitee the right to continue
using the software or hardware or other materials pursuant to this
Agreement, or (iii) replace the software or hardware with reasonably
equivalent software or hardware, acceptable to the indemnitee, which
is non-infringing or which is free of claimed misuse of another's
trade secret or (iv) modify the Work or Materials to eliminate the
infringing activity.
10.4 Indemnification Procedures.
a. Notice and Control. The indemnification obligations
set forth in Articles 9 and 10 will not apply unless
the Party claiming indemnification:
(i) Notifies the other Party promptly of any matters
in respect of which the indemnity may apply and
of which the notifying Party has actual
knowledge, in order to allow the indemnitor the
opportunity to investigate and defend the matter;
provided, that the failure to so notify will only
relieve the indemnitor of its obligations under
this article if and to the extent that the
indemnitor is prejudiced thereby; and
(ii) Gives the other Party reasonable opportunity to
control the response thereto and the defense
thereof, including any agreement relating to the
settlement thereof; provided that, the indemnitee
will have the right to participate in any legal
proceeding to contest and defend a claim for
indemnification involving a third party and to be
represented by legal counsel of its choosing, all
at the indemnitee's cost and expense.
b. The indemnitor will not be responsible for any
settlement or compromise made without its consent.
The indemnitee agrees to cooperate in good faith with
the indemnitor at the request and expense of the
indemnitor.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
11. TERM.
11.1 Term. The initial term of this Agreement will begin on the
Effective Date and will terminate on October 31, 2001 (the "Term").
GI may, upon at least six (6) months' prior written notice to
Spyglass, elect to extend the Term for an additional period of one
(1) year. The Minimum Payment for this renewal period shall be ***.
During the renewal period, the Payment Schedules set forth in
Exhibits B and C shall increase by *** over the immediately preceding
annual period.
11.2 Termination for Change of Control. GI shall have the right
to terminate this Agreement in the event that: i) any of the
companies listed on Exhibit E acquire beneficial ownership (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934)
of shares of Common Stock of Spyglass representing 20% or more of the
outstanding Common Stock of Spyglass; or ii) GI exercises its
purchase option under the Operating Agreement.
11.3 Termination for Cause. This Agreement may be terminated
prior to the expiration of its Term (i) by either Party in the event
the other Party materially breaches a provision of this Agreement and
the breaching Party fails to cure such breach, (including a failure
to make payments when due) within thirty (30) days following receipt
of notice of such breach from the non-breaching Party; (ii) by either
Party in the event any assignment is made by the other Party for the
benefit of creditors, or if a receiver, trustee in bankruptcy or
similar officer shall be appointed to take charge of any and all of
the other parties property, or if the other party files a voluntary
petition under federal bankruptcy laws or similar state statutes or
such a petition is filed against the other party and is not dismissed
within sixty (60) days; (iii) if the Parties cannot agree upon a
Statement of Work within the six (6) week period set forth herein, or
as otherwise agreed to by the Parties.
11.4 Termination based on Economic Conditions. At any time
after the first anniversary of the Effective Date, GI may terminate
this Agreement upon *** days' prior written notice if it determines
in its reasonable judgment that supply or market conditions will not
support the continued development and/or production of its products
that utilize the Work, provided that GI pays Spyglass upon
termination, the dollar amount equal to ***.
11.5 Effects of Termination.
a. Upon expiration or termination of this
Agreement for any reason, GI shall remain liable for any
charges, payments or expenses due to Spyglass which
accrued prior to the termination date. Upon any
termination of this Agreement, in the event that any
employees of the Subsidiary are not absorbed by Spyglass
(which shall have the first right to hire the employees
working for the Subsidiary) or GI, GI shall pay all
reasonable costs incurred by Spyglass in connection with
the termination of such personnel, which Spyglass would
otherwise be obligated to pay pursuant to its severance
policies then in effect. A copy of Spyglass' severance
<PAGE>
policies as of the Effective Date are attached hereto as
Exhibit G, and Spyglass shall provide GI with each
revision to said policies throughout the Term. In
addition, GI shall pay any reasonable costs which
Spyglass is obligated to pay with respect to any
facilities or amenities provided to the Subsidiary
personnel, as well as to the GI employees, customers and
ISVs working in the DSIC.
b. Upon expiration or temination of this
Agreement for any reason, GI shall have the right but
not the obligation, to purchase any equipment purchased
by Spyglass pursuant to Section 2.5 at Spyglass'
depreciated book value. Additionally, Spyglass agrees
that it shall not under any circumstances, sell or
transfer such equipment to any of the entities set forth
in Exhibit E.
12. DISPUTE RESOLUTION.
12.1 Management Committee Review. During the Term, disputes,
controversies or claims may arise between the Parties. To minimize
the expense to and impact on each party of formally resolving such
disputes, controversies and claims, the following procedures shall be
followed.
a. If the Parties are unable to resolve a dispute,
controversy or claim, upon the provision of notice by
either party to the other Party, the matter will
immediately be referred to the Management Committee.
b. The representatives of the Parties on the Management
Committee will meet within ten (10) business days of
their receipt of the notice for the purpose of
resolving the dispute, controversy or claim. Such
Management Committee representatives will discuss the
relevant issues and will attempt to negotiate a
mutually satisfactory resolution in good faith,
without using formal proceedings.
c. During the course of negotiations, all reasonable
requests made by one Party to another for
non-privileged information, reasonably related to this
Agreement, will be honored to advise a Party of the
other's position.
d. No formal proceedings for the resolution of a dispute,
controversy or claim may be commenced until either or
both of the appointed senior management
representatives conclude in good faith that amicable
resolution through continued negotiation of the matter
is not likely.
12.2 Continuation of Obligations. Except for failure to make
payments or where clearly prevented by the dispute, both Parties
agree to continue performing their respective obligations under this
Agreement while the dispute is being resolved unless and until such
obligations are terminated or expire in accordance with the
provisions of this Agreement.
<PAGE>
12.3 Arbitration.
a. Procedures. Any dispute, controversy or claim arising
out of or related to this Agreement that the parties
are unable to resolve through informal discussions or
negotiations as provided above in Section 12.1 will be
submitted to binding arbitration.
b. The Party requesting arbitration will notify the
American Arbitration Association ("AAA") and the other
Party in writing describing in reasonable detail the
nature of the dispute, and will request that the AAA
furnish a list of five (5) possible arbitrators who
shall have at least five (5) years experience in
information and cable television technology matters.
Each Party shall have fifteen (15) days to reject two
of the proposed arbitrators. If only one individual
has not been so rejected, he or she shall serve as
arbitrator; if two or more individuals have been so
rejected, the AAA shall select the arbitrator from
those individuals.
c. The arbitration will be governed by the Commercial
Arbitration Rules of the AAA, except as expressly
provided in this Article. However, the arbitration
will be administered by any organization mutually
agreed upon by the Parties. If the Parties are unable
to agree upon the organization to administer the
arbitration, it will be administered by the AAA. The
arbitrator may not amend or disregard any provisions
of this Article.
d. The arbitrator will allow such discovery as is
appropriate to the purposes of arbitration in
accomplishing fair, speedy and cost effective
resolution of disputes. The arbitrator will reference
the rules of evidence of the Federal Rules of Civil
Procedures then in effect in setting the scope and
direction of such discovery. The arbitrator will not
be required to, but is not prohibited from, making
findings of fact or rendering opinions of law.
e. The arbitration shall be held in Delaware and shall
commence within thirty (30) days or the earliest
available date set by the AAA, whichever is earlier.
f. The decision of an award rendered by the arbitrator
will be final and binding on the Parties. Judgment on
the award may be entered in and enforced by any court
of competition jurisdiction.
g. Each Party agrees to pay to bear joint and equal
responsibility for all fees payable to the American
Arbitration Association and the arbitrator with
respect to any arbitration initiated hereunder.
<PAGE>
h. In no event shall the arbitrator hear or rule upon a
demand for penalties or punitive damages. Punitive
damages are expressly excluded from this arbitration
provision and each Party agrees it has no right to
recover, and hereby waives the right to recover,
punitive damages from the other Party. Any award
which includes or purports to include penalties or
punitive damages shall be void as to the amount of
penalties or punitive damages awarded.
12.4 Enforcement. Other than those matters involving injunctive
relief as a remedy, or any action necessary to enforce the award of
the arbitrator, the provisions of this Section are a complete defense
to any suit, action or other proceeding instituted in any court or
before any administrative tribunal with respect to any dispute,
controversy or claim arising out of or related to this Agreement or
the creation, validity, interpretation, breach or termination of this
Agreement. Nothing in this Section prevents the Parties from
exercising the termination rights set forth in this Agreement.
12.5 Work During Arbitration. Spyglass shall continue to
provide the Work in accordance with this Agreement, and GI will
continue to make payments during the arbitration proceedings unless
Spyglass is bringing an action under this Section for nonpayment by
GI, in which case the continued provision of Work is contingent upon
GI's placing the unpaid amounts in an escrow account pending
resolution of the dispute.
12.6 Enforcement; Immediate Injunctive Relief. The Parties agree
that the exclusive method of dispute resolution is set forth in the
procedures established in Section 12.3 and the rights and remedies
provided in this Agreement are the exclusive rights and remedies for
the Parties as against each other and there shall be no other rights
or remedies whether they be in contract, tort, strict liability,
equity or otherwise. The Parties agree that the only circumstances in
which disputes between them will not be subject to the arbitration
provisions of this Agreement are instances where the damages to a
Party resulting from a breach will be so immediate, so large or
severe, and so incapable of adequate redress after the fact that a
temporary restraining order or other immediate injunctive relief is
the only adequate remedy. If a Party files a pleading with a court
seeking immediate injunctive relief and the injunctive relief sought
is not awarded in substantial part, the Party filing the pleading
seeking immediate injunctive relief shall pay all of the costs and
attorneys' fees of the other Party.
13. GENERAL.
13.1 Notices. Wherever one Party is required or permitted to
give written notice to the other under this Agreement, such notice
will be given by hand, by certified U.S. mail, return receipt
requested, by overnight courier, or by fax and addressed as follows:
<PAGE>
If to GI: with a copy to:
General Instrument Corporation General Instrument Corporation
101 Tournament Drive 101 Tournament Drive
Horsham, PA 19044 Horsham, PA 19044
Attn: Exec. VP, Business Attn: Senior VP and General
Development Counsel
Phone: (215) 323-1112 Phone: (215) 323-1203
Fax: (215) 323-1111 Fax: (215) 323-1293
If to Spyglass: with a copy to:
Spyglass, Inc. Hale and Dorr LLP
1240 East Diehl Road 60 State Street
Naperville, Illinois 60563 Boston, Massachusetts 02109
Attn: Gary Vilchick Attn: Michael J.Bevilacqua,
Esq.
Phone: (630) 245-4610 Phone: (617) 526-6448
Fax: (630) 245-6697 Fax: (617) 526-5000
All such notices shall be effective upon receipt. Either Party
may designate a different notice address from time to time upon
giving ten (10) days' prior written notice thereof to the other
Party.
13.2 Relationship of the Parties.
a. Spyglass is and shall at all times during the Term
remain, an Independent Contractor. This Agreement
will not be construed as creating any partnership,
agency relationship or other form of legal association
that would impose liability upon one Party for the
other Party's actions or failure to act. Spyglass has
no authority, express or implied, to assume or create
any obligations, responsibility, or liability on
behalf of GI or to bind GI in any manner whatsoever
and GI has no authority, express or implied, to assume
or create any obligations, responsibility, or
liability on behalf of Spyglass or to bind Spyglass in
any manner whatsoever.
b. Each Party shall be responsible for the management,
direction and control of its employees and other
agents and such employees and other agents will not be
employees of the other Party.
c. Except where and to the extent this Agreement
expressly provides that Spyglass will perform certain
identified services as agent for GI, the Work shall be
performed under the control, management and
supervision of Spyglass.
13.3 Assignment. Neither Party may, or will have the power to,
assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of the other Party.
Notwithstanding any provision to the contrary, either Party will be
permitted to assign all or any portion of its rights and obligations
under this Agreement to:
<PAGE>
a. another entity that acquires all or substantially all
of its assets;
b. an Affiliate; or
c. a successor in a merger, acquisition or divestiture of
all or a portion of such Party.
Such assignment shall not relieve the assigning Party of its
obligations under this Agreement. This Agreement will be binding on
the Parties and their respective successors and permitted assigns.
Except as expressly permitted in this Agreement any other purported
assignment of the rights or obligations of a Party hereunder shall be
null, void and of no force or effect.
13.4 Counterparts. This Agreement may be executed in one or
more parts, all of which when taken together will constitute one
single agreement between the Parties.
13.5 Headings. The Section headings used in this Agreement are
included for ease of reference and convenience and shall not be
considered in interpreting or construing this Agreement.
13.6 Compliance with Laws. Spyglass' performance under this
Agreement, as well as all Work provided hereunder, shall comply with
all applicable U.S. federal, state and local laws and ordinances, and
all orders, rules, regulations and requirements thereunder.
13.7 Governing Law. This Agreement shall be governed by and
construed in accordance with laws of the State of Delaware, without
regard to its choice of law provisions.
13.8 Waiver. The waiver by either Party of a breach or a
default of any provision of this Agreement by the other Party shall
not be construed as a waiver of any succeeding breach of the same or
any other provision, nor shall any delay or omission on the part of
either Party to exercise or avail itself of any right, power or
privilege that it has, or may have hereunder, operate as a waiver of
any right, power or privilege by such Party.
13.9 Construction. The negotiating and drafting of this
Agreement has been participated in by each Party and not by either
Party to the exclusion of the other and, for all purposes, this
Agreement shall be deemed to have been drafted jointly by the
Parties. The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent,
and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement.
13.10 Survival. The obligations and rights of the Parties set
forth in Articles 5, 7, 9, 10, and 13, and Sections 8.2, 11.6, and
12.3 shall survive any expiration or termination of this Agreement
<PAGE>
13.11 Severability. Any provisions hereof which are
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdictions, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof
or affecting the validity or enforceability of such provision in any
other jurisdiction.
13.12 Excused Performance. A Party shall be excused from
performing an obligation under this Agreement and shall not be
considered in default to the extent such Party's performance has been
prevented, in whole or in part, by (i) an act of Force Majeure, or
(ii) the non-performance of any other Party to this Agreement;
provided, however, that a Party shall not be so excused from the
performance of its obligations under this Agreement to the extent
that the other Party's non-performance is attributable to the Party
seeking to be excused from the performance of its obligations under
this Agreement failing to perform its obligations under this
Agreement.
13.13 Suspension of Performance. If either Party is
prevented by Force Majeure from performing any of its obligations
under this Agreement, other than making payments due and payable
hereunder, it is agreed that upon such Party's providing written
notice and full particulars of such Force Majeure to the other Party
as soon as practicable after commencement of the occurrence of the
cause relied on, the obligations of the Party giving such notice, so
far as they are affected by such Force Majeure, shall be suspended
but only during the continuation of such inability, and the affected
Party shall undertake to remedy such cause or inability as soon as
practicable.
13.14 Force Majeure Notification. The notice referred to in
the preceding Section shall be given by the Party claiming Force
Majeure hereunder and shall describe the nature of the Force Majeure
event, the extent of the impact on the ability of such Party to
perform its obligations hereunder and the expected timetable for
remedying the Force Majeure. If it appears that the Force Majeure
cannot be remedied, the notice shall so state. Should any Force
Majeure event occur, the Parties agree to cooperate to determine how
such event can best be remedied to avoid, or minimize the duration
of, any suspension hereof including, but not limited to, good faith
negotiations to modify this Agreement to allow for the continuation
of the affected performance. When the event of Force Majeure has
ceased or been remedied, the Party whose performance has been
affected shall provide written notice to the other Party stating that
the Force Majeure event has ceased or been remedied.
