-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQXxMbH57hX1VBYsZQf8kFnb+PGBPKuBHMmHo1N+JOrIeb+6ro1bSzDnvake7vLL ltaPZ7oYnkNo0MmbHvfBKw== 0000891618-98-003905.txt : 19980817 0000891618-98-003905.hdr.sgml : 19980817 ACCESSION NUMBER: 0000891618-98-003905 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERSANT CORP CENTRAL INDEX KEY: 0000865917 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943079392 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28540 FILM NUMBER: 98689006 BUSINESS ADDRESS: STREET 1: 6539 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 BUSINESS PHONE: 4153297500 MAIL ADDRESS: STREET 1: 6539 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 FORMER COMPANY: FORMER CONFORMED NAME: VERSANT OBJECT TECHNOLOGY CORP DATE OF NAME CHANGE: 19960428 10QSB 1 FORM 10-QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 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 0-28540 VERSANT CORPORATION (Exact name of Small Business Issuer as specified in its charter) California 94-3079392 State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization 6539 Dumbarton Circle Fremont, California 94555 (Address of principal executive offices) (Zip Code) VERSANT OBJECT TECHNOLOGY CORPORATION (Former Name, Changed Since Last Report on Form 10-QSB) Issuer's telephone number, including area code: (510) 789-1500 Check whether the Issuer (1) 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 [ ] The number of shares of common stock, no par value, outstanding as of July 31, 1998: 9,082,426 Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] 1 2 VERSANT CORPORATION FORM 10-QSB Quarterly Period Ended June 30, 1998 Table of Contents
Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- June 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations -- Three and Six Months Ended June 30, 1998 and 1997 4 Consolidated Statements of Cash Flows --Six Months Ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 1. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Securities Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21
2 3 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1998 1997 -------- -------- (UNAUDITED) * ASSETS Current assets: Cash and cash equivalents $ 3,187 $ 3,717 Short-term investments 2 6,114 Accounts receivable, net 8,531 9,569 Deferred license cost 528 1,028 Other current assets 1,307 1,272 -------- -------- Total current assets 13,555 21,700 Property and equipment, gross 12,815 11,179 Accumulated depreciation (5,099) (4,111) -------- -------- Property and equipment, net 7,716 7,067 -------- -------- Other assets 557 466 Excess of cost of investment over fair value of net assets acquired 2,731 2,973 -------- -------- Total assets $ 24,559 $ 32,206 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term bank borrowings $ 2,586 $ 629 Current portion of long-term debt 841 721 Current portion of capitalized lease obligations 612 404 Notes payable -- 106 Accounts payable 995 1,072 Accrued liabilities 2,926 3,278 Deferred revenue 3,012 3,262 -------- -------- Total current liabilities 10,972 9,472 -------- -------- Long-term liabilities, net of current portion: Deferred revenue 911 1,087 Long-term bank borrowings 1,471 1,801 Capitalized lease obligations 682 546 -------- -------- Total liabilities 14,036 12,906 -------- -------- Shareholders' equity: Common stock 43,360 42,980 Accumulated deficit (32,870) (23,955) Cumulative translation adjustment 33 275 -------- -------- Total shareholders' equity 10,523 19,300 -------- -------- Total liabilities and shareholders' equity $ 24,559 $ 32,206 ======== ========
* Derived from audited financial statements The accompanying notes are an integral part of these statements 3 4 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue: License $ 4,310 $ 5,587 $ 7,034 $ 7,499 Services 2,261 1,777 4,095 3,650 -------- -------- -------- -------- Total revenue 6,571 7,364 11,129 11,149 Cost of revenue: License 486 114 1,100 351 Services 1,737 1,182 3,636 1,965 -------- -------- -------- -------- Total cost of revenue 2,223 1,296 4,736 2,316 Gross profit 4,348 6,068 6,393 8,833 Operating expenses: Marketing and sales 4,298 3,902 9,309 6,506 Research and development 1,814 1,221 3,650 2,158 General and administrative 991 796 1,900 1,283 Amortization of goodwill 121 121 242 129 -------- -------- -------- -------- Total operating expenses 7,224 6,040 15,101 10,076 Income (loss) from operations (2,876) 28 (8,708) (1,243) Other income (expense) (131) 153 (193) 357 -------- -------- -------- -------- Income (loss) before taxes (3,007) 181 (8,901) (886) Provision for taxes 5 18 14 21 -------- -------- -------- -------- Net income (loss) $ (3,012) $ 163 $ (8,915) $ (907) ======== ======== ======== ======== Basic net income (loss) per share $ (0.33) $ 0.02 $ (0.98) $ (0.10) ======== ======== ======== ======== Diluted net income (loss) per share $ (0.33) $ 0.02 $ (0.98) $ (0.10) ======== ======== ======== ======== Basic weighted average common shares 9,081 8,980 9,060 8,879 Diluted weighted average common shares 9,081 9,563 9,060 8,879
The accompanying notes are an integral part of these statements 4 5 VERSANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (8,915) $ (907) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,230 462 Provision for doubtful accounts 184 (159) Changes in current assets and liabilities: Accounts receivable 854 (3,835) Prepaid expenses and other current assets 465 (916) Accounts payable (77) 370 Accrued liabilities and taxes (352) (194) Deferred revenue (426) 784 -------- -------- Net cash used in operating activities (7,037) (4,395) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,272) (2,032) Purchases of short-term investments -- (9,777) Proceeds from sale and maturities of short-term investments 6,112 13,095 Acquisition of Versant Europe, net of cash acquired -- (1,987) Deposits and other assets (91) (245) -------- -------- Net cash provided by (used in) investing activities 4,749 (946) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of common stock 380 422 Principal payments under long term note (316) -- Principal payments under capital lease obligations (263) (158) Proceeds from long-term borrowings -- 108 Short term note and bank debt 1,957 (50) -------- -------- Net cash provided by financing activities 1,758 322 -------- -------- Effect of exchange rate changes on cash -- 8 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (530) (5,011) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,717 5,267 ======== ======== CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,187 $ 256 ======== ========
The accompanying notes are an integral part of these statements 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED 1. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by Versant Corporation ("Versant" or the "Company"), without audit, pursuant to rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes thereto should be read in conjunction with the Company's audited financial statements included in the Company's Form 10-KSB for the year ended December 31, 1997 filed with the SEC. The unaudited information has been prepared on the same basis as the annual financial statements and, in the opinion of the Company's management, reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 1998, or any other future period. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Effective January 1, 1998, the Company adopted Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The adoption of SOP 97-2 did not have a material impact on the Company's financial position or results of operations. Revenue consists mainly of revenue earned under software license agreements, maintenance agreements and consulting and training activities. Revenue from perpetual software license agreements is recognized as revenue upon shipment of the software if no significant modification of the software is required, payments are due within the Company's normal payment terms and collection of the resulting receivable is probable. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. The Company has entered into contracts with certain of its customers that require the Company to perform development work in return for nonrecurring engineering fees. Revenue related to such nonrecurring engineering fees is generally recognized on a percentage of completion basis. Maintenance revenue is recognized ratably over the term of the maintenance contract. Consulting and training revenue is recognized when a customer's purchase order is received and the services are performed. Cost of license revenue consists principally of product royalty obligations, product packaging, freight, users manuals, product media, production labor costs and reserves for estimated bad debts. Cost of services revenue consists principally of personnel costs associated with providing training, consulting, technical support and nonrecurring engineering work paid for by customers. NET INCOME (LOSS) PER SHARE The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), effective December 15, 1997. This standard revises certain methodology for computing net income (loss) per share and requires the reporting of two net income (loss) per share figures: basic net income (loss) per share and diluted net income (loss) per share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of shares outstanding plus the dilutive effect of shares issuable through the exercise of stock options or upon the conversion of convertible securities. The dilutive effect of stock options is computed using the treasury stock method. Dilutive securities are excluded from the diluted net income (loss) per share computation if their effect is antidilutive. 6 7 Basic net loss per share was computed using the weighted average number of shares outstanding. Diluted net loss per share for the three and six months ended June 30, 1998 and the six months ended June 30, 1997 was the same as basic net loss per share due to losses in these periods, because the inclusion of dilutive securities in the calculations would have been antidilutive. The change in the way the Company previously reported net income (loss) per share for financial reporting purposes is due in part to the adoption of SFAS No. 128 and subsequently, Staff Accounting Bulletin No. 98 on "Computations of Earnings per Share," which became effective in February 1998. RECLASSIFICATIONS Certain reclassifications have been made to amounts in the prior period to conform to the 1998 presentation. ACQUISITION OF VERSANT EUROPE On March 26, 1997, the Company acquired Versant Europe, an independently owned distributor of the Company's products in Europe. The Company paid $3.6 million to the shareholder of Versant Europe consisting of $2.0 million in cash and 167,545 shares of Common Stock valued at $9.75 per share. The shares of Common Stock paid to the shareholder of Versant Europe were issued in a transaction exempt from registration under the Securities Act by virtue of Section 4(2) thereof. The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of operations of Versant Europe are reflected in the consolidated financial statements commencing on the date of the acquisition. The acquisition of Versant Europe resulted in the Company recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $3.3 million, which is being amortized over a seven-year period. The Company also acquired approximately $1.4 million of prepaid sublicense credits which are being amortized and included in cost of license revenue in conjunction with associated license revenue transactions realized by Versant Europe. COMPREHENSIVE INCOME (LOSS) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which was adopted by the Company in the first quarter of 1998. SFAS No. 130 requires companies to report a new, additional measure of income. "Comprehensive income" includes foreign currency translation gains and losses and other unrealized gains and losses that have been previously excluded from net income and reflected instead in equity. A summary of comprehensive income (loss) follows (in thousands):
THREE MONTHS ENDING SIX MONTHS ENDING JUNE 30, JUNE 30, ------------------------- ------------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Net income (loss) ($3,012) $ 163 ($8,915) ($ 907) Foreign currency translation adjustment 50 30 (243) 30 Comprehensive income (loss) ($2,962) 193 ($9,158) ($ 877)
3. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which establishes standards for reporting information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosure about products and services, geographic areas and major customers. As defined in SFAS No. 131, operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operation decision-maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company will adopt SFAS No. 131 commencing with the Company's financial statements for the year ended December 31, 1998. 7 8 4. LINE OF CREDIT On March 19, 1998, the Company converted an interest only, variable rate note to a variable rate, term loan with principal and interest payable over 36 months. Borrowings under the loan are secured by a lien on all assets acquired using the proceeds of the loan, which have been used for the acquisition of equipment and leasehold improvements. The loan bears interest at the bank's base lending rate, currently at 8.5%, plus 0.5%. The loan contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. The Company renegotiated the original covenants effective May 6, 1998 in order to comply with the Company's projected financial results. Certain of these new covenants, with which the Company was not in compliance with as of June 30, 1998, have been waived through such date. The Company is currently negotiating amendments to these covenants. However, the Company may not be successful in negotiating commercially reasonable amendments to these covenants, and the Company may not be able to meet such amended covenants. Failure to meet the Company's debt covenants in the future would have a material adverse effect on the Company's financial condition. 5. LEGAL PROCEEDINGS The Company and certain of its present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998 a Consolidated Amended Complaint was filed in the above mentioned court, by the lead Plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Exchange Act, in connection with public statements about the Company's expected financial performance. The complaint seeks an unspecified amount of damages. The Company vigorously denies the plaintiffs' claims and has moved to dismiss the allegations. However, securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on the Company's results of operations and financial condition. 6. SUBSEQUENT EVENT On June 16, 1998, the Company entered into a letter agreement to purchase 100% of the outstanding shares of Soft Mountain S.A., a French software development company for cash and stock valued at approximately $1.2 million, subject to certain working capital adjustments. The Company expects to close this transaction during the third quarter of 1998, although as of this time, there can be no assurance as to the final purchase price, the closing date, or whether all contingencies will be met to effect the transaction. 8 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below, including in the section entitled "Other Factors That May Affect Future Operating Results", and in the Company's Form 10-KSB for the year ended December 31, 1997, that could cause actual results to differ materially from historical results or those anticipated in the forward-looking statements. The Company has identified with a preceding asterisk ("*") various sentences within this Form 10-QSB which contain such forward-looking statements, and words such as "believes," "anticipates," "expects," "may," "future," "intends" and similar expressions are intended to identify forward-looking statements, however neither method is the exclusive manner of identifying such statements. In addition, the section entitled "Other Factors That May Affect Future Operating Results" has no asterisks for improved readability, but includes a substantial number of forward-looking statements. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Substantially all of Versant's revenue has been derived from (i) sales of development, deployment and project licenses for the Versant Object Database Management System (the "Versant ODBMS"), (ii) sales of licenses for object-oriented programming language interfaces, database query tools, application development tools, legacy database access tools, Internet/Intranet/Extranet integration tools and multimedia management tools related to the Versant ODBMS (the "Peripheral Products"), (iii) related maintenance and support, training and consulting (the "Associated Services") and (iv) the resale of licenses, maintenance, training and consulting for third-party products that complement the Versant ODBMS. During the second quarter of 1998, the Company's operating results were adversely impacted by a decreased willingness of the Company's current and potential customers to purchase large pre-paid project licenses coupled with the Company's decision to limit its practice of granting price discounts in connection with the sale of such licenses. *In an effort to generate recurring revenue opportunities and improve its ability to forecast revenues and consequently manage expenses, the Company seeks to focus more on smaller and recurring license opportunities with its current and potential customers than on large pre-paid project licenses. *In the past, a significant portion of the Company's total revenue has been derived from a limited number of large pre-paid licenses, and the Company's decision to reduce its focus on such licenses has adversely impacted its operating results in the past quarters and may adversely impact its operating results in subsequent quarters. See "Other Factors That May Affect Future Operating Results--Customer Concentration." *In addition, the Company seeks to develop relationships with best-of-class value-added resellers ("VARs") in the telecommunications and financial services markets in order to strengthen the Company's indirect sales activity, although the Company may not be successful in developing such relationships and such VARs may not be successful in reselling the Company's products. See "Other Factors That May Affect Future Operating Results--Lengthy Sales Cycle." *In response to the Company's operating results in the first half of 1998, the Company has taken and is continuing to take steps to decrease its operating expenses from the first half 1998 levels. However, the Company's ability to manage expenses given the unpredictability of its revenues is uncertain, and the Company is required to maintain a significant infrastructure in order to develop, market and support its products. See "Other Factors That May Affect Future Operating Results--Unpredictability of Revenue" and "--Uncertain Ability to Manage Costs Given Unpredictability of Revenue." 9 10 RESULTS OF OPERATIONS The following table sets forth the percentages that statement of operations items compare to total revenue for the three and six months ended June 30, 1998 and 1997.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1998 1997 1998 1997 ----- ----- ----- ----- Revenue: License 65.6% 75.9% 63.2% 67.3% Services 34.4% 24.1% 36.8% 32.7% ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% Cost of revenue: License 7.4% 1.5% 9.9% 3.2% Services 26.4% 16.5% 32.7% 17.6% ----- ----- ----- ----- Total cost of revenue 33.8% 17.6% 42.6% 20.8% Gross profit 66.2% 82.4% 57.4% 79.2% Operating expenses: Marketing and sales 65.4% 53.0% 83.6% 58.4% Research and development 27.6% 16.6% 32.8% 19.4% General and administrative 15.1% 10.8% 17.1% 11.4% Amortization of goodwill 1.8% 1.6% 2.2% 1.1% ----- ----- ----- ----- Total operating expenses 109.9% 82.0% 135.7% 90.3% Income (loss) from operations (43.7%) 0.4% (78.3%) (11.1%) Other income (expense) (2.0%) 2.1% (1.7%) 3.2% ----- ----- ----- ----- Income (loss) before taxes (45.7%) 2.5% (80.0%) (7.9%) Provision for taxes 0.1% 0.2% 0.1% 0.2% ===== ===== ===== ===== Net income (loss) (45.8%) 2.3% (80.1%) (8.1%) ===== ===== ===== =====
REVENUE The Company's total revenue decreased 11% from $7.4 million in the second quarter of 1997 to $6.6 million in the second quarter of 1998. This decrease was principally due to a decrease in large prepaid domestic and international license sales to new and existing commercial customers. The Company's total revenue remained flat at $11.1 million for the six months ended June 30, 1997 and 1998. This lack of increase was principally due a reduction in large license orders, due to the increased difficulty of securing large, profitable, pre-paid software licenses, offset by increased smaller license orders and service revenue in the first half of 1998. License revenue License revenue decreased 23% from $5.6 million in the second quarter of 1997 to $4.3 million in the second quarter of 1998. License revenue decreased 6% from $7.5 million for the six months ended June 30, 1997 to $7.0 million in the corresponding period of 1998. These decreases were principally due to decreases in large prepaid domestic and international license sales to new and existing commercial customers. In the past, a significant portion of the Company's total revenue has been derived from a limited number of large pre-paid licenses, and the Company's decision to reduce its focus on such licenses has adversely impacted its operating results in the past few quarters. License revenue as a percentage of total revenue decreased from 76% to 66% from the second quarter of 1997 to the second quarter of 1998, and from 67% to 63% from the six months ended June 30, 1997 to the corresponding period of 1998 due to the reasons described above. *The Company believes license revenues in absolute dollars will decline slightly 10 11 and as a percentage of total revenues for the full year 1998 compared to 1997. However the Company's ability to predict future revenues is uncertain. See "Other Factors That May Affect Operating Results-Unpredictability of Revenue". Service revenue Services revenue increased 27% from $1.8 million in the second quarter of 1997 to $2.3 million in the second quarter of 1998. Services revenue increased 12% from $3.7 million for the six months ended June 30, 1997 to $4.1 million in the corresponding period of 1998. The increases in services revenue were primarily due to increased domestic and international consulting business, increased maintenance revenue on a larger installed customer base and to a lesser extent, increased customer training revenue. International revenue International revenue increased from 19% of the Company's total revenue in the second quarter of 1997 to 45% in the second quarter of 1998. International sales accounted for approximately 25% of the Company's total revenue for the six months ended June 30, 1997 compared to 43% in the corresponding period of 1998. These increases in international revenues during the three and six months ended June 30, 1998 compared to the corresponding periods of 1997 resulted primarily from higher sales in Europe, Australia and Asia Pacific and the Company's increased marketing and sales investment, including the hiring of additional personnel. In addition, as a result of the acquisition of Versant Europe in March 1997, the Company began recognizing license and service revenue from Versant Europe that would have been recognized only at a 40 percent royalty rate and 25 percent royalty rate, respectively, had Versant Europe not been acquired. *The Company intends to maintain its sales and marketing activities outside the United States, including Europe, Hong Kong, China, Korea and other Asia/Pacific countries primarily focusing on building indirect distribution channels. This will require significant management attention and financial resources, and may increase costs and impact margins unless and until corresponding revenue is achieved. In addition the Company may not be successful in creating additional indirect distribution channels or in generating revenue from these channels. *The Company expects total international revenue for the year 1998, as a percentage of total revenue, to be comparable to 1997 level. However the Company may not attain this level of international revenue. See "Other Factors That May Affect Future Operating Results -- Lengthy Sales Cycles" and "Risks of International Operations." COST OF REVENUE AND GROSS PROFIT Total cost of revenue increased 72% from $1.3 million in the second quarter of 1997 to $2.2 million in the second quarter of 1998, due in part to increased reserves for bad debts, but principally as a result of a substantial increase in the cost of services revenue resulting from the expansion of the consulting, training and support organizations. Total cost of revenue as a percentage of total revenue increased from 18% in the second quarter of 1997 to 34% in the second quarter of 1998. Total cost of revenue increased 104% from $2.3 million for the six months ended June 30, 1997 to $4.7 million in the corresponding period of 1998 due to the same reasons stated above. Total cost of revenue as a percentage of total revenue increased from 21% for the six months ended June 30, 1997 to 43% in the corresponding period of 1998. Cost of license revenue consists primarily of amortization of certain license fees associated with the acquisition of Versant Europe in 1997, adjustments to bad debt reserves, product media, user manuals, freight, product royalty obligations incurred by the Company when it sub-licenses Third-Party Products and production labor costs. Cost of license revenue increased 326% from $114,000 or 2% of license revenue in the second quarter of 1997 to $486,000 or 11% of license revenue in the second quarter of 1998, primarily due to amortization of certain capitalized license fees associated with the acquisition of Versant Europe and an increase in bad debt reserves, based on management's assessment of the adequacy of such reserves. Cost of license revenues increased 213% from $351,000, or 5% of license revenue, for the six months ended June 30, 1997 to $1.1 million or 16% of license revenue in the corresponding period of 1998 due to the same reasons stated above. Cost of services revenue consists principally of personnel costs associated with providing consulting, technical support and training. These costs increased 47% from $1.2 million or 66.5% of services revenue in the second quarter of 1997 to $1.7 million or 77% of services revenue in the second quarter of 1998. Cost of services increased 85% from $2.0 million or 54% of services revenue for the six months ended June 30, 1997 to $3.6 million or 89% of services revenue in the corresponding period of 1998. These increases were attributable principally to a significant increase in consulting 11 12 and training costs associated with a larger services infrastructure, as well as costs associated with customer support activities to service a larger customer base. The significant increase was attributable principally to significant investments in the Company's services organization infrastructure to support the Company's sales efforts, including higher compensation and operating costs resulting from additions in domestic and international services management, and compensation pressures. Cost of services revenue as a percentage of services revenue increased in the three and six months ended June 30, 1998 compared to the corresponding periods of 1997 due to staff additions in the consulting, training and support organizations without a corresponding increase in consulting and training revenue. *The Company expects cost of services revenue to be a significant percentage of services revenue due to the need for the Company to maintain a significant services organization due to the difficulty in forecasting billable service demand, the unevenness of demand for services (which have historically been reduced during holiday periods) and pricing pressure on fees for services encountered in connection with license sales. *The Company also expects to experience increased compensation pressures as a result of the intense demand for managers and engineers in Silicon Valley, which the Company may not be able to offset with increases in the fees the Company charges for maintenance and training and consulting projects due to competitive pressures and restrictions in contractual provisions regarding Associated Services. See "Other Factors That May Affect Future Operating Results - Reliance on Telecommunications, Internet/Intranet/Extranet and Financial Services Markets." MARKETING AND SALES EXPENSES Marketing and sales expenses consist primarily of marketing and sales personnel costs, including sales commissions, recruiting, travel, sales offices, product descriptive literature, seminars, trade shows, product management, depreciation, occupancy expense, lead generation and mailings . Marketing and sales expenses increased 10% from $3.9 million in the second quarter of 1997 to $4.3 million in the second quarter of 1998. Marketing and sales expenses increased 43% from $6.5 million for the six month period ended June 30, 1997 to $9.3 million for the corresponding period of 1998. The increases in marketing and sales expenses for both periods was due to costs associated with the expansion of the direct sales force and increased facility costs. As a percentage of total revenues, marketing and sales expenses increased to 65% in the second quarter of 1998 from 53% in the second quarter of 1997 and increased to 84% for the six month period ending June 30, 1998 compared to 58% for the like period in 1997. The increases as a percentage of total revenues for both periods were the result of higher expenses associated with expanded marketing and sales efforts and lower than expected revenues. *The Company expects that for the remainder of 1998, quarterly marketing and sales expenses will decrease in absolute dollar terms from the first six month of 1998 quarterly levels, but increase, compared to 1997 levels, as the Company attempts to create the opportunities necessary to generate higher revenues, and to decrease, compared to the first six months of 1998, as a percentage of revenue due to the Company's efforts to control commission costs and costs associated with marketing programs. *The Company's operating results will be materially adversely affected if its increased marketing and sales expenditures do not result in increased revenue. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses consist primarily of salaries, other personnel-related expenses, depreciation or the expensing of development equipment, the costs of an ISO 9001 quality program, travel and supplies. Research and development expenses increased 49% from $1.2 million in the second quarter of 1997 to $1.8 million in the second quarter of 1998. Research and development expenses increased 69% from $2.2 million for the six month period ended June 30, 1997 to $3.7 million for the corresponding period of 1998. The expense increase in both periods resulted primarily from increases in personnel and the resulting increase in compensation expense, increased depreciation, amortization and equipment expense, as well as the costs of funding ongoing engineering activities in India. As a percent of total revenues, research and development costs were 28% in the second quarter of 1998 compared to 17% in the second quarter of 1997 and 33% for the six month period ending June 30, 1998 compared to 19% for the like period in 1997. The increases as a percentage of revenues were due to higher expenses associated with increased personnel and lower than expected revenues. *The Company believes that a significant level of research and development expenditures is required to remain competitive and complete products under development. *Accordingly, the Company anticipates that it will continue to devote substantial resources to research and development to design, produce and increase the quality, competitiveness and acceptance of its products. *Although the Company expects research and development expenses to increase in absolute dollar terms and as a percentage of revenue in 1998, the Company does not expect to continue to upgrade its engineering infrastructure and hire additional personnel without corresponding increases in revenue, as the Company's results of operations would be adversely affected. However, even maintaining the Company's current engineering infrastructure without increases in revenue from second quarter 1998 levels would 12 13 have a material adverse effect on the Company's results of operations. To date, all research and development expenditures have been expensed as incurred. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses consist primarily of salaries, recruiting and other personnel-related expenses for the Company's accounting, human resources, management information systems, legal and general management functions. In addition, general and administrative expenses include outside legal, audit and public reporting costs. General and administrative expenses increased 24% from $796,000 in the second quarter of 1997 to $1.0 million in the second quarter of 1998. General and administrative expenses increased 48% from $1.3 million for the six month period ended June 30, 1997 to $1.9 million for the corresponding period of 1998. Both period increases were attributable principally to compensation costs associated with an increased number of information systems and accounting employees and ongoing facility costs resulting from the occupancy of a significantly larger facility in 1998 compared to 1997. As a percentage of total revenues, general and administrative costs increased in the second quarter of 1998 to 15% from 11% in the second quarter of 1997 and for the six month period ending June 30, 1998 increased to 17% from 11% for the like period in 1997. The increases as a percentage of revenues were due to higher expenses and lower than expected revenues. *For the remainder of 1998, the Company expects general and administrative expenses to decrease in absolute dollar terms from the first six months of 1998 quarterly level, but increase, compared to 1997 levels, due to the costs associated with supporting the Company's expected growth, the costs associated with defending the securities litigation against the Company and certain of its current and former directors and officers, and certain severance costs incurred in connection with recent changes to the Company's management. *The Company expects that general and administrative expenses will also increase as a percentage of revenue. The Company will not upgrade its administration infrastructure and hire additional personnel without corresponding increases in revenue, as the Company's results of operations would be adversely affected. However, even maintaining the Company's current administrative infrastructure without increases in revenue from second quarter 1998 levels would have a material adverse effect on the Company's results of operations. AMORTIZATION OF GOODWILL The acquisition of Versant Europe in March 1997 resulted in the Company recording an intangible asset representing the cost in excess of fair value of the net assets acquired in the amount of $3.3 million, which is being amortized over a seven-year period. During the second quarter, of 1997 and 1998, the Company amortized $121,000 per quarter. For the six month period ending June 30, 1998 the Company amortized $242,000, while in the corresponding period in 1997 the Company amortized $129,000. *The Company expects to amortize $121,000 per quarter for the remainder of 1998. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased by $0.5 million from $3.7 million at December 31, 1997 to $3.2 million at June 30, 1998. Short-term investments decreased by $6.1 million from $6.1 million at December 31, 1997 to $2,000 at June 30, 1998. The decreases in both cash and short term investments were the result of financing net losses experienced in the six month period ended June 30, 1998. The Company's short-term investments consisted of United States Treasury Bills. *Management expects that, in the future, cash in excess of current requirements will be invested in short-term, interest-bearing, investment grade securities. For the six month period ended June 30, 1998, the Company's operating activities used $7.0 million of cash and cash equivalents primarily as a result of funding the net loss for the period and decreases in accrued liabilities, deferred revenue and accounts payable, offset by reductions in accounts receivables, increases in depreciation, amortization and provision for doubtful accounts. Investing activities generated net cash of $4.7 million, principally from the sale of short term investments, while the acquisition of equipment, and reduction in deposits and other assets used cash. Financing activities provided cash of $1.8 million, as $2.0 million provided by short term bank financing and $0.4 million provided from the sale of common stock to employees was partially offset by the principal repayment on equipment leases and long term bank note in the amount of $0.6 million. The Company's total assets decreased by 24% from $32.2 million at December 31, 1997 to $24.6 million at June 30, 1998. The decrease in total assets was primarily due to the reduction in accounts receivable balances, caused by reduced revenues, as well as a reduction in cash balances used to fund operating activities. 13 14 The Company's total liabilities increased 9% from $12.9 million at December 31, 1997 to $14.0 million at June 30, 1998. This increase was primarily due to a an increase in short term bank borrowings, offset in part by a reduction in long term bank borrowings, accrued liabilities, deferred revenue and notes payable. The Company's total shareholders' equity decreased 45% from $19.3 million at December 31, 1997 to $10.5 million at June 30, 1998. This decrease primarily results from the net loss of $8.9 million for the six month period ended June 30, 1998. The Company maintains a revolving credit line with a bank that expires on May 31, 1999. The maximum amount that can be borrowed under the revolving credit line is $5.0 million. As of June 30, 1998, $1,666,000 of borrowings were outstanding. Borrowings under the revolving credit line are limited to 80% of eligible accounts receivable and are secured by a lien on substantially all of the Company's assets. These borrowings bear interest at the bank's base lending rate (8.5 percent at June 30, 1998). The loan agreement contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. The Company renegotiated these original covenants, effective May 6, 1998 in order to comply with the Company's projected financial results. Certain of the covenants, with which the Company was not in compliance with as of June 30, 1998, have been waived through such date. The Company is currently negotiating amendments to these covenants. However the Company may not be successful in negotiating commercially reasonable amendments to these covenants, and the Company may not be able to meet any such amended covenants. Failure to meet the Company's debt covenants in the future would have a material adverse effect on the Company's financial condition. The Company entered into an interest only, variable rate note of $2.5 million with a bank that matured March 1, 1998. On March 19, 1998, this note was converted to a variable rate, term loan with principal and interest payable over 36 months. Borrowings under the loan are secured by a lien on all assets acquired using the proceeds of the loan, which have been used for the acquisition of equipment and leasehold improvements. The loan bears interest at the bank's base lending rate, currently at 8.5%, plus 0.5%. The loan contains certain financial covenants and also prohibits cash dividends and mergers and acquisitions without the bank's prior approval. The Company renegotiated these original covenants, effective May 6, 1998 in order to comply with the Company's projected financial results. Certain of the covenants, with which the Company was not in compliance with as of June 30, 1998, have been waived through such date. The Company is currently negotiating amendments to these covenants. However the Company may not be successful negotiating commercially reasonable amendments to these covenants, and the Company may not be able to meet any such amended covenants. Failure to meet the Company's debt covenants in the future would have a material adverse effect on the Company's financial condition. *The Company is attempting to raise additional funds through the sale of equity securities or other means in the near future, and such action is required by the terms of the Company's amended debt covenants. *There can be no assurance that any such funds will be available on favorable terms, if at all. *If the Company is unable to raise additional funds the Company will be dependent on earnings from operations to fund operations, and possibly to repay outstanding bank debt. *There can be no assurance that earnings from operations would be sufficient for that purpose, and the Company would likely be required to significantly reduce operations or take other actions that would have a material adverse effect on the Company's business. *The sale of additional equity would result in dilution to the Company's shareholders. 