13.15 Press Release. Neither Party shall issue any form of
news release regarding this Agreement or any other arrangement
entered into in connection therewith, without the prior written
consent of the other Party, which consent shall not be withheld
unreasonably, except with respect to matters required to be disclosed
pursuant to applicable securities laws.
<PAGE>
13.16 Entire Agreement. This Agreement and all Exhibits
and attachments hereto as well as the NDA (in accordance with the
provisions of Article 7) constitute the final written expression of
all terms of the Agreement relating to the transactions described
herein. This Agreement supersedes all previous communications,
representations, agreements, promises or statements, either oral or
written, with respect to such transactions. No addition to or
modification of any provision of this Agreement will be binding
unless made in writing and signed by both Parties.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the Effective
Date.
GENERAL INSTRUMENT CORPORATION SPYGLASS, INC.
By: /s/ Richard C. Smith By:/s/ Michael F. Tyrrell
Name: Richard C. Smith Name: Michael F. Tyrrell
Title: Executive VP Title: EVP Business Development
Date: 10/19/98 Date: 10/19/98
<PAGE>
EXHIBIT A
Statement of Work
TO BE PREPARED JOINTLY BY THE PARTIES IN ACCORDANCE WITH SECTION
2.1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
Payment Schedule
Dedicated ResourcesResources
Position Annual Rate Annual Rate Annual Rate
Year 1 Year 2 Year 3
Project Manager *** *** ***
Architect *** *** ***
Engineer *** *** ***
QA Specialist *** *** ***
Technical Doc Specialist *** *** ***
Practice Manager *** *** ***
Systems Administrator *** *** ***
Administrator *** *** ***
The above rates shall be *** for any dedicated resources that are
permanently assigned to a GI facility.
Spyglass SpecialistsSpecialists
Position Hourly Rate Hourly Rate Hourly Rate
Year 1 Year 2 Year 3
Project Manager *** *** ***
Architect *** *** ***
Engineer *** *** ***
QA Specialist *** *** ***
Technical Doc Specialist *** *** ***
Practice Manager *** *** ***
Position Descriptions
Project Manager _ Knowledgeable in all aspects of software product
development cycles and software support issues. Spyglass Product
Managers will have day to day management responsibility of the
different groups within the DSIC. Core functions of the Spyglass
Program Manager are:
[_] Responsible for day-to-day management of the project groups
(i.e. Development, SI&T, etc.)
[_] Responsible for the development and management of project
work plans
[_] Communicate project direction, status, issues, and changes
to the appropriate management personnel
[_] Manage project issues and change management processes
[_] Monitor project progress and project reporting related
status
[_] Assist in managing project costs within the budget
Architect _ Knowledgeable in all aspects of the technologies being
implemented and able to develop large scale system design. Spyglass
Architects focus at a strategic level as opposed to tactical
implementation. Core functions of the Spyglass Architects are:
<PAGE>
[_] Provide technical understanding of the project
[_] Provide technical understanding of the tools and
technologies being deployed
[_] Provide technical leadership in the system design and
architecture
[_] Participate in appropriate project planning sessions
[_] Responsible for dissemination of appropriate technical
knowledge to the client
Engineer _ Knowledgeable in the technologies being implemented.
Spyglass engineers will provide support to General Instrument as
appropriate. Core functions of the Spyglass Engineers are:
[_] Participate in appropriate aspects of application
development (i.e. analysis, design, construction, testing &
implementation)
[_] Participate in appropriate project planning sessions
[_] Responsible for the completion of assigned program
deliverables
[_] Responsible for dissemination of appropriate technical
knowledge to client
[_] Provide technical support to GI customers
[_] Solve technical problems in area of expertise
[_] First point of contact for customer service
QA Specialist _ Knowledgeable in software engineering development.
Spyglass QA specialists will be responsible mainly in the SI&T and
certification functions. Core functions of the Spyglass QA Specialist
are:
[_] Design, implement, and execute test procedures and cases
[_] Develop the associated automation framework for testing
[_] Recognize additional testing requirements within existing
test procedures and cases
[_] Independently prepare expected results for test cases
[_] Identify, document, and resolve all discrepancies
Technical Documentation Specialist _ Experienced in a wide range of
technical communications deliverables. Spyglass Technical
Documentation Specialists will document the technical information
regarding the DSIC. Core functions of the Spyglass Technical
Documentation Specialist are:
[_] Responsible for the creation of technical documentation
[_] Responsible for the creation of any training materials
[_] Responsible for the creation of the acceptance plan
[_] Responsible for maintenance of a bulletin board for support
issues
Practice Manager _ Knowledgeable in business and technical issues
affecting the organization and industry. Spyglass Management
Consultants will oversee and manage the entire DSIC. Core functions
of the Spyglass Management Consultant are:
[_] Responsible for the relationship with General Instrument
and overall success of the DSIC
[_] Provide business and technical understanding of the
organization and industry
[_] Provide knowledge regarding technologies and deliverables
[_] Provide resolutions to outstanding issues
[_] Assist in project planning and project charter development
[_] Provide business process support
[_] Overall budget and project responsibility
<PAGE>
System Administration _ Experienced in the installation and
maintenance of hardware and software to support the day to day
operations of the DSIC. Spyglass System Administrators will setup
remote facilities for the DSIC. Core functions of the Spyglass System
Administrator are:
[_] Responsible for the installation and maintenance internal
networks
[_] Responsible for the installation and maintenance of day to
day hardware and software needs
[_] Purchase, negotiate, and research new hardware and software
[_] Maintain all of the internal infrastructure for remote
sites
[_] Maintain relationships with external vendors in regards to
infrastructure hardware and software
Administration _ Experienced in providing support to the day to day
operations of the DSIC. Core functions of the Spyglass System
Administrator are:
[_] Responsible clerical type of functions
[_] Responsible for providing the necessary reporting of the
DSIC
[_] Responsible for the coordination of external usage of lab
time, equipment, etc.
[_] Responsible for tracking software and equipment
[_] Provide assistance to Spyglass and General Instrument
management in the running of the DSIC facilities
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C
A. Staffing Schedule
Q1 Q2 Q3 Q4 Total Total Total
Position Year Year Year Year Year Year Year
1 1 1 1 1 2 3
Project Manager *** *** *** *** *** *** ***
Architect *** *** *** *** *** *** ***
Engineer *** *** *** *** *** *** ***
QA *** *** *** *** *** *** ***
Technical Writer *** *** *** *** *** *** ***
Management *** *** *** *** *** *** ***
System *** *** *** *** *** *** ***
Administration
Administration *** *** *** *** *** *** ***
Totals *** *** *** *** *** *** ***
Personnel Qualifications
1. Project Manager
2. Architect
3. Engineer
4. QA
5. Technical Writer
6. Management
7. System Administration
8. Administration
<PAGE>
EXHIBIT D
Key Employees
TO BE IDENTIFIED JOINTLY BY THE PARTIES DURING THE TERM
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT E
Cable Industry EntitiesIndustry EntitiesEntities
List of Cable Entities, including all Affiliates thereof, in
both Domestic and International Markets
***
<PAGE>
Exhibit F
Form of GI's Invention and Nondisclosure Agreement
General Insturment Logo (Registered Trademark)
NON-DISCLOSURE AGREEMENT
Agreement made this day of 199__, by and between GENERAL
INSTRUMENT CORPORATION, having an office at 101 Tournament Drive,
Horsham, Pennsylvania 19044 (the "Company") and
________________________, having an office at
_____________________________________ ("Recipient").
1. Recitals. The Company desires to disclose, and Recipient desires
to receive, information which is deemed to be confidential, secret
and/or proprietary to the Company for the purpose of enabling the
Recipient to provide services to Spyglass DSIC, Inc. in support of an
agreement with the Company.
2. Definition. "Confidential Information" shall mean any and all
information disclosed by the Company to Recipient, including, without
limitation, system concepts, electronic configurations, component
specifications, logic diagrams, equipment designs, system designs,
system architecture, protocols, software, processes, financial
matters, business matters, research programs and any information
which can be obtained by examination, testing or analysis of any
hardware, software or any component part thereof provided by Company
to Recipient.
3. Protection of Confidential Information. In consideration of the
Company disclosing from time to time at its own discretion certain of
its Confidential Information to Recipient or its officers, employees
or agents, Recipient agrees that it shall use the Confidential
Information only for the purposes stated in this Agreement and that
it will not disclose at any time, nor permit its officers, employees
or agents to disclose at any time (either during their respective
employment by Recipient or thereafter), nor appropriate or use on its
own behalf or on the behalf of others, any Confidential Information,
except as otherwise provided herein, without in each instance first
obtaining the Company's written consent thereto. Except as necessary
to fulfill the purposes of this Agreement, Recipient further agrees
not to make, or permit to be made by its officers, employees or
agents, copies, abstracts or summaries of any Confidential
Information, including, but not limited to, pictures, drawings,
specifications, plans, data, notes and reports embodying any
Confidential Information. Recipient further agrees to return to the
Company, within ten (10) days following the Company's request, all
such documents or other embodiments of any Confidential Information.
Recipient acknowledges and agrees that all Confidential Information
disclosed by the Company is provided AS IS without any warranty,
whether express or implied, as to its accuracy, completeness or use
for a particular purpose unless otherwise specifically set forth in
writing by the Company.
<PAGE>
4. Exceptions. The obligations under this Agreement shall not
apply to Confidential Information which (a) is available to the
public by publication in a single source; (b) is rightfully received
from a third party without restriction on disclosure and without
breach of this Agreement; (c) is independently developed by the
receiving party provided that any person developing same have not had
access to the Confidential Information; (d) is approved for release
by written authorization of the Company; (e) is disclosed pursuant to
a requirement of a governmental agency or by judicial requirement.
5. No Rights Granted. This Agreement shall not be construed as
granting or conferring, either expressly or impliedly, any rights,
licenses or relationships by the furnishing of Confidential
Information specified above or pursuant to this Agreement. Without
in any way limiting the foregoing it is specifically understood and
agreed that Recipient shall in no way obtain any copyright in any
computer program furnished hereunder nor in any translation,
modification, correction or addition thereto.
6. Equitable Remedies. Recipient acknowledges and agrees that the
unauthorized use or disclosure of Confidential Information will cause
serious, irreparable and significant harm, damage or loss to the
Company, which will be difficult or impossible to ascertain.
Accordingly, Recipient agrees that the Company will have, in addition
to all other remedies at law or in equity, the right to seek
immediate injunctive relief to enforce Recipient's obligations under
this Agreement. In the event of a breach of this Agreement by
Recipient, all costs, including reasonable attorneys' fees, incurred
by the Company in enforcing this Agreement shall be borne by
Recipient.
7. Entire Agreement. This Agreement is the entire agreement
between the parties with respect to the subject matter contained
herein and supersedes all prior or contemporaneous oral or written
agreements concerning such subject matter.
8. Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Pennsylvania and the parties
hereto agree to submit themselves to the jurisdiction of all federal
and state courts within such Commonwealth.
9. Amendments or Waivers. This Agreement may not be amended
except by written agreement signed by duly authorized representatives
of both parties. No failure to or delay in exercising any right
under this Agreement will operate as a waiver of such right.
10. No Future Obligations and Non-Exclusivity. Neither this
Agreement nor any obligation undertaken hereby shall obligate either
party to enter into any further business relationship. Except as
otherwise agreed to in writing by the parties and subject to the
terms of this Agreement, either party may meet, exchange information,
enter into agreements and conduct business of any kind with third
parties, to the exclusion of the other party hereto, relating to the
purpose or project for which Confidential Information is disclosed
hereunder.
<PAGE>
11. Publicity. Neither party shall publicly announce or disclose
the terms of this Agreement, or advertise or release any publicity
regarding this Agreement or the fact that the parties are engaged in
discussions, without the prior written consent of the other party.
This provision shall survive the expiration, termination or
cancellation of this Agreement.
12. Binding Effect. This Agreement shall be binding on and
inure to the benefit of the Parties and their respective successors
and assigns, but no Party shall have the power to assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the other Party hereto or as otherwise provided
herein. Notwithstanding the foregoing, a Party may, without the
consent of the other Party, assign its rights and obligations under
this Agreement to any successor entity in the event of such Party's
sale or transfer of substantially all of the assets or stock of such
Party or a division thereof responsible for the performance of such
Party's obligations hereunder, or in the event of a merger,
consolidation or reorganization; provided, however, in any such
event, such assignor shall not be relieved of any of its obligations
hereunder except to the extent performed or satisfied by the
assignee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
General Instrument Corporation
By:__________________________
Name:
Title:
RECIPIENT:
By:___________________________
Name:
Title:
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit G
Spyglass' Severance Policies
November 3, 1997
<<Name>>
<<Address>>
<<City>>
Dear <<First Name>>:
To remain competitive in today's market, Spyglass, Inc. has found it
necessary to change its business strategies and restructure some
organizations. Because of these business decisions, it is necessary
to inform you that your employment with Spyglass will be terminated.
This letter informs you that effective today, Spyglass is giving you
a *** day notification period. During this period, you will receive
***. You are not expected ***.
At the conclusion of the notification period on December 3, 1997,
your employment with Spyglass will officially terminate. If you
agree to the terms contained in this letter agreement, you will then
be eligible for the following severance package: Employees with up
to one (1) year of service shall receive *** of severance pay.
Employees with one year or more of services shall receive *** of
severance pay for every *** worked. Your are eligible to be paid
<<SevDays>> Weeks of severance (through <<EndDate>>) at ***. Such
salary payments shall continue to be made in accordance with the
Company's normal payroll practices and be subject to all applicable
withholding requirements. Paid time leave shall continue to accrue
through December 3, 1997 and will be included in your termination
check to be paid on December 3rd.
Because the purpose of this severance package is to ease our
transition to new employment you will be provided with up to *** of
outplacement assistance; however, your outplacement assistance and
severance payments will cease upon your acceptance of other
employment. You agree that you will notify the Company promptly upon
acceptance of any employment elsewhere.
In addition, the company will pay for the medical and dental benefits
you presently c carry through <<InsDate>> based on your acceptance of
this agreement. You may elect to continue your medical and dental
coverage subsequent to <<InsDate>> at your expense, subject to the
COBRA stipulations. You will be sent further information regarding
extending these benefits upon termination.
All stock options available to be exercised as of December 3, 1997
must be executed within ninety (90) days from termination (March 3,
1998).
Acceptance of this agreement acknowledges yo0u concurrence with the
following terms.
<PAGE>
.You acknowledge the continuing applicability of the provisions of
the Invention and Non-Disclosure Agreement executed by you, between
Spyglass and you.
.You agree that you will not make any negative or derogatory comments
or disclose any negative or derogatory information about the Company
or its management, business, personnel, products or services. The
Company agrees that it will not make any negative or derogatory
comments or disclose any negative or derogatory information about you
or your employment with the Company.