14 15 OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS This Form 10-QSB contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those set forth below, that could cause actual results to differ materially from those in the forward-looking statements. In addition, the matters set forth below should be carefully considered when evaluating the Company's business and prospects. UNPREDICTABILITY OF REVENUE. The Company's revenue has fluctuated dramatically on a quarterly and annual basis, and the Company expects this trend to continue. These dramatic fluctuations result from a number of factors, including: (i) the lengthy and highly consultative sales cycle associated with the Company's products; (ii) uncertainty regarding the timing and scope of customer deployment schedules of applications based on the Versant ODBMS; (iii) fluctuations in domestic and foreign demand for the Company's products and services, particularly in the telecommunications, Internet/Intranet/Extranet and financial services markets; (iv) the impact of new product introductions by the Company and its competitors; (v) the Company's unwillingness to significantly lower prices to meet lower prices set by the Company's competitors; (vi) the effect of publications of opinions about the Company and its competitors and their respective products; and (vii) customer order deferrals in anticipation of product enhancements or new product offerings by the Company or its competitors. A number of other factors make it impossible to predict the Company's operating results for any period prior to the end of that period. The Company's software is shipped to a customer at receipt of the customer's order, and consequently, the Company has little order backlog. As a result, license revenue in any quarter is substantially dependent on orders booked and shipped in that quarter. Historically, a majority of the Company's total revenue in any quarter has been recorded, and a majority of the orders for the Company's products have been booked, in the third month of that quarter, with a concentration of such revenue and orders in the last few days of that quarter. The Company expects this trend to continue. Many of these factors are beyond the Company's control. In addition, the Company's increasing practice of licensing products on a project basis may reduce the potential for recurring deployment revenue for certain customer applications. UNCERTAIN ABILITY TO MANAGE COSTS GIVEN UNPREDICTABILITY OF REVENUE. The Company expended significant resources in 1997 to build its infrastructure and hire personnel, particularly in the services and sales and marketing sectors, in expectation of higher revenue growth than actually occurred. Although the Company is seeking to control costs, the Company continues to plan for revenue growth in 1998 and is maintaining, with some reductions, its investments in infrastructure and personnel accordingly. If planned revenue growth does not materialize, the Company's business, financial condition and results of operations will be materially adversely affected. LIMITED WORKING CAPITAL. The Company incurred a significant reduction in working capital in the first six months of 1998. *The Company is attempting to raise additional funds through the sale of equity securities or other means in the near future, and such action is required by the terms of the Company's amended debt covenants. *There can be no assurance that any such funds will be available on favorable terms if at all. *If the Company is unable to raise additional funds the Company will be dependent on earnings from operations to fund operations, and possibly to repay outstanding bank debt. *There can be no assurance that earnings from operations would be sufficient for that purpose, and the Company would likely be required to significantly reduce operations or take other actions that would have a material adverse effect on the Company's business. *The sale of additional equity would result in dilution to the Company's shareholders. RELIANCE ON TELECOMMUNICATIONS, INTERNET/INTRANET/EXTRANET AND FINANCIAL SERVICES MARKETS. Historically, the Company has been highly dependent upon the telecommunications industry and is becoming increasingly dependent upon the Internet/Intranet/Extranet and financial services markets. The Company's success in the telecommunications, Internet/Intranet/Extranet and financial service markets is dependent, in part, on the Company's ability to compete with alternative technology providers and the extent to which the Company's customers and potential customers believe the Company has the expertise necessary to provide effective solutions in these markets. If these conditions, among others, are not satisfied, the Company may not be successful in generating additional opportunities in these markets. The need for and type of applications and commercial products for the telecommunications, Internet/Intranet/Extranet and financial services markets is continuing to develop, is rapidly changing, and is characterized by an increasing number of new entrants whose products may compete with those of the Company. As a result, it is difficult to predict the future growth of these markets, and demand for object-oriented databases in these markets may not develop or be sustainable. The Company also may not be successful in attaining a significant share of such market. In addition, organizations in these markets generally develop sophisticated and complex applications that require substantial customization of the Company's products. Although the Company seeks to generate consulting revenue in connection with these 15 16 customization efforts, the Company has offered, and may, under certain circumstances continue to offer, free or reduced price consulting. This practice has impacted, and will continue to impact, the Company's service margins and will require that the Company maintain a highly skilled service infrastructure with specific expertise in these markets. CUSTOMER CONCENTRATION. Notwithstanding the Company's recent efforts to reduce its reliance on large prepaid licenses, a significant portion of the Company's total revenue has been, and the Company believes will continue to be, derived from a limited number of orders placed by large organizations, and the timing of such orders and their fulfillment has caused, and is likely to cause in the future, material fluctuations in the Company's operating results, particularly on a quarterly basis. For example, in the first quarter of 1998, three customers accounted for 27% of the Company's total revenue, and in the second quarter of 1998 three customers accounted for 30% of the Company's total revenue. In addition, the Company's major customers tend to change from year to year. The loss of any one or more of the Company's major customers or the Company's inability to replace a customer that has become less significant in a given year with a different major customer could have a material adverse effect on the Company's business and operating results. LENGTHY SALES CYCLE. The Company's sales cycle, which varies substantially from customer to customer, often exceeds six months and can sometimes extend to a year or more. Due in part to the strategic nature of the Company's products and associated expenditures, potential customers are typically cautious in making product acquisition decisions. The decision to license the Company's products generally requires the Company to provide a significant level of education to prospective customers regarding the uses and benefits of the Company's products, and the Company must frequently commit pre-sales support resources, such as assistance in performing bench marking and application prototype development. Because of the lengthy sales cycle and the relatively large average dollar size of individual licenses, a lost or delayed sale could have a significant impact on the Company's operating results for a particular period. Although the Company seeks to develop relationships with best-of-class VARs in the telecommunications and financial services markets in order to strengthen the Company's indirect sales activity, the Company has not yet entered into such relationships and may not be successful in developing such relationships. In addition, the Company's VARs may be subject to a lengthy sales cycle for the Company's products. RISKS OF INTERNATIONAL OPERATIONS. The Company's international operations are subject to a number of risks. Such risks include, but are not limited to: (i) longer receivable collection periods; (ii) changes in regulatory requirements; (iii) dependence on independent resellers; (iv) multiple and conflicting regulations and technology standards; (v) import and export restrictions and tariffs; (vi) difficulties and costs of staffing and managing foreign operations; (vii) potentially adverse tax consequences; (viii) foreign exchange fluctuations; (ix) the burdens of complying with a variety of foreign laws; and (x) the impact of business cycles and economic instability outside the United States, including the current economic instability in Asia. TECHNOLOGY DEVELOPMENT RISKS. Versant believes that significant research and development expenditures will be necessary to remain competitive. While the Company believes its research and development expenditures will improve the Versant ODBMS and result in successful peripheral product introductions, due to the uncertainty of software development projects, these expenditures will not necessarily result in successful product introductions. Uncertainties impacting the success of software development project introductions include technical difficulties, market conditions, competitive products and consumer acceptance of new products and operating systems. In particular, the Company notes that it has not yet achieved commercial acceptance for its VMA, VIA and VersantWeb products, which the Company believes is due to the highly competitive nature of the markets for Internet/Intranet/Extranet development tools, and there is a risk that these products may not achieve commercial acceptance. Versant also faces certain challenges in integrating third-party technology with its products, including the technological challenges of integration, which may result in development delays, and uncertainty regarding the economic terms of the relationship between the Company and the third-party technology provider, which may result in delays of the commercial release of new products. COMPETITION. The market for the Company's products is intensely competitive. The Company believes that the primary competitive factors in its market include database performance (including the speed at which operations can be executed and the ability to support large amounts of different information), vendor reputation, the ability to handle abstract data types and more complex data relationships, ease of use, database scalability, the reliability, availability and serviceability of the database, compatibility with customers' existing technology platforms and the ease and speed with which applications can be developed, price and service and support. 16 17 The Company's current and prospective competitors include companies that offer a variety of database solutions using various technologies including object database, object-relational database and relational database technologies. Competitors offering object and object-relational database management systems include Oracle Corporation, Computer Associates International, Inc., Object Design, Inc., Informix and its Illustra Information Technologies, Inc. subsidiary, Objectivity, Inc., Gemstone Systems, Inc., Poet Software Corporation, O2 Corp., ONTOS, Inc., and Fujitsu America, Inc. In addition, the Company's products compete with traditional relational database management systems, many of which have been or are expected to be modified to incorporate object-oriented interfaces and other functionality, and to leverage Java. The principal competitors in the relational database market are Oracle, Sybase, Informix, IBM and Microsoft. The Company expects to face additional competition from other established and emerging companies as the object database market continues to develop and expand. In 1997, Oracle released its Oracle8 product, which, with its objects option, provides object-relational database capabilities, and Computer Associates released its Jasmine ODBMS, which is a pure object-oriented database. Although the Company believes that the decision of relational database vendors to pursue object-relational or object-oriented approaches validates the Company's belief that object-oriented database solutions will be increasingly demanded by today's business organizations, the Company is facing heightened competition, which could result in fewer customer orders, price reductions, reduced transaction size, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Company's business, operating results and financial condition and on the market price of the Company's Common Stock. The Company believes that the Versant ODBMS is currently more expensive than typical RDBMSs as well as Oracle's Oracle8 and Computer Associate's Jasmine. Due to the introduction by Oracle and Computer Associates of competing products with lower prices than the Versant ODBMS, the Company may not be able to maintain prices for its products at levels that will enable the Company to market its products profitably. Any decrease in per unit prices, as a result of competition or otherwise, could have a material adverse effect on the Company's business, operating results and financial condition. The Company is also indirectly facing competition from developers of middleware products that allow users to connect object-oriented applications to existing legacy data and RDBMSs. To the extent that these products gain market acceptance, they may reduce the market for the Versant ODBMS for less complex object-oriented applications. Many of the Company's competitors, and especially Oracle and Computer Associates, have longer operating histories, significantly greater financial, technical, marketing, service and other resources, significantly greater name recognition, broader product offerings and a larger installed base of customers than the Company. In addition, many of the Company's competitors have well-established relationships with current and potential customers of the Company. As a result, the Company's competitors may be able to devote greater resources to the development, promotion and sale of their products, may have more direct access to corporate decision-makers based on previous relationships and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on its business, operating results and financial condition. STOCK PRICE VOLATILITY. The Company's revenue, operating results and stock price have been and may continue to be subject to significant volatility, particularly on a quarterly basis. Versant has previously experienced shortfalls in revenue and earnings from levels expected by securities analysts and investors, which has had an immediate and significant adverse effect on the trading price of the Company's Common Stock. This may occur again in the future. Additionally, as a significant portion of the Company's revenues often occur late in the quarter, the Company may not learn of revenue shortfalls until late in the quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's Common Stock. SECURITIES LITIGATION. The Company and certain of its present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998 a Consolidated Amended Complaint was filed in the above mentioned court, by the lead Plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Exchange Act, in connection with public statements about the Company's expected financial performance. The complaints seek an unspecified amount of damages. The Company vigorously denies the plaintiffs' claims and has moved to dismiss the allegations. However, securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on the Company's results of operations and financial condition. 17 18 YEAR 2000 RISKS. The Company has and will continue to make certain investments in software applications and systems to ensure that the Company's products are Year 2000 compliant. In particular, the Company's purchase of $7.3 million of property and equipment during 1997 included substantial investments in management and information systems designed to be Year 2000 compliant. The Company does not currently have any information concerning the Year 2000 compliance status of its suppliers and customers or of providers of third-party technology that may be integrated with the Company's products. The Company has been reviewing its financial and operating systems to identify and assess the requirements to bring hardware systems and software applications to Year 2000 compliance. Based upon the current information, the Company does not anticipate costs associated with the Year 2000 issue to have a material financial impact on the Company. The process to insure the Company's systems are Year 2000 compliant is expected to be significantly completed by June 30, 1999, with extensive testing to be done through the remainder of 1999. The Company believes that with its conversions to new software and modifications to existing computer hardware and software, the Year 2000 issue will not pose significant operational problems for its computer systems. In the event that any of the Company's significant suppliers or customers, or such third-party technology providers, does not successfully and timely achieve Year 2000 compliance, the Company's business or operations could be adversely affected. 18 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain of its present and former officers and directors were named as defendants in four class action lawsuits filed in the United States District Court for the Northern District of California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. On June 19, 1998 a Consolidated Amended Complaint was filed in the above mentioned court, by the lead Plaintiff named by the court. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the Exchange Act, in connection with public statements about the Company's expected financial performance. The complaint seeks an unspecified amount of damages. The Company vigorously denies the plaintiffs' claims and has moved to dismiss the allegations. However, securities litigation can be expensive to defend, consume significant amounts of management time and result in adverse judgments or settlements that could have a material adverse effect on the Company's results of operations and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 10, 1998, at the Company's Annual Meeting of Shareholders, the Company's shareholders approved the following proposals. Proxies were solicited by the Company pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. As of April 27, 1998, the record date for the Annual Meeting, there were approximately 9,077,777 shares of the Company's Common Stock outstanding and entitled to vote of which 6,931,680 were present in person or by proxy and voted at the meeting. 1. Proposal to elect five directors of the Company, each to serve until the next Annual Meeting of Shareholders and until his successor is duly elected and qualified or until his earlier resignation or removal.
FOR WITHELD --- ------- David Banks 6,875,498 56,182 Mark Leslie 6,847,831 83,849 Stephen J. Gaal 6,887,861 43,819 Nick Ordon 6,894,830 36,850 James Simpson 6,849,481 82,199
2. Proposal to approve an amendment to the Company's 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 75,000 shares. For 6,781,344 Against 121,500 Abstain 28,836
3. Proposal to approve an amendment to the Company's Amended and Restated Articles of Incorporation to change the Company's name from Versant Object Technology Corporation to Versant Corporation. For 6,877,655 Against 27,428 Abstain 26,597
4. Proposal to ratify the appointment of Arthur Andersen LLP as the Company's independent auditors for 1998. For 6,882,615 Against 24,710 Abstain 24,355
ITEM 5. OTHER INFORMATION The following statement is provided pursuant to rule 14a-5 promulgated under the Securities Exchange Act of 1934, as amended: Proxies solicited by the Company for the Company's 1999 Annual Meeting of Shareholders will be voted in 19 20 the discretion of the persons voting such proxies with respect to all proposals presented by the shareholders for consideration at such meeting after March 27, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)
Exhibit No. Exhibit Title - ----------- ------------- 3.06 Certificate of Amendment of Amended and Restated Articles of Versant Object Technology Corporation 10.19 Revolving Credit Loan and Security Agreement Dated May 15, 1997 10.20 Consulting Agreement Between Company and David Banks Dated January 7, 1998 10.21 Variable Rate-Installment Note Dated March 19, 1998 10.22 Equipment Rider Dated March 19, 1998 10.23 Corporate Resolution and Incumbency Certification Dated March 30, 1998 10.24 Modification to Loan and Security Agreement Dated May 6, 1998 10.25 Waiver to Loan and Security Agreement Covenants Dated August 10, 1998 27.01 Financial Data Schedule (b) No Reports on Form 8-K were filed during the quarter ended June 30, 1998.
20 21 SIGNATURE Pursuant to the requirements 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. CORPORATION Date: August 14, 1998 /s/ Gary Rhea - --------------------------- ------------------------------------ Gary Rhea Vice President Finance and Administration. Chief Financial Officer, Treasurer and Secretary (Duly Authorized Officer and Principal Financial Officer) 21 22 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE 3.06 -- Certificate of Amendment of Amended and Restated Articles of Versant Object Technology Corporation 10.19 -- Revolving Credit Loan and Security Agreement dated May 15, 1997 10.20 -- Consulting Agreement between Company and David Banks dated January 7, 1998 10.21 -- Variable Rate-Installment Note dated March 19, 1998 10.22 -- Equipment Rider dated March 19, 1998 10.23 -- Corporate Resolution and Incumbency Certification dated March 30, 1998 10.24 -- Modification to Loan and Security Agreement dated May 6, 1998 10.25 -- Waiver to Loan and Security Agreement Covenants Dated August 10, 1998 27.01 -- Financial Data Schedule
22 EX-3.06 2 EXHIBIT 3.06 1 EXHIBIT 3.06 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF VERSANT OBJECT TECHNOLOGY CORPORATION Nick Ordon and Gary Rhea certify that: 1. They are the President and Secretary, respectively, of Versant Object Technology Corporation, a California corporation. 2. Article I is hereby amended to read in full as set forth in Exhibit A hereto. 3. The foregoing amendment of the Amended and Restated Articles of Incorporation has been duly approved by the board of directors. 4. The foregoing amendment of the Amended and Restated Articles has been duly approved by the required vote of shareholders in accordance with Section 902 and 903(b) of the California Corporations Code. The total number of outstanding shares of Common Stock of the Corporation is 9,083,960. The number of shares voting in favor of the Amendment to the Amended and Restated Articles equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the outstanding shares of Common Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: June 10, 1998 ____________________________________ Nick Ordon, President ____________________________________ Gary Rhea, Secretary 1 of 2 2 EXHIBIT A ARTICLE I The name of this Corporation is Versant Corporation. 2 of 2 EX-10.19 3 EXHIBIT 10.19 1 EXHIBIT 10.19 REVOLVING CREDIT LOAN AND SECURITY AGREEMENT DATED MAY 15, 1997
COMERICA REVOLVING CREDIT LOAN & SECURITY AGREEMENT (ACCOUNTS AND INVENTORY) OBLIGOR # NOTE # AGREEMENT DATE: MAY 15, 1997 CREDIT LIMIT $5,000,000.00 INTEREST RATE B+0.00% OFFICER NO./INITIALS 8.50% 48702 ALAN JEPSEN
THIS AGREEMENT is entered into on MAY 15, 1997, between COMERICA BANK-CALIFORNIA ("Bank") as secured party, whose Headquarter Office is 333 West Santa Clara Street, San Jose, CA and VERSANT OBJECT TECHNOLOGY, a CALIFORNIA CORPORATION, whose sole place of business (if it has only one), chief executive office (if it has more than one place of business) or residence (if an individual) is located at 1380 Willow Road, Menlo Park, CA. The parties agree as follows: 1. DEFINITIONS 1.1 "Agreement" as used in this Agreement means and includes this Revolving Credit Loan & Security Agreement (Accounts and Inventory), any concurrent or subsequent rider to this Revolving Credit Loan & Security Agreement (Accounts and Inventory) and any extensions, supplements, amendments or modifications to this Revolving Credit Loan & Security Agreement (Accounts and Inventory) and to any such rider. 1.2 "Bank Expenses" as used in this Agreement means and includes: all costs or expenses required to be paid by Borrower under this Agreement which are paid or advanced by Bank; taxes and insurance premiums of every nature and kind of Borrower paid by Bank; filing, recording, publication and search fees, appraiser fees, auditor fees and costs, and title insurance premiums paid or incurred by Bank in connection with Bank's transactions with Borrower; costs and expenses incurred by Bank in collecting the Receivables (with or without suit) to correct any default or enforce any provision of this Agreement, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, disposing of, preparing for sale and/or advertising to sell the Collateral, whether or not a sale is consummated; costs and expenses of suit incurred by Bank in enforcing or defending this Agreement or any portion hereof, including, but not limited to, expenses incurred by Bank in attempting to obtain relief from any stay, restraining order, injunction or similar process which prohibits Bank from exercising any of its rights or remedies; and attorneys' fees and expenses incurred by Bank in advising, structuring, drafting, reviewing, amending, terminating, enforcing, defending or concerning this Agreement, or any portion hereof or any agreement related hereto, whether or not suit is brought. Bank Expenses shall include Bank's in-house legal charges at reasonable rates. 1.3 "Base Rate" as used in this Agreement means that variable rate of interest so announced by Bank at its headquarters office in San Jose, California as its "Base Rate" from time to time and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 1.4 "Borrower's Books" as used in this Agreement means and includes all of the Borrower's books and records including but not limited to: minute books; ledgers; records indicating, summarizing or evidencing Borrower's assets, liabilities, Receivables, business operations or financial condition, and all information relating thereto, computer programs; computer disk or tape files; computer printouts; computer runs; and other computer prepared information and equipment of any kind. 1.5 "Borrowing Base" as used in this Agreement means the sum of: (1) EIGHTY percent ( 80.00%) of the net amount of Eligible Accounts after deducting therefrom all payments, adjustments and credits applicable thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if any, of the advances against Inventory agreed to be made pursuant to any Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or modification to this Agreement, that may now or hereafter be entered into by Bank and Borrower. 1.6 "Cash Flow" as used in this Agreement means, for any applicable period of determination, the Net Income (after deduction for income taxes and other taxes of such person determined by reference to income or profits of such person) for such period, plus, to the extent deducted in computation of such Net Income, the amount of depreciation and amortization expense and the amount of deferred tax liability during such period, all as determined in accordance with GAAP. The applicable period of determination will be N/A, 1 2 beginning with the period from _________ to __________. 1.7 "Collateral" as used in this Agreement means and includes each and all of the following: the Receivables; the Intangibles; the negotiable collateral, the Inventory; all money, deposit accounts and all other assets of Borrower in which Bank receives a security interest or which hereafter come into the possession, custody or control of Bank; and the proceeds of any of the foregoing, including, but not limited to, proceeds of insurance covering the collateral and any and all Receivables, Intangibles, negotiable collateral, Inventory, equipment, money, deposit accounts or other tangible and intangible property of borrower resulting from the sale or other disposition of the collateral, and the proceeds thereof. Notwithstanding anything to the contrary contained herein, collateral shall not include any waste or other materials which have been or may be designated as toxic or hazardous by Bank. 1.8 "Credit" as used in this Agreement means all Obligations, except those obligations arising pursuant to any other separate contract, instrument, note, or other separate agreement which, by its terms, provides for a specified interest rate and term. 1.9 "Current Assets" as used in this Agreement means, as of any applicable date of determination, all cash, nonaffiliated customer receivables, United States government securities, claims against the United States government, and inventories. 1.10 "Current Liabilities" as used in this Agreement means, as of any applicable date of determination, (i) all liabilities of a person that should be classified as current in accordance with GAAP, including without limitation any portion of the principal of the Indebtedness classified as current, plus (ii) to the extent not otherwise included, all liabilities of the Borrower to any of its affiliates whether or not classified as current in accordance with GAAP. 1.11 "Daily Balance" as used in this Agreement means the amount determined by taking the amount of the Credit owed at the beginning of a given day, adding any new Credit advanced or incurred on such date, and subtracting any payments or collections which are deemed to be paid and are applied by Bank in reduction of the Credit on that date under the provisions of this Agreement. 1.12 "Eligible Accounts" as used in this Agreement means and includes those accounts of Borrower which are due and payable within Thirty ( 30 ) days, or less, from the date of invoice, have been validly assigned to Bank and strictly comply with all of Borrower's warranties and representations to Bank; but Eligible Accounts shall not include the following: (a) accounts with respect to which the account debtor is an officer, employee, partner, joint venturer or agent of Borrower; (b) accounts with respect to which goods are placed on consignment, guaranteed sale or other terms by reason of which the payment by the account debtor may be conditional; (c) accounts with respect to which the account debtor is not a resident of the United States; (d) accounts with respect to which the account debtor is the United States or any department, agency or instrumentality of the United States; (e) accounts with respect to which the account debtor is any State of the United States or any city, county, town, municipality or division thereof; (f) accounts with respect to which the account debtor is a subsidiary of, related to, affiliated or has common shareholders, officers or directors with Borrower; (g) accounts with respect to which Borrower is or may become liable to the account debtor for goods sold or services rendered by the account debtor to Borrower; (h) accounts not paid by an account debtor within ninety (90) days from the date of the invoice; (i) accounts with respect to which account debtors dispute liability or make any claim, or have any defense, crossclaim, counterclaim, or offset; (j) accounts with respect to which any Insolvency Proceeding is filed by or against the account debtor, or if an account debtor becomes insolvent, fails or goes out of business; and (k) accounts owed by any single account debtor which exceed twenty percent (20%) of all of the Eligible Accounts; and (I) accounts with a particular account debtor on which over twenty-five percent (25%) of the aggregate amount owing is greater than ninety (90) days from the date of the invoice. Allowed thirty percent (30%) concentration allowance for Sprint and Lucent A/Rs. 1.13 "Event of Default" as used in this Agreement means those events described In Section 7 contained herein below. 1.14 "Fixed Charges" as used in this Agreement means and includes, for any applicable period of determination, the sum, without duplication, of (a) all interest paid or payable during such period by a person on debt of such person, plus (b) all payments of principal or other sums paid or payable during such period by such person with respect to debt of such person having a final maturity more than one year from the date of creation of such debt, plus (c) all debt discount and expense amortized or required to be amortized during such period by such person, plus (d) the maximum amount of all rents and other payments paid or required to be paid by such person during such period under any lease or other contract or arrangement providing for use of real or personal property in respect of which such person is obligated as a lessee, use or obligor, plus (e) all dividends and other distributions paid or payable by such person or otherwise accumulating during such period on any capital stock of such person, plus (f) all loans or other advances made by such person during such period to any Affiliate of such person. The applicable period of determination will be N/A, beginning with the period from ________________ to ______________. 2 3 1.15 "GAAP" as used in this Agreement means as of any applicable period, generally accepted accounting principles in effect during such period. 1.16 "Insolvency Proceeding" as used in this Agreement means and includes any proceeding or case commenced by or against the Borrower, or any guarantor of Borrower's Obligations, or any of borrower's account debtors, under any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or insolvency law, including but not limited to assignments for the benefit of creditors, formal or informal moratoriums, composition or extensions with some or all creditors, any proceeding seeking a reorganization, arrangement or any other relief under the Bankruptcy code, as amended, or any other bankruptcy or insolvency law. 1.17 "Intangibles" as used in this Agreement means and includes all of Borrower's present and future general Intangibles and other personal property (including, without limitation, any and all rights in any legal proceedings, goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings, purchase orders, computer programs, computer disks, computer tapes, literature, reports, catalogs and deposit accounts) other than goods and Receivables, as well as Borrower's Books relating to any of the foregoing. 1.18 "Inventory" as used in this Agreement means and includes all present and future inventory in which Borrower has any interest, including, but not limited to, goods held by Borrower for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, advertising materials, and packing and shipping materials, wherever located and any documents of title representing any of the above, and any equipment, fixtures or other property used in the storing, moving, preserving, identifying, accounting for and shipping or preparing for the shipping of inventory, and any and all other items hereafter acquired by Borrower by way of substitution, replacement, return, repossession or otherwise, and all additions and accessions thereto, and the resulting product or mass, and any documents of title respecting any of the above. 1.19 "Net Income" as used in this Agreement means the net income (or loss) of a person for any period determined in accordance with GAAP but excluding in any event: (a) any gains or losses on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and any taxes on the excluded gains and any tax deductions or credits on account on any excluded losses; and (b) in the case of the Borrower, net earnings of any Person in which Borrower has an ownership interest, unless such net earnings shall have actually been received by Borrower in the form of cash distributions. 1.20 "Judicial Officer or Assignee" as used in this Agreement means and includes any trustee, receiver, controller, custodian, assignee for the benefit of creditors or any other person or entity having powers or duties like or similar to the powers and duties of trustee, receiver, controller, custodian or assignee for the benefit of creditors. 1.21 "Obligations" as used in this Agreement means and includes any and all loans, advances, overdrafts, debts, liabilities (including, without limitation, any and all amounts charged to Borrower's account pursuant to any agreement authorizing Bank to charge Borrower's account), obligations, lease payments, guaranties, covenants and duties owing by Borrower to Bank of any kind and description whether advanced pursuant to or evidenced by this Agreement; by any note or other instrument; or by any other agreement between Bank and Borrower and whether or not for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including, without limitation, any debt, liability or obligation owing from Borrower to others which Bank may have obtained by assignment, participation, purchase or otherwise, and further including, without limitation, all interest not paid when due and all Bank Expenses which Borrower is required to pay or reimburse by this Agreement, by law, or otherwise. 1.22 "Person" or "person" as used in this Agreement means and includes any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. 1.23 "Receivables" as used in this Agreement means and includes all presently existing and hereafter arising accounts, instruments; documents, chattel paper, general intangibles, all other forms of obligations owing to Borrower, all of Borrower's rights in, to and under all purchase orders heretofore or hereafter received, all moneys due to Borrower under all contracts or agreements (whether or not yet earned or due), all merchandise returned to or reclaimed by Borrower and the Borrower's books (except minute books) relating to any of the foregoing. 1.24 "Subordinated Debt" as used in this Agreement means indebtedness of the Borrower to third parties which has been subordinated to the Obligations pursuant to a subordination agreement in form and content satisfactory to 3 4 the Bank. 1.25 "Subordination Agreement" as used in this Agreement means a subordination agreement in form satisfactory to Bank making all present and future indebtedness of the Borrower to N/A subordinate to the Obligations. 1.26 "Tangible Effective Net Worth" as used in this Agreement means net worth as determined in accordance with GAAP consistently applied, increased by Subordinated Debt, if any, and decreased by the following: patents, licenses, goodwill, subscription lists, organization expenses, trade receivables converted to notes, money due from affiliates (including officers, directors, subsidiaries and commonly held companies). 1.27 "Tangible Net Worth" as used in this Agreement means, as of any applicable date of determination, the excess of a. the net book value of all assets of a person (other than patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill, and similar intangible assets) after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), over b. all Debt of such person. 1.28 "Total Liabilities" as used in this Agreement means the total of all items of indebtedness, obligation or liability which, in accordance with GAAP consistently applied, would be included in determining. the total liabilities of the Borrower as of the date Total Liabilities is to be determined, including without limitation (a) all obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired, whether or not the obligations secured thereby shall have been assumed; (b) all obligations which are capitalized lease obligations; and (c) all guaranties, endorsements or other contingent or surety obligations with respect to the indebtedness of others, whether or not reflected on the balance sheets of the Borrower, including any obligation to furnish funds, directly or indirectly through the purchase of goods, supplies, services, or by way of stock purchase, capital contribution, advance or loan or any obligation to enter into a contract for any of the foregoing. 1.29 "Working Capital" as used in this Agreement means, as of any applicable date of determination, Current Assets less Current Liabilities. 1.30 Any and all terms used in this Agreement shall be construed and defined in accordance with the meaning and definition of such terms under and pursuant to the California Uniform Commercial Code (hereinafter referred to as the "Code") as amended. 1.31 Letter of Credit Sub-feature --The amount of $2,500,000.00 for the issuance of standby and documentary Letter of Credit is to be allowed within the borrowing base and within the line amount. 2. LOAN AND TERMS OF PAYMENT For value received, Borrower promises to pay to the order of Bank such amount, as provided for below, together with interest, as provided for below. 2.1 Upon the request of Borrower, made at any time and from time to time during the term hereof, and so long as no Event of Default has occurred, Bank shall lend to Borrower an amount equal to the Borrowing Base; provided, however, that in no event shall Bank be obligated to make advances to Borrower under this Section 2.1 whenever the Daily Balance exceeds, at any time, either the Borrowing Base or the sum of FIVE MILLION AND NO/100 ($5,000,000.00), such amount being referred to herein as an "overadvance". 2.2 Except as hereinbelow provided, the Credit shall bear interest, on the Daily Balance owing, at a rate of NO/1000 (0.000) percentage points per annum above the Base Rate (the "Rate"). The Credit shall bear interest, from and after the occurrence of an Event of Default and without constituting a waiver of any such Event of Default, on the Daily Balance owing, at a rate three (3) percentage points per annum above the Rate. All interest chargeable under this Agreement that is based upon a per annum calculation shall be computed on the basis of a three hundred sixty (360) day year for actual days elapsed. The Base Rate as of the date of this Agreement is EIGHT AND 500/1000 (8.500%) per annum. In the event that the Base Rate announced is, from time to time hereafter changed, adjustment in the Rate shall be made and based on the Base Rate in effect on the date of such change. The Rate, as adjusted, shall apply to the Credit until the Base Rate is adjusted again. The minimum interest payable by the Borrower under this Agreement shall in no event be less than N/A per month. All interest payable by Borrower under the Credit shall be due and payable on the first day of each calendar month during the term of this Agreement and Bank may, at its option, elect to treat such interest and any and all Bank Expenses as advances under the 4 5 Credit, which amounts shall thereupon constitute Obligations and shall thereafter accrue interest at the rate applicable to the Credit under the terms of the Agreement. 