.On behalf of yourself, your agents, representatives, attorneys,
assigns, heirs executors and administrators, you hereby release and
forever discharge the company and its employees, officers, directors,
shareholder, representatives and agents from any and all claims that
you have relating to or pertaining to your employment or the
termination thereof or to your ownership of shares or options to
acquire shares in the Company, or any other claim that arose or could
have arisen on or before the date of this letter agreement, including
but not limited to claims in tort or contract, under Title VII of the
Civil Rights Act of 1964, 42 U.S.C. s2000e et. Seq., the American
with Disabilities Act, 42 U.S. C. s12101 et. seq., the Age
Discrimination in Employment Act, 29 U.S.C. s621 et. seq., the Civil
rights Act, Mass.Gen L. c 12 xx11H11I et seq., the Equal Rights Act,
mass. Gen L. c93 s102 et seq., the Mass Gen L. c 151B x1 et seq. and
damages arising out of all employment discrimination, wrongful
discharge or other common law claims excepts any and all such claims
which may arise out of the company's nonperformance of its
obligations under this letter agreement. You represent and warrant
that you have not filed any complaints, charges or claims for relief
against the Company with any local, state or federal court or
administrative agency, with currently are outstanding.
.This letter agreement shall inure to the benefit of an be binding
upon the parties hereto and their successors and assigns.
.You acknowledge that it would be difficult to fully compensate the
Company for damages for breach by you of any of the provisions
contained in this letter agreement. Accordingly, you specifically
agree that the Company shall be entitled to equitable relief to
enforce such provisions without the necessity of proving actual
damages.
.You agree to immediately return to Spyglass, any equipment or
property owned by the Company that your are using;
.This agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
You should consult your own attorney before signing this letter and
may take up to forty-five (45) days to do so. If, after reviewing
this letter with your attorney, you find that its terms and
conditions are satisfactory to you, sign and return this letter in
the enclosed stamped envelope. If you sign this letter, you may
change your mind an revoke your agreement during the seven (7) day
period after you have signed it. If you do not so revoke, this
letter will become a binding agreement between you and the Company
upon the expiration of the seven (7) day revocation period.
<PAGE>
Attachment A of this letter provides you with disclosures required by
federal law regarding the employees eligible for this severance
package. By your signature below, you acknowledge that you have read
Attachment A and understand its contents.
Very truly yours,
SPYGLASS, INC.
Douglas P. Colbeth
President & CEO
I hereby agree to the terms and conditions set forth above. I have
been given at least 45 days to consider this letter agreement and I
have chosen to execute this letter agreement on the date indicated
below. I intend that this letter will become a binding agreement
between me and the Company if I do not revoke my acceptance within
seven (7) days.
<<Name>. Date
Attachment
EXHIBIT 10.27
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
OPERATING AGREEMENT
This Agreement is entered into as of October 19, 1998 (the
"Effective Date") among Spyglass, Inc., a Delaware corporation having
a principal place of business at 1240 E. Diehl Road, 4th Floor,
Naperville, IL 60563 ("Spyglass"), Spyglass DSIC, Inc., a Delaware
corporation having a principal place of business at 1240 E. Diehl
Road, 4th Floor, Naperville, IL 60563 (the "Subsidiary"), and General
Instrument Corporation, a Delaware corporation having a place of
business at 101 Tournament Drive, Horsham, Pennsylvania 19044 ("GI").
Spyglass, the Subsidiary and GI are hereinafter sometimes referred
to individually as a "Party" and collectively as the "Parties."
WHEREAS, contemporaneously with the execution of this Agreement,
the Company and the Purchaser are entering into a Digital Software
Integration Center Sourcing Agreement (the "Sourcing Agreement");
WHEREAS, contemporaneously with the execution of this Agreement,
the Company has organized the Subsidiary for the purpose of operating
and managing a Digital Software Integration Center in accordance with
the terms of the Sourcing Agreement:
WHEREAS, Spyglass, the Subsidiary and GI desire to enter into
this Agreement for the purpose of establishing certain rights and
obligations with respect to the Subsidiary;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Spyglass, the Subsidiary and GI, each intending to be
legally bound, hereby agree as follows:
1. Organization of Subsidiary.
1.1 Spyglass organized the Subsidiary as a Delaware
corporation on October 14, 1998. The Subsidiary has engaged in no
activities to date other than routine matters incident to its
organization.
1.2 The Certificate of Incorporation and By-laws of the
Subsidiary are attached hereto as Exhibit A and Exhibit B,
respectively. The Board of Directors of the Subsidiary consists of
Douglas P. Colbeth and Gary Vilchick.
1.3 Promptly following the execution of this Agreement,
(a) the Subsidiary shall issue and sell, and Spyglass shall purchase,
900 shares of the common stock, $.01 par value per share (the "Common
Stock"), of the Subsidiary for a purchase price of *** per share, and
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Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
(b) the Subsidiary shall issue and sell, and GI shall
purchase, 100 shares of Common Stock of the Subsidiary for a purchase
price of *** per share.
1.4 Each of Spyglass and GI represents as follows with
respect to its purchase of Common Stock of the Subsidiary:
(a) It is purchasing such shares for its own account
for investment only, and not with a view to, or for sale in
connection with, any distribution of such shares in violation of the
Securities Act of 1933 (the "Securities Act"), or any rule or
regulation under the Securities Act.
(b) It understands that (i) such shares have not been
registered under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act and (ii) such
shares cannot be sold, transferred or otherwise disposed of unless
they are subsequently registered under the Securities Act or an
exemption from registration is then available.
(c) Legends substantially in the following form will
be placed on the certificate representing such shares:
"The shares represented by this certificate have
not been registered under the Securities Act of
1933, as amended, and may not be sold,
transferred or otherwise disposed of in the
absence of an effective registration statement
under such Act or an opinion of counsel
satisfactory to the corporation to the effect
that such registration is not required."
"The shares represented by this certificate are
subject to restrictions on transfer and a
purchase option set forth in an agreement between
Spyglass, Inc. and certain other parties dated
October 19, 1998, a copy of which is available
upon request to the Secretary of Spyglass, Inc."
2. Operation of Subsidiary.
2.1 The Subsidiary shall not engage in any activities,
shall not acquire any assets, shall not incur any liabilities and
shall not hire any personnel except for the specific purpose of
performing services for GI under the Sourcing Agreement and otherwise
in accordance with the terms of the Sourcing Agreement.
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
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<PAGE>
2.2 Without limiting the restrictions set forth in
Section 2.1, the Subsidiary shall not, without the prior written
consent of both Spyglass and GI, take any of the following actions:
(a) amend its Certificate of Incorporation or By-
laws;
(b) issue any shares of capital stock, or any other
securities exercisable for, convertible into or exchangeable for any
shares of capital stock of the Subsidiary;
(c) declare or pay any dividends or distributions on
its outstanding Common Stock or repurchase or reacquire any
outstanding shares of its Common Stock;
(d) merge with or into or consolidate with any other
entity, or sell or otherwise dispose of all or substantially all of
its properties or assets to any other entity; or
(e) voluntarily liquidate or dissolve.
2.3 The Subsidiary will operate its business in compliance
with all laws, rules and regulations applicable to the Subsidiary and
its business.
3. Purchase Option. GI shall have an option (the "Purchase
Option") to purchase, for cash, all (but not less than all) of the
shares of Common Stock of the Subsidiary owned by Spyglass, upon the
terms and conditions set forth in this Section 3.
3.1 Term of the Purchase Option.
(a) The Purchase Option shall become exercisable upon
the earliest to occur of the following dates: (i) ***, provided that
if GI elects to extend, pursuant to the terms of the Sourcing
Agreement, the expiration of the Sourcing Agreement from October 31,
2001 to October 31, 2002, the Purchase Option shall instead become
exercisable on ***; (ii) the date on which the Sourcing Agreement is
terminated by GI pursuant to Section 11.3 of the Sourcing Agreement;
and (iii) the date on which a Spyglass Change in Control (as defined
below) occurs. If the Purchase Option becomes exercisable pursuant
to clause (i) of this Section 3.1(a), the Purchase Option shall
continue in effect until April 30, 2001 or (if GI elects to extend,
pursuant to the terms of the Sourcing Agreement, the expiration of
the Sourcing Agreement from October 31, 2001 to October 31, 2002)
April 30, 2002. If the Purchase Option becomes exercisable pursuant
to clauses (ii) or (iii) of this Section 3.1(a), the Purchase Option
shall continue in effect through and including the date that is six
months after the date on which the Purchase Option became
exercisable. The period during which the Purchase Option is
exercisable shall be referred to in this Agreement as the "Option
Term."
3
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote
omissions.
(b) For purposes of this Agreement, a "Spyglass
Change in Control" shall mean the consummation of (i) a merger,
consolidation, reorganization, recapitalization or tender offer
involving Spyglass, immediately following which the individuals and
entities who were the beneficial owners of the Common Stock of
Spyglass immediately prior to such transaction beneficially own,
directly or indirectly, less than 60% of the combined voting power of
the then-outstanding securities entitled to vote generally in the
election of directors of Spyglass or the resulting or acquiring
corporation in such transaction, (ii) the sale of all or
substantially all of the assets of Spyglass, or (iii) the acquisition
by any of the companies listed on Exhibit C attached hereto of
beneficial ownership (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) of shares of common stock of
Spyglass representing 20% or more of the outstanding common stock of
Spyglass.
3.2 Purchase Price. The purchase price to be paid by GI
to Spyglass for the shares of Common Stock of the Subsidiary owned by
Spyglass (the "Purchase Price") shall be *** of the fair market value
of the Subsidiary as of the date on which GI delivers the Exercise
Notice (as defined in Section 3.3(a) below) to Spyglass (the "Fair
Market Value"), to be determined as follows:
(a) Upon the delivery by GI of an Exercise Notice to
Spyglass, GI and Spyglass shall commence discussions regarding, and
shall use good faith efforts to agree upon, the Fair Market Value.
If GI and Spyglass reach such an agreement, they shall execute a
written instrument setting forth the agreed-upon Fair Market Value.
(b) If GI and Spyglass do not agree upon the Fair
Market Value within 30 days after the date (the "Exercise Date") on
which GI delivers the Exercise Notice to Spyglass, then:
(i) The Fair Market Value shall be the average
of the estimates, by each of three investment banking firms selected
in accordance with this Section 3.2(b) (the "Investment Banks"), of
the Fair Market Value.
(ii) GI and Spyglass shall each select, within 45
days of the Exercise Date, one Investment Bank, and shall deliver
notice to each other of the Investment Bank so selected. Neither GI
nor Spyglass may select an Investment Bank after such Party has
received notice that such Investment Bank has been selected by the
other Party. Spyglass and GI shall cause the Investment Banks
4
<PAGE>
selected by them to together select a third Investment Bank no later
than 30 days following the Exercise Date.
(iii) Promptly following the selection of the
third Investment Bank, GI and Spyglass shall jointly engage the three
Investment Banks to make a written estimate of the fair market value
of the Subsidiary as of the Exercise Date (without applying any
discount due to a lack of a public trading market for the Common
Stock of the Subsidiary), and to deliver to each of GI and Spyglass,
as soon as practicable, but in any event no later than 75 days
following the Exercise Date, a written valuation report stating the
estimated fair market value of the Subsidiary and setting forth in
reasonable detail the methodology by which such estimate was
determined. The valuation estimates by each Investment Bank shall
take into account such factors as such Investment Bank, in its
reasonable discretion, deems relevant, which factors may include the
valuations of comparable privately or publicly held companies and the
estimated value of the equity of the Subsidiary in a private equity
financing, an initial public offering, and/or an acquisition of the
entire company. The valuation estimates prepared by the Investment
Banks shall be binding upon both GI and Spyglass and neither GI nor
Spyglass may dispute the fair market value estimates or the
methodologies used in arriving at such estimates.
(iv) GI shall pay the fees and expenses of the
Investment Bank selected by it; Spyglass shall pay the fees and
expenses of the Investment Bank selected by it; and GI and Spyglass
shall each pay one-half of the fees and expenses of the third
Investment Bank.
3.3 Exercise Procedure.
(a) To exercise the Purchase Option, GI must deliver
a written notice to Spyglass (the "Exercise Notice") which states
GI's election to exercise the Purchase Option and specifies a closing
date for the exercise of the Purchase Option (the "Closing Date"),
which date shall be no earlier than 60 days and no later than 90 days
after the Exercise Date; provided that if the Purchase Option becomes
exercisable pursuant to clause (i) of Section 3.1(a), the Closing
Date specified shall be the expiration date of the Sourcing
Agreement. The Exercise Notice must be delivered by GI to Spyglass
during the Option Term (although the Closing Date may occur after the
expiration of the Option Term, subject to the time limits in the
preceding sentence). If GI does not deliver an Exercise Notice to
Spyglass prior to the expiration of the Option Term, the Purchase
Option shall expire. GI shall be under no obligation to exercise the
Purchase Option. GI's delivery of an Exercise Notice shall be deemed
an irrevocable commitment to purchase the shares of Common Stock of
the Subsidiary owned by Spyglass, subject to the terms and conditions
set forth in this Section 3.
5
<PAGE>
(b) On the Closing Date, subject to compliance with
all applicable laws and regulations (including without limitation the
Hart-Scott-Rodino Antitrust Improvements Act of 1976):
(i) Spyglass shall deliver to GI: (A) one or
more stock certificates representing the shares of Common Stock of
the Subsidiary owned by Spyglass, duly endorsed in blank or
accompanied by duly executed stock powers; (B) a certificate of the
Secretary of Spyglass certifying that Spyglass is the record and
beneficial owner of such shares of Common Stock, and that such shares
are not subject to any lien, pledge, security interest or other
encumbrance; and (C) a certificate of the Secretary of State of the
State of Delaware certifying as to the legal existence and good
standing of both the Subsidiary and Spyglass; and
(ii) GI shall: (A) pay to Spyglass the
amount of the Purchase Price, by a wire transfer of immediately
available funds to an account designated by Spyglass; and (B) deliver
to Spyglass a certificate of the Secretary of State of the State of
Delaware certifying as to the legal existence and good standing of
GI.
(c) If on the scheduled Closing Date the consummation
of the purchase and sale of the shares of Common Stock of the
Subsidiary owned by Spyglass cannot take place because the Purchase
Price has not yet been determined or because a legal requirement for
the consummation of such purchase and sale has not yet been
satisfied, the scheduled Closing Date shall be deferred until a
mutually agreeable later date. If such purchase and sale has not
been consummated by the date 120 days following the Exercise Date
(or, if the Purchase Option became exercisable pursuant to
clause (i) of Section 3.1(a), by the date 30 days following the
scheduled Closing Date), then either GI or Spyglass shall have the
right to cancel such pending purchase and sale; provided that neither
GI nor Spyglass may cancel such pending purchase and sale if the
failure to consummate such purchase and sale results primarily from a
breach by such Party of any provision contained in this Agreement or
a failure by such Party to use good faith efforts to effect the
consummation of such purchase and sale.
3.4 Restrictions on Transfer.
(a) Until such time as the Purchase Option has
expired unexercised, Spyglass shall not sell, transfer or otherwise
dispose of, and shall not pledge or otherwise encumber, any of the
shares of Common Stock of the Subsidiary owned by Spyglass, and no
such pledge or encumbrance currently exists. Notwithstanding the
foregoing sentence, Spyglass may transfer its shares of Common Stock
of the Subsidiary to a wholly-owned subsidiary of Spyglass, provided
such subsidiary delivers a written notice to GI agreeing to be bound
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
by the terms and conditions of this Agreement with respect to such
shares of the Subsidiary.