2.3 Without affecting Borrower's obligation to repay immediately any Over advance in accordance with Section 2.1 hereof, all Overadvances shall bear additional interest on the amount thereof at a rate equal to N/A (N/A%) Percentage points per month in excess of the interest rate set forth in Section 2.2, from the date incurred and for each month thereafter, until repaid in full. 3. TERM. 3.1 This Agreement shall remain in full force and effect until June 1, 1998 , or until terminated by notice by Borrower. Notice of such termination by Borrower shall be effectuated by mailing of a registered or certified letter not less than thirty (30) days prior to the effective date of such termination, addressed to the Bank at the address set forth herein and the termination shall be effective as of the date so fixed in such notice. Notwithstanding the foregoing, should Borrower be in default of one or more of the provisions of this Agreement, Bank may terminate this Agreement at any time without notice. Notwithstanding the foregoing, should either Bank or Borrower become insolvent or unable to meet its debts as they mature, or fail, suspend, or go out of business, the other party shall have the right to terminate this Agreement at any time without notice. On the date of termination all Obligations shall become immediately due and payable without notice or demand; no notice of termination by Borrower shall be effective until Borrower shall have paid all Obligations to Bank in full. Notwithstanding termination, until all Obligations have been fully satisfied, Bank shall retain its security interest in all existing Collateral and Collateral arising thereafter, and Borrower shall continue to perform all of its Obligations. 3.2 After termination and when Bank has received payment in full of Borrower's Obligations to Bank, Bank shall reassign to Borrower all Collateral held by Bank, and shall execute a termination of all security agreements and security interests given by Borrower to Bank, upon the execution and delivery of mutual general releases. 4. CREATION OF SECURITY INTEREST 4.1 Borrower hereby grants to Bank a continuing security interest in all presently existing and hereafter arising Collateral in order to secure prompt repayment of any and all Obligations owed by Borrower to Bank and in order to secure prompt performance by Borrower of each and all of its covenants and Obligations under this Agreement and otherwise created. Bank's security interest in the Collateral shall attach to all Collateral without further act on the part of Bank or Borrower. In the event that any Collateral, including proceeds, is evidenced by or consists of a letter of credit, advice of credit, instrument, money, negotiable documents, chattel paper or similar property (collectively, "Negotiable Collateral"), Borrower shall, immediately upon receipt thereof, endorse and assign such Negotiable Collateral over to Bank and deliver actual physical possession of the Negotiable Collateral to Bank. 4.2 Bank's security interest in Receivables shall attach to all Receivables without further act on the part of Bank or Borrower. Upon request from Bank, Borrower shall provide Bank with schedules describing all Receivables created or acquired by Borrower (including without limitation agings listing the names and addresses of, and amounts owing by date by account debtors), and shall execute and deliver written assignments of all Receivables to Bank all in a form acceptable to Bank, provided, however, Borrower's failure to execute and deliver such schedules and/or assignments shall not affect or limit Bank's security interest and other rights in and to the Receivables. Together with each schedule, Borrower shall furnish Bank with copies of Borrower's customers' invoices or the equivalent, and original shipping or delivery receipts for all merchandise sold, and Borrower warrants the genuineness thereof. Bank or Bank's designee may notify customers or account debtors of collection costs and expenses to Borrower's account but, unless and until Bank does so or gives Borrower other written instructions, Borrower shall collect all Receivables for Bank, receive in trust all payments thereon as Bank's trustee, and, if so requested to do so from Bank, Borrower shall immediately deliver said payments to Bank in their original form as received from the account debtor and all letters of credit, advice of credit, instruments, documents, chattel paper or any similar property evidencing or constituting Collateral. Notwithstanding anything to the contrary contained herein, if sales of Inventory are made for cash, Borrower shall immediately deliver to Bank, in identical form, all such cash, checks, or other forms of payment which Borrower receives. The receipt of any check or other item of payment by Bank shall not be considered a payment on account until such check or other item of payment is honored when presented for payment, in which event, said check or other item of payment shall be deemed to have been paid to Bank (TWO) (2) calendar days after the date Bank actually receives such check or other item of payment. 4.3 Bank's security interest in Inventory shall attach to all Inventory without further act on the part of Bank or Borrower. Upon Bank's request Borrower will from time to time at Borrower's expense pledge, assemble and deliver such Inventory to Bank or to a third party as Bank's bailee; or hold the same in trust for Bank's account 5 6 or store the same in a warehouse in Bank's name; or deliver to Bank documents of title representing said Inventory; or evidence of Bank's security interest in some other manner acceptable to Bank. Until a default by Borrower under this Agreement or any other Agreement between Borrower and Bank, Borrower may, subject to the provisions hereof and consistent herewith, sell the Inventory, but only in the ordinary course of Borrower's business. A sale of Inventory in Borrower's ordinary course of business does not include an exchange or a transfer in partial or total satisfaction of a debt owing by Borrower. 4.4 Borrower shall execute and deliver to Bank concurrently with Borrower's execution of this Agreement, and at any time or times hereafter at the request of Bank, all financing statements, continuation financing statements, security agreements, mortgages, assignments, certificates of title, affidavits, reports, notices, schedules of accounts, letters of authority and all other documents that Bank may request, in form satisfactory to Bank, to perfect and maintain perfected Bank's security interest in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement. Borrower hereby irrevocably makes, constitutes and appoints Bank (and any of Bank's officers, employees or agents designated by Bank) as Borrower's true and lawful attorney-in-fact with power to sign the name of Borrower on any financing statements, continuation financing statements, security agreement, mortgage, assignment, certificate of title, affidavit, letter of authority, notice of other similar documents which must be executed and/or filed in order to perfect or continue perfected Bank's security interest in the Collateral. Borrower shall make appropriate entries in Borrower's Books disclosing Bank's security interest in the Receivables. Bank (through any of its officers, employees or agents) shall have the right at any time or times hereafter during Borrower's usual business hours, or during the usual business hours of any third party having control over the records of Borrower, to inspect and verify Borrower's Books in order to verify the amount or condition of, or any other matter, relating to, said Collateral and Borrower's financial condition. 4.5 Borrower appoints Bank or any other person whom Bank may designate as Borrower's attorney-in-fact, with power to endorse Borrower's name on any checks, notes, acceptances, money order, drafts or other forms of payment or security that may come into Bank's possession; to sign Borrower's name on any invoice or bill of lading relating to any Receivables, on drafts against account debtors, on schedules and assignments of Receivables, on verifications of Receivables and on notices to account debtors; to establish a lock box arrangement and/or to notify the post office authorities to change the address for delivery of Borrower's mail addressed to Borrower to an address designated by Bank, to receive and open all mail addressed to Borrower, and to retain all mail relating to the Collateral and forward all other mail to Borrower; to send, whether in writing or by telephone, requests for verification of Receivables; and to do all things necessary to carry out this Agreement. Borrower ratifies and approves all acts of the attorney-in-fact. Neither Bank nor its attorney-in-fact will be liable for any acts or omissions or for any error of judgement or mistake of fact or law. This power being coupled with an interest, is irrevocable so long as any Receivables in which Bank has a security interest remain unpaid and until the Obligations have been fully satisfied. 4.6 In order to protect or perfect any security interest which Bank is granted hereunder, Bank may, in its sole discretion, discharge any lien or encumbrance or bond the same, pay any insurance, maintain guards, warehousemen, or any personnel to protect the Collateral, pay any service bureau, or, obtain any records, and all costs for the same shall be added to the Obligations and shall be payable on demand. 4.7 Borrower agrees that Bank may provide information relating to this Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries and service providers. 5. CONDITIONS PRECEDENT 5.1 Conditions precedent to the making of the loans and the extension of the financial accommodations hereunder, Borrower shall execute, or cause to be executed, and deliver to Bank, in form and substance satisfactory to Bank and its counsel, the following: a. This Agreement and other documents required by Bank; b. Financing statements (Form UCC-1) in form satisfactory to Bank for filing and recording with the appropriate governmental authorities; c. If Borrower is a corporation, then certified extracts from the minutes of the meeting of its board of directors, authorizing the borrowings and the granting of the security interest provided for herein and authorizing specific officers to execute and deliver the agreements provided for herein; d. If Borrower is a corporation, then a certificate of good standing showing that Borrower is in good standing under the laws of the state of its incorporation and certificates indicating that Borrower is qualified to transact business and is in good standing in any other state in which it conducts business; 6 7 e. If Borrower is a partnership, then a copy of Borrower's partnership agreement certified by each general partner of Borrower; f. UCC searches, tax lien and litigation searches, fictitious business statement filings, insurance certificates, notices or other similar documents which Bank may require and in such form as Bank may require, in order to reflect, perfect or protect Bank's first priority security interest in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement; g. Evidence that Borrower has obtained insurance and acceptable endorsements; h. Waivers executed by landlords and mortgagees of any real property on which any Collateral is located; and i. Warranties and representations of officers. 6. WARRANTIES REPRESENTATIONS AND COVENANTS. 6.1 If so requested by Bank, Borrower shall, at such intervals designated by Bank, during the term hereof execute and deliver a Report of Accounts Receivable or similar report, in form customarily used by Bank. Borrower's Borrowing Base at all times pertinent hereto shall not be less than the advances made hereunder. Bank shall have the right to recompute Borrower's Borrowing Base in conformity with this Agreement. 6.2 If any warranty is breached as to any account, or any account is not paid in full by an account debtor within NINETY (90) days from the date of invoice, or an account debtor disputes liability or makes any claim with respect thereto, or a petition in bankruptcy or other application for relief under the Bankruptcy Code or any other insolvency law is filed by or against an account debtor, or an account debtor makes an assignment for the benefit of creditors, becomes insolvent, fails or goes out of business, then Bank may deem ineligible any and all accounts owing by that account debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank shall retain its security interest in all Receivables and accounts, whether eligible or ineligible, until all Obligations have been fully paid and satisfied. Returns and allowances, if any, as between Borrower and its customers, will be on the same basis and in accordance with the usual customary practices of the Borrower, as they exist at this time. Any merchandise which is returned by an account debtor or otherwise recovered shall be set aside, marked with Bank's name, and Bank shall retain a security interest therein. Borrower shall promptly notify Bank of all disputes and claims and settle or adjust them on terms approved by Bank. After default by Borrower hereunder, no discount, credit or allowance shall be granted to any account debtor by Borrower and no return of merchandise shall be accepted by Borrower without Bank's consent. Bank may, after default by Borrower, settle or adjust disputes and claims directly with account debtors for amounts and upon terms which Bank considers advisable, and in such cases Bank will credit Borrower's account with only the net amounts received by Bank in payment of the accounts, after deducting all Bank Expenses in connection therewith. 6.3 Borrower warrants, represents, covenants and agrees that: a. Borrower has good and marketable title to the Collateral. Bank has and shall continue to have a first priority perfected security interest in and to the Collateral. The Collateral shall at all times remain free and clear of all liens, encumbrances and security interests (except those in favor of Bank). b. All accounts are and will, at all times pertinent hereto, be bona fide existing obligations created by the sale and delivery of merchandise or the rendition of services to account debtors in the ordinary course of business, free of liens, claims, encumbrances and security interests (except as held by Bank and except as may be consented to, in writing, by Bank) and are unconditionally owed to Borrower without defenses, disputes, offsets, counterclaims, rights of return or cancellation, and Borrower shall have received no notice of actual or imminent bankruptcy or insolvency of any account debtor at the time an account due from such account debtor is assigned to Bank. c. At the time each account is assigned to Bank, all property giving rise to such account shall have been delivered to the account debtor or to the agent for the account debtor for immediate shipment to, and unconditional acceptance by, the account debtor. Borrower shall deliver to Bank, as Bank may from time to time require, delivery receipts, customer's purchase orders, shipping instruction, bills of lading and any other evidence of shipping arrangements. Absent such a request by Bank, copies of all such documentation shall be held by Borrower as custodian for Bank. 6.4 At the time each eligible account is assigned to Bank, all such eligible accounts will be due and payable on terms set forth in Section 1.12, or on such other terms approved in writing by Bank in advance of the creation of such accounts and which are expressly set forth on the face of all invoices, copies of which shall be held by Borrower as custodian for Bank, and no such eligible account will then be past due. 7 8 6.5 Borrower shall keep the Inventory only at the following locations: 1380 WILLOW ROAD, MENLO PARK, CA 94025 and the owner or mortgagees of the respective locations are: ____________. a. Borrower, immediately upon demand by Bank therefor shall now and from time to time hereafter, and such intervals as are requested by Bank, deliver to Bank, designations of Inventory specifying Borrowers cost of inventory, the wholesale market value thereof and such other matters and information relating to the inventory as Bank may request; b. Borrower's Inventory, valued at the lower of Borrower's cost or the wholesale market value thereof, at all times pertinent hereto shall not be less than N/A Dollars ($N/A) of which no less than N/A Dollars ($N/A) shall be in raw materials and finished goods. c. All of the Inventory is and shall remain free from all purchase Money or other security interest, liens or encumbrances, except as held by Bank; d. Borrower does now keep and hereafter at all times shall keep correct and accurate records itemizing and describing the kind, type, quality and quantity of the Inventory, its cost therefor and selling price thereof, and the dally withdrawals therefrom and additions thereto, all of which records shall be available upon demand to any of Bank's officers, agents and employees for Inspection and copying; e. All Inventory, now and hereafter at all times, shall be new Inventory of good and merchantable quality free from defects; f. Inventory is not now and shall not at any time or times hereafter be located or stored with a bailee, warehouseman or other third party without Bank's prior written consent, and, in such event, Borrower will concurrently therewith cause any such bailee, warehouseman or other third party to issue and deliver to Bank, in a form acceptable to Bank, warehouse receipts in Bank's name evidencing the storage of inventory or other evidence of Bank's prior rights in the Inventory. In any event, Borrower shall instruct any third party to hold all such Inventory for Bank's account subject to Bank's security interests and its instructions; and g. Bank shall have the right upon demand now and/or at all times hereafter, during Borrower's usual business hours, to Inspect and examine the inventory and to check and test the same as to quality, quantity, value and condition and Borrower agrees to reimburse Bank for Bank's reasonable costs and expenses in so doing. 6.6 Borrower represents, warrants and covenants with Bank that Borrower will not without Bank's prior written consent: a. Grant a security interest in or permit a lien, claim or encumbrance upon any of the Collateral to any person, association, firm, corporation, entity or governmental agency or instrumentality; b. Permit any levy, attachment or restraint to be made affecting any of Borrower's assets. c. Permit any Judicial Officer or Assignee to be appointed or to take possession of any or all of Borrower's assets; d. Other than sales of Inventory in the ordinary course of Borrower's business, to sell, lease, or otherwise dispose of, move, or transfer, whether by sale or otherwise, any of Borrower's assets; e. Change its name, business structure, corporate identity or structure; add any new fictitious names, liquidate, merge or consolidate with or into any other business organization; f. Move or relocate any Collateral; g. Acquire any other business organization; h. Enter into any transaction not in the usual course of Borrower's business: i. Make any investment in securities of any person, association, firm entity, or corporation other than the securities of the United States of America; j. Make any change in Borrower's financial structure or in any of its business objectives, purposes or operations which would adversely effect the ability of Borrower to repay Borrower's Obligations; k. Incur any debts outside the ordinary course of Borrower's business except renewals or extensions of existing debts and Interest thereon; 8 9 l. Make any advance or loan except in the ordinary course of Borrower's business as currently conducted; m. Make loans, advances or extensions of credit to any Person, except for sales on open account and otherwise in the ordinary course of business; n. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit or collection. o. (a) Sell, lease, transfer or otherwise dispose of properties and assets having an aggregate book value of more than N/A Dollars ($N/A) (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock, or (c) enter into any sale-leaseback transaction; p. Subordinate any indebtedness due to it from a person to indebtedness of other creditors of such person; q. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for the common stock of the Subsidiaries owned by the Borrower on the date of this Agreement and except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000 and direct obligations of the United States Government maturing within one year from the date of acquisition thereof; or r. Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan. 6.7 Borrower is not a merchant whose sales for resale of goods for personal, family or household purposes exceeded seventy-five percent (75%) in dollar volume of its total sales of all goods during the 12 months preceding the filing by Bank of a financing statement describing the Collateral. At no time hereafter shall Borrower's sales for resale of goods for personal, family or household purposes exceed seventy-five percent (75 %) in dollar volume of its total sales. 6.8 Borrower's sole place of business or chief executive office or residence is located at the address indicated above and Borrower covenants and agrees that it will not, during the term of this Agreement, without prior written notification to Bank, relocate said sole place of business or chief executive office or residence. 