(b) Until such time as the Purchase Option has
expired unexercised, GI shall not sell, transfer or otherwise dispose
of, and shall not pledge or otherwise encumber, any of the shares of
Common Stock of the Subsidiary owned by GI, and no such pledge or
encumbrance currently exists. Notwithstanding the foregoing
sentence, GI may transfer its shares of Common Stock of the
Subsidiary to a wholly-owned subsidiary of GI, provided such
subsidiary delivers a written notice to Spyglass agreeing to be bound
by the terms and conditions of this Agreement with respect to such
shares of the Subsidiary.
3.5 Restrictions Regarding Employees. From and after the
Exercise Date, Spyglass shall not hire any employees of the
Subsidiary, reassign their employment responsibilities such that they
are performing services for Spyglass (rather than the Subsidiary) or
terminate their employment except for valid reasons.
4. Management Services.
4.1 Spyglass shall provide to the Subsidiary, upon the
request of the Subsidiary, the following administrative and support
services: accounting (including processing of accounts receivable
and accounts payable), payroll processing, employee benefits
administration, and such other administrative and support services as
Spyglass and the Subsidiaries shall mutually agree upon. In
addition, Spyglass shall provide executive management services and
advice to the Subsidiary to assist it in performing its obligations
under the Sourcing Agreement.
4.2 As consideration for the provision of services by
Spyglass to the Subsidiary under Section 4.1, the Subsidiary shall
pay ***, of the Subsidiary for each fiscal year of the Subsidiary
(beginning with the fiscal year ending September 30, 1999), as
determined in accordance with generally accepted accounting
principles and Spyglass' accounting principles and practices as
reflected in its audited financial statements filed with the
Securities and Exchange Commission. Such fees shall be payable by
the Subsidiary to Spyglass on a quarterly basis (with any necessary
adjustments made based upon actual financial results for the fiscal
year), or in accordance with such other schedule as may be agreed
upon by Spyglass and the Subsidiary. Spyglass shall be liable for
and shall pay all federal, state, local and foreign taxes incurred by
the Subsidiary as a result of its existence and operations.
7
<PAGE>
4.3 Spyglass shall use good faith efforts in providing
services to the Subsidiary under this Section 4, and shall use the
same degree of care in providing such services as it utilizes in
providing such services for its own operations. In no event shall
Spyglass be liable for any error or omission in providing such
services, or defect in the services provided, except for any error,
omission, or defect attributable to the gross negligence or wilful
misconduct of Spyglass. Spyglass makes no representations,
warranties or guaranties, express or implied (including without
limitation any warranty of merchantability or fitness for a
particular purpose) with respect to the services provided to the
Subsidiary under this Section 4, and shall not be liable for any lost
profits or special, incidental or consequential damages caused by any
delay in providing or any failure to provide such services.
4.4 The provisions of Sections 4.1 and 4.2 shall terminate
upon the expiration or termination of the Sourcing Agreement.
5. Representations of Spyglass. Spyglass hereby represents
and warrants to GI as follows:
5.1 Organization and Standing. Spyglass is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware.
5.2 Authorization of Transaction. Spyglass has all
requisite power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery
of this Agreement by Spyglass and the consummation of the
transactions contemplated hereby by Spyglass have been duly and
validly authorized by all necessary corporate action on the part of
Spyglass. This Agreement has been duly and validly executed and
delivered by Spyglass and constitutes a valid and binding obligation
of Spyglass, enforceable against it in accordance with its terms.
5.3 Noncontravention. Neither the execution and delivery
of this Agreement by Spyglass, nor the consummation by Spyglass of
the transactions contemplated hereby, (a) conflicts with or violates
any provision of the Certificate of Incorporation or By-laws of
Spyglass, (b) requires on the part of Spyglass any filing with, or
permit, authorization, consent or approval of, any governmental
entity, (c) conflicts with, results in breach of, constitutes a
default under, or requires any notice, consent or waiver under, any
contract, agreement or other instrument to which Spyglass is a party
or by which it is bound (other than any consent or waiver which has
already been obtained), or (d) violates any order, writ, injunction,
decree, statute, rule or regulation applicable to Spyglass.
6. Representations of the Subsidiary. The Subsidiary hereby
represents and warrants to GI as follows:
8
<PAGE>
6.1 Organization and Standing. The Subsidiary is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
6.2 Capitalization. The authorized capital stock of the
Subsidiary consists of 1,000 shares of Common Stock, $.01 par value
per share, none of which are issued or outstanding. All of the
shares of Common Stock of the Subsidiary to be issued pursuant to
this Agreement will be, when so issued, duly authorized and validly
issued and fully paid and nonassessable.
6.3 Authorization of Transaction. The Subsidiary has all
requisite power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Subsidiary and the consummation of the
transactions contemplated hereby by the Subsidiary have been duly and
validly authorized by all necessary corporate action on the part of
the Subsidiary. This Agreement has been duly and validly executed
and delivered by the Subsidiary and constitutes a valid and binding
obligation of the Subsidiary, enforceable against it in accordance
with its terms.
6.4 Noncontravention. Neither the execution and delivery
of this Agreement by the Subsidiary, nor the consummation by the
Subsidiary of the transactions contemplated hereby, (a) conflicts
with or violates any provision of the Certificate of Incorporation or
By-laws of the Subsidiary, (b) requires on the part of the Subsidiary
any filing with, or permit, authorization, consent or approval of,
any governmental entity, (c) conflicts with, results in breach of,
constitutes a default under, or requires any notice, consent or
waiver under, any contract, agreement or other instrument to which
the Subsidiary is a party or by which it is bound (other than any
consent or waiver which has already been obtained), or (d) violates
any order, writ, injunction, decree, statute, rule or regulation
applicable to the Subsidiary.
7. Representations of GI. GI hereby represents and warrants
to Spyglass and the Subsidiary as follows:
7.1 Organization and Standing. GI is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware.
7.2 Authorization of Transaction. GI has all requisite
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of
this Agreement by GI and the consummation of the transactions
contemplated hereby by GI have been duly and validly authorized by
all necessary corporate action on the part of GI. This Agreement has
been duly and validly executed and delivered by GI and constitutes a
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valid and binding obligation of GI, enforceable against it in
accordance with its terms.
7.3 Noncontravention. Neither the execution and delivery
of this Agreement by GI, nor the consummation by GI of the
transactions contemplated hereby, (a) conflicts with or violates any
provision of the Certificate of Incorporation or By-laws of GI, (b)
requires on the part of GI any filing with, or permit, authorization,
consent or approval of, any governmental entity, (c) conflicts with,
results in breach of, constitutes a default under, or requires any
notice, consent or waiver under, any contract, agreement or other
instrument to which GI is a party or by which it is bound (other than
any consent or waiver which has already been obtained), or (d)
violates any order, writ, injunction, decree, statute, rule or
regulation applicable to GI.
8. Miscellaneous.
8.1 Successors and Assigns. No Party may assign this
Agreement or any of its rights or obligations hereunder without the
prior written consent of the other Parties, except (i) to the limited
extent permitted by Section 3.4 or (ii) as part of the sale or
transfer of all or substantially all of the business, stock or assets
of Spyglass or GI. This Agreement, and the rights and obligations of
the Parties hereunder, shall be binding upon their successors and
permitted assigns.
8.2 Confidentiality. GI agrees that it will keep
confidential and will not disclose or divulge any confidential,
proprietary or secret information which GI may obtain from Spyglass
or the Subsidiary pursuant to this Agreement, unless such information
is known, or until such information becomes known, to the public;
provided, however, that GI may disclose such information (i) to its
attorneys, accountants, consultants and other professionals to the
extent necessary to obtain their services in connection with its
investment in Spyglass or the Subsidiary, or (ii) to any Affiliate of
GI; subject to the agreement of such party to keep such information
confidential as set forth herein. Spyglass and the Subsidiary each
agree that they will keep confidential and will not disclose or
divulge any confidential, proprietary or secret information which
they may obtain from GI pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the
public; provided, however, that Spyglass and the Subsidiary may
disclose such information (i) to their attorneys, accountants,
consultants and other professionals to the extent necessary to obtain
their services in connection with this Agreement, or (ii) to any
Affiliate of Spyglass or the Subsidiary; subject to the agreement of
such party to keep such information confidential as set forth herein.
8.3 Survival of Representations, Warranties and Covenants.
All representations and warranties contained herein shall survive
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the execution and delivery of this Agreement and continue for a
period of two years thereafter. All covenants shall survive
indefinitely, except as limited in accordance with their terms.
8.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and in the
English language, and shall be delivered by any lawful means, to the
following address:
If to Spyglass or the Subsidiary, at Spyglass, Inc., One
Cambridge Center, Cambridge, Massachusetts 02142, Attn: Chief
Financial Officer, or at such other address or addresses as may have
been furnished in writing by Spyglass to GI; or
If to GI, at 101 Tournament Drive, Horsham, Pennsylvania 19044,
Attn: Executive Vice President, Business Development, with a copy to
the Senior Vice President and General Counsel, or at such other
address or addresses as may have been furnished in writing by GI to
Spyglass.
Any such notices, requests, consents and other communications
shall be deemed delivered upon receipt by the addressee.
8.5 Entire Agreement. This Agreement embodies the entire
agreement and understanding among the Parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
8.6 Amendments and Waivers. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be
amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of
Spyglass, the Subsidiary and GI. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
8.7 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
8.8 Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
8.9 Costs and Expenses. Except as specifically provided
otherwise in this Agreement, all costs and expenses (including
without limitation fees and expenses of attorneys, brokers, agents or
finders) incurred by any Party in connection with this Agreement and
11
<PAGE>
the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
8.10 Titles. The section headings of this Agreement are
for convenience of reference only and shall not be considered in
construing this Agreement.
8.11 Cooperation. Each Party shall, at the request and
expense of the other Party, at any time and from time to time
following the execution of this Agreement, execute and deliver to the
other Party such further instruments and take such further
administrative and ministerial actions as may be reasonably necessary
or appropriate to carry out the purposes and intent of this
Agreement.
8.12 No Third Party Beneficiaries. Nothing expressed or
implied in this Agreement or shall be construed to confer upon any
person or entity, other than the Parties and their respective
successors and permitted assigns, any rights or remedies under or in
connection with this Agreement.
8.13 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement
to be executed by their duly authorized representatives as of the
Effective Date.
SPYGLASS, INC.
By: /s/ Micahel F. Tyrrell
(print name and title)
Michael F. Tyrrell, E.V.P.
Bus.Dev.
SPYGLASS DSIC, INC.
By: /s/ Michael F. Tyrrell
Michael F. Tyrrell, E.V.P.
(print name and title)
GENERAL INSTRUMENT CORPORATION
By: /s/ Richard C. Smith
Richard C. Smith
(print name and title)
<PAGE>
Exhibit C
***
Selected Financial Data
The following table sets forth selected financial data of the
Company as of and for the five years ended September 30, 1998, 1997,
1996, 1995 and 1994. The selected financial data has been derived
from the Company's audited consolidated financial statements. This
financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this document.
<TABLE>
<CAPTION> Fiscal Years Ended September 30,__
1998 1997(3)1996(3)1995(3)(2)1994(3)(2)
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Statement of Operations Data:
Total net revenues $20,494 $21,295 $22,307 $12,141 $4,667
Gross profit 15,274 18,267 20,277 10,380 3,580
Income(loss) from (9,238) (11,357) 3,667 3,025 770
operations
Income (loss) before
cumulative effect of (8,016) (9,735) 3,460 2,176 584
change in accounting
Net income (loss) (8,016) (9,735) 3,460 2,176 1,384
Net income (loss) available
to common stockholders ($8,016) ($9,735) $3,460 $ 1,985 $1,127
</TABLE>
Earnings (loss) per common share-basic (1):
<TABLE>
<S> <C> <C> <C> <C> <C>
Income (loss) before
cumulative effect of change ($0.60) ($0.81) $ 0.30 $ 0.27 $ 0.09
in accounting
Net income (loss) ($0.60) ($0.81) $ 0.30 $ 0.27 $ 0.20
Net income (loss) available
to common stockholders ($0.60) ($0.81) $ 0.30 $ 0.25 $ 0.17
Weighted average number of
common shares outstanding 13,395 12,090 11,620 8,111 6,766
</TABLE>
Earnings (loss) per common share-diluted (1):
<TABLE>
<S> <C> <C> <C> <C> <C>
Income (loss) before
cumulative effect of change ($0.60) ($0.81) $ 0.27 $ 0.23 $ 0.08
in accounting
Net income (loss ($0.60) ($0.81) $ 0.27 $ 0.23 $ 0.19
Net income (loss) available
to common stockholders ($0.60) ($0.81) $ 0.27 $ 0.21 $ 0.16
Weighted average number of
common shares outstanding 13,395 12,090 12,875 9,383 7,172
</TABLE>
Balance Sheet Data:
<TABLE>
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents and
short-term investments $22,655 $27,770 $34,083 $34,872 $1,606
Working capital 26,273 28,844 39,117 35,550 2,174
Total assets 34,575 40,580 48,769 43,509 5,871
Redeemable convertible
preferred stock - - - - 3,393
Total stockholders' equity
(deficit) $30,076 $35,567 $43,891 $37,614 $(756)
</TABLE>
Dividend Policy The Company has never paid cash dividends on its
capital stock. The Company currently intends to retain earnings, if
any, to support its growth strategy and does not anticipate paying
cash dividends in the foreseeable future.
(1) In December 1997, the Company adopted Statement of Financial
Accounting Standard No. 128, Earnings per Share ("SFAS No. 128").
SFAS No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
In periods when the Company incurs a net loss. the basic and diluted
weighted average number of common shares outstanding will be equal.
(2) On November 28, 1995, the Board of Directors declared a two-for-
one common stock split, effected in the form of a 100% stock
dividend, paid December 20, 1995, to stockholders of record as of
December 6, 1995. All share and per share data prior to December 20,
1995 has been restated to reflect the two-for-one common stock split
for all periods presented.
(3) Selected financial data for the years ended September 30, 1997,
1996, 1995 and 1994 does not include the results of AllPen Software
which was acquired in fiscal 1998 in a transaction accounted for as
a pooling of interests. Because the effect of this transaction was
considered immaterial, Spyglass' financial statements were not
restated; instead, the Company's equity accounts were adjusted for
the effect of the pooling.
<PAGE>
Selected Quarterly Data
The following table sets forth certain quarterly financial
information of the Company for fiscal years 1998 and 1997. This
information has been derived from the consolidated quarterly
financial statements of the Company which are unaudited but which,
in the opinion of management, have been prepared on the same basis
as the audited consolidated financial statements included herein
and include all adjustments (consisting only of normal recurring
items) necessary for a fair presentation of the financial results
for such periods. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this document.
<TABLE>
Three Months Ended (Unaudited)
Sept. June March Dec. Sept. June March Dec.
30, 30, 31, 31, 30, 30, 31, 31,
1998 1998 1998 1997 1997 1997 1997 1996
(In thousands, except per share amounts) (3) (3) (1)(3) (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total net
revenues $5,858 $5,376 $5,006 $4,254 $3,179 $2,216 $12,015 $3,885
Gross
profit 4,060 3,941 3,895 3,378 2,494 1,539 10,808 3,426
Income
(loss) from
operations (888) (1,534) (2,826) (3,990) (5,031) (6,150) 2,755 (2,931)
Net income
(loss) (589) (1,250) (2,529) (3,648) (4,708) (5,533) 2,051 (1,545)
Per Share and Share Data:
Net income
(loss) per
share-
basic (2) $(0.04) $(0.09) $(0.19) $(0.28) $(0.38) $(0.45) $ 0.17 $(0.13)
Weighted
average
number of
Common
shares
outstanding
- basic 13,730 13,602 13,124 13,018 12,325 12,187 11,999 11,852
Net income
(loss) per
share-
diluted (2) $(0.04) $(0.09) $(0.19) $(0.28) $(0.38) $(0.45) $ 0.16 $(0.13)
<PAGE>
Weighted
average
number of
Common
shares
outstanding
- diluted 13,730 13,602 13,124 13,018 12,325 12,187 12,768 11,852
</TABLE>
(1) Includes a one-time licensing fee of $8,000,000 from Microsoft
Corporation which decreased the net loss by $7,000,000 or $0.58 per
share.
(2) In December 1997, the Company adopted Statement of Financial
Accounting Standard No. 128, Earnings per Share ("SFAS No. 128").
SFAS No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
In periods when the Company incurs a net loss, the basic and diluted
weighted average number of common shares outstanding will be equal.
(3) Selected quarterly data for the year ended September 30, 1997
does not include the results of AllPen Software which was acquired
in fiscal 1998 in a transaction accounted for as a pooling of
interests. Because the effect of this transaction was considered
immaterial, Spyglass' financial statements were not restated;
instead, the Company's equity accounts were adjusted for the effect
of the pooling.
Market Price Per Share
The following table sets forth, for the periods indicated, the high
and low sales prices of the Common Stock of the Company on the Nasdaq
National Market, as reported by Nasdaq.
<TABLE>
Three Months Ended
Sept. June March Dec. Sept. June March Dec.
30, 30, 31, 31, 30, 30, 31, 31,
1998 1998 1998 1997 1997 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $15 5/16 $15 3/8 $9 9/16 $12 $10 1/2 $11 $14 1/8 $19 1/2
Low $ 9 5/8 $ 8 1/4 $4 / $4 1/16 $7 3/16 $ 6 $ 7 $10
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Spyglass, Inc. ("Spyglass" or the "Company") was organized as an
Illinois corporation in February 1990 and reincorporated in Delaware
in May 1995. Spyglass entered the Internet market during fiscal 1994
and, from fiscal 1994 through fiscal 1996, focused its efforts on
developing, marketing and distributing Internet client and server
technologies for incorporation into a variety of Internet-based
software products and services. Since fiscal 1997, the Company has
been focusing on the development, marketing and distribution of its
technologies and services to the non-PC Internet device marketplace.
In February 1998, Spyglass reorganized its business to integrate its
development, professional services and marketing resources. This
change has allowed Spyglass to target its tailored solutions to the
needs of the various vertical sectors within the Internet device
market.
Spyglass provides its customers with expertise, software and
professional services that enable them to rapidly develop cost-
effective Internet-enabled devices. Spyglass professional services
include custom engineering for defining, developing and delivering
complete, end-to-end project solutions. Spyglass solutions have been
integrated into a variety of products, including but not limited to
televisions, office equipment, television set-top boxes, industrial
controls, network computers and screen and cellular phones. In
addition, several major corporations have deployed SurfWatch, a
leading content filtering software designed to block unwanted
material from the Internet.
Spyglass acquired Stonehand Inc. ("Stonehand"), OS Technologies
Corporation ("OS Tech") and SurfWatch Software, Inc. ("SurfWatch"),
in fiscal 1996 in transactions accounted for as poolings of
interests. All financial information presented includes the accounts
and results of operations of these companies for all periods
presented.
In November 1997, Spyglass acquired AllPen Software ("AllPen) in
a transaction accounted for as a pooling of interests. Because the
effect of this transaction on prior year financial statements was
considered immaterial, such financial statements were not restated;
instead, the Company's equity accounts were adjusted for the effect
of the pooling.
In October 1998, General Instrument Corporation ("GI") acquired
700,000 shares of the Company's common stock for $7,392,000 and also
acquired warrants to purchase an additional 700,000 shares. The
warrants have exercise prices ranging from $13.20 to $14.78 per share
(subject to adjustment in certain circumstances), and become
exercisable on varying dates over a five-year period. In connection
with this investment, the Company and GI entered into a three-year
agreement under which the Company will develop and integrate new
Internet cable services and technologies for GI. This work will be
performed through a newly-formed subsidiary of the Company, in which
GI will hold a 10% minority interest and which GI will have an option
to purchase at fair market value under certain circumstances.
<PAGE>
The Company licenses technology from a number of third-party
vendors for incorporation into the Company's products. As a result,
the Company pays royalties to the University of Illinois with respect
to licenses of Spyglass Device Mosaic, to RSA Data Security, Inc.
with respect to licenses of the Company's technologies containing
certain RSA code and to Sun Microsystems, Inc. with respect to
licenses of the Company's technologies containing certain Java code.
These and other royalties are reflected in cost of Internet
technology revenues.
On January 21, 1997, the Company amended its license arrangement
with Microsoft Corporation ("Microsoft") to convert Microsoft's
existing license for the Spyglass Mosaic browser technology into a
fully paid-up license in consideration of an additional $8,000,000
payment from Microsoft. Spyglass recognized the revenue from this
payment in the quarter ended March 31, 1997. Management believes
that its results of operations, presented without giving effect to
this one-time event, provide a more accurate presentation of the
Company's ongoing business. Accordingly, the following analyses for
the fiscal year ended September 30, 1997, including amounts and
percentages, exclude the $8,000,000 of revenue as well as the
associated $600,000 of cost of sales and $400,000 of sales expense
for the fiscal year ended September 30, 1997. Approximately 39.5% of
the Company's revenues for fiscal 1997 were attributable to
Microsoft.
Results of Operations
The following table sets forth certain financial data as a percentage
of total net revenues for the fiscal years ended September 30, 1998,
1997 and 1996.
<Talbe>
[CAPTION]
Percentage of Total Net Revenues
for the Fiscal Years Ended September 30,
1998 1997 1996
[S] [C] [C] [C]
Net revenues:
Internet technology 56.9% 69.2% 87.3%
Service 43.1 30.8 12.7
Total net revenues 100.0 100.0 100.0
Cost of revenues:
Internet technology 9.0 7.0 8.6
Service 16.5 11.2 0.5
Total cost of revenues 25.5 18.2 9.1
Gross profit 74.5 81.8 90.9
Operating expenses and other:
Sales and marketing 44.4 59.5 26.7
Research and development 44.8 102.6 30.6
General and administrative 28.0 50.9 17.2
Restructuring charge - 6.8 -
One-time acquisition costs 2.4 - -
Total operating expenses and other 119.6 219.8 74.5
Income (loss) from operations (45.1) (138.0) 16.4
Other income, net 6.0 12.2 7.8
Income (loss) before income taxes (39.1) (125.8) 24.2
Provision for income taxes - - 8.7
Net income (loss) (39.1)% (125.8)% 15.5%
<\Talbe>
<PAGE>
Fiscal Year Ended September 30, 1998 Compared with Fiscal Year
Ended September 30, 1997
Internet technology revenues for the year ended September 30,
1998 increased $2,467,000, or 27%, to $11,661,000 compared to
$9,194,000 for the year ended September 30, 1997. This growth was
due primarily to an increase in licensing revenues from device
manufacturers. One customer accounted for 17% of fiscal 1998
Internet technology revenues. Internet technology revenues from
vendors of desktop software applications, excluding SurfWatch
revenues, decreased $3,986,000 while revenues from device
manufacturers increased $5,752,000. During the development of the
Internet device market, initial Internet technology revenues on a
given contract will typically comprise a smaller component of total
expected Internet technology revenues than was previously recorded in
licensing the desktop software applications. Internet technology
revenues derived from future royalties will be realized as customers
commercially deploy devices utilizing the Company's technology and
the royalty revenue stream commences. The Company expects continued
growth in Internet technology revenues during fiscal 1999 due to the
anticipated increase in product development activities by device
manufacturers in multiple vertical markets.
Service revenues, which include both professional services
revenues and revenues from customer support agreements, increased
$4,732,000, or 115%, to $8,833,000 for the year ended September 30,
1998 compared to $4,101,000 for the year ended September 30, 1997.
Revenues from professional services increased approximately
$5,352,000 for the year ended September 30, 1998 compared to the year
ended September 30, 1997. This increase was due to management's
focus on building an integrated development and service organization
that provides customized solutions to its customers within the
vertical sectors of the Internet device market which resulted in an
increase in the number and dollar value of professional services
agreements. Revenues from customer support agreements decreased
$620,000 during the same time period. In October 1998, the Company
announced an agreement with GI which will provide approximately
$20,000,000 in professional services revenue over the next three
years. As a result, the Company expects professional services
revenues during fiscal 1999 to increase both in absolute dollars and
as a percentage of total net revenues over fiscal 1998. Service
revenues from customer support agreements, as a percentage of total
net revenues, are expected to decline during the same period.
Gross profit, as a percentage of revenues, was 74.5% for the
year ended September 30, 1998 compared to 81.8% for the year ended
September 30, 1997. This reduction was partially a result of a
change in the revenue mix, as total net revenue consisted of a higher
percentage of lower margin professional services revenues, and a
reduction in Internet technology margins related to increased product
royalty costs. The Company expects gross profit as a percentage of
revenues to decline slightly throughout fiscal 1999 as professional
services revenues continue to increase as a percentage of total net
revenues. That margin decline is expected to be partially offset by
improved gross margins from Internet technology revenues as royalty
costs associated with third-party software are expected to decline.
<PAGE>
Sales and marketing expenses for the year ended September 30,
1998 increased $1,190,000, or 15%, to $9,101,000 from $7,911,000
for the year ended September 30, 1997, but decreased as a
percentage of revenues to 44.4% from 59.5%. Factors contributing
to this increase were $791,000 in additional compensation and
personnel expenses incurred as a result of the addition of sales
and marketing staff, primarily in international locations as well
as at the Company's SurfWatch business unit, and the compensation
expense related to amortization of restricted stock issued to
certain officers of the Company. Additionally, the Company
increased its fiscal 1998 marketing program expenditures by
$425,000 in its efforts to promote its solutions to customers in
the device market, primarily the television and set-top box market,
and to increase customer and industry awareness of its SurfWatch
products. These increases were partially offset by a decrease in
travel and travel-related expenses of approximately $175,000
primarily due to decreases in trade show expenses resulting from
the shift in focus from the desktop market to the Internet device
market. The Company expects sales and marketing expenses for
fiscal 1999 to remain approximately the same, in dollars, as in
fiscal 1998.
Research and development expenses for the year ended September
30, 1998 decreased $4,471,000, or 33%, to $9,173,000 compared to
$13,644,000 for the year ended September 30, 1997, and decreased as
a percentage of revenues to 44.8% from 102.6%. The decrease in
research and development costs was due primarily to a decrease in
salary costs and related personnel expenses of $4,118,000 as a
result of the increased utilization of development engineers in a
professional services role, as reflected by the increase in cost of
service revenues, as well as an overall reduction in engineering
staff. The Company believes that its direct investment in research
and development is sufficient when combined with its retained
ownership in the engineering developments of its professional
service engineers. As a result of the changes noted above, the
Company expects its research and development expenses in fiscal
1999 to decrease both in dollars and as a percentage of revenues.
General and administrative expenses decreased $1,027,000, or
15%, to $5,742,000 for the year ended September 30, 1998 from
$6,769,000 for the year ended September 30, 1997 and decreased as a
percentage of revenues to 28.0% from 50.9%. The decrease was a
result of a $720,000 reduction in bad debt expense, a combined
$464,000 reduction in conference, travel and meeting expenses, and a
$403,000 decrease in consulting expense. This decrease was partially
offset by an increase in salary and related personnel expenses of
$614,000 due primarily to the issuance of restricted stock to
officers of the Company. The Company expects general and
administrative costs to increase in absolute dollars, but decline as
a percent of revenues, in fiscal 1999.
<PAGE>
On March 10, 1997, the Company consolidated its Champaign,
Illinois development operations with its Naperville, Illinois and
Cambridge, Massachusetts operations. This consolidation reflected
the Company's evolution from its desktop focus to the Internet device
market and the realignment of its product development activities with
the needs of this market. As a result, a restructuring charge of
$900,000 was recorded in the second quarter of fiscal 1997,
consisting primarily of severance and related personnel costs of
$730,000 and lease cancellation and other exit costs of $170,000.
Included in the charge for personnel costs was $100,000 of
compensation expense related to the acceleration of the
exercisability of certain stock options. The decrease in facility
costs related to the closing of the Champaign facility has been
offset by expansion within existing facilities as well as expansion
into new facilities.
In connection with the acquisition of AllPen Software in
November 1997, the Company recorded a charge to operating expenses of
$496,000 or $0.04 per share for direct acquisition related costs
consisting primarily of professional fees.
The Company recorded no income tax benefit for fiscal years 1998
and 1997. This reflects a decision by the Company not to recognize
income tax benefits associated with the Company's operating losses
generated during such years. The Company believes that it is
appropriate to defer recognition of potential tax benefits until such
time as its return to profitability can provide assurances that these
tax benefits will be realized.
Fiscal Year Ended September 30, 1997 Compared with Fiscal Year
Ended September 30, 1996
Internet technology revenues for the year ended September 30,
1997 decreased $10,272,000, or 53%, to $9,194,000 compared to
$19,466,000 for the year ended September 30, 1996. This decrease
in Internet technology revenues was due primarily to a significant
decline in revenues from vendors of desktop software applications
combined with slower than anticipated development of the Internet
device market as the Company redirected its strategic focus to this
market during fiscal 1997. Specifically, Internet technology
revenues from vendors of desktop software applications decreased to
$6,353,000 from $17,971,000 while revenues from device
manufacturers increased to $2,841,000 from $1,495,000.
Service revenues increased $1,260,000, or 44%, to $4,101,000 for
the year ended September 30, 1997 compared to $2,841,000 for the
year ended September 30, 1996. The increase in service revenues
was due primarily to the increase in the number of professional
services agreements entered into by the Company. Revenues from
professional services were $2,179,000 in fiscal 1997 compared to
$559,000 for fiscal 1996,
<PAGE>
Gross profit as a percentage of revenues was 81.8% for the
year ended September 30, 1997 compared to 90.9% for the year ended
September 30, 1996. This decrease in gross profit percentage
resulted primarily from an increase in professional services
revenues as a percentage of both total net revenues and service
revenues, which have significantly higher costs as a percentage of
revenues than technology revenues. Additionally, the cost of
service revenues increased, as a percentage of service revenues, to
36.4% for fiscal 1997 from 4.2% for fiscal 1996.
Sales and marketing expenses for the year ended September 30,
1997 increased $1,948,000, or 33%, to $7,911,000 from $5,963,000 for
the year ended September 30, 1996, and increased as a percentage of
revenues to 59.5% from 26.7%. The increased expenses reflected staff
additions in sales, marketing and customer services to support the
sale and marketing of Spyglass technologies. These additions
increased the cost of salary and related personnel expenses by
$1,309,000 and increased related facility costs by $412,000 between
fiscal 1997 and fiscal 1996. Advertising costs decreased $336,000
between these periods due to the cancellation of a monthly
advertising service associated with previous marketing programs
targeting the desktop marketplace.
Research and development expenses for the year ended September
30, 1997 increased $6,843,000, or 101%, to $13,644,000 compared to
$6,801,000 for the year ended September 30, 1996, and increased as
a percentage of revenues to 102.6% from 30.6%. The increase in
research and development costs was due primarily to costs of
additional personnel required to provide enhancements to existing
technologies as well as the relocation of personnel to geographic
areas in which higher salaries are required, all of which increased
the costs of salary and related personnel expenses by $4,642,000
for fiscal 1997 when compared to fiscal 1996. Additionally,
facility costs increased $1,870,000 between these periods as the
Company consolidated its Champaign, Illinois research and
development operations into its Naperville, Illinois and Cambridge,
Massachusetts operations, which had higher facility costs than the
Champaign facility. The Company believes that it was necessary to
make significant investments in research and development and
acquisitions of new technologies to remain competitive and
establish a leadership position in the emerging Internet device
market.