6.9 If Borrower is a corporation, Borrower represents, warrants and covenants as follows: a. Borrower will not make any distribution or declare or pay any dividend (in stock or in cash) to any shareholder or on any of its capital stock, of any class, whether now or hereafter outstanding, or purchase, acquire, repurchase, redeem or retire any such capital stock; b. Borrower is and shall at all times hereafter be a corporation duly organized and existing in good standing under the laws of the state of its incorporation and qualified and licensed to do business in California or any other state in which it conducts its business; c. Borrower has the right and power and is duly authorized to enter into this Agreement; and d. The execution by Borrower of this Agreement shall not constitute a breach of any provision contained in Borrower's articles of incorporation or by-laws. 6.10 The execution of and performance by Borrower of all of the terms and provisions contained in this Agreement shall not result in a breach of or constitute an event of default under any agreement to which Borrower is now or hereafter becomes a party. 6.11 Borrower shall promptly notify Bank in writing of its acquisition by purchase, lease or otherwise of any after acquired property of the type included in the Collateral, with the exception of purchases of Inventory in the ordinary course of business. 6.12 All assessments and taxes, whether real, personal or otherwise, due or payable by, or imposed, levied or 9 10 assessed against, Borrower or any of its property have been paid, and shall hereafter be paid in full, before delinquency. Borrower shall make due and timely payment or deposit of all federal, state and local taxes, assessments or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof. Borrower will make timely payment or deposit of all F.I.C.A. payments and withholding taxes required of it by applicable laws, and will upon request furnish Bank with proof satisfactory to it that Borrower has made such payments or deposit. If Borrower fails to pay any such assessment, tax, contribution, or make such deposit, or furnish the required proof, Bank may, in its sole and absolute discretion and without notice to Borrower, (i) make payment of the same or any part thereof; or (ii) set up such reserves in Borrower's account as Bank deems necessary to satisfy the liability therefor, or both. Bank may conclusively rely on the usual statements of the amount owing or other official statements issued by the appropriate governmental agency. Each amount so paid or deposited by Bank shall constitute a Bank Expense and an additional advance to Borrower. 6.13 There are no actions or proceedings pending by or against Borrower or any guarantor of Borrower before any court or administrative agency and Borrower has no knowledge of any pending, threatened or imminent litigation, governmental investigations or claims, complaints, actions or prosecutions involving Borrower or any guarantor of Borrower, except as heretofore specifically disclosed in writing to Bank. If any of the foregoing arise during the term of the Agreement, Borrower shall immediately notify Bank in writing. 6.14 a. Borrower, at its expense, shall keep and maintain its assets insured against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks ordinarily insured against by other owners who use such properties in similar businesses for the full insurable value thereof. Borrower shall also keep and maintain business interruption insurance and public liability and property damage insurance relating to Borrower's ownership and use of the Collateral and its other assets. All such policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Bank. Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All such policies of insurance (except those of public liability and property damage) shall contain an endorsement in a form satisfactory to Bank showing Bank as a loss payee thereof, with a waiver of warranties (Form 438-BFU), and all proceeds payable thereunder shall be payable to Bank and, upon receipt by Bank, shall be applied on account of the Obligations owing to Bank. To secure the payment of the Obligations, Borrower grants Bank a security interest in and to all such policies of insurance (except those of public liability and property damage) and the proceeds thereof, and Borrower shall direct all insurers under such policies of insurance to pay all proceeds thereof directly to Bank. b. Borrower hereby irrevocably appoints Bank (and any of Bank's officers, employees or agents designated by Bank) as Borrower's attorney for the purpose of making, selling and adjusting claims under such policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. Borrower will not cancel any of such policies without Bank's prior written consent. Each such insurer shall agree by endorsement upon the policy or policies of insurance issued by it to Borrower as required above, or by independent instruments furnished to Bank, that it will give Bank at least ten (10) days written notice before any such policy or policies of insurance shall be altered or cancelled, and that no act or default of Borrower, or any other person, shall affect the right of Bank to recover under such policy or policies of insurance required above or to pay any premium in whole or in part relating thereto. Bank, without waiving or releasing any Obligations or any Event of Default, may, but shall have no obligation to do so, obtain and maintain such policies of insurance and pay such premiums and take any other action with respect to such policies which Bank deems advisable. All sums so disbursed by Bank, as well as reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall constitute Bank Expenses and are payable on demand. 6.15 All financial statements and information relating to Borrower which have been or may hereafter be delivered by Borrower to Bank are true and correct and have been prepared in accordance with GAAP consistently applied and there has been no material adverse change in the financial condition of Borrower since the submission of such financial information to Bank. 6.16 a. Borrower at all times hereafter shall maintain a standard and modern system of accounting in accordance with GAAP consistently applied with ledger and account cards and/or computer tapes and computer disks, computer printouts and computer records pertaining to the Collateral which contain information as may from time to time be requested by Bank, not modify or change its method of accounting or enter into, modify or terminate any agreement presently existing, or at any time hereafter entered into with any third party accounting firm and/or service bureau for the preparation and/or storage of Borrower's accounting records without the written consent of Bank first obtained and without said accounting firm and/or service bureau agreeing to provide information regarding the Receivables and Inventory and Borrower's financial condition to Bank; permit Bank and any of its employees, officers or agents, upon demand, during Borrower's usual business hours, or the usual business hour of third persons having control thereof, to have access to and examine all of the Borrower's Books relating to the Collateral, Borrower's Obligations to Bank, Borrower's financial condition and the results of Borrower's operations and in connection therewith, permit Bank or any of its agents, employees or officers to copy and make extracts therefrom. 10 11 b. Borrower shall deliver to Bank within forty-five (45) days after the end of each QUARTER, a 10Q balance sheet and profit and loss statement covering Borrower's operations and deliver to Bank within ninety (90) days after the end of each of Borrower's fiscal years a(n) YEAR END CPA AUDITED* statement of the financial condition of the Borrower for each such fiscal year, including but not limited to, a balance sheet and profit and loss statement and any other report requested by Bank relating to the Collateral and the financial condition of Borrower, and a certificate signed by an authorized employee of Borrower to the effect that all reports, statements, computer disk or tape files, computer printouts, computer runs, or other computer prepared information of any kind or nature relating to the foregoing or documents delivered or caused to be delivered to Bank under this subparagraph are complete, correct and thoroughly present the financial condition of borrower and that there exists on the date of delivery to Bank no condition or event which constitutes a breach or Event of Default under this Agreement. *CONSOLIDATED c. In addition to the financial statements requested above, the Borrower agrees to provide Bank with the following schedules: X Accounts Receivable Agings on a MONTHLY basis; within 15 days of month end. - ----- ------- X Accounts Payable Agings on a MONTHLY basis; within 15 days of month end. - ----- ------- X Job Progress Reports on a MONTHLY basis; and - ----- ------- X BORROWING BASE CERTIFICATE on a MONTHLY basis; within 15 days of month end. - ----- -------
BORROWER TO SUBMIT COVENANT COMPLIANCE SHEET WITHIN 45 DAYS WITH 10Q. SEMI-ANNUAL A/R audits at borrower's expense (if borrowing) 6.17 Borrower shall maintain the following financial ratios and covenants on a consolidated and non-consolidated basis: a. Working Capital in an amount not less than N/A. b. Tangible Effective Net Worth in an amount not less than $15,500,000.00 TANGIBLE NET WORTH TO STEP UP BY 75% OF QUARTERLY NET PROFIT AFTER TAX AND 100% OF NEW EQUITY c. a ratio of Current Assets to Current Liabilities of not less than ________. d. a quick ratio of cash plus securities plus Receivables to Current Liabilities of not less than 1.75:1.00. e. a ratio of Total Liabilities (less debt subordinated to Bank) to Tangible Effective Net Worth of less than 0.75:1.00. f. a ratio of Cash Flow to Fixed Charges of not less than N/A . g. Net Income after taxes of _______. h. Borrower shall not without Bank's prior written consent acquire or expend for or commit itself to acquire or expend for fixed assets by lease, purchase or otherwise in an aggregate amount that exceeds FOUR MILLION & NO/100 Dollars ($4,000,000.00) in any fiscal year, and i. A DEBT SERVICE COVERAGE RATIO OF NOT LESS THAN 1.50:1.00 CALCULATED ON A ROLLING FOUR QUARTER BASIS, BEGINNING WITH QUARTER ENDING 12/31/97. j. Borrower will not enter into guarantees or other bank lending relationship. All financial covenants shall be computed in accordance with GAAP consistently applied except as 11 12 otherwise specifically set forth in this Agreement. All monies due from affiliates (including officers, directors and shareholders) shall be excluded from Borrower's assets for all purposes hereunder. 6.18 Borrower shall promptly supply Bank (and cause any guarantor to supply Bank) with such other information (including tax returns) concerning its financial affairs (or that of any guarantor) as Bank may request from time to time hereafter, and shall promptly notify Bank of any material adverse change in Borrower's financial condition and of any condition or event which constitutes a breach of or an event which constitutes an Event of Default under this Agreement. 6.19 Borrower is now and shall be at all times hereafter solvent and able to pay its debts (including trade debts) as they mature. 6.20 Borrower shall immediately and without demand reimburse Bank for all sums expended by Bank in connection with any action brought by Bank to correct any default or enforce any provision of this Agreement, including all Bank Expenses; Borrower authorizes and approves all advances and payments by Bank for items described in this Agreement as Bank Expenses. 6.21 Each warranty, representation and agreement contained in this Agreement shall be automatically deemed repeated with each advance and shall be conclusively presumed to have been relied on by Bank regardless of any investigation made or information possessed by Sank. The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements which Borrower shall give, or cause to be given, to Bank, either now or hereafter. 6.22 Borrower shall keep all of its principal bank accounts with Bank and shall notify the Bank immediately in writing of the existence of any other bank account, deposit account, or any other account into which money can be deposited. 6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in no event later than thirty (30) days after Borrower knows or has reason to know that any reportable event with respect to any deferred compensation plan has occurred, a statement of the chief financial officer of Borrower setting forth the details concerning such reportable event and the action which Borrower proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the Pension Benefit Guaranty Corporation, if a copy of such notice is available to Borrower; (b) promptly after the filing thereof with the United States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each annual report with respect to each deferred compensation plan; (c) promptly after receipt thereof, a copy of any notice Borrower may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any deferred compensation plan; provided, however, this subparagraph shall not apply to notice of general application issued by the Pension Benefit Guaranty Corporation or the Internal Revenue Service; and (d) when the same is made available to participants in the deferred compensation plan, all notices and other forms of information from time to time disseminated to the participants by the administrator of the deferred compensation plan. 6.24 Borrower is now and shall at all times hereafter remain in compliance with all federal, state and municipal laws, regulations and ordinances relating to the handling, treatment and disposal of toxic substances, wastes and hazardous material and shall maintain all necessary authorizations and permits. 6.25 Borrower shall maintain insurance on the life of N/A in an amount not to be less than NO/100 Dollars ($N/A ) under one or more policies issued by insurance companies satisfactory to Bank, which policies shall be assigned to Bank as security for the Obligations and on which Bank shall be named as sole beneficiary. 6.26 Borrower shall limit direct and indirect compensation paid to the following employees: N/A to an aggregate of N/A Dollars ($ N/A ) per N/A . 7. EVENTS OF DEFAULT Any one or more of the following events shall constitute a default by Borrower under this Agreement: a. If Borrower fails or neglects to perform, keep or observe any term, provision, condition, covenant, agreement, warranty or representation contained in this Agreement, or any other present or future agreement between Borrower and Bank; b. If any representation, statement, report or certificate made or delivered by Borrower, or any of its officers, employees or agents to Bank is not true and correct; 12 13 c. If Borrower fails to pay when due and payable or declared due and payable, all or any portion of the Borrower's Obligations (whether of principal, interest, taxes, reimbursement of Bank Expenses, or otherwise); d. If there is a material impairment of the prospect of repayment of all or any portion of Borrower's Obligations or a material impairment of the value or priority of Bank's security interest in the Collateral; e. If all or any of Borrower's assets are attached, seized, subject to a writ or distress warrant, or are levied upon, or come into the possession of any Judicial Officer or Assignee and the same are not released, discharged or bonded against within ten (10) days thereafter; f. If any Insolvency Proceeding is filed or commenced by or against Borrower without being dismissed within ten (10) days thereafter; g. If any proceeding is filed or commenced by or against Borrower for its dissolution or liquidation; h. If Borrower is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; i. If a notice of lien, levy or assessment is filed of record with respect to any or all of Borrower's assets by the United States Government, or any department, agency or instrumentality thereof, or by any state, county, municipal or other government agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any or all of the Borrower's assets and the same is not paid on the payment date thereof; j. If a judgment or other claim becomes a lien or encumbrance upon any or all of Borrower's assets and the same is not satisfied, dismissed or bonded against within ten (10) days thereafter; k. If Borrower's records are prepared and kept by an outside computer service bureau at the time this Agreement is entered into or during the term of this Agreement such an agreement with an outside service bureau is entered into, and at any time thereafter, without first obtaining the written consent of Bank, Borrower terminates, modifies, amends or changes its contractual relationship with said computer service bureau or said computer service bureau fails to provide Bank with any requested information financial data pertaining to Bank's Collateral, Borrower's financial condition or the results of Borrower's operations; I. If Borrower permits a default in any material agreement to which Borrower is a party with third parties so as to result in an acceleration of the maturity of Borrower's indebtedness to others, whether under any indenture, agreement or otherwise; m. If Borrower makes any payment on account of indebtedness which has been subordinated to Borrower's Obligations to Bank; n. If any misrepresentation exists now or thereafter in any warranty or representation made to Bank by any officer or director of Borrower, or if any such warranty or representation is withdrawn by any officer or director; o. If any party subordinating its claims to that of Bank's or any guarantor of Borrower's Obligations dies or terminates its subordination or guaranty, becomes insolvent or an Insolvency Proceeding is commenced by or against any such subordinating party or guarantor; p. If Borrower is an individual and Borrower dies; q. If there is a change of ownership or control of N/A, percent (NA %) or more of the issued and outstanding stock of Borrower; or r. If any reportable event, which the Bank determines constitutes grounds for the termination of any deferred compensation plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any such plan, shall have occurred and be continuing thirty (30) days after written notice of such determination shall have been given to Borrower by Bank, or any such Plan shall be terminated within the meaning of Title IV of the Employment Retirement Income Security Act ("ERISA"), or a trustee shall be appointed by the appropriate United States District Court to administer any such plan, or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any plan and in case of any event described in this Section 7.0, the aggregate amount of the Borrower's liability to the Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of Borrower's Tangible Effective Net Worth. Notwithstanding anything contained in Section 7 to the contrary, Bank shall refrain from exercising its rights and 13 14 remedies and Event of Default shall thereafter not be deemed to have occurred by reason of the occurrence of any of the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within ten (10) days from the date thereof, the same is released, discharged, dismissed, bonded against or satisfied; provided, however, if the event is the institution of Insolvency Proceedings against Borrower, Bank shall not be obligated to make advances to Borrower during such cure period. 8. BANK'S RIGHTS AND REMEDIES 8.1 Upon the occurrence of an Event of Default by Borrower under this Agreement, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: a. Declare Borrower's Obligations, whether evidenced by this Agreement, installment notes, demand notes or otherwise, immediately due and payable to the Bank; b. Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, or any other agreement between Borrower and Bank; c. Terminate this Agreement as to any future liability or obligation of Bank, but without affecting Bank's rights and security interests in the Collateral, and the Obligations of Borrower to Bank; d. Without notice to or demand upon Borrower or any guarantor, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, take and maintain possession of the Collateral and the premises (at no charge to Bank), or any part thereof, and to pay, purchase, contest or compromise any encumbrance, charge or lien which in the opinion of Bank appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith; e. Without limiting Bank's rights under any security interest, Bank is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreement shall inure to Bank's benefit, and Bank shall have the right and power to enter into sublicenses agreements with respect to all such rights with third parties on terms acceptable to Bank; f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sales and sell (in the manner provided for herein) the Inventory; g. Sell or dispose the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as is commercially reasonable in the opinion of Bank. It is not necessary that the Collateral be present at any such sale; h. Bank shall give notice of the disposition of the Collateral as follows: (1) Bank shall give the Borrower and each holder of a security interest in the Collateral who has filed with Bank a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some disposition other than a public sale is to be made of the Collateral, the time on or after which the private sale or other disposition is to be made; (2) The notice shall be personally delivered or mailed, postage prepaid, to Borrower's address appearing in this Agreement, at least five (5) calendar days before the date fixed for the sale, or at least five (5) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value. Notice to persons other than Borrower claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Bank; (3) If the sale is to be a public sale, Bank shall also give notice of the time and place by publishing a notice one time at least five (5) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; and (4) Bank may credit bid and purchase at any public sale. i. Borrower shall pay all Bank Expenses incurred in connection with Bank's enforcement and exercise of any of its rights and remedies as herein provided, whether or not suit is commenced by Bank; 14 15 j. Any deficiency which exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third parties, to Borrower by Bank, or, in Bank's discretion, to any party who Bank believes, in good faith, is entitled to the excess; and k. Without constituting a retention of Collateral in satisfaction of an obligation within the meaning of 9505 of the Uniform Commercial Code or an action under California Code of Civil Procedure 726, apply any and all amounts maintained by Borrower as deposit accounts (as that term is defined under 9105 of the Uniform Commercial Code) or other accounts that Borrower maintains with Bank against the Obligations. 