General and administrative expenses increased $2,923,000, or
76%, to $6,769,000 for the year ended September 30, 1997 from
$3,846,000 for the year ended September 30, 1996 and increased as a
percentage of revenues to 50.9% from 17.2%. The increase in
general and administrative expenses was due primarily to increases
in personnel at corporate headquarters, which increased salary and
related personnel expenses by $2,076,000. Bad debt expense
increased by $728,000 as the Company wrote off certain accounts
receivable balances related to its desktop software application
business as the Company transitioned to the Internet device market.
Additionally, in order to effectively and rapidly transition the
focus of the Company from the desktop market to the Internet device
market it was necessary to incur significantly more conference,
travel and meeting expenses, which increased general and
administrative expenses by $495,000 for fiscal 1997 compared to
fiscal 1996.
<PAGE>
The Company recorded no income tax benefit for the fiscal year
ended September 30, 1997 as compared to a provision for income taxes
of $1,951,000 for the fiscal year ended September 30, 1996.
Liquidity and Capital Resources
As of September 30, 1998, the Company had no debt and had cash
and cash equivalents of $22,655,000 and working capital of
$26,273,000. The Company's operating activities used cash of
$7,193,000, $4,114,000 and $822,000 for the fiscal years ended
September 30, 1998, 1997 and 1996, respectively. Additionally, the
Company's operating cash flow for fiscal 1997 was impacted by the
$7,500,000 in cash received from Microsoft during the quarter ended
March 31, 1997 in connection with the amendment to the Company's
license arrangement with Microsoft as discussed in the Overview
section.
Subsequent to the end of fiscal 1998, the Company received
$7,392,000 in cash from GI for the purchase by GI of 700,000 shares
of the Company's common stock.
The Company's current net accounts and unbilled receivables
increased to $5,606,000 at September 30, 1998 from $3,792,000 at
September 30, 1997. This increase was primarily due to an increase
in revenues for the fourth quarter of fiscal 1998.
The Company's capital expenditures totaled $443,000,
$3,330,000 and $2,905,000 for the fiscal years ended September 30,
1998, 1997 and 1996, respectively, and consisted primarily of
computer hardware and software. The Company had no material
commitments for capital expenditures at September 30, 1998. In
October 1998, the Company entered into an agreement with GI to form
a new digital cable software integration center. The formation of
the integration center will require the purchase of computer
hardware and software and office furniture. While no commitments
for such expenditures have been formally entered into, the Company
estimates that such expenditures will range from $250,000 to
$425,000 during fiscal 1999.
The Company believes that its current cash and cash
equivalents, as well as cash flow from operations, will be
sufficient to finance the Company's cash flow requirements through
at least fiscal 1999.
Future Operating Results
This Annual Report contains a number of forward-looking
statements. Any statements contained herein (including without
limitation statements to the effect that the Company or its
management "believes", "expects", "anticipates", "plans" and
similar expressions) that are not statements of historical fact
should be considered forward-looking statements. There are a
number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-
looking statements. These factors include, without limitation,
those set forth below.
<PAGE>
During fiscal 1997, the Company announced a new strategic
focus on the Internet device market. The Company is now focused on
the development, marketing and distribution of its technologies and
services to the non-PC Internet device marketplace. Because this
is a new and undeveloped market, there can be no assurance as to
the extent of the demand for the Company's products and services or
the extent to which the Company will be successful in penetrating
this market.
The Company derived approximately 15% of its revenues for the
fiscal year ended September 30, 1998 from Motorola Corporation and
39.5% of its revenues for the fiscal year ended September 30, 1997
from Microsoft Corporation. As the Internet device market develops,
the Company expects to continue to derive a significant portion of
its revenues from a relatively limited number of customers. Although
the Company expects that its reliance on any particular customer will
decline as the Internet device market develops and its customer base
expands, the failure of the Company to enter into a sufficient number
of licensing agreements or sustain revenues from major customers
during a particular period could have a material adverse effect on
the Company's future operating results.
The Company's future results of operations will also be
largely dependent upon a number of factors relating to the further
development and acceptance of the Internet as a commercial market.
In particular, commercial use of the Internet continues to be
constrained by the need for reliable processes such as security
measures for electronic commerce as well as the need for regularly
available customer support. In addition, the market for Internet
software products is characterized by rapidly changing technology,
evolving industry standards and customer demands, and frequent
product introductions and enhancements, which make it difficult to
predict whether the initial commercial acceptance of the Company's
solutions can be sustained over a period of time.
The market for Internet technologies and services is extremely
competitive, and competition is likely to increase in the future.
The Company currently faces competition from other Internet device
technology vendors and service providers such as Oracle, Sun
Microsystems, Microsoft, on-line service companies, Internet access
providers and networking software companies. Additionally, the
Company considers a significant source of competition for its
Internet technologies and professional services to be the prospect
company's internal resources.
The Company provides its products and services to manufacturers
and service providers within the cable and satellite television,
wireless, telecommunications, office equipment, automotive and
industrial control markets who then incorporate the Company's
technology into their products and services. The success of the
Company is therefore dependent in large part on the performance of
its customers and the market acceptance of its customers' products,
which is outside of the Company's control.
<PAGE>
In October 1997, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") No. 97-2,
Software Revenue Recognition, which superseded SOP No. 91-1. SOP No.
97-2 is effective for the Company's 1999 fiscal year which began on
October 1, 1998 and provides guidance on applying generally accepted
accounting principles for recognizing revenue on software
transactions. Based on the Company's interpretation of the
requirements of SOP No. 97-2, application of this statement is not
expected to have a material impact on the Company's revenue.
However, certain provisions of SOP No. 97-2 are currently being
reviewed by the accounting profession with the objective of providing
additional guidance on implementation of the SOP. Depending upon the
outcome of this review and the issuance of implementation guidelines
and potential interpretations, the Company may be required to modify
its revenue recognition policies and business practices, and such
change could have the effect of deferring the recognition of revenue.
The Company from time to time receives notices alleging that
its products infringe third-party proprietary rights. Patent and
similar litigation frequently is complex and expensive and its
outcome can be difficult to predict. If, as a result of
proprietary rights infringements by any of the Company's products,
the Company is required to discontinue sales of certain products,
eliminate certain features on its products, or pay royalties to
another party, the Company's future operating results could be
materially adversely affected.
The Company's quarterly operating results have varied and they
may continue to vary significantly depending on factors such as the
timing of significant license or service agreements, the terms of
the Company's licensing and service arrangements with its customers
and the timing of new product introductions and upgrades by the
Company and its competitors. The Company typically structures its
license agreements with customers to require commitments for a
minimum number of licenses, and license revenues are recognized as
the committed licenses are purchased. Additional revenues from a
customer will not be earned unless and until the initial committed
levels are exceeded. The Company's revenues in any quarter will
depend in significant part on its ability to license technologies
and provide services to new customers in that quarter and the
timing of product deployment by its customers. The Company
typically structures its professional services agreements with
customers to recognize revenue on the percentage of completion
method of accounting. The Company's expense levels are based in
part on expectations of future revenue levels and any shortfall in
expected revenue could therefore have a disproportionate adverse
effect on the Company's operating results in any given period.
Impact of Year 2000
The "Year 2000" issue refers to the problem of certain computer
programs using abbreviated years with two digits and thus being
unable to distinguish, for example, whether the year "00" means 1900
or 2000 which may lead to such software failing to operate or
operating with erroneous results.
<PAGE>
The Company has assembled a cross-department task force to address
the Year 2000 issue. The task force is addressing Spyglass products,
third-party software and products used by the Company and software
utilized by third parties that perform services for the Company.
The task force has completed the assessment phase of its overall
plan. The assessment phase included a review of Spyglass products
and, as a result of these initial assessments, the Company has
determined that all new Spyglass products and technologies currently
licensed are Year 2000 compliant or will be so certified as new
versions and utilities are released. However, known or unknown
errors or defects in Spyglass' products could result in delay or loss
of revenue, diversion of development resources, increased service and
warranty costs or damage to Spyglass' reputation, any of which could
materially adversely affect Spyglass' results of operations or
financial condition. In addition, the task force investigated other
associated Year 2000 issues such as ensuring that third-party
software used internally and other products and services supplied to
Spyglass are Year 2000 compliant. This investigation included but
was not limited to review of vendor and related Web sites and direct
confirmation with significant vendors. The majority of Spyglass'
computer programs have been purchased and implemented over the last
three years. As a result, most of these programs were Year 2000
compliant when purchased or have since been upgraded with Year 2000
compliant software upgrades. In the event third party internally
used systems are not Year 2000 compliant, the Company's ability to
process vendor transactions and perform certain other functions could
be impaired. Additionally, Spyglass has no legacy (mainframe)
systems, which are the source of much of the current concern
regarding Year 2000 compliance. During the assessment phase, the
Company received direct confirmation that most material internally
used systems will operate in the year 2000.
The second and current phase in the task force's efforts is to plan
and conduct testing to confirm Year 2000 compliance on products and
services in which Year 2000 compliance is in question. For those
products and services that fail testing or are assessed as non-
compliant, Spyglass will implement any required software
modifications and/or replacements of those products so that such
products will function properly with respect to dates in the year
2000. The task force has a May 1999 target date to complete its
testing efforts. Upon completion of its testing phase, the task
force will determine a time period during which to implement any
necessary changes.
Spyglass does not currently have any information with regard to Year
2000 compliance of any of its customers. As is the case with all
similarly situated companies, Spyglass' results of operations could
be materially impacted if its customers encounter Year 2000 issues
unrelated to Spyglass products and services. In such a scenario, it
is reasonably likely that these customers would channel resources
into products and activities unrelated to products that utilize
Spyglass technologies and/or services, potentially limiting Spyglass'
future revenues from these customers.
The Company does not currently have a contingency plan in the event
that Spyglass products or third-party products and services incur
Year 2000 problems. Such a plan will be devised if and when it has
been determined that overall Year 2000 compliance is in question.
<PAGE>
As of September 30, 1998, the only Year 2000 cost incurred by the
Company has been the value of the time, based on standard hourly
rates for employees, spent by the task force, which approximates
$60,000. The Company estimates it will incur approximately $240,000
in future expenses to ensure systems will function properly with
respect to dates in the year 2000. These expenses are not expected
to have a material impact on the financial position, cash flow or
operations of the Company.
The costs and scope of the Company's Year 2000 compliance efforts
are based on management's best estimates which utilize numerous
assumptions of future events. However, there can be no guarantee
that these estimates and assumptions will be realized.
Furthermore, the actual impact of the Year 2000 issue could
materially differ from that anticipated.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Satements of Operations
For the Fiscal Years Ended
September 30,
(In thousands, except per share 1998 1997 1996
amounts)
<S> <C> <C> <C>
Net revenues:
Internet technology $11,661 $17,194 $19,466
Service 8,833 4,101 2,841
Total net revenues 20,494 21,295 22,307
Cost of revenues:
Internet technology 1,843 1,535 1,912
Service 3,377 1,493 118
Total cost of revenues 5,220 3,028 2,030
Gross profit 15,274 18,267 20,277
Operating expenses and
other:
Sales and marketing 9,101 8,311 5,963
Research and development 9,173 13,644 6,801
General and administrative 5,742 6,769 3,846
Restructuring charge - 900 -
One-time acquisition costs 496 - -
Total operating expenses
and other 24,512 29,624 16,610
Income (loss) from operations (9,238) (11,357) 3,667
Other income, net 1,222 1,622 1,744
Income (loss) before income
taxes (8,016) (9,735) 5,411
Provision for income taxes - - 1,951
Net income (loss) $(8,016) $(9,735) $ 3,460
Net income (loss) per common
share-basic $(0.60) $(0.81) $ 0.30
Net income (loss) per common
share-diluted $(0.60) $(0.81) $ 0.27
Weighted average number of
common shares outstanding
-basic 13,395 12,090 11,620
Weighted average number of
common shares outstanding
-diluted 13,395 12,090 12,875
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION> Consolidated Balance Sheets
September 30,
(In thousands) 1998 1997
<S>
ASSETS <C> <C>
Current assets:
Cash and cash equivalents $ 22,655 $ 22,841
Short-term investments - 4,929
Accounts receivable, net of allowance for
doubtful accounts of $429 and $350,
respectively 4,704 3,792
Unbilled accounts receivable 902 -
Prepaid expenses and other current assets 2,461 2,195
Total current assets 30,722 33,757
Properties and equipment, net 3,585 5,037
Other assets 268 1,786
Total Assets $ 34,575 40,580
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,493 1,817
Royalties payable 541 345
Deferred revenues 786 1,256
Accrued compensation and related benefits 1,466 1,322
Accrued expenses and other liabilities 163 173
Total current liabilities 4,449 4,913
Long-term deferred revenues 50 100
Total liabilities 4,499 5,013
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued
Common stock, $.01 par value, 50,000,000
shares authorized, 13,944,433 and 12,362,823
shares issued and 13,934,719and 12,362,823
shares outstanding, respectively 139 124
Additional paid-in capital 43,886 40,746
Accumulated deficit (13,357) (5,303)
Treasury stock at cost, 9,714 shares in 1998 (55) -
Unamortized value of restricted stock issued (537) -
Total stockholders' equity 30,076 35,567
Total Liabilities and Stockholders' Equity $ 34,575 40,580
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
SPYGLASS, INC.
Consolidated Statements of Changes in Stockholders' Equity
Retained Unamortized
Additional Earnings/ Treasury Value of
Common Stock Paid-in (Accumulated Common Stock Restricted
Shares Amount Capital Deficit) Share Amount Stock Issued
(In thousands, except
share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1995 11,406,645 $ 114 $ 36,528 $ 972 - $ - $ -
Exercise of stock
options 394,499 4 531
Exercise of employee
stock purchase plan
stock options 18,401 266
Issuance of incentive
stock options 80
Tax benefit from exercise
of stock options 1,936
Net income 3,460
Balance at September
30, 1996 11,819,545 118 39,341 4,432 - - -
Exercise of stock
options 497,882 5 731
Exercise of employee
stock purchase plan
stock options 45,396 1 362
Issuance of incentive
stock options 80
Accelerated vesting of
options 232
Net loss (9,735)
Balance at September
30, 1997 12,362,823 124 40,746 (5,303) - - -
Adjustment for
acquisition accounted
for as a pooling of
interests 639,246 6 204 (38)
Exercise of stock
options 658,327 6 1,519
Exercise of employee
stock purchase plan
stock options 74,323 1 391
Issuance of
restricted stock 200,000 2 1,011 (1,011)
Amortization of deferred
compensation relating
to issuance of
restricted stock 474
Purchase of treasury
stock 9,714 (55)
Accelerated vesting of
options 15
Net loss (8,016)
Balance at September
30, 1998 13,934,719 $139 $43,886 $(13,357) 9,714 $ (55) $(537)
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Fiscal Years Ended
September 30,
1998 1997 1996
<S>
(In thousands) <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(8,016) $(9,735) $ 3,460
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation 1,993 1,742 694
Amortization 1,315 157 211
Loss on disposal of fixed assets 15 99 21
Amortization of deferred compensation
related to issuance of restricted
stock 474 - -
Bad debt provision 309 1,029 301
Deferred income taxes - - (406)
Incentive stock option compensation 15 312 80
Other - - (201)
Changes in operating assets and
liabilities:
Accounts and long-term receivables 3,155 (3,066) (783)
Unbilled accounts receivable (902) - -
Prepaid expenses, other current assets
and other assets (21) (1,008) (1,504)
Accounts payable (327) 360 415
Royalties payable 196 (358) 279
Deferred revenues (894) (307) (1,071)
Accrued compensation and related
benefits (541) 370 348
Accrued expenses and other liabilities (23) 70 (383)
Net cash used in operating activities (7,190) (4,114) (822)
Cash flows from investing
activities:
Cash acquired in business combination 574 - -
Short-term investments, net activity 4,929 12,664 (17,593)
Proceeds from sale of fixed assets 82 32 -
Capital expenditures (443) (3,330) (2,905)
Net cash provided by (used in)
investing activities 5,142 9,366 (20,498)
Cash flows from financing
activities:
Proceeds from exercise of stock options,
including tax related benefits in 1996 1,917 1,099 2,938
Purchase of treasury stock (55) - -
Net cash provided by financing
activities 1,862 1,099 2,938
Net increase (decrease) in cash and cash
equivalents (186) 6,351 (18,382)
Cash and cash equivalents at beginning
of period 22,841 16,490 34,872
Cash and cash equivalents at end of
period $ 22,655 $ 22,841 $ 16,490
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 6 $ 28 $ 169
See accompanying Notes to the Consolidated Financial Statements
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
Note 1. Operations and Significant Accounting Policies
Operations
Spyglass, Inc. ("Spyglass" or the "Company") develops, markets and
distributes Internet technologies designed to be embedded inside
various end-user products, including but not limited to televisions,
office equipment, television set-top boxes, network computers and
Internet access services. Spyglass technology offerings include
Spyglass Device Mosaic (formerly Spyglass Mosaic), Spyglass Remote
Mosaic, Spyglass Prism, Spyglass MicroServer, Spyglass Device Mail,
and SurfWatch client and server products. Spyglass also offers
Internet consulting and custom engineering services through its
professional services organization. These technologies are used to
bring Internet functionality to customers' products and services.
On November 14, 1997, the Company acquired AllPen Software ("AllPen")
in a transaction accounted for as pooling of interests. AllPen,
located in Los Gatos, California, develops software solutions and
technologies and provides professional services for the Internet
device marketplace. This transaction was effected through the
exchange of 639,246 shares of common stock of Spyglass for all the
issued and outstanding shares of AllPen. Because the effect of this
transaction was considered immaterial, Spyglass' financial statements
were not restated; instead, the Company's equity accounts were
adjusted for the effect of the pooling. In connection with the
acquisition of AllPen, the Company recorded a charge to operating
expenses of $496,000 or $0.04 per share for direct acquisition
related costs consisting primarily of professional fees.
In May 1996, the Company formed Spyglass International, Inc., a
wholly-owned subsidiary. Spyglass International, Inc. is a U.S.
subsidiary that has one branch office in Japan. In January 1997, the
Company formed Spyglass Europe Ltd., a wholly-owned subsidiary of
Spyglass International, Inc. with an office in England.
In April 1996, the Company acquired OS Technologies Corporation ("OS
Tech") and SurfWatch Software, Inc. ("SurfWatch") in transactions
accounted for as poolings of interests. As a result, all financial
information includes the accounts and results of operations of OS
Tech and SurfWatch, respectively, for all periods presented.
In February 1996, the Company acquired Stonehand Inc. ("Stonehand"),
in a transaction accounted for as pooling of interests. As a result,
all financial information includes the accounts and results of
operations of Stonehand for all periods presented.
On November 28, 1995, the Board of Directors declared a two-for-one
common stock split effected in the form of a 100% stock dividend paid
on December 20, 1995 to stockholders of record as of December 6,
1995. All share and per share information in the accompanying
consolidated financial statements and related notes thereto prior to
December 20, 1995 has been restated to reflect the two-for-one common
stock split for all periods presented.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany
transactions and balances between the companies have been eliminated.
<PAGE>
University of Illinois Agreement
The Spyglass Device Mosaic product is a commercial derivative version
of NCSA Mosaic_. NCSA Mosaic was developed by the National Center
for Supercomputing Applications at the University of Illinois at
Urbana-Champaign. In May 1994, the Company and the University
entered into an agreement (as amended to date, the "University
Agreement") granting the Company the exclusive (subject to
approximately 10 previously granted licenses), worldwide right to
develop, distribute and sublicense commercial client browsers based
on NCSA Mosaic. The University Agreement provides for royalties
based on Spyglass' net revenues from Device Mosaic, and includes
cumulative minimum quarterly royalties. The University Agreement has
an initial term of five years, with automatic one-year renewals, and
is terminable in the event of a material breach by the Company of its
obligations thereunder. Under the University Agreement, the Company
was required to provide the University with source code versions of
Spyglass Mosaic through Release 2.5. The University will have the
right (subject to certain restrictions) to incorporate these releases
of Spyglass Mosaic into new releases of NCSA Mosaic, which will
continue to be available on a free-with-copyright basis to
organizations for non-commercial academic and research use only.
However, the University is not permitted to make NCSA Mosaic
available for distribution by resellers other than the Company. The
University Agreement gives the Company the exclusive right (with
certain limited exceptions) to use the University's trademarks
"Mosaic_" and "NCSA Mosaic_" and its spinning globe logo in
connection with Device Mosaic on a royalty-free basis (with certain
limited exceptions). In addition, the Company has the exclusive
right (with certain limited exceptions) to use these marks in
connection with the sale of other products for a royalty payment
based on net revenues derived from such products.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
For the purposes of the balance sheet and statement of cash flows,
all highly liquid investments with original maturities of three
months or less are considered cash equivalents.
Investments
Investments with original maturities between three and twelve months
are considered short-term investments. Short-term investments
consist of debt securities such as commercial paper, time deposits,
certificates of deposit, bankers' acceptances, and marketable direct
obligations of the United States Treasury.
<PAGE>
Other Assets
The Company licenses certain technology from third parties and
records prepaid royalty costs associated with these licenses. These
prepaid royalty costs are amortized as a percentage of revenues or
over the expected period of use. It is the Company's policy to
periodically review and evaluate whether the benefits associated with
these prepaid royalties are expected to be realized and, therefore,
deferral and amortization are appropriate. Approximately $857,000
and $441,000 of these prepaid royalties are included in prepaid
expenses and other current assets and approximately $118,000 and
$1,431,000 are included in other assets at September 30, 1998 and
September 30, 1997, respectively.
Properties and Equipment
Properties and equipment are stated at cost less accumulated
depreciation. Depreciation is determined for financial reporting
purposes using the straight-line method over the estimated useful
lives of the assets, which range from three to seven years.
Depreciation for income tax reporting purposes is determined using
accelerated depreciation methods.
Revenue Recognition
The Company recognizes revenues from software licensing arrangements
in accordance with the provisions of Statement of Position ("SOP")
91-1, Software Revenue Recognition, issued by the American Institute
of Certified Public Accountants ("AICPA"). Internet technology
revenues are generally recognized as the licenses are purchased by
customers, provided the license agreement does not allow for extended
payment terms, and there are no significant remaining obligations
under the contract. Service revenues are comprised of revenues from
customer support and professional services agreements. Revenues from
the sale of support agreements are recognized over the term of the
agreement using the straight-line method and related costs are
included in operating expenses under the sales and marketing
classification. Revenues from professional services agreements are
recognized on the percentage of completion method based on the hours
incurred relative to total estimated hours for fixed bid contracts or
based on the hours incurred multiplied by the hourly rate for time
and material engagements. Related costs are reported as a cost of
service revenues.
In October 1997, the AICPA issued SOP No. 97-2, Software Revenue
Recognition, which superseded SOP No. 91-1. SOP No. 97-2 is
effective for the Company's fiscal year beginning October 1, 1998 and
provides guidance on applying generally accepted accounting
principles for software revenue recognition transactions. Based on
the Company's interpretation of the requirements of SOP No. 97-2,
application of this statement is not expected to have a material
impact on the Company's revenues. However, certain provisions of SOP
97-2 are currently being reviewed by the accounting profession with
the objective of providing additional guidance on implementation of
the SOP. Depending upon the outcome of this review and the issuance
of implementation guidelines and potential interpretations, the
Company may be required to change its revenue recognition policies
and business practices, and such change could have the effect of
deferring the recognition of revenue.
<PAGE>
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and
related interpretations in accounting for its employee stock options.
Under APB 25, if the Company's stock option plans are considered
fixed plans, no compensation expense is recognized if the exercise
price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant. If the option grants
are not fixed at an amount at least equal to fair market value, the
Company recognizes compensation expense based on the intrinsic value
on the measurement date. The Company has included the disclosure
provision of Statement of Financial Accounting Standard ("SFAS") No.
123, Accounting for Stock-Based Compensation, which requires pro-
forma information regarding net income and earnings per share
determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement.
Per Share Information
In 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which was adopted by the Company in
December 1997. SFAS No. 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive
effect of options, warrants and convertible securities. Diluted
earnings per share assumes the conversion of all securities which
are exercisable or convertible into common stock and which would
either dilute or not affect basic earnings per share. All earnings
per share amounts for all periods have been presented and, where
necessary, restated to conform to SFAS No. 128 requirements.
Earnings per share-basic was calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Earnings per share-diluted was calculated by dividing net
income by the sum of the weighted average number of common shares
outstanding plus all common shares that would have been outstanding
if potentially dilutive common shares had been issued. Diluted
weighted average shares for 1996 excludes the impact of common
stock options of 11,202 shares because the options' exercise prices
were greater than the average market price of the common stock and,
therefore, the effect would be anti-dilutive.
The table below reconciles the number of shares utilized in the
earnings per share calculations for the fiscal years ending
September 30, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION> For the Fiscal Years Ended
September 30,
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Weighted average number of
common shares outstanding _
basic 13,395 12,090 11,620
Effect of dilutive securities,
stock options - - 1,255
Weighted average number of
common shares outstanding _
diluted 13,395 12,090 12,875
</TABLE>
<PAGE>
Advertising Costs
The Company expenses advertising costs as incurred.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information, which becomes effective for the Company's fiscal year
ending September 30, 1999. SFAS No. 131 broadens the definition of
operating segments and requires additional disclosures about such
segments. The Company anticipates that the adoption of this standard
will result in reporting more than one segment and is currently
evaluating its operating segments.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
Note 2. Cash Equivalents and Short-term Investments
The following is a summary of cash equivalents and short-term
investments at amortized cost:
<TABLE>
<CAPTION> September 30,
(In thousands) 1998 1997
<S> <C> <C>
Commercial paper $16,680 $11,919
U.S. treasury notes - 1,000
Money market 5,871 9,773
Cash equivalents 22,551 22,692
Cash 104 149
Total cash and cash
equivalents $22,655 $22,841
Commercial paper $ - $ 1,925
U.S. treasury notes - 3,004
Total short-term
investments $ - $4,929
</TABLE>
Since these securities are short-term in nature, changes in market
interest rates would not have a significant impact on the fair value
of these securities. These securities are carried at amortized cost
which approximates fair value. It is the intent of the Company to
hold its investments until maturity.
Note 3. Properties and Equipment
Properties and equipment and related accumulated depreciation were as
follows:
<TABLE>
<CAPTION>
September 30,
(In thousands) 1998 1997
<S> <C> <C>
Computer equipment and software $5,387 $5,198
Furniture, fixtures and office
equipment 1,939 1,897
Leasehold improvements and other 560 405
7,886 7,500
Less: Accumulated depreciation (4,301) (2,463)
Properties and equipment, net $3,585 $5,037
</TABLE>
<PAGE>
Note 4. Income Taxes
The components of the provision for income taxes were as follows:
<TABLE>
For the Years Ended September 30,
(In thousands) 1998 1997 1996
<S>
Current: <C> <C> <C>
Federal $ - $ - $ -
Foreign 121 94 152
State - - -
Total current 121 94 152
Deferred:
Federal (121) (94) 1,444
State - - 355
Total deferred (121) (94) 1,799
Provision for income taxes $ - $ - $ 1,951
</TABLE>
A reconciliation of income tax expense to the statutory federal
income tax rate follows:
<TABLE>
For the Years Ended September 30,
1998 1997 1996
<S>
Federal income taxes at <C> <C> <C>
statutory rate 34.0 % 34.0 % 34.0%
State income taxes, net
of Federal income tax
benefit 4.8% 4.8% 4.3%
Valuation allowance (38.8%) (38.8%) - %
Other - % - % (2.2%)
Effective tax rate -% - % 36.1%
</TABLE>
<PAGE>
Significant components of the Company's net deferred tax assets were
as follows:
<TABLE>
<CAPTION>
September 30,
(In thousands) 1998 1997
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 189 $ 151
Accrued expenses and other
liabilities 177 223
Net operating loss carryforwards 9,593 6,122
Research and development tax
credit carryforwards 1,773 1,338
Foreign tax credit carryforwards 366 246
Amortization of deferred
compensation relating to
issuance of restricted stock 184 -
Alternative minimum tax credit
carryforwards 10 10
Deferred tax assets 12,292 8,090
Deferred tax liabilities:
Depreciation (14) (56)
Deferred tax liabilities (14) (56)
Net deferred tax assets $12,278 $ 8,034
Deferred tax asset valuation
allowance (12,278) (8,034)
Net deferred tax assets $ - $ -
</TABLE>
The Company changed from the cash to accrual basis for tax reporting
purposes at the time of filing its 1997 tax return; as such, 1997
amounts included herein have been restated from the cash to accrual
basis.
As of September 30, 1998, the Company had net operating loss
carryforwards for income tax purposes of approximately $24,754,000
which expire in the years 2006-2012. Of this amount, $13,923,000
relates to tax deductions generated by the exercise of certain
incentive stock options by employees which will be available to
reduce future income tax liabilities by a total of $5,395,000. Of
this tax benefit, $2,669,000 was credited to paid-in capital to
offset deferred tax liabilities. The remaining $2,726,000 is
available to offset future deferred tax liabilities as a credit to
paid-in capital. The Company recorded a credit to paid-in capital of
$2,205,000 in fiscal 1996 as a result of such exercises of incentive
stock options by employees. No such credits to paid-in capital were
recorded in fiscal 1997 or fiscal 1998.
As of September 30, 1998, the Company had research and development
credit carryforwards of approximately $1,773,000, which are available
to offset future income tax liabilities and expire in the years 2006-
2012.
The valuation allowance increased by $4,244,000 and $6,557,000 for
the fiscal years ended September 30, 1998 and 1997, respectively, and
relates primarily to increases in net operating loss carryforwards.
The Company has established the valuation allowance to defer
recognition of potential tax benefits until such time that operating
results can provide assurance that these tax benefits will be
recognized.
<PAGE>
Note 5. Stock Incentive Plans
The Company has a 1995 Stock Incentive Plan ("1995 Incentive Plan")
which replaced the Company's 1991 Stock Option Plan ("1991 Option
Plan"), a 1995 Director Stock Option Plan ("1995 Director Option
Plan") and a 1991 Employee Stock Bonus Plan ("1991 Bonus Plan")
effective June 27, 1995, when the Company completed its initial
public offering. Accordingly, options under the 1991 Option Plan and
the 1991 Bonus Plan are not granted in years after 1995 but remain
outstanding.