8.2 Bank's rights and remedies under this Agreement and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided by law or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election or acquiescence by Bank. 9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY. If Borrower fails to pay promptly when due to another person or entity, monies which Borrower is required to pay by reason of any provision in this Agreement, Bank may, but need not, pay the same and charge Borrower's account therefor, and Borrower shall promptly reimburse Bank. All such sums shall become additional indebtedness owing to Bank, shall bear interest at the rate here in above provided, and shall be secured by all Collateral. Any payments made by Bank shall not constitute (i) an agreement by it to make similar payments in the future; or (ii) a waiver by Bank of any default under this Agreement. Bank need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien and the receipt of the usual official notice of the payment thereof shall be conclusive evidence that the same was validly due and owing. Such payments shall constitute Bank Expenses and additional advances to Borrower. 10. WAIVERS. 10.1 Borrower agrees that checks and other instruments received by Bank in payment or on account of Borrower's Obligations constitute only conditional payment until such items are actually paid to Bank and Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank on account of Borrower's Obligations and Borrower agrees that Bank shall have the continuing exclusive right to apply and reapply such payments in any manner as Bank may deem advisable, notwithstanding any entry by Bank upon its books. 10.2 Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents, instruments chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10.3 Bank shall not in any way or manner be liable or responsible for (a) the safekeeping of the Inventory; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency or other person whomsoever. All risk of loss, damage or destruction of Inventory shall be borne by Borrower. 10.4 Borrower waives the right and the right to assert a confidential relationship, if any, it may have with any accountant, accounting firm and/or service bureau or consultant in connection with any information requested by Bank pursuant to or in accordance with this Agreement, and agrees that a Bank may contact directly any such accountants, accounting firm and/or service bureau or consultant in order to obtain such information. 10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER. 10.6 In the event that Bank elects to waive any rights or remedies hereunder, or compliance with any of the terms hereof, or delays or fails to pursue or enforce any terms, such waiver, delay or failure to pursue or enforce shall only be effective with respect to that single act and shall not be construed to affect any subsequent transactions or Bank's right to later pursue such rights and remedies. 11. ONE CONTINUING LOAN TRANSACTION. All loans and advances heretofore, now or at any time or times hereafter made by Bank to Borrower under this 15 16 Agreement or any other agreement between Bank and Borrower, shall constitute one loan secured by Bank's security interests in the Collateral and by all other security interests, liens, encumbrances heretofore, now or from time to time hereafter granted by Borrower to Bank. Notwithstanding the above, (i) to the extent that any portion of the Obligations are a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in the Borrower's principal dwelling which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place, or (ii) if the Borrower (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering real property, that deed of trust or mortgage shall not secure the loan and any other Obligation of the Borrower (or any of them), unless expressly provided to the contrary in another place. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by either party on the other relating to this Agreement shall be in writing and sent by regular United States mail, postage prepaid, properly addressed to Borrower or to Bank at the addresses stated in this Agreement, or to such other addresses as Borrower or Bank may from time to time specify to the other in writing. Requests to Borrower by Bank hereunder may be made orally. 13. AUTHORIZATION TO DISBURSE. Bank is hereby authorized to make loans and advances hereunder upon telephonic or other instructions received from anyone purporting to be an officer, employee, or representative of Borrower, or at the discretion of Bank if said loans and advances are necessary to meet any Obligations of Borrower to Bank. Bank shall have no duty to make inquiry or verify. the authority of any such party, and Borrower shall hold Bank harmless from any damage, claims or liability by reason of Bank's honor of, or failure to honor, any such instructions. 14. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules, invoices or other papers delivered to Bank, may be destroyed or otherwise disposed of by Bank six (6) months after they are delivered to or received by Bank, unless Borrower requests, in writing, the return of the said documents, schedules, invoices or other papers and makes arrangements, at Borrower's expense, for their return. 15. CHOICE OF LAW. The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined according to the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this Agreement shall be tried and litigated only in the state and federal courts in the Northern District of California or County of Santa Clara. 16. GENERAL PROVISIONS. 16.1 This Agreement shall be binding and deemed effective when executed by the Borrower and accepted and executed by Bank at its Headquarter Office. 16.2 This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties, provided, however, that Borrower may not assign this Agreement or any rights hereunder without Bank's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Bank shall release Borrower or any guarantor from their Obligations to Bank. Bank may assign this Agreement and its rights and duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in Bank's rights and benefits hereunder. In connection therewith, Bank may disclose all documents and information which Bank now or hereafter may have relating to Borrower or Borrower's business. 16.3 Paragraph headings and paragraph numbers have been set forth herein for convenience only; unless the contrary is compelled by the context, everything contained in each paragraph applies equally to this entire Agreement. 16.4 Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Bank or Borrower, whether under any rule of construction or otherwise; on the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. When permitted by the context, the singular includes the plural and vice versa. 16.5 Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 16 17 16.6 This Agreement cannot be changed or terminated orally. Except as to currently existing Obligations owing by Borrower to Bank, all prior agreements, understandings, representations, warranties, and negotiations, if any, with respect to the subject matter hereof, are merged into this Agreement. 16.7 The parties intend and agree that their respective rights, duties, powers liabilities, obligations and discretions shall be performed, carried out, discharged and exercised reasonably and in good faith. IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit Loan 8 Security Agreement (Accounts and Inventory) to be executed as of the date first herein above written. This note is cross defaulted and cross collateralized to all present and future indebtedness of VERSANT OBJECT TECHNOLOGY CORPORATION. ATTEST: BORROWER: VERSANT OBJECT TECHNOLOGY CORPORATION By: - ----------------------------------- -------------------------------------- Title Signature of Title: C.F.O. ----------------------------------- Accepted and effective as of May 15, 1997 at Bank's Headquarter Office. (Bank) By: -------------------------------- Signature of ALAN JEPSEN Title: VICE PRESIDENT ---------------------------- 17 EX-10.20 4 EXHIBIT 10.20 1 EXHIBIT 10.20 CONSULTING AGREEMENT BETWEEN COMPANY AND DAVID BANKS EFFECTIVE JANUARY 7, 1998 CONSULTING AGREEMENT This Consulting Agreement is made on by and between Versant Object Technology Corporation ("VERSANT"), with offices at 6539 Dumbarton Circle, Fremont, California 94555 and David Banks ("CONSULTANT") with offices at 2280 Webster Street, Palo Alto, California. IN CONSIDERATION OF VERSANT'S EXECUTION OF THE SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS BETWEEN THE PARTIES HERETO, THE PARTIES FURTHER AGREE AS FOLLOWS: 1.0 DEFINITIONS For the purposes of this Agreement, the following terms will be defined as follows: 1.1 "CONFIDENTIAL INFORMATION" shall mean information which is said to be Confidential to Consultant at the time of disclosure or marked as "Confidential" and which is related to Versant's business, clients, products, programming techniques, experimental work, and suppliers of Versant. Confidential Information shall include, but is not limited to, the terms and conditions of this Agreement. Confidential Information will not include, however, any information which is or becomes part of the public domain through no fault of Consultant or that Versant regularly gives to third parties without restriction on use or disclosure. 1.2 "PERIOD OF CONSULTANCY" shall mean the period set out in Exhibit A. 1.3 "SERVICES" shall mean the services specified in the Project Description. 2.0 SERVICES. 2.1 REQUEST: From time to time during the Period of Consultancy, Versant may request Consultant to provide certain Services to Versant or on behalf of Versant to Versant's business contacts. 2.2 PERFORMANCE: Upon signature of both parties on Exhibit A, Consultant will use best efforts to perform Services. 2.3 Any expenses incurred by Consultant in performing the Services will be reimbursed at the rate Versant reimburses its own employees. Any expenses incurred by Consultant for which reimbursement from Versant will be sought, must be pre approved by Versant. 2.4 Consultant will receive no royalty or other remuneration for the production and/or distribution of any products developed by Versant or by Consultant in connection with or based upon the Services. 3.0 RELATIONSHIP OF PARTIES. 3.1 INDEPENDENT CONTRACTOR: Consultant is an independent contractor and is not an agent or employee of, and has no authority to bind Versant by contract or otherwise. 3.2 Consultant will perform the Services in a manner agreed upon between Versant and Consultant subject to the requirement that Consultant shall at all times comply with applicable law. 3.3 INDEMNITY: Consultant will indemnify Versant and hold it harmless from and against all claims, damages, losses and expenses, including reasonable fees and expenses of attorneys and other professionals, relating to any obligation imposed by law on Versant to pay any withholding taxes, social security, unemployment or disability insurance, or similar items in connection with compensation received by Consultant pursuant to this Agreement. The terms of this Agreement are Confidential 2 4.0 CONFIDENTIAL INFORMATION. 4.1 Consultant acknowledges that Consultant will acquire Confidential Information from Versant Both parties agrees to hold all any Confidential Information obtained from the other party in strict confidence, not to disclose it to others or use it in any way, commercially or otherwise, except in performing Services, and not to allow any unauthorized person access to it. 4.2 Consultant agrees to take all actions reasonably necessary to prevent unauthorized disclosure of the Confidential Information. 5.0 INDEMNIFICATION BY CONSULTANT. Consultant will indemnify Versant and hold it harmless from and against all claims, damages, losses and all expenses, including court costs and expenses of attorneys, expert witnesses, and other professionals, arising out of or resulting from (a) any action by a third party against Versant that is based on any claim that any Services performed under this Agreement, of their results, infringe a patent, copyright or other proprietary right or violate a trade secret; and (b) any action by a third party that is based on any negligent act or omission or willful conduct of Consultant which results in: (i) any bodily injury, sickness, disease or death; (ii) any injury or destruction to tangible or intangible property (including computer programs and data) or any loss of use resulting therefrom; or (iii) any violation of any statute, ordinance, or regulation. 6. TERMINATION AND EXPIRATION. 6.1 EXPIRATION: This Agreement will expire at the end of the Period of Consultancy. 6.2 NO ELECTION OF REMEDIES: The election by Versant to terminate this Agreement in accordance with its terms shall not be deemed an election of remedies, and all other remedies provided by this Agreement or available at law or in equity shall survive any termination. 7. EFFECT OF EXPIRATION OR TERMINATION 7.1 Expiration or termination of this Agreement will not relieve Consultant of its obligations under Sections 4 and 5, nor will expiration or termination relieve Consultant from any liability arising from any breach of this Agreement; and 7.2 Upon expiration or termination of this Agreement for any reason, Consultant will promptly notify Versant in writing of all Confidential Information, in Consultant's possession and will promptly deliver to Versant all such Confidential Information. 8. LIMITATION OF LIABILITY. IN NO EVENT SHALL VERSANT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH THIS AGREEMENT, EVEN IF VERSANT HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. 9. GENERAL 9.1 ASSIGNMENT: Consultant may not assign Consultant's rights or delegate Consultant's duties under this Agreement either in whole or in part without the prior written consent of Versant. Any attempted assignment or delegation without such consent will be void and will have the effect of terminating the Agreement. 9.2 EQUITABLE REMEDIES: Because the Services are personal and unique and because consultant will have access to Confidential Information of Versant, Versant will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that Versant may have for a breach of this Agreement. 9.3 ATTORNEYS' FEES: If any action is necessary to enforce the terms of this Agreement, the substantially prevailing party will be entitled to reasonable attorneys' fees, costs and expenses in The terms of this Agreement are Confidential 3 addition to any other relief to which such prevailing party may be entitled. 9.4 GOVERNING LAW; SEVERABILITY: This Agreement will be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflict of laws. If any provision of this Agreement is for any reason found to be unenforceable, the remainder of this Agreement will continue in full force and effect. 9.5 NOTICES: any notices under this Agreement will be sent by certified or registered mail, return receipt requested. Such notice will be effective upon its mailing as specified. 9.6 COMPLETE UNDERSTANDING; MODIFICATION: This Agreement, together with each version of Exhibit A executed by the parties, constitutes the complete and exclusive understanding and agreement of the parties and supersedes all prior understandings and agreements, whether written or oral. Modification or amendment of any provision of this Agreement will be effective only if in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties have signed this Agreement as of the Effective Date. "VERSANT" VERSANT OBJECT TECHNOLOGY CORPORATION Name: ------------------------ Title: ------------------------ Date: ------------------------ "CONSULTANT" DAVID BANKS By: ------------------------ Federal Tax ID. Number: - ------------------------ Date: ------------------------ The terms of this Agreement are Confidential 4 EXHIBIT A SCOPE OF WORK This Exhibit A is issued under and subject to all of the terms and conditions of the Consulting Agreement dated as of _____________, 1998 by and between Versant and David Banks. The Services shall mean professional management consulting services provided to Nick Ordon and Gary Rhea on an "as requested" basis but for no less than approximately forty (40) hours per calendar month. Period of Consultancy shall be the period between January 7, 1998 and January 7, 1999. Start Date: January 7, 1998 Completion Date: January 8, 1999 AGREED AS OF _________, 19__: Versant Object Technology Corporation: By:_________________________ Title: _____________________ CONSULTANT: David Banks - ------------------------ (Signature) The terms of this Agreement are Confidential EX-10.21 5 EXHIBIT 10.21 1 EXHIBIT 10.21 VARIABLE RATE-INSTALLMENT NOTE - ------------------------------------------------------------------------------------------ AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION # $2,522,089.95 MARCH 19, 1998 MARCH 19, 2001 94-3079392 - ------------------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay to the order of COMERICA BANK-CALIFORNIA ("Bank"), at any office of the Bank in the State of California, TWO MILLION FIVE HUNDRED TWENTY-TWO THOUSAND EIGHTY-NINE AND 95/100 Dollars (U.S.) in installments of $70,058.06 each INCLUSIVE OF PLUS interest on the unpaid balance from the date of this Note at a per annum rate equal to the bank's base rate from time to time in effect PLUS 0.500% per annum until maturity, whether by acceleration or otherwise, or until Default, as later defined, and after that at a default rate equal to the rate of Interest otherwise prevailing under this Note plus 3% per annum (but in no event in excess of the maximum rate permitted by law). Interest shall be calculated for the actual number of days the principal is outstanding on the basis of a 360 day year if this Note evidences a business or commercial loan or a 365 day year if a consumer loan. The Bank's "base rate" is that annual rate of interest so designated by the Bank and which is changed by the Bank from time to time. Interest rate changes will be effective for interest computation purposes as and when the Bank's base rate changes. Installments of principal and accrued interest due under this Note shall be payable on the 19TH day of each MONTH commencing APRIL 19, 1998, and the entire remaining unpaid balance of principal and accrued interest shall be payable on the Maturity Date set forth above. If the frequency of principal and interest installments is not otherwise specified, installments of principal and interest due under this Note shall be payable monthly on the first day of each month. In the event the periodic installments set forth above are inclusive of interest, these installments are calculated at an assumed fixed interest rate and an assumed amortization term. The amortization term ends on ________ (if left blank, the amortization terms ends on the Maturity Date). In the event this Note evidences a business or commercial loan and the Bank's base rate changes, the Bank, at its sole option, may from time to time recalculate the periodic installment amount so that the remaining periodic installments will fully amortize the remaining loan balance within the remaining amortization term in equal installments at the interest rate then being charged under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under this Note shall become payable on a day other than a day on which the Bank is open for business, this payment may be extended to the next succeeding business day and interest shall be payable at the rate specified in this Note during this extension. Any payments of principal in excess of the installment payments required under this Note need not be accepted by the Bank (except as required under applicable law), but if accepted shall apply to the installments last falling due. A late installment charge equal to 5% of each late installment may be charged on any installment payment not received by the Bank within 10 calendar days after the installment due date, but acceptance of payment of this charge shall not waive any default under this Note. This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced (collectively "indebtedness") are secured by and the Bank is granted a security interest