The above plans enable the Company to grant options to purchase
common stock, to make awards of restricted common stock and to issue
certain other equity-related securities of the Company to any full or
part-time employees, officers, directors, consultants or independent
contractors of the Company. Stock options entitle the optionee to
purchase common stock from the Company for a specified exercise price
during a period specified in the applicable option agreement.
Restricted stock awards entitle the recipient to purchase common
stock from the Company under terms which provide for vesting over a
period of time and a right of repurchase in favor of the Company of
the unvested portion of the common stock subject to the award upon
the termination of the recipient's employment or other relationship
with the Company. The plans, except for the 1995 Director Option
Plan, are administered by the Compensation Committee of the Board of
Directors, which selects the persons to whom stock options and
restricted stock awards are granted and determines the number of
shares of common stock covered by the option or award, its exercise
price or purchase price, its vesting schedule and, in the case of
stock options, its expiration date.
Furthermore, the above plans stipulate that the exercise price of any
incentive stock option shall not be less than 100% of the fair market
value of the common stock at the date of the grant or less than 110%
of the fair market value in the case of optionees holding more than
10% of the total combined voting power of all classes of stock of the
Company. The exercise periods of incentive stock options cannot
exceed 10 years from the date of grant, except for incentive stock
options granted to optionees holding more than 10% of the total
combined voting power of all classes of stock, which must be
exercised within five years. Non-qualified stock options, if any,
must be exercised within the time period set forth in the option
agreement. Any portion not exercised within the terms as stipulated
in the option agreement shall be forfeited.
The Company records as compensation expense the excess, if any, of
the fair market value of the common stock at the date of option grant
over the option exercise price. Any compensation expense is
recognized ratably over the vesting period of the options. The
Company recorded compensation expense of approximately $15,000,
$312,000 and $80,000 for the years ended September 30, 1998, 1997 and
1996, respectively, relating to options granted with an exercise
price below the estimated fair market value of the common stock and
the acceleration of the vesting of stock options. Options granted
prior to October 1994 and subsequent to the Company's initial public
offering have an exercise price approximating the fair market value
of the common stock as of their grant date.
<PAGE>
1995 Stock Incentive Plan
The maximum number of shares of common stock which may be issued
pursuant to the 1995 Incentive Plan is 3,300,000 shares, subject to
certain anti-dilution adjustments. Options generally become
exercisable over four years, commencing on the one-year anniversary
of the date of grant, and accumulate if not exercised. As of
September 30, 1998, options to purchase approximately 449,000 shares
are available for issue.
The 1995 Incentive Plan further provides for the granting of stock
appreciation rights ("SARs") subject to certain conditions and
limitations to holders of options under the 1995 Incentive Plan.
SARs permit optionees to surrender an exercisable option for any
amount equal to the excess of the market price of the common stock
over the option price when the right is exercised. There have been
no SARs issued under this plan.
Furthermore, the 1995 Incentive Plan provides for the granting of
awards of restricted stock entitling recipients to purchase common
stock from the Company under terms which provide for vesting over a
period of time, as determined by the Board of Directors, and a right
of repurchase in favor of the Company of the unvested portion of the
common stock subject to the award upon the termination of the
recipient's employment or other relationship with the Company.
Awards of 200,000 shares of restricted stock, generally vesting over
four years in equal annual installments commencing on the one-year
anniversary of the date of grant, had been purchased for $0.01 per
share (and had a fair value of $5.063 on the date of issue) under
this plan as of September 30, 1998. Upon issuance of stock under the
plan, unearned compensation equivalent to the excess of the market
value at the date of grant over the purchase price is offset against
stockholders' equity and subsequently amortized over the periods
during which the restrictions lapse.
1995 Director Stock Option Plan
Under the Company's 1995 Director Stock Option Plan, the maximum
number of shares of common stock which may be issued is 200,000
shares, subject to certain anti-dilution adjustments. Each director
who is not otherwise an employee initially elected to the Board of
Directors is granted an option, on the date of initial election, to
purchase 20,000 shares of common stock. Each such director is also
granted, on the date of each Annual Meeting of Stockholders, an
option to purchase 5,000 shares. Options become exercisable over
four years, commencing on the one-year anniversary of the date of
grant, and accumulate if not exercised. As of September 30, 1998,
options for 77,900 share were outstanding, of which 9,800 were
exercisable.
1995 Employee Stock Purchase Plan
<PAGE>
Under the Company's 1995 Employee Stock Purchase Plan ("Stock
Purchase Plan"), employees are granted the opportunity to purchase
the Company's common stock. The first offering under the Plan
commenced on August 16, 1995 and concluded February 15, 1996.
Subsequent offerings begin on February 16 and August 16 of each year
and conclude on August 15 and February 15, respectively. The price
at which the employees may purchase the common stock is 85% of the
closing price of the Company's common stock on the Nasdaq National
Market on the date the offering period commences or terminates,
whichever is lower. A total of 600,000 shares of common stock have
been reserved under this plan. In fiscal 1998, 1997 and 1996, 74,323,
45,396 and 18,401 shares were issued under the Stock Purchase Plan,
respectively.
1991 Stock Option Plan
The 1991 Option Plan was terminated effective June 27, 1995, when the
Company completed its initial public offering, and was replaced by
the 1995 Stock Incentive Plan. Options granted under the 1991 Option
Plan generally become exercisable in four equal annual installments,
commencing on the date of grant and continuing through the third
anniversary of the date of grant, and accumulate if not exercised.
Options to purchase 1,520,132 shares of common stock, at prices
ranging from $0.08 to $4.125 per share, have been granted.
A summary of the 1995 Stock Incentive Plan, 1995 Director Stock
Option Plan and the 1991 Stock Option Plan transactions follows:
<TABLE>
<CAPTION>
September 30,
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 1,970,239 $5.85 1,989,590 $8.98 1,493,004 $2.06
Granted 1,858,924 4.04 1,292,900 9.07 910,099 17.10
Exercised (858,327) 1.78 (497,882) 1.62 (394,499) 1.21
Forfeited (613,656) 6.97 (814,369) 12.56 (19,014) 10.85
Outstanding, end of
year 2,357,180 $5.57 1,970,239 $5.85 1,989,590 $8.98
Weighted average
remaining contractual
life 8.60 8.79 8.43
Options exercisable at
year-end 682,326 600,469 658,758
Weighted average fair
value of ptions
granted during the
year $4.94 $12.16 $5.39
</TABLE>
<PAGE>
A summary of information on stock options outstanding as of September
30, 1998 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
<C> <C> <C> <C> <C> <C>
$0.08 165,000 4.92 $0.08 165,000 $0.08
$0.40-$0.58 154,290 7.53 $0.49 118,144 $0.46
$4.13 -$5.53 919,815 9.26 $4.94 13,750 $4.13
$6.88 532,665 8.52 $6.88 279,522 $6.88
$7.00-$9.50 527,510 9.00 $7.82 87,030 $7.35
$10.25-$11.25 55,000 8.74 $10.63 15,980 $10.27
$42.50 2,900 7.32 $42.50 2,900 $42.50
$0.08-$42.50 2,357,180 8.60 $5.57 682,326 $4.36
</TABLE>
Stock-Based Compensation
Pro-forma information, as required by Statement of Financial
Accounting Standards No. 123, is as follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30,
(In thousands, except per share data) 1998 1997 1996
<S> <C> <C> <C>
Net income (loss) as reported ($ 8,016) ($ 9,735) $3,960
Pro-forma net income (loss) ($11,655) ($14,308) $1,306
Net income (loss) per share as reported ($0.60) ($0.81) $0.27
Pro-forma net income (loss) per share ($0.87) ($1.18) $0.10
</TABLE>
In determining the fair value of the options, the Company used the
Black-Scholes model and assumed a risk free interest rate of 4.23%
and 6.0%, and an expected stock price volatility of 90.0% and 70.2%
for 1998 and 1997, respectively. The Company also assumed expected
lives of the options ranging from five to six years and no dividends
for all years. The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, it
requires the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can
materially affect the fair value estimate, the estimated valuations
may not necessarily provide a reliable measure of the fair value of
the Company's options.
<PAGE>
Note 6. Stock Option Exchange Program
The Company uses stock options as a significant element of the
compensation of employees, in part because it believes options
provide an incentive to employees to maximize shareholder value.
Stock options also serve as a means of retaining employees.
Because the market value of the Company's common stock in early
1997 had fallen significantly below the exercise price of most
outstanding options, the value of such stock options as a means of
motivating and retaining employees had been significantly
diminished. The Board of Directors concluded that the Company
needed to restore the value of the existing stock options as a
means of motivating and retaining employees in order to promote the
successful implementation of the Company's growth strategies.
As a result, on April 8, 1997, the Board of Directors approved a
stock option exchange program (the "Exchange Program"), pursuant to
which full-time permanent employees holding stock options under the
Company's 1995 Stock Incentive Plan were given the opportunity to
exchange the unexercised portion of such options (the "Existing
Options") for new options (the "New Options") on a basis of four
shares of common stock for every five shares covered by the
Existing Option and having an exercise price of $6.875 per share
(the fair market value of the Company's common stock on such date).
The New Options expire 10 years from the date of grant and have the
same vesting schedule and other terms as the Existing Options
cancelled in exchange therefor. Option holders who own more than
1% of the Company's outstanding common stock and Directors were
excluded from the Exchange Program. Stock option disclosures in
Note 5 have been adjusted to reflect options for approximately
235,000 shares which were forfeited as a result of the Exchange
Program.
Note 7. 401(k) Savings Plan
The Company has a salary reduction 401(k) retirement savings plan
(the "Plan") covering substantially all of the Company's employees.
Participating employees may contribute an amount up to 15% of their
eligible compensation, subject to an annual limit. The Company, at
the discretion of the Board of Directors, may make contributions to
the Plan. The Company contributed $273,200, $269,000 and $118,300 to
the Plan in fiscal 1998, 1997 and 1996, respectively.
Note 8. Commitments and Contingencies
The Company leases office facilities under non-cancelable operating
lease agreements and has sublease agreements expiring at various
dates through fiscal 2002. At September 30, 1998, approximate future
minimum lease commitments and receipts under these leases and
subleases were as follows:
<TABLE>
<CAPTION>
Minimum
Lease Sublease
Commitments Receipts
(In thousands)
<C> <C> <C>
1999 $ 1,623 $ 194
2000 1,265 194
2001 778 194
2002 282 97
</TABLE>
<PAGE>
Total rent expense under non-cancelable operating leases was
approximately $1,450,000, $1,324,000, and $689,000 for the years
ended September 30, 1998, 1997 and 1996, respectively, net of
sublease amounts of $243,000, $31,000 and $0, respectively.
Note 9. Significant Customers and Export Revenues
In fiscal 1998, sales to a significant customer represented 15.0% of
total net revenues. Sales to another significant customer
represented 39.5% and 12.1% of total net revenues in fiscal 1997 and
1996, respectively.
The Company exports products to diverse geographic areas.
Substantially all foreign sales; however, are transacted in U.S.
dollars and therefore the Company is not exposed to foreign currency
market risk. Net export revenues by geographic area were as follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30,
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Japan $1,488 $ 583 $ 2,094
Other
international 899 1,113 1,594
Total net export
revenues $2,387 $ 1,696 $ 3,688
Note 10. Microsoft Amendment
On January 21, 1997, the Company amended its license arrangement with
Microsoft. This amendment converted Microsoft's existing license for
the Spyglass Mosaic browser technology into a fully paid-up license
in consideration of an additional $8,000,000 payment from Microsoft.
This payment consisted of $7,500,000 in cash and $500,000 in software
and product maintenance.
Note 11. Restructuring Charge
On March 10, 1997, the Company consolidated its Champaign, Illinois
development operations with its Naperville, Illinois and Cambridge,
Massachusetts operations. This consolidation reflected the Company's
evolution from its desktop focus to the Internet device market and
the realignment of its product development activities with the needs
of this market. A pre-tax restructuring charge of $900,000 was
recorded in the second quarter of fiscal 1997 and consisted primarily
of severance and related personnel costs of $730,000 and lease
cancellation and other exit costs of $170,000. Included in the
charge for personnel costs was $100,000 of compensation expense
related to the acceleration of the exercisability of certain stock
options. The restructuring was completed as of September 30, 1997.
Note 12. Subsequent Event
In October 1998, General Instrument Corporation ("GI") acquired
700,000 shares of the Company's common stock for $7,392,000 and
also acquired warrants to purchase an additional 700,000 shares.
The warrants have exercise prices ranging from $13.20 to $14.78 per
share (subject to adjustment in certain circumstances), and become
exercisable on varying dates over a five-year period. In connection
with this investment, the Company and GI entered into a three-year
agreement under which the Company will develop and integrate new
Internet cable services and technologies for GI. This work will be
performed through a newly formed subsidiary of the Company, in
which GI will hold a 10% minority interest and which GI will have
an option to purchase at fair market value under certain
circumstances.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and stockholders of Spyglass, Inc.
We have audited the consolidated balance sheets of Spyglass Inc. and
subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express and opinion on these financial
statements based on our audit. The consolidated financial statements
of Spyglass, Inc. and subsidiaries as of and for the year ended
September 30,1 996 were audited by other auditors whose report dated
October 25, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Spyglass, Inc. and subsidiaries at September 30, 1998 and 1997,
and the consolidated results of their operations and their cash flows
for the two years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
October 19, 1998
</TABLE>
EXHIBIT 21
Subsidiaries of the Registrant Jurisdiction of
Incorporation
Spyglass International, Inc. Delaware
SurfWatch Software, Inc. California
Stonehand Inc. Massachusetts
OS Technologies Corporation Massachusetts
Spyglass Europe Ltd. Delaware
AllPen Software, Inc. California
Spyglass DSIC, Inc. Delaware
EXHIBIT 23.1
Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration
Statements of Spyglass, Inc. on Form S-3 (File Nos. 333-06943, 333-
08255, 333-08253 and 333-14643) and on Form S-8 (File Nos. 33-95164,
33-95160, 33-95162, 33-95158, 333-2312, 333-04357 and 333-40831) of
Spyglass, Inc. of our reports dated October 19, 1998, with respect to
the consolidated financial statements and schedule of Spyglass, Inc.
included and incorporated by reference in the Annual Report (Form 10-
K) for the year ended September 30, 1998.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
December 18, 1998
EXHIBIT 23.2
Consent of PricewaterhouseCoopers LLP
We consent to the incorporation by reference in the Registration
Statements of Spyglass, Inc. on Form S-3 (File Nos. 333-06943, 333-
08255, 333-08253 and 333-14643) and on Form S-8 (File Nos. 33-95164,
33-95160, 33-95162, 33-95158, 333-2312 and 333-04357) of Spyglass,
Inc. of our reports dated October 25, 1996, with respect to the
consolidated financial statements and schedule of Spyglass, Inc.
included and incorporated by reference in the Annual Report (Form 10-
K) for the year ended September 30, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
December 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMETNS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,655
<SECURITIES> 0
<RECEIVABLES> 5,133
<ALLOWANCES> 479
<INVENTORY> 0
<CURRENT-ASSETS> 30,722
<PP&E> 3,585
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,575
<CURRENT-LIABILITIES> 4,449
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 29,937
<TOTAL-LIABILITY-AND-EQUITY> 34,575
<SALES> 11,661
<TOTAL-REVENUES> 20,494
<CGS> 1,843
<TOTAL-COSTS> 5,220
<OTHER-EXPENSES> 24,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,016)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