in all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every deed of trust, mortgage, security agreement, pledge, assignment and other agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively "Collateral"). Notwithstanding the above, (i) to the extent that any portion of the indebtedness is a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in any of the undersigned's principal dwelling or in any of the 1 2 undersigned's real property which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place, or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering real property, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them), unless expressly provided to the contrary in another place. If the undersigned (or any of them) or any guarantor under a guaranty of all or part of the indebtedness ("guarantor") (a) fail(s) to pay this Note or any of the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to comply with any of the terms or provisions of any agreement between the undersigned (or any of them) or any guarantor and the Bank; or (c) become(s) insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or creditor composition proceeding, (if a business entity) cease(s) doing business as a going concern, (if a natural person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any general partner of it dies, becomes incompetent or becomes the subject of a bankruptcy proceeding or (if a corporation or a limited liability company) is the subject of a dissolution, merger or consolidation: or (d) if any warranty or representation made by any of the undersigned or any guarantor in connection with this Note or any of the indebtedness shall be discovered to be untrue or incomplete; or (e) if there is any termination, notice of termination, or breach of any guaranty, pledge, collateral assignment or subordination agreement relating to all or any part of the indebtedness; or (f) if there is any failure by any of the undersigned or any guarantor to pay when due any of Its indebtedness (other than to the Bank) or in the observance or performance of any term, covenant or condition in any document evidencing, securing or relating to such indebtedness; or (g) if the Bank deems itself insecure, believing that the prospect of payment of this Note or any of the indebtedness is impaired or shall fear deterioration, removal or waste of any of the Collateral; or (h) if there is filed or issued a levy or writ of attachment or garnishment or other like judicial process upon the undersigned (or any of them) or any guarantor or any of the Collateral, including without limit, any accounts of the undersigned (or any of them) or any guarantor with the Bank, then the Bank, upon the occurrence of any of these events (each a "Default"), may at its option and without prior notice to the undersigned (or any of them), declare any or all of the indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence thereof to the contrary), sell or liquidate all or any portion at the Collateral, set off against the indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law. In addition, if this Note is secured by a deed of trust or mortgage covering real property, then the trustor or mortgagor shall not mortgage or pledge the mortgaged premises as security for any other indebtedness or obligations. This Note, together with all other indebtedness secured by said deed of trust or mortgage, shall become due and payable Immediately, without notice, at the option at the Bank, (a) if said trustor or mortgagor shall mortgage or pledge the mortgaged premises for any other indebtedness or obligations or shall convey, assign or transfer the mortgaged premises by deed, installment sale contact or other instrument, or (b) if the title to the mortgaged premises shall become vested in any other person or party in any manner whatsoever, or (c) if there is any disposition (through one or more transactions) of legal or beneficial title to a controlling interest of said trustor or mortgagor. All payments under this Note shall be in immediately available United States funds, without setoff or counterclaim. If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigned's respective heirs, personal representatives, successors and assigns. The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices and agree(s) that no extension or indulgence to the undersigned (or any of them) or release, substitution or nonenforcement of any security, or release or substitution at any of the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3-605 of the California Uniform Commercial Code and waive(s) all other suretyship defenses or right to discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations, or any interest, in any or all of the indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the 2 3 Bank now or later has relating to the undersigned or the indebtedness. The undersigned agree(s) that the Bank may provide information relating to this Note or to the undersigned to the Bank's parent, affiliates, subsidiaries and service providers. The undersigned agree(s) to reimburse the holder or owner of this Note for any and all costs and expenses (including without limit, court costs, legal expenses and reasonable attorney fees, whether inside or outside counsel is used, whether or not suit is instituted and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or incurred in any other matter or proceeding relating to this Note. The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word "undersigned" means, individually and collectively, each maker, accommodation party, indorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING. THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAlVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS. VERSANT OBJECT TECHNOLOGY CORPORATION - ------------------------------------- OBLIGOR NAME ADDRESS: 1380 WILLOW RD. MENLO PARK, CA 94025 For Corporations, Partnerships, Trust, or Estates By: --------------------------------- SIGNATURE EX-10.22 6 EXHIBIT 10.22 1 EXHIBIT 10.22 EQUIPMENT RIDER Borrower(s): VERSANT OBJECT TECHNOLOGY CORPORATION Borrower has entered into a certain Revolving Credit and Security Agreement (Accounts and Inventory) or a certain Loan and Security Agreement (Accounts and Inventory) (either hereinafter referred to as "Agreement" dated MAY 15, 1997 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter referred to as this Rider) dated MARCH 19, 1998 is hereby made a part of and incorporated into that Agreement. 1. Borrower grants to Bank a security interest in the following (hereinafter referred to as "Equipment"): (a) All of Borrower's present machinery, equipment, fixtures, vehicles, office equipment, furniture, furnishings, tools, dies, jigs and attachments, wherever located (including but not limited to, the items listed and described on the Schedule of Equipment attached hereto and marked Exhibit "A" and by this reference made a part hereof as though fully set forth hereat); (b) all of Borrower's additional equipment, wherever located, of like or unlike nature, to be acquired hereafter, and all replacements, substitutes, accessions, additions and improvements to any of the foregoing; and (c) all of Borrowers general intangibles, including without limitation, computer programs, computer disks, computer tapes, literature, reports, catalogs, drawings, blueprints and other proprietary items. 2. Bank's security interest in the Equipment as set forth above shall secure each, any and all of Borrower's Obligations to Bank, as the term "Obligations" is defined in the Agreement; and the payment of Borrower's indebtedness in the principal amount of NINE MILLION ONE HUNDRED FIFTY THOUSAND AND NO/100 Dollars ($9,150,000.00) and interest evidenced by VARIOUS NOTES. 3. Bank may, in its sole discretion, from time to time hereafter, make loans to Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be included as part of the Obligations of Borrower to Bank and at Bank's option, may be evidenced by promissory note(s), in form satisfactory to Bank. Such loans shall bear interest at the rate and be payable in the manner specified in said promissory note(s) in the event Bank exercises the aforementioned option, and in the event Bank does not, such loans shall bear interest at the rate and be payable in the manner specified in the Agreement. 4. Borrower represents and warrants to Bank that: (a) it has good and indefeasible title to the Equipment; (b) the Equipment is and will be free and clear of all liens, security interests, encumbrances and claims, except as held by Bank, (c) the Equipment shall be kept only at the following locations: ________. (d) the owners or mortgagees of the respective locations are: _________. (e) Bank shall have the right upon demand now and/or at all times hereafter, during Borrower's usual business hours to inspect and examine the Equipment and Borrower agrees to reimburse Bank for its reasonable costs and expenses in so doing. 5. Borrower shall keep and maintain the Equipment in good operating condition and repair, make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any items of Equipment to become a fixture to real estate or accession to other property, and the Equipment is now and shall at all times remain and be personal property. 6. Borrower, at its expense, shall keep and maintain: the Equipment insured against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks ordinarily insured against by other 1 of 2 2 owners who use such properties and interest in properties in similar businesses for the full insurable value thereof; and business interruption insurance and public liability and property damage insurance relating to Borrowers ownership and use of its assets. All such policies of insurance shall be in such form, with such companies and in such amounts as may be satisfactory to Bank. Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payment of all premiums thereof. All such policies of insurance (except those of public liability and property damage) shall contain an endorsement in a form satisfactory to Bank showing loss payable to Bank and all proceeds payable thereunder shall be payable to Bank and upon receipt by Bank shall be applied on the account of Borrower's Obligations. To secure the payment of Borrower's Obligations, Borrower grants Bank a security interest in and to all such policies of insurance (except those of public liability and property damage) and the proceeds thereof and directs all insurers under such policies of insurance to pay all officers, employees or agents designated by Bank) as Borrower's attorney-in-fact for the purpose of making, settling and adjusting claims under such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. Each such insurer shall agree by endorsement upon the policy or policies of insurance issued by it to Borrower as required above, or by independent instruments furnished to Bank that it will give Bank at least ten (10) days written notice before any such policy or policies of insurance shall be altered or canceled, and that no act or default of Borrower, or any other person, shall affect the right of Bank to recover under such policy or policies of insurance required above or to pay any premium in whole or in part relating thereto. Bank, without waiving or releasing any obligations or defaults by Borrower hereunder, may at any time or times hereafter, but shall have no obligations to do so, obtain and maintain such policies of insurance and pay such premiums and take any other action with respect to such policies which Bank deems advisable. All sums so disbursed by Bank, including reasonable attorney's fees, court costs, expenses and other charges relating thereto, shall be a part of Borrower's Obligations and payable on demand. 7. Until default by Borrower under the Agreement or this Rider, Borrower may subject to the provisions of the Agreement and this Rider and consistent therewith, remain in possession thereof and use the Equipment referred to herein in the ordinary course of business at the location or locations hereinabove designated. 8. All of the terms, conditions, warranties, covenants, agreements and representations of the Agreement are incorporated herein and reaffirmed. 9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon request of Bank to do so, agrees to assemble and make the Equipment or any part thereof available to Bank at a place designated by Bank. 10. Borrower shall upon demand by Bank immediately deliver to Bank and properly endorse, any and all evidences of ownership, certificates of title or applications for titles to any of the aforesaid items of Equipment. 11. Bank shall not in any way or manner be liable or responsible for (a) the safekeeping of Equipment; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof or (d) any act or default by any person whomsoever. All risk of Loss, damage or destruction of the Equipment shall be borne by Borrower. Borrower(s): VERSANT OBJECT TECHNOLOGY CORPORATION By: ----------------------------- Gary Rhea, CFO Accepted this 19th day of MARCH, 1998 at Bank's place of business in SAN JOSE, CA 95113 By: Alan Jepsen, Vice President 2 of 2 EX-10.23 7 EXHIBIT 10.23 1 EXHIBIT 10.23 CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION - AUTHORITY TO PROCURE LOANS I certify that I am the duly elected and qualified Secretary of VERSANT OBJECT TECHNOLOGY CORPORATION a California corporation (the "Corporation") and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes on or as of ________________________. Copy of Resolutions: Be it Resolved, That: 1. Any (insert number required to sign) (1) of following (insert titles only) CEO, CFO of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to: (a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from COMERICA BANK-CALIFORNIA (the "Bank") up to an amount not exceeding $ ___ (if left blank, then unlimited); (b) Discount with the Bank commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limits as to amount; (c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation; (d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation; and (e) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financial statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Corporations's property and assets. 2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not; 3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation. 4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no affect on any action previously taken by the Bank in reliance on these Resolutions). 5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to affect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation. 6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank. I further certify that the above Resolutions are in full force and effect as of the date of this Certificate: that these 2 Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of Incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the articles of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions. I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively: (PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW) NAME (Type or Print) TITLE SIGNATURE Nick Ordon CEO Gary Rhea CFO In Witness Whereof, I have fixed my name as Secretary and have caused the corporate seal of said Corporation to be affixed this 30th day of March, 1998 Secretary: -------------- Gary Rhea CA 00190 (12-94) EX-10.24 8 EXHIBIT 10.24 1 EXHIBIT 10.24 Comerica Bank-California 75 East Trimble Road San Jose, California 95131 (408) 556-5000 MODIFICATION TO LOAN & SECURITY AGREEMENT This First Modification to Revolving Loan & Security Agreement (this "Modification") is entered into by and between Versant Object Technology Corporation ("Borrower") and Comerica Bank-California ("Bank") as of this 6th day of May, 1998 at San Jose, California. RECITALS A. Bank and Borrower have previously entered into or are concurrently entering into a Revolving Loan & Security Agreement (Accounts & Inventory) (the "Agreement") dated May 15, 1997. B. Borrower has requested, and Bank has agreed, to modify the Agreement as set forth below. AGREEMENT For good and valuable consideration, the parties agree as set forth below: Incorporation by Reference. The Agreement as modified hereby and the Recitals are incorporated herein by this reference. Section 1.12 "Eligible Accounts" as used in this Agreement means and includes those accounts of Borrower which are due and payable within Thirty (30) days, or less, from the date of invoice, have been validly assigned to Bank and strictly comply with all of Borrower's warranties and representations to Bank; but Eligible Accounts shall not include the following: (c) accounts with respect to which the account debtor is not a resident of the United States, allowing $1,000,000.00 advance against Foreign Accounts Receivable. Section 3.1 This Agreement shall remain in full force and effect until June 1, 1999, or until terminated by notice by Borrower. Notice of such termination by Borrower shall be effectuated by mailing of a registered or certified letter not less than thirty (30) days prior to the effective date of such termination, addressed to the Bank at the address set forth herein and the termination shall be effective as of the date so fixed in such notice. Notwithstanding the foregoing, should Borrower be in default of one or more of the provisions of this Agreement, Bank may terminate this Agreement at any time without notice. Notwithstanding the foregoing, should either Bank or Borrower become insolvent or unable to meet its debts as they mature, or fall, suspend, or go out of business, the other party shall have the right to terminate this Agrement at any time without notice. On the date of termination all Obligations shall become immediately due and payable without notice or demand; no notice of termination by Borrower shall be effective until Borrower shall have paid all Obligations to Bank in full. Notwithstanding termination, until all Obligations have been fully satisfied, Bank shall retain its security interest in all existing Collateral and Collateral arising thereafter, and Borrower shall continue to perform all of its Obligations. Section 6.17b Tangible Effective Net Worth in an amount not less than $9,500,000.00, to increase by 75% of quarterly net profit after tax and 100% of any equity and subordinated debt raised after Q1 - March 31, 1998 1 of 2 2 Section 6.17d a quick ratio of cash plus securities plus Receivables to Current Liabilities of greater than 1.10:1.00 (Q2 1998) and greater than 1.50:1.00 (Q3 1998) and forward Section 6.17e a ratio of Total Liabilities (less debt subordinated to Bank) to Tangible Effective Net Worth of less than 1.50:1.00 Section 6.17f a ratio of Cash Flow to Fixed Charges of greater than 1.50:1.00 beginning Q4 1998 Section 6.17k Borrower is to raise a minimum of $5,000,000 in capital by September 30, 1998 Section 6.17l All foreign receivable advances subject to insurance by either Letter of Credit or policy and amount acceptable to bank. Bank will allow until June 15, 1998 to put policy in place. Section 6.17m Operating Profit of greater than ($1,000,000.00) for Q2 1998; greater than ($250,000.00) for Q3 1998; beginning Q4 1998, borrower is not to have two consecutive and after tax losses, no quarterly operating or after tax loss shall exceed $500,000.00 Legal Effect. Except as specifically set forth in this Modification, all of the terms and conditions of the Agreement remain in full force and effect. Integration. This is an integrated Modification and supersedes all prior negotiations and agreements regarding the subject matter hereon. All amendments hereto must be in writing and signed by the parties. IN WITNESS WHEREOF, the parties have agreed as of the date first set forth above. BORROWER: VERSANT OBJECT TECHNOLOGY CORPORATION COMERICA BANK-CALIFORNIA By: ______________________________ By: ______________________________ Gary Rhea Alan Jepsen Title: CFO Title: Vice President EX-10.25 9 EXHIBIT 10.25 1 EXHIBIT 10.25 WAIVER TO LOAN AND SECURITY AGREEMENT COVENANTS AUG. 10, 1998 Comerica Bank-California High Technology Banking Group 55 Almaden Boulevard, 2nd Floor San Jose, CA 95113 August 10, 1998 Gary Rhea Vice President Finance & CFO Versant Object Technology Corporation 6539 Dumbarton Circle Fremont, CA 94555 Dear Gary, This letter is to acknowledge that Versant Object Technology Corporation ("Borrower") for the time period ending June 10, 1998 has breached paragraphs 6.17b (Minimum Tangible Effect Net Worth), 6.17d (Minimum Quick Ratio), 6.17c (Maximum Debt Ratio), 6.17i (Minimum Debt Service Ratio), and Minimum profitability of the Credit Facility ("Agreement") dated May 15, 1997 between Borrower and Comerica Bank-California ("Bank"). Bank agrees to waive compliance with the defaulted covenants through June 30, 1998. The waiver applies only to the defaulted covenants. This waiver does not apply to any other default that may now exist or may occur after the date of this waiver with respect to the defaulted covenants or any other term, condition or covenant of the Agreement. All other terms and conditions of the Agreement remain unchanged. Sincerely, By: Comerica Bank-California Alan Jepsen Vice President and Assistant Manager EX-27.01 10 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a) THE STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FINANCIAL STATEMENTS 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 3,187 2 9,381 850 0 13,555 12,815 5,099 24,559 10,972 0 0 0 43,360 (32,837) 24,559 11,129 11,129 0 4,736 15,101 0 (180) (8,901) 14 (8,915) 0 0 0 (8,915) (0.98) (0.98) For Purposes of This Exhibit, Primary Means